UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the QuarterQuarterly Period Ended SeptemberJune 30, 20172022
or
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☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-8472
Hexcel Corporation
(Exact name of registrant as specified in its charter)
Delaware |
| 94-1109521 |
(State or Other Jurisdiction of |
| (I.R.S. Employer Identification No.) |
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut06901-3238
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (203)969-0666
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 | HXL | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
Non-accelerated filer |
| Smaller reporting company ☐ |
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’sissuer’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at |
COMMON STOCK |
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HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
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PART I. |
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ITEM 1. |
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| Condensed Consolidated Balance Sheets — |
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• |
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ITEM 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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ITEM 1A. |
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ITEM |
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27 |
2
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated FinancialFinancial Statements
Hexcel Corporation and Subsidiaries |
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Condensed Consolidated Balance Sheets |
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| (Unaudited) |
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| September 30, |
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| December 31, |
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(In millions) |
| 2017 |
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| 2016 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 119.1 |
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| $ | 35.2 |
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Accounts receivable, net |
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| 245.0 |
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| 245.6 |
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Inventories, net |
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| 313.4 |
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| 291.0 |
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Prepaid expenses and other current assets |
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| 30.0 |
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| 35.2 |
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Total current assets |
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| 707.5 |
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| 607.0 |
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Property, plant and equipment |
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| 2,662.3 |
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| 2,378.4 |
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Less accumulated depreciation |
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| (836.8 | ) |
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| (752.8 | ) |
Net property, plant and equipment |
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| 1,825.5 |
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| 1,625.6 |
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Goodwill and other intangible assets |
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| 74.0 |
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| 72.2 |
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Investments in affiliated companies |
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| 67.1 |
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| 53.1 |
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Other assets |
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| 63.1 |
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| 42.7 |
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Total assets |
| $ | 2,737.2 |
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| $ | 2,400.6 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Current portions of capital lease and term loan |
| $ | 4.2 |
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| $ | 4.3 |
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Accounts payable |
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| 128.6 |
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| 137.3 |
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Accrued liabilities |
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| 125.0 |
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| 130.3 |
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Total current liabilities |
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| 257.8 |
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| 271.9 |
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Commitments and contingencies (see Note 11) |
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Long-term debt |
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| 829.6 |
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| 684.4 |
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Other non-current liabilities |
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| 223.1 |
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| 199.4 |
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Total liabilities |
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| 1,310.5 |
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| 1,155.7 |
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Stockholders' equity: |
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Common stock, $0.01 par value, 200.0 shares authorized, 107.5 shares and 106.7 shares issued at September 30, 2017 and December 31, 2016, respectively |
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| 1.1 |
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| 1.1 |
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Additional paid-in capital |
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| 766.5 |
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| 738.8 |
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Retained earnings |
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| 1,419.1 |
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| 1,254.7 |
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Accumulated other comprehensive loss |
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| (57.2 | ) |
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| (174.4 | ) |
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| 2,129.5 |
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| 1,820.2 |
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Less – Treasury stock, at cost, 17.7 shares at September 30, 2017, and 15.3 shares at December 31, 2016, respectively. |
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| (702.8 | ) |
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| (575.3 | ) |
Total stockholders' equity |
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| 1,426.7 |
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| 1,244.9 |
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Total liabilities and stockholders' equity |
| $ | 2,737.2 |
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| $ | 2,400.6 |
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Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
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| June 30, |
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| December 31, |
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(In millions) |
| 2022 |
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| 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 99.2 |
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| $ | 127.7 |
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Accounts receivable, net |
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| 234.2 |
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| 160.3 |
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Inventories, net |
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| 271.5 |
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| 245.7 |
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Contract assets |
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| 30.1 |
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| 30.5 |
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Prepaid expenses and other current assets |
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| 44.3 |
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| 39.5 |
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Assets held for sale |
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| 12.6 |
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| 12.6 |
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Total current assets |
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| 691.9 |
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| 616.3 |
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Property, plant and equipment |
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| 3,045.4 |
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| 3,110.0 |
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Less accumulated depreciation |
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| (1,375.1 | ) |
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| (1,363.9 | ) |
Net property, plant and equipment |
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| 1,670.3 |
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| 1,746.1 |
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Goodwill and other intangible assets, net |
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| 258.8 |
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| 267.5 |
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Investments in affiliated companies |
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| 46.1 |
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| 44.6 |
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Other assets |
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| 152.3 |
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| 144.9 |
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Total assets |
| $ | 2,819.4 |
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| $ | 2,819.4 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Short-term borrowings |
| $ | 0.5 |
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| $ | 0.9 |
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Accounts payable |
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| 103.4 |
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| 113.2 |
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Accrued compensation and benefits |
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| 71.3 |
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| 54.4 |
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Financial instruments |
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| 20.7 |
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| 5.7 |
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Accrued liabilities |
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| 75.3 |
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| 73.4 |
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Total current liabilities |
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| 271.2 |
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| 247.6 |
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Long-term debt |
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| 812.0 |
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| 822.4 |
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Retirement obligations |
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| 48.7 |
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| 52.6 |
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Deferred income taxes |
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| 128.6 |
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| 140.0 |
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Other non-current liabilities |
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| 78.6 |
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| 71.3 |
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Total liabilities |
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| 1,339.1 |
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| 1,333.9 |
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Stockholders' equity: |
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Common stock, $0.01 par value, 200.0 shares authorized, 110.3 shares and 110.1 shares issued at June 30, 2022 and December 31, 2021, respectively |
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| 1.1 |
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| 1.1 |
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Additional paid-in capital |
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| 894.1 |
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| 878.6 |
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Retained earnings |
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| 2,058.0 |
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| 2,012.5 |
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Accumulated other comprehensive loss |
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| (191.3 | ) |
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| (126.5 | ) |
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| 2,761.9 |
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| 2,765.7 |
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Less – Treasury stock, at cost, 26.2 shares at June 30, 2022 and 26.1 shares |
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| (1,281.6 | ) |
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| (1,280.2 | ) |
Total stockholders' equity |
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| 1,480.3 |
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| 1,485.5 |
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Total liabilities and stockholders' equity |
| $ | 2,819.4 |
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| $ | 2,819.4 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Hexcel Corporation and Subsidiaries |
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Condensed Consolidated Statements of Operations |
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| Quarter Ended June 30, |
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| Six Months Ended June 30, |
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(In millions, except per share data) |
| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net sales |
| $ | 393.0 |
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| $ | 320.3 |
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| $ | 783.6 |
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| $ | 630.6 |
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Cost of sales |
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| 303.5 |
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| 258.4 |
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| 607.4 |
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| 515.6 |
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Gross margin |
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| 89.5 |
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| 61.9 |
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| 176.2 |
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| 115.0 |
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Selling, general and administrative expenses |
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| 33.5 |
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| 31.1 |
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| 78.2 |
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| 70.7 |
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Research and technology expenses |
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| 11.3 |
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| 11.5 |
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| 22.2 |
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| 23.1 |
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Other operating (income) expense |
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| (19.1 | ) |
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| 3.1 |
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| (18.1 | ) |
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| 15.2 |
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Operating income |
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| 63.8 |
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| 16.2 |
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| 93.9 |
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| 6.0 |
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Interest expense, net |
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| 8.9 |
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| 9.3 |
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| 18.0 |
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| 19.6 |
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Other income |
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| (0.3 | ) |
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| - |
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| (0.3 | ) |
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| - |
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Income (loss) before income taxes, and equity in earnings from affiliated companies |
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| 55.2 |
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| 6.9 |
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| 76.2 |
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| (13.6 | ) |
Income tax expense (benefit) |
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| 12.7 |
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| 4.0 |
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| 17.4 |
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| (3.5 | ) |
Income (loss) before equity in earnings from affiliated companies |
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| 42.5 |
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| 2.9 |
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| 58.8 |
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| (10.1 | ) |
Equity in earnings (losses) from affiliated companies |
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| 2.2 |
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| (0.7 | ) |
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| 3.7 |
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| (1.7 | ) |
Net income (loss) |
| $ | 44.7 |
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| $ | 2.2 |
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| $ | 62.5 |
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| $ | (11.8 | ) |
Basic net income (loss) per common share |
| $ | 0.53 |
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| $ | 0.03 |
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| $ | 0.74 |
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| $ | (0.14 | ) |
Diluted net income (loss) per common share |
| $ | 0.53 |
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| $ | 0.03 |
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| $ | 0.74 |
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| $ | (0.14 | ) |
Weighted-average common shares: |
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Basic |
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| 84.4 |
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| 84.1 |
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| 84.3 |
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| 84.0 |
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Diluted |
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| 85.0 |
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| 84.7 |
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| 84.9 |
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| 84.0 |
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Hexcel Corporation and Subsidiaries |
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Condensed Consolidated Statements of Comprehensive (Loss) Income |
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| Quarter Ended June 30, |
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| Six Months Ended June 30, |
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(In millions) |
| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net income (loss) |
| $ | 44.7 |
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| $ | 2.2 |
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| $ | 62.5 |
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| $ | (11.8 | ) |
Currency translation adjustments |
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| (34.8 | ) |
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| 4.2 |
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| (50.5 | ) |
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| (7.8 | ) |
Net unrealized pension and other benefit actuarial gains (losses) and prior service credits (net of tax) |
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| 4.5 |
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| (0.2 | ) |
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| 7.7 |
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| (1.9 | ) |
Net unrealized gains (losses) on financial instruments (net of tax) |
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| (16.9 | ) |
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| 1.5 |
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| (22.0 | ) |
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| (3.9 | ) |
Total other comprehensive (loss) income |
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| (47.2 | ) |
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| 5.5 |
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| (64.8 | ) |
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| (13.6 | ) |
Comprehensive (loss) income |
| $ | (2.5 | ) |
| $ | 7.7 |
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| $ | (2.3 | ) |
| $ | (25.4 | ) |
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
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| (Unaudited) |
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| Quarter Ended September 30, |
| Nine Months Ended September 30, |
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(In millions, except per share data) |
| 2017 |
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| 2016 |
| 2017 |
| 2016 |
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Net sales |
| $ | 491.5 |
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| $ | 500.5 |
| $ | 1,461.6 |
| $ | 1,520.8 |
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Cost of sales |
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| 355.9 |
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| 364.8 |
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| 1,052.0 |
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| 1,091.8 |
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Gross margin |
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| 135.6 |
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| 135.7 |
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| 409.6 |
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| 429.0 |
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Selling, general and administrative expenses |
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| 34.7 |
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| 35.1 |
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| 115.7 |
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| 121.1 |
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Research and technology expenses |
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| 11.8 |
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| 11.5 |
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| 36.5 |
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| 34.8 |
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Operating income |
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| 89.1 |
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| 89.1 |
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| 257.4 |
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| 273.1 |
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Interest expense, net |
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| 7.0 |
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| 5.5 |
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| 20.0 |
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| 16.8 |
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Non-operating expense |
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| — |
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| — |
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| — |
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| 0.4 |
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Income before income taxes, and equity in earnings from affiliated companies |
|
| 82.1 |
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| 83.6 |
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| 237.4 |
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| 255.9 |
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Provision for income taxes |
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| 13.6 |
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| 16.1 |
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| 44.3 |
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| 67.5 |
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Income before equity in earnings from affiliated companies |
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| 68.5 |
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| 67.5 |
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| 193.1 |
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| 188.4 |
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Equity in earnings from affiliated companies |
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| 1.2 |
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| 0.7 |
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| 2.8 |
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| 1.9 |
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Net income |
| $ | 69.7 |
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| $ | 68.2 |
| $ | 195.9 |
| $ | 190.3 |
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Basic net income per common share |
| $ | 0.77 |
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| $ | 0.74 |
| $ | 2.16 |
| $ | 2.04 |
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Diluted net income per common share |
| $ | 0.76 |
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| $ | 0.72 |
| $ | 2.13 |
| $ | 2.01 |
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Dividends per share |
| $ | 0.125 |
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| $ | 0.11 |
| $ | 0.345 |
| $ | 0.32 |
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Weighted-average common shares: |
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Basic |
|
| 90.1 |
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| 92.7 |
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| 90.7 |
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| 93.1 |
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Diluted |
|
| 91.4 |
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|
| 94.1 |
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| 92.1 |
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| 94.6 |
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Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
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| (Unaudited) |
| (Unaudited) |
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| Quarter Ended September 30, |
| Nine Months Ended September 30, |
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(In millions) |
| 2017 |
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| 2016 |
| 2017 |
| 2016 |
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Net Income |
| $ | 69.7 |
|
| $ | 68.2 |
| $ | 195.9 |
| $ | 190.3 |
|
Currency translation adjustments |
|
| 28.7 |
|
|
| (0.4 | ) |
| 87.2 |
|
| (11.0 | ) |
Net unrealized pension and other benefit actuarial gains and prior service credits |
|
| (0.6 | ) |
|
| 0.4 |
|
| (1.6 | ) |
| 1.9 |
|
Net unrealized gains on financial instruments (net of tax) |
|
| 7.7 |
|
|
| 1.7 |
|
| 31.6 |
|
| 0.2 |
|
Total other comprehensive income (loss) |
|
| 35.8 |
|
|
| 1.7 |
|
| 117.2 |
|
| (8.9 | ) |
Comprehensive income |
| $ | 105.5 |
|
| $ | 69.9 |
| $ | 313.1 |
| $ | 181.4 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
| (Unaudited) |
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| (Unaudited) |
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| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||||
(In millions) |
| 2017 |
|
|
| 2016 |
|
| 2022 |
|
| 2021 |
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 195.9 |
|
|
|
| $ | 190.3 |
| ||||||||
Reconciliation to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||||||||
Net income (loss) |
| $ | 62.5 |
|
| $ | (11.8 | ) | ||||||||||
Reconciliation to net cash used by operating activities: |
|
|
|
|
| |||||||||||||
Depreciation and amortization |
|
| 76.3 |
|
|
|
| 69.0 |
|
|
| 63.9 |
|
|
| 68.7 |
| |
Amortization related to financing |
|
| 0.6 |
|
|
|
| 1.4 |
|
|
| 0.4 |
|
|
| 2.1 |
| |
Deferred income taxes |
|
| 15.1 |
|
|
|
| 50.5 |
|
|
| (4.1 | ) |
|
| (10.7 | ) | |
Equity in earnings from affiliated companies |
|
| (2.8 | ) |
|
|
| (1.9 | ) | |||||||||
Equity in (earnings) losses from affiliated companies |
|
| (3.7 | ) |
|
| 1.7 |
| ||||||||||
Stock-based compensation |
|
| 15.5 |
|
|
|
| 13.6 |
|
|
| 12.8 |
|
|
| 13.3 |
| |
Merger and restructuring expenses, net of payments |
|
| (6.0 | ) |
|
| (2.5 | ) | ||||||||||
Gain on sale of asset |
|
| (19.4 | ) |
|
| - |
| ||||||||||
Gain on sale of investment |
|
| (0.3 | ) |
|
| - |
| ||||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Decrease (increase) in accounts receivable |
|
| 19.7 |
|
|
|
| (16.8 | ) | |||||||||
Increase in accounts receivable |
|
| (74.5 | ) |
|
| (45.9 | ) | ||||||||||
Increase in inventories |
|
| (6.7 | ) |
|
|
| (5.0 | ) |
|
| (38.9 | ) |
|
| (21.8 | ) | |
Decrease (increase) in prepaid expenses and other current assets |
|
| 1.4 |
|
|
|
| (7.3 | ) | |||||||||
Decrease in accounts payable/accrued liabilities |
|
| (9.8 | ) |
|
|
| (9.1 | ) | |||||||||
Increase in prepaid expenses and other current assets |
|
| (10.1 | ) |
|
| (2.6 | ) | ||||||||||
Increase in accounts payable/accrued liabilities |
|
| 28.4 |
|
|
| 50.7 |
| ||||||||||
Other – net |
|
| 3.3 |
|
|
|
|
| 2.1 |
|
|
| 7.3 |
|
|
| (2.3 | ) |
Net cash provided by operating activities |
|
| 308.5 |
|
|
|
|
| 286.8 |
|
|
| 18.3 |
|
|
| 38.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capital expenditures |
|
| (221.3 | ) |
|
|
| (231.8 | ) |
|
| (37.9 | ) |
|
| (9.2 | ) | |
Acquisition of business and investment in affiliate |
|
| (12.0 | ) |
|
|
|
| (33.6 | ) | ||||||||
Proceeds from sale of asset |
|
| 21.2 |
|
|
| - |
| ||||||||||
Proceeds from sale of investments |
|
| 0.5 |
|
|
| - |
| ||||||||||
Net cash used for investing activities |
|
| (233.3 | ) |
|
|
|
| (265.4 | ) |
|
| (16.2 | ) |
|
| (9.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Proceeds from senior notes due 2027 (including original issue discount of $1.7) |
|
| 398.3 |
|
|
|
| ― |
| |||||||||
Issuance costs related to senior notes due 2027 |
|
| (3.7 | ) |
|
|
| ― |
| |||||||||
Proceeds from settlement of treasury locks associated with senior notes due 2027 |
|
| 10.0 |
|
|
|
| ― |
| |||||||||
Proceeds from Euro term loan |
|
| 37.4 |
|
|
|
| 27.4 |
| |||||||||
Repayments of Euro term loan |
|
| (4.1 | ) |
|
|
| ― |
| |||||||||
Borrowing from senior unsecured credit facility |
| ― |
|
|
|
| 63.0 |
| ||||||||||
Issuance costs related to credit facility |
| ― |
|
|
|
| (1.7 | ) | ||||||||||
Repayment of senior unsecured credit facility |
|
| (290.0 | ) |
|
|
| ― |
| |||||||||
Other debt, net |
|
| (0.4 | ) |
|
|
| (0.4 | ) | |||||||||
Borrowing from senior unsecured credit facility - 2024 |
|
| 35.0 |
|
|
| - |
| ||||||||||
Repayment of senior unsecured credit facility - 2024 |
|
| (46.0 | ) |
|
| (21.0 | ) | ||||||||||
Repayment of finance lease obligation and other debt, net |
|
| (0.2 | ) |
|
| (0.4 | ) | ||||||||||
Dividends paid |
|
| (31.3 | ) |
|
|
| (29.7 | ) |
|
| (16.8 | ) |
|
| - |
| |
Repurchase of stock |
|
| (122.0 | ) |
|
|
| (84.9 | ) | |||||||||
Activity under stock plans |
|
| 6.8 |
|
|
|
|
| (1.0 | ) |
|
| 1.4 |
|
|
| 4.8 |
|
Net cash provided by (used in) financing activities |
|
| 1.0 |
|
|
|
|
| (27.3 | ) | ||||||||
Net cash used for financing activities |
|
| (26.6 | ) |
|
| (16.6 | ) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 7.7 |
|
|
|
|
| (0.2 | ) |
|
| (4.0 | ) |
|
| (1.1 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 83.9 |
|
|
|
|
| (6.1 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (28.5 | ) |
|
| 12.0 |
| ||||||||||
Cash and cash equivalents at beginning of period |
|
| 35.2 |
|
|
|
| 51.8 |
|
|
| 127.7 |
|
|
| 103.3 |
| |
Cash and cash equivalents at end of period |
|
| 119.1 |
|
|
|
| 45.7 |
|
| $ | 99.2 |
|
| $ | 115.3 |
| |
Supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Accrual basis additions to property, plant and equipment |
| $ | 218.0 |
|
|
|
| $ | 232.6 |
| ||||||||
Accrual basis additions to plant, property and equipment |
| $ | 28.3 |
|
| $ | 7.8 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the Quarter and Six Months ended June 30, 2022, and June 30, 2021
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| ||||||
|
|
|
|
| Additional |
|
|
|
|
| Other |
|
|
|
|
| Total |
| ||||||
|
|
|
|
| Paid-In |
|
| Retained |
|
| Comprehensive |
|
| Treasury |
|
| Stockholders’ |
| ||||||
(In millions) |
| Par |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
| ||||||
Balance, December 31, 2020 |
| $ | 1.1 |
|
| $ | 849.7 |
|
| $ | 1,996.4 |
|
| $ | (59.6 | ) |
| $ | (1,277.4 | ) |
| $ | 1,510.2 |
|
Net loss |
| — |
|
| — |
|
|
| (14.0 | ) |
| — |
|
| — |
|
|
| (14.0 | ) | ||||
Change in other comprehensive (loss)– net of tax |
| — |
|
| — |
|
| — |
|
|
| (19.1 | ) |
| — |
|
|
| (19.1 | ) | ||||
Stock based compensation |
| — |
|
|
| 11.8 |
|
| — |
|
| — |
|
|
| (2.0 | ) |
|
| 9.8 |
| |||
Balance, March 31, 2021 |
| $ | 1.1 |
|
| $ | 861.5 |
|
| $ | 1,982.4 |
|
| $ | (78.7 | ) |
| $ | (1,279.4 | ) |
| $ | 1,486.9 |
|
Net income |
| — |
|
| — |
|
|
| 2.2 |
|
| — |
|
| — |
|
|
| 2.2 |
| ||||
Change in other comprehensive income – net of tax |
| — |
|
| — |
|
| — |
|
|
| 5.5 |
|
| — |
|
|
| 5.5 |
| ||||
Stock based compensation |
| — |
|
|
| 8.2 |
|
| — |
|
| — |
|
| — |
|
|
| 8.2 |
| ||||
Balance, June 30, 2021 |
| $ | 1.1 |
|
| $ | 869.7 |
|
| $ | 1,984.6 |
|
| $ | (73.2 | ) |
| $ | (1,279.4 | ) |
| $ | 1,502.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| ||||||
|
|
|
|
| Additional |
|
|
|
|
| Other |
|
|
|
|
| Total |
| ||||||
|
|
|
|
| Paid-In |
|
| Retained |
|
| Comprehensive |
|
| Treasury |
|
| Stockholders’ |
| ||||||
(In millions) |
| Par |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
| ||||||
Balance, December 31, 2021 |
| $ | 1.1 |
|
| $ | 878.6 |
|
| $ | 2,012.5 |
|
| $ | (126.5 | ) |
| $ | (1,280.2 | ) |
| $ | 1,485.5 |
|
Net income |
| — |
|
| — |
|
|
| 17.8 |
|
| — |
|
| — |
|
|
| 17.8 |
| ||||
Dividends on common stock ($0.10 per share) |
| — |
|
| — |
|
|
| (8.5 | ) |
| — |
|
| — |
|
|
| (8.5 | ) | ||||
Change in other comprehensive (loss) – net of tax |
| — |
|
| — |
|
| — |
|
|
| (17.6 | ) |
| — |
|
|
| (17.6 | ) | ||||
Stock based compensation |
| — |
|
|
| 11.3 |
|
| — |
|
| — |
|
|
| (1.4 | ) |
|
| 9.9 |
| |||
Balance, March 31, 2022 |
| $ | 1.1 |
|
| $ | 889.9 |
|
| $ | 2,021.8 |
|
| $ | (144.1 | ) |
| $ | (1,281.6 | ) |
| $ | 1,487.1 |
|
Net income |
| — |
|
| — |
|
|
| 44.7 |
|
| — |
|
| — |
|
|
| 44.7 |
| ||||
Dividends on common stock ($0.10 per share) |
| — |
|
| — |
|
|
| (8.5 | ) |
| — |
|
| — |
|
|
| (8.5 | ) | ||||
Change in other comprehensive (loss) – net of tax |
| — |
|
| — |
|
| — |
|
|
| (47.2 | ) |
| — |
|
|
| (47.2 | ) | ||||
Stock based compensation |
| — |
|
|
| 4.2 |
|
| — |
|
| — |
|
| — |
|
|
| 4.2 |
| ||||
Balance, June 30, 2022 |
| $ | 1.1 |
|
| $ | 894.1 |
|
| $ | 2,058.0 |
|
| $ | (191.3 | ) |
| $ | (1,281.6 | ) |
| $ | 1,480.3 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Significant Accounting Policies
In these notes, the terms “Hexcel,” “the Company,” “we,” “us,” or “our” mean Hexcel Corporation and subsidiary companies. The accompanying condensed consolidated financial statements are those of Hexcel Corporation. Refer to Note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 20162021 for a discussion of our significant accounting policies.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statementscondensed consolidated financial statements have been prepared from the unaudited accounting records of Hexcel pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the SEC.
In the opinion of management, the Condensed Consolidated Financial Statementscondensed consolidated financial statements include all normal recurring adjustments as well as any non-recurring adjustments necessary to present fairly the statement of financial position, results of operations, and cash flows and statement of stockholders’ equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 20162021 was derived from the audited 20162021 consolidated balance sheet. Interim results are not necessarily indicative of results expected for any other interim period or for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 20162021 Annual Report on Form 10-K filed with the SEC on February 9, 2017.10-K.
Investments in Affiliated Companies
We have a 50%50% equity ownership investment in a joint venture Aerospace Composites Malaysia Sdn. Bhd. (“ACM”). This investment is accounted for using the equity method of accounting.
Assets Held for Sale
In 2016,November 2020 we closed our wind energy prepreg production facility in Windsor, Colorado and as a result, certain plant assets to be sold with a carrying value of approximately $12.6 million have been recorded in “Assets held for sale” in the Company invested a totalCondensed Consolidated Balance Sheets as of $30.0 million in three new affiliates. In 2017, the Company invested an additional $12 million in twoJune 30, 2022 and December 31, 2021. The sale of these affiliates. The investments are each below a 20% ownership level and the Company accounts for these investments using the cost method.assets is expected to occur during 2022.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2014-09 (ASU 2014-09), “Revenue from Contracts with Customers”. The update clarifies the principles for recognizing revenue and develops a common revenue standard for all industries. The new standard is effective forDuring the first quarter of 2018. Our implementation efforts include the identification of revenue within the scope2022, we entered into an agreement to sell our Dublin, California facility. The sale of the standard,facility closed during the evaluationsecond quarter of revenue contracts under2022, and we received approximately $21.2 million in net proceeds from the guidancesale and assessingrecorded a gain on the qualitative and quantitative impactssale of approximately $19.4 million which is included in other operating (income) expense in the Condensed Consolidated Statement of Operations. As a result of the new standard on our financial statements. We are in the process of assessing the anticipated impactsale of the amended standard on our financial statements. We have certain contracts under which we produce products with no alternative use and the Company has an enforceable right to payment. As a result,building, the Company will be requiredrelocating certain of its Dublin-based research, technology and laboratory support personnel and equipment to record revenue for these contracts over time as opposed to at the time of shipment as we do today.
We expect to complete our evaluation by the end of fiscal 2017, which will allow us to determine the impact of the new standard on our consolidated results of operations and financial condition. The Company plans to adopt the new standard on January 1, 2018 using the modified retrospective method.
In July 2015, the FASB issued Accounting Standards Update No.2015-11 (“ASU 2015-11”), Simplifying the Measurement of Inventory. The update requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. The Company adopted this ASUa newly constructed facility in the first quarter of 2017 with no material impact on our consolidated balance sheets, results of operations and financial condition.Salt Lake City, Utah.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases. This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. The Company will adopt this ASU on January 1, 2019. We are currently evaluating the impact of adopting this guidance on our consolidated balance sheets, results of operations and financial condition.
In March 2016, the FASB issued Accounting Standards Update No. 2016-06 (ASU 2016-06), Contingent put and call options in debt instruments. The new guidance clarifies that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis. The new guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those years. We adopted ASU 2016-06 effective for the quarter ended March 31, 2017 with no material impact on our consolidated balance sheets, results of operations and financial condition.
In August of 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15) "Classification of Certain Cash Receipts and Cash Payments” which clarifies the classification of certain types of cash flows. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017. Early adoption beginning in 2016 was permitted. Retrospective application is required. The Company is not early adopting and expects this ASU to have a minimal impact on the Company’s Statements of Cash Flows.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04), Simplifying the test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted ASU 2017-04 effective for the quarter ended March 31, 2017, for use in its fourth quarter annual goodwill impairment testing.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07 (ASU 2017-07), Compensation-Retirement Benefits, that amends the presentation of net periodic pension cost and net periodic postretirement benefit cost. This amendment will require an entity to disaggregate the service cost component from the other components of net periodic benefit cost, to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit cost separately as a line item below operating income on our statement of operations. In addition, capitalization of net periodic benefit cost in assets will be limited to the service cost component. This amendment is effective on January 1, 2018. This amendment is required to be adopted (i) retrospectively with respect to the disaggregation of the service cost component from the other components of net periodic benefit cost and the separate reporting of the other components of net periodic benefit cost outside of operating income and (ii) prospectively with respect to the capitalization in assets of the service cost component. We are currently evaluating the impact of this amendment on our financial position, results of operations and cash flows.
In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (ASU 2017-12), Targeted Improvement to Accounting for Hedging Activities, which better align hedge accounting with an organization’s risk management activities in the financial statements. In addition, the ASU simplifies the application of hedge accounting guidance in areas where practice issues exist. The ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including interim periods within those years. We expect this ASU to have a minimal impact on our consolidated balance sheets, results of operations and financial condition.
Note 2 — Net Income per(Loss) Per Common Share
|
| Quarter Ended September 30, |
| Nine Months Ended September 30, |
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
(In millions, except per share data) |
| 2017 |
|
| 2016 |
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Basic net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income |
| $ | 69.7 |
|
| $ | 68.2 |
| $ | 195.9 |
|
| $ | 190.3 |
| ||||||||||||||||
Basic net income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net income (loss) |
| $ | 44.7 |
|
| $ | 2.2 |
|
| $ | 62.5 |
|
| $ | (11.8 | ) | |||||||||||||||
Weighted average common shares outstanding |
|
| 90.1 |
|
|
| 92.7 |
|
| 90.7 |
|
|
| 93.1 |
|
|
| 84.4 |
|
|
| 84.1 |
|
|
| 84.3 |
|
|
| 84.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Basic net income per common share |
| $ | 0.77 |
|
| $ | 0.74 |
| $ | 2.16 |
|
| $ | 2.04 |
| ||||||||||||||||
Basic net income (loss) per common share |
| $ | 0.53 |
|
| $ | 0.03 |
|
| $ | 0.74 |
|
| $ | (0.14 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Diluted net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income |
|
| 69.7 |
|
|
| 68.2 |
|
| 195.9 |
|
|
| 190.3 |
| ||||||||||||||||
Diluted net income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net income (loss) |
| $ | 44.7 |
|
| $ | 2.2 |
|
|
| 62.5 |
|
|
| (11.8 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Weighted average common shares outstanding — Basic |
|
| 90.1 |
|
|
| 92.7 |
|
| 90.7 |
|
|
| 93.1 |
|
|
| 84.4 |
|
|
| 84.1 |
|
|
| 84.3 |
|
|
| 84.0 |
|
Plus incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Restricted stock units |
|
| 0.4 |
|
|
| 0.4 |
|
| 0.4 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 0.3 |
|
|
| 0.4 |
|
|
| 0 |
|
Stock options |
|
| 0.9 |
|
|
| 1.0 |
|
| 1.0 |
|
|
| 1.0 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.2 |
|
|
| 0 |
|
Weighted average common shares outstanding — Dilutive |
|
| 91.4 |
|
|
| 94.1 |
|
| 92.1 |
|
|
| 94.6 |
|
|
| 85.0 |
|
|
| 84.7 |
|
|
| 84.9 |
|
|
| 84.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Diluted net income per common share |
| $ | 0.76 |
|
| $ | 0.72 |
| $ | 2.13 |
|
| $ | 2.01 |
| ||||||||||||||||
Diluted net income (loss) per common share |
| $ | 0.53 |
|
| $ | 0.03 |
|
| $ | 0.74 |
|
| $ | (0.14 | ) |
7
Total shares underlyingcommon stock optionsequivalents of 0.10.6 million and 0.20.7 million were excluded from the computation of diluted net income (loss) per share for the quarter ended June 30, 2022 and nine months ended September 30, 2017, as they were2021, respectively, because to do so would have been anti-dilutive. Total shares underlyingcommon stock optionsequivalents of 0.40.7 million and 0.51.1 million were excluded from the computation of diluted net income (loss) per share for the quarter and ninesix months ended SeptemberJune 30, 2016, as they were2022 and 2021, respectively, because to do so would have been anti-dilutive.
Note 3 — Inventories
|
|
|
|
|
|
| ||
(In millions) |
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Raw materials |
| $ | 133.8 |
|
| $ | 113.7 |
|
Work in progress |
|
| 38.2 |
|
|
| 41.0 |
|
Finished goods |
|
| 99.5 |
|
|
| 91.0 |
|
Total Inventory |
| $ | 271.5 |
|
| $ | 245.7 |
|
|
| September 30, |
|
| December 31, |
| ||
(In millions) |
| 2017 |
|
| 2016 |
| ||
Raw materials |
| $ | 133.6 |
|
| $ | 120.6 |
|
Work in progress |
|
| 46.8 |
|
|
| 53.7 |
|
Finished goods |
|
| 133.0 |
|
|
| 116.7 |
|
Total Inventory |
| $ | 313.4 |
|
| $ | 291.0 |
|
Note 4 —Retirement and Other Postretirement Benefit Plans
We maintain qualified and nonqualified defined benefit retirement plans covering certain current and former U.S. and European employees, retirement savings plans covering eligible U.S. and U.K. employees and certain postretirement health care and life insurance benefit plans covering eligible U.S. retirees. We also participate in a union sponsored multi-employer pension plan covering certain U.S. employees with union affiliations.
Defined Benefit Retirement Plans
Net Periodic Benefit Costs
Net periodic benefit costs of our defined benefit retirement plans for the quartersthree and ninesix months ended SeptemberJune 30, 20172022 and 20162021 were as follows:
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||
(In millions) |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| |||||||||
U.S. Nonqualified Defined Benefit Retirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Service cost |
| $ | 0.4 |
| $ | 0.3 |
|
| $ | 1.1 |
| $ | 0.9 |
| $ | 0.3 |
|
| $ | 0.3 |
|
| $ | 0.6 |
|
| $ | 0.5 |
| |
Interest cost |
|
| 0.1 |
|
| 0.2 |
|
|
| 0.4 |
|
| 0.5 |
|
| 0.1 |
|
| 0 |
|
|
| 0.2 |
|
|
| 0.1 |
| ||
Settlement expense |
|
| 0.2 |
|
| ― |
|
|
| 0.3 |
|
| ― | |||||||||||||||||
Net amortization and deferral |
|
| 0.1 |
|
|
| — |
|
|
| 0.3 |
|
| 0.2 | ||||||||||||||||
Net amortization |
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 0.4 |
| ||||||||||||||
Net periodic benefit cost |
| $ | 0.8 |
| $ | 0.5 |
|
| $ | 2.1 |
| $ | 1.6 |
| $ | 0.6 |
|
| $ | 0.5 |
|
| $ | 1.2 |
|
| $ | 1.0 |
|
|
|
| September 30, 2017 |
|
| December 31, 2016 | ||||||||
Amounts recognized on the balance sheet: |
|
|
|
|
|
| ||||||||
(In millions) |
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||
Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans: |
|
|
|
|
| |||||||||
Accrued liabilities |
| $ | 1.1 |
| $ | 1.1 |
| $ | 3.2 |
|
| $ | 2.7 |
|
Other non-current liabilities |
|
| 20.3 |
|
| 18.6 |
|
| 21.1 |
|
|
| 21.3 |
|
|
| $ | 21.4 |
| $ | 19.7 | ||||||||
Total accrued benefit |
| $ | 24.3 |
|
| $ | 24.0 |
|
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||
(In millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
European Defined Benefit Retirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Service cost |
| $ | 0.3 |
|
| $ | 0.2 |
|
| $ | 0.7 |
|
| $ | 0.6 |
|
| $ | 0.2 |
|
| $ | 0.3 |
|
| $ | 0.4 |
|
| $ | 0.5 |
| ||||
Interest cost |
|
| 1.1 |
|
|
| 1.5 |
|
|
| 3.3 |
|
|
| 4.4 |
|
|
| 0.5 |
|
|
| 0.6 |
|
|
| 1.1 |
|
|
| 1.1 |
| ||||
Expected return on plan assets |
|
|
| (2.0 | ) |
|
|
| (2.1 | ) |
|
|
| (6.1 | ) |
|
|
| (6.2 | ) |
|
| (0.5 | ) |
|
| (0.9 | ) |
|
| (1.1 | ) |
|
| (1.8 | ) |
Net amortization and deferral |
|
|
| — |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.5 |
|
|
| 0.6 |
|
|
| 0.2 |
|
|
| 1.2 |
|
|
| 0.5 |
| |||
Net periodic benefit credit |
| $ |
| (0.6 | ) |
| $ |
| (0.2 | ) |
| $ |
| (1.9 | ) |
| $ |
| (0.7 | ) | ||||||||||||||||
Net periodic benefit cost |
| $ | 0.8 |
|
| $ | 0.2 |
|
| $ | 1.6 |
|
| $ | 0.3 |
|
8
|
|
| September 30, 2017 |
|
|
| December 31, 2016 | |||||||||
Amounts recognized on the balance sheet: |
|
|
|
|
|
|
|
| ||||||||
Noncurrent asset |
| $ | 32.9 |
|
| $ | 23.9 | |||||||||
(In millions) |
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
Amounts recognized on the balance sheet for European defined benefit retirement plans: |
|
|
|
|
|
| ||||||||||
Other assets |
| $ | 6.6 |
|
| $ | 6.9 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accrued liabilities |
|
|
| 1.0 |
|
|
| 0.4 |
|
| 1.2 |
|
|
| 0.2 |
|
Other non-current liabilities |
|
|
| 19.7 |
|
|
| 16.2 |
|
| 16.1 |
|
|
| 15.8 |
|
Total accrued benefit |
| $ | 20.7 |
|
| $ | 16.6 |
| $ | 17.3 |
|
| $ | 16.0 |
|
All costs related to our pensions are included as a component of operating income in our Condensed Consolidated Statements of Operations. For the quarter ended June 30, 2022 and 2021, amounts unrelated to service costs were a charge of $0.9 million and $0.1 million, respectively. For the six months ended June 30, 2022 and 2021, amounts unrelated to service costs were a charge of $1.9 million and $0.3 million, respectively.
Contributions
We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred. We did not make any contributions under the provisions of these non-qualified plans in the third quarter of 2017 and we have contributed approximately $0.1$0.3 million in the first ninesix months of 20172022 to cover unfunded benefits. We expect to contribute a total of $1.1$3.2 million in 2017. 2022 to cover unfunded benefits.
We contributed $0.2 million to our U.S. non-qualified defined benefit retirement plans during 2016.
We contributed $0.9 $0.3million and $1.2$2.2 million to our European defined benefit retirement plans induring the third quarters of 2017 and 2016, respectively. Contributions to the defined benefit retirement plans were $2.8 million and $4.9 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. We plan to contribute approximately $4.6$0.5 million during 20172022 to our European plans. We contributed $6.0 million to our European plans during 2016.
Postretirement Health Care and Life Insurance Benefit Plans
We recorded $0.3$0.5 million and $0.2 million of net amortization gain deferral for the quarter and $0.9 million for the ninesix months ended SeptemberJune 30, 2017. 2022 and 2021, respectively. Net periodic benefit costs of our postretirement health care and life insurance benefit plans for the quarters and ninesix months ended SeptemberJune 30, 20172022 and 20162021 were not material.immaterial.
(In millions) |
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Amounts recognized on the balance sheet: |
|
|
|
|
|
| ||
Accrued liabilities |
| $ | 0.3 |
|
| $ | 0.3 |
|
Other non-current liabilities |
| 1.5 |
|
|
| 1.5 |
| |
Total accrued benefit |
| $ | 1.8 |
|
| $ | 1.8 |
|
|
| September 30, 2017 |
| December 31, 2016 | ||
Amounts recognized on the balance sheet: |
|
|
|
|
|
|
Accrued liabilities |
| $ | 0.5 |
| $ | 0.5 |
Other non-current liabilities |
|
| 3.7 |
|
| 3.9 |
Total accrued benefit |
| $ | 4.2 |
| $ | 4.4 |
InAmounts contributed in connection with our postretirement plans we contributed about $0.1 million during each ofwere immaterial for both the quarterssix months ended SeptemberJune 30, 20172022 and 2016.2021. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute approximately $0.5less than $0.3 million in 20172022 to cover unfunded benefits. We contributed $0.2
Note 5 –– Debt
(In millions) |
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Current portion of finance lease |
| $ | 0.5 |
|
| $ | 0.9 |
|
Current portion of debt |
|
| 0.5 |
|
|
| 0.9 |
|
Senior unsecured credit facility |
|
| 114.0 |
|
|
| 125.0 |
|
4.7% senior notes --- due 2025 |
|
| 300.0 |
|
|
| 300.0 |
|
3.95% senior notes --- due 2027 |
|
| 400.0 |
|
|
| 400.0 |
|
Senior notes --- original issue discount |
|
| (1.1 | ) |
|
| (1.2 | ) |
Senior notes --- deferred financing costs |
|
| (2.5 | ) |
|
| (2.9 | ) |
Non-current portion of finance lease and other debt |
|
| 1.6 |
|
|
| 1.5 |
|
Long-term debt |
|
| 812.0 |
|
|
| 822.4 |
|
Total debt |
| $ | 812.5 |
|
| $ | 823.3 |
|
In June 2019, the Company refinanced its senior unsecured credit facility (the “Facility”), increasing borrowing capacity from $700 million to our postretirement plans during 2016.
|
|
|
|
|
|
|
|
|
(In millions) |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Current portion of capital lease |
| $ | — |
|
| $ | 0.5 |
|
Current portion of Euro term loan |
|
| 4.2 |
|
|
| 3.8 |
|
Current portion of debt |
| $ | 4.2 |
|
| $ | 4.3 |
|
Non-current portion of Euro term loan |
|
| 62.4 |
|
|
| 22.6 |
|
Senior unsecured credit facility- revolving loan due 2021 |
|
| 75.0 |
|
|
| 365.0 |
|
4.7% senior notes due 2025 |
|
| 300.0 |
|
|
| 300.0 |
|
Senior notes due 2025 - original issue discount and deferred financing costs |
|
| (2.9 | ) |
|
| (3.2 | ) |
3.95% senior notes due 2027 |
|
| 400.0 |
|
| ― |
| |
Senior notes due 2027 - original issue discount and deferred financing costs |
|
| (5.1 | ) |
| ― |
| |
Other debt |
|
| 0.2 |
|
| ― |
| |
Long-term debt |
|
| 829.6 |
|
|
| 684.4 |
|
Total debt |
| $ | 833.8 |
|
| $ | 688.7 |
|
In February 2017, the Company issued $400 million$1 billion. The Facility matures in aggregate principal amount of 3.95% Senior Unsecured Notes due in 2027. June 2024. The interest rate on these senior notes may be increased by 0.25% each timeranges from LIBOR + 0.875% to a credit rating applicable tomaximum of LIBOR + 1.50%, depending upon the notes is downgraded. The maximum rate is 5.95%. The net proceeds of approximately $394.6 million were initially used to repay, in part, $350 million of our Senior Unsecured Revolving Credit Facility (the “Facility”) and the remainder was used for general purposes including share repurchases. The conditions and covenants related to the senior notes are less restrictive than those of our Facility. The effective interest rate for the outstanding period in the first nine months was 3.86% inclusive of approximately a 0.25% benefit of treasury locks. The fair valuebetter of the senior notes due in 2027 based on quoted prices utilizing Level 2 inputs was $410.0 million at September 30, 2017.
In August 2015,Company’s leverage ratio or the Company issued $300 million in aggregate principal amount of 4.7% Senior Unsecured Notes due in 2025. The interest rate on these senior notes may be increased by 0.25% each time a credit rating applicable to the notes is downgraded. The maximum rate is 6.7%. The conditions and covenants related to the senior notes are less restrictive than those of our Facility. The effective interest rate for the first nine-months of 2017 was 4.85%. The fair value of the notes due in 2025 based on quoted prices utilizing Level 2 inputs was $323.4 million at September 30, 2017.
As of September 30, 2017, total borrowings under our $700 million Facility were $75 million, which approximates fair value using Level 2 inputs. The Company utilized its Facility at various borrowing levels with $451 million and $524 million representing the highest amounts borrowed within the nine months ended September 30, 2017 and 2016, respectively.rating. The Facility permits us to issue letters of credit up to an aggregate amount of $40 million. Outstanding letters of credit reduce the amount available for borrowing under our revolving loan. As of September 30, 2017, we had no outstanding letters of credit under the Facility, resulting in undrawn availability under the Facility as of September 30, 2017 of $625.0 million.agreement contains
The Facility contains 9
financial and other covenants, including, but not limited to customary restrictions on the incurrence of debt by our subsidiaries and the granting of liens, as well as the maintenance of an interest coverage ratio and a leverage ratio.
In accordance with the terms ofSeptember 2020, we amended the Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period. On January 28, 2021, we are requiredfurther amended the Facility agreement (the “Second Amendment”) to maintain a minimum interest coverage ratio of 3.50 (based on the ratio of EBITDA, as defined in the credit agreement,provide that, from January 28, 2021 through and including March 31, 2022, we would not be subject to interest expense) and may not exceed a maximum leverage ratio covenant but instead be required to maintain Liquidity (as defined in the Facility agreement) of 3.50 (basedat least $250 million. Additionally, during such period, the Company was subject to limitations on share repurchases, cash dividends, and its ability to incur secured debt, in each case subject to certain exceptions; the ratioapplicable margin and commitment fees would be increased; the incremental facility would not be available; and if the Company’s public debt rating was downgraded to (i) BB or lower by Standard & Poor’s and (ii) Ba2 or lower by Moody’s, we would be required to grant liens on certain of totalour assets, which liens would be released upon the Company’s public debt rating being upgraded to EBITDA) throughout the termBB+ or higher by Standard & Poor’s or Ba1 or higher by Moody’s. The Company’s public debt rating as of the Facility.June 30, 2022 is BB+/Baa3. In addition, the Second Amendment provided that the Company would not be subject to an interest coverage ratio covenant until the test period ending December 31, 2021 and revolving commitments under the Facility contains otherwere reduced from $1 billion to $750 million.As of June 30, 2022, we were in compliance with all debt covenants. As of April 1, 2022, the original terms and conditions such as customary representations and warranties, additional covenants and customary events of default. The average interest rate onto the Facility was 2.36% foragreement were reinstated except that the nine monthsamount of 2017. The average interest rate was 1.8% for 2016.the lender's commitment will remain at $750 million. Share repurchases restrictions that had been in effect per the Second Amendment expired on March 31, 2022.
In June 2016, we entered into a €60 million term loan. The loan has two tranches of which the first tranche for €25 million has a rate of Euribor +1.2% and a final maturity dateAs of June 30, 2023. The first tranche is repayable in seven equal annual installments, which began on June 30, 2017. The second tranche for €352022, total borrowings under the Facility were $114 million, has a rate of Euribor +1.25% and a final maturity date of June 30, 2024. The first annual amortization payment for the second tranche is due June 30, 2019. There is a zero percent floor on the Euribor. The outstanding amounts at September 30, 2017 and December 31, 2016 were €56.4 million (or $66.6 million) and €25 million (or $26.4 million), which approximates fair value. The term loanFacility agreement permits us to issue letters of credit up to an aggregate amount of $50 million. Outstanding letters of credit reduce the amount available for borrowing under the Facility. As of June 30, 2022, there were 0 issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $636 million. The weighted average interest rate for the Facility was 4.2% for the six months ended June 30, 2022.
In 2017, the Company issued $400 million in aggregate principal amount of 3.95% Senior Unsecured Notes due in 2027. The interest rate on these senior notes may be increased 0.25% each time a credit rating applicable to the notes is guaranteeddowngraded. Conversely, such increases would be reversed should the credit rating be subsequently upgraded. The maximum rate is 5.95%. The effective interest rate for the six months ended June 30, 2022 was 4.11% inclusive of an approximately 0.25% benefit of treasury locks. Based on quoted prices the fair value of the senior unsecured notes due in 2027 was $375.6million at June 30, 2022.
In 2015, the Company issued $300 million in aggregate principal amount of 4.7% Senior Unsecured Notes due in 2025. The interest rate on these senior notes may be increased by Hexcel Corporation.0.25% each time a credit rating applicable to the notes is downgraded. Conversely, such increases would be reversed should the credit rating be subsequently upgraded. The maximum rate is 6.7%. The effective interest rate for the six months ended June 30, 2022 was 5.07%. Based on quoted prices, the fair value of the senior unsecured notes due in 2025 was $293.9 million at June 30, 2022.
Note 6 — Derivative Financial Instruments
Interest Rate Swap and Interest Lock Agreements
As of SeptemberAt June 30, 2017, the Company had agreements to swap $50 million of floating rate obligations for fixed rate obligations at an average of 1.087% against LIBOR in U.S. dollars, which matures in September 2019. The swaps were accounted for as cash flow hedges of our floating rate bank loans. To ensure the swaps were highly effective, all of the principal terms of the swaps matched the terms of the bank loans. The fair value of the interest rate swaps were assets of $0.6 million and $0.7 million at September 30, 20172022 and December 31, 2016, respectively.
In December 2016,2021, we swapped €25.0 million of floating rate obligations for fixed rate obligations at a rate of 0.365% against EURIBOR in Euros. The swap amortizes over seven equal annual installments, which began on June 30, 2017 until the final maturity on June 30, 2023. In April 2017, we swapped €35.0 million of floating rate obligations at a rate of 0.59% against EURIBOR in Euros. The swap amortizes over six unequal annual installments beginning June 30, 2019 until the final maturity on June 30, 2024. Both derivatives are accounted for as cash flow hedges of the floating rate Euro term loan. To ensure the swap is highly effective, all of the principal terms of the swap matched the terms of the bank loan. The fair value of thehad 0 interest rate swaps were liabilities of $0.4 million and $0.1 million at September 30, 2017 and December 31, 2016, respectively.swap agreements outstanding.
The Company also useshad treasury lockslock agreements to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. In September 2016 and February 2017, the Company entered into interest rate treasury lock agreements with notional valuesissuance of $150 million and $100 million for the 2017 note issuance. We accounted for these interest rate treasury locksour 3.95% Senior Unsecured Notes. These hedges were designated as cash flow hedges sofor hedge accounting purposes thus any change in fair value was recorded intoas a component of other comprehensive income and then amortized into interest expense over the life(loss) income. As part of the bonds upon issuance. On February 15, 2017,issuance of our 3.95% Senior Unsecured Notes, we issued senior notes due 2027 and received $10.0net settled these derivatives for $10 million in cash in settlementcash. As a result of settling these derivatives the derivatives. The amountpreviously deferred gains recorded in other comprehensive (loss) income will be released to interest expense over the life of the senior notes.3.95% Senior Unsecured Notes. The effect of these treasury locks is to reducereduced the effective interest rate on these senior notes by approximately 0.25%0.25%.
Cross Currency and Interest Rate Swap Agreements
In November 2020, we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a €270 million, 5-year amortizing, intercompany loan between one of our European subsidiaries and the U.S. parent company. Changes in the spot exchange are recorded to the general ledger and offset the fair value re-measurement of the hedged item. The net difference in the interest rates coupons is recorded as a credit to interest expense. The derivative swaps €270 million bearing interest at a fixed rate of 0.30% for $319.9 million plus fixed rate interest of 1.115%. The interest coupons settle semi-annually. The principal will amortize each year on November 15, as follows: for years 1 through 4, beginning November 15, 2021, €50 million versus $59.2 million, and a final settlement on November 15, 2025 of €70 million versus $82.9 million. The carrying value of the derivative at June 30, 2022 is a
10
current asset of $8.1 million and a long-term asset of $15.8 million. The carrying value of the derivative at December 31, 2021 was a current asset of $4.0 million and a long-term asset of $3.4 million.
Foreign Currency Forward Exchange Contracts
A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British Poundpound sterling. We have entered into contracts to exchange U.S. dollars for Euros and British Poundpound sterling through March 2020, which we account for as cash flow hedges.December 2024. The aggregate notional amount of these contracts was $317.6$434.5 million and $423.8$316.4 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. The purpose of these contracts is to hedge a portion of the forecasted transactions of our European subsidiaries under long-term sales contracts with certain customers. These contracts are expected to provide us with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing our exposure to fluctuations in currency exchange rates. The effective portion of the hedges, gainslosses of $9.7$21.6 million and $31.7$28.4 million respectively, were recorded in other comprehensive (loss) income (“OCI”) for the threequarter and ninesix months ended SeptemberJune 30, 20172022, respectively, and gainsof $1.5 million and losses of $1.4$3.9 million and $10.7 million, respectively, were recorded in OCI for the threequarter and ninesix months ended SeptemberJune 30, 2016.2021, respectively. We classified $0.2 million of the carrying amount of these contracts as assets ($0.1 million of $13.5which was recorded in prepaid expenses and other current assets) and $29.2 million as liabilities ($10.8 million of which is recorded in other assets and $4.3 million in other liabilitiesnon-current liabilities) on the Condensed Consolidated Balance Sheets at SeptemberJune 30, 20172022, and $33.9$1.9 million of the carrying amount of these contracts was classified in assets ($1.7 million of which was recorded in prepaid expenses and other current assets) and $6.8 million as liabilities (less than $3.9 million of which is in other liabilitiesnon-current liabilities) at December 31, 2016. During the three and nine months ended September 30, 2017, we2021. We recognized net losses of $0.6$3.6 million and $11.4$4.3 million in gross margin respectively. Duringduring the threequarter and ninesix months ended SeptemberJune 30, 2016, we recognized net losses2022, respectively, and gains of $5.0$1.9 million and $13.5$3.3 million in gross margin, respectively. Forfor the quartersquarter and ninesix months ended SeptemberJune 30, 2017 and 2016, hedge ineffectiveness was immaterial.2021, respectively.
In addition, we enter into foreign exchange forward contracts which are not designated as hedges. These are used to provide an offset to transactional gains or losses arising from the re-measurementremeasurement of non-functional monetary assets and liabilities such as accounts receivable. The change in the fair value of the derivatives is recorded in the statement of operations. There are no0 credit contingency features in these derivatives. During the quartersquarter and six months ended SeptemberJune 30, 2017 and 2016,2022, we recognized net foreign exchange gains lossesof $4.0$0.8 million and $0.8$1.0 million, respectively, in the Condensed Consolidated Statements of Operations. During the ninequarter and six months ended SeptemberJune 30, 2017 and 2016,2021, we recognized net foreign exchange gains of $15.4$0.5 million and losses of $3.4$1.1 million, respectively, in the Condensed Consolidated Statements of Operations.respectively. The net foreign exchange impact recognized from these hedges offset the translation exposure of these transactions.The carrying amount of the contracts for asset and liability derivatives not designated as hedging instruments was $0.1$0.2 million classified in current assets at June 30, 2022, and $0.2 million classified in other assets and $1.6 million in othercurrent liabilities and $1.0 million classified in other assets and $0.3 million in other liabilities on the September 30, 2017 and December 31, 2016 our Condensed Consolidated Balance Sheets, respectively.Sheet at December 31, 2021.
The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive (loss) income for the quarters and ninesix months ended SeptemberJune 30, 20172022 and 2016June 30, 2021 was as follows:
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(In millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Unrealized losses at beginning of period, net of tax |
| $ | (1.3 | ) |
| $ | (16.5 | ) |
| $ | (25.9 | ) |
| $ | (15.0 | ) |
Losses reclassified to net sales |
|
| 0.6 |
|
|
| 4.0 |
|
|
| 8.9 |
|
|
| 10.1 |
|
Increase (decrease) in fair value |
|
| 7.2 |
|
|
| (1.7 | ) |
|
| 23.5 |
|
|
| (9.3 | ) |
Unrealized gains (losses) at end of period, net of tax |
| $ | 6.5 |
|
| $ | (14.2 | ) |
| $ | 6.5 |
|
| $ | (14.2 | ) |
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Unrealized (losses) gains at beginning of period, net of tax |
| $ | (8.0 | ) |
| $ | 5.6 |
|
| $ | (3.5 | ) |
| $ | 10.6 |
|
Losses (gains) reclassified to net sales |
|
| 2.8 |
|
|
| (1.5 | ) |
|
| 3.1 |
|
|
| (2.5 | ) |
Decrease in fair value |
|
| (16.5 | ) |
|
| 1.2 |
|
|
| (21.3 | ) |
|
| (2.8 | ) |
Unrealized (losses) gains at end of period, net of tax |
| $ | (21.7 | ) |
| $ | 5.3 |
|
| $ | (21.7 | ) |
| $ | 5.3 |
|
We expectUnrealized gains of $18.4 million recorded in accumulated other comprehensive loss, less taxes of $4.4 million, as of June 30, 2022, are expected to reclassify $1.7 million of unrealized gainsbe reclassified into earnings over the next twelve months as the hedged sales are recorded.
Note 7 — Income TaxesCommodity Swap Agreements
The income tax provisions for the third quarter and nine months ended SeptemberOn occasion we enter into commodity swap agreements to hedge against price fluctuations of raw materials, including propylene (the principal component of acrylonitrile). As of June 30, 2017 were $13.6 million and $44.3 2022, we had commodity swap agreements with a notional value of $23.4million. The swaps mature monthly through June 2024. The swaps are accounted for as a cash flow hedge of our forward raw material purchases. To ensure the swaps are highly effective, tax rate forall of the third quartercritical terms of the swap matched the terms of the hedged items. The fair value of the commodity swap agreements was 16.5% as the quarter benefitted from the impactan asset of tax credits identified during the quarter as well as deductions associated with share-based compensation payments. The third quarter provision also included$0.2 million ($0.2million of which was recorded in prepaid expenses and other current assets) and a non-recurring discrete tax benefitliability of $4.2$3.1 million from the reversal($0.9 million of provisions for uncertain tax provisions. The income tax provision for the quarter ended Septemberwhich was recorded in other non-current liabilities) at June 30, 20162022, and an asset of $0.9 million ($0.9 million of which was $16.1recorded in prepaid expenses and other current assets) and a liability of $2.3 million including a net benefit($0.8 million of $6.6 million from the release of reserves for uncertain tax positions. The provision for the first nine months of 2017 also included a nonrecurring discrete benefit of $9.1 million from the release of a valuation allowancewhich was recorded in a foreign jurisdiction. The effective tax rate, excluding these benefits, for the nine months of 2017 was 24.2% as compared to 30.5% in 2016, as both periods benefitted from deductions associated with share-based compensation payments in addition to the tax credits identified in 2017.other non-current liabilities) at December 31, 2021.
11
Note 87 — Fair Value Measurements
The authoritative guidance for fair value measurements establishes a hierarchy for observable and unobservable inputs used to measure fair value, into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk in our assessment of fair value.
We do not have any significant assets or liabilities that utilize Level 3 inputs. In addition, we have no0 assets or liabilities that utilize Level 1 inputs. However, we have derivative instruments classified as liabilities and assets which utilize Level 2 inputs, and 1 liability that utilizes Level 3 inputs.
For derivative assets and liabilities that utilize Level 2 inputs, we prepare estimates of future cash flows of our derivatives, which are discounted to a net present value. The estimated cash flows and the discount factors used in the valuation model are based on observable inputs, and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of Hexcel when the derivative is in a net liability position). The fair value of these assets and liabilities was approximately $14.1$24.4 million and $6.3$32.3 million, respectively, at SeptemberJune 30, 2017.2022 and $10.2 million and $9.3 million, respectively, at December 31, 2021. In addition, the fair value of these derivative contracts, which are subject to a master netting arrangement under certain circumstances, is presented on a gross basis in the Condensed Consolidated Balance Sheet.Sheets.
Below is a summary of valuation techniques for all Level 2 financial assets and liabilities:
Cross Currency and Interest rate swapsRate Swap Agreements — valued using LIBOR yieldthe USD Secured Overnight Financing Rate curves and quoted forward foreign exchange prices at the reporting date. FairThe fair value was an asset of $0.6 million and a liability of $0.4 the assets were $23.9million, at SeptemberJune 30, 2017.
Foreign exchange derivative assets and liabilities — valued using quoted forward foreign exchange prices at the reporting date. Fair value of assets and liabilities at SeptemberJune 30, 20172022 was $13.5 $0.2million and $5.9$29.2 million, respectively.
Counterparties to the above contracts are highly rated financial institutions, noneNaN of which experienced any significant downgrades in the ninethree months ended SeptemberJune 30, 20172022 that would reduce the receivable amount owed, if any, to the Company.
Liabilities classified as Level 3 — At June 30, 2022 we had a liability for $0.4 million, which represented contingent consideration that was recognized in connection with the Company’s Oxford Performance Materials, Inc. acquisition. This amount was estimated based on certain contractual stipulations which require payments to be made to the seller in the future based upon the achievement of certain results. We used forecasted results which were discounted using an internally derived discount rate. Future amounts payable may differ from this estimate by the difference between the actual and forecasted results.
Note 8 — Revenue
Our revenue is primarily derived from the sale of inventory under long-term contracts with our customers. We have determined that individual purchase orders (“PO”), the terms and conditions of which are taken with a master agreement, create the ASC 606 contracts which are generally short-term in nature. For those sales that are not tied to a long-term agreement, we generate a PO that is subject to our standard terms and conditions. In instances where our customers acquire our goods related to government contracts, the contracts are typically subject to terms similar, or equal to, the Federal Acquisition Regulation Part 52.249-2. This regulation contains a termination for convenience clause (“T for C”), which requires that the customer pay for the cost of both the finished and unfinished goods at the time of cancellation plus a reasonable profit.
We recognize revenue over time for those agreements that have T for C, and where the products being produced have no alternative use. As our production cycle is typically nine months or less, it is expected that goods related to the revenue recognized
12
over time will be shipped and billed within the next twelve months. Less than half of our agreements contain provisions which would require revenue to be recognized over time. All other revenue is recognized at a point in time.
We disaggregate our revenue based on market for analytical purposes. The following table details our revenue by market for the quarters and six months ended June 30, 2022 and 2021:
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Consolidated Net Sales |
| $ | 393.0 |
|
| $ | 320.3 |
|
| $ | 783.6 |
|
| $ | 630.6 |
|
Commercial Aerospace |
|
| 227.6 |
|
|
| 153.7 |
|
|
| 446.5 |
|
|
| 301.3 |
|
Space & Defense |
|
| 111.9 |
|
|
| 106.9 |
|
|
| 230.1 |
|
|
| 218.6 |
|
Industrial |
|
| 53.5 |
|
|
| 59.7 |
|
|
| 107.0 |
|
|
| 110.7 |
|
Revenue recognized over time gives rise to contract assets, which represent revenue recognized but unbilled. Contract assets are included in our Condensed Consolidated Balance Sheets as a component of current assets. The activity related to contract assets for the six months ended June 30, 2022 was as follows:
(In millions) |
| Composite Material |
|
| Engineered Products |
|
| Total |
| |||
Balance at December 31, 2021 |
| $ | 6.8 |
|
| $ | 23.7 |
|
| $ | 30.5 |
|
Net revenue billed |
|
| 0.6 |
|
|
| 1.4 |
|
|
| 2.0 |
|
Balance at March 31, 2022 |
|
| 7.4 |
|
|
| 25.1 |
|
|
| 32.5 |
|
Net revenue billed |
| $ | 0.2 |
|
| $ | (2.6 | ) |
|
| (2.4 | ) |
Balance at June 30, 2022 |
| $ | 7.6 |
|
| $ | 22.5 |
|
| $ | 30.1 |
|
Accounts receivable, net, includes amounts billed to customers where the right to payment is unconditional.
Note 9 — Segment Information
The financial results for our operating segments are prepared using a management approach, which is consistent with the basis and manner in which we internally segregate financial information for the purpose of assisting in making internal operating decisions. We evaluate the performance of our operating segments based on operating income, and generally account for intersegment sales based on arm’s length prices. Corporate and certain other expenses are not allocated to the operating segments, except to the extent that the expense can be directly attributable to the business segment.
13
Financial information for our operating segments for the quarters and ninesix months ended SeptemberJune 30, 20172022 and 20162021 were as follows:
|
| (Unaudited) |
| |||||||||||||||
|
| Composite |
|
| Engineered |
|
| Corporate & |
|
|
|
|
|
|
| |||
(In millions |
| Materials |
|
| Products |
|
| Other (a) |
|
|
|
| Total |
| ||||
Third Quarter 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 398.9 |
|
| $ | 92.6 |
|
| $ | — |
|
|
|
| $ | 491.5 |
|
Intersegment sales |
|
| 16.4 |
|
|
| — |
|
|
| (16.4 | ) |
|
|
|
| — |
|
Total sales |
|
| 415.3 |
|
|
| 92.6 |
|
|
| (16.4 | ) |
|
|
|
| 491.5 |
|
Operating income |
|
| 90.0 |
|
|
| 12.1 |
|
|
| (13.0 | ) |
|
|
|
| 89.1 |
|
Depreciation and amortization |
|
| 24.8 |
|
|
| 1.9 |
|
|
| 0.1 |
|
|
|
|
| 26.8 |
|
Stock-based compensation |
|
| 1.1 |
|
|
| 0.1 |
|
|
| 1.0 |
|
|
|
|
| 2.2 |
|
Accrual basis additions to capital expenditures |
|
| 47.4 |
|
|
| 0.5 |
|
|
| — |
|
|
|
|
| 47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 398.2 |
|
| $ | 102.3 |
|
| $ | — |
|
|
|
| $ | 500.5 |
|
Intersegment sales |
|
| 16.2 |
|
|
| — |
|
|
| (16.2 | ) |
|
|
|
| — |
|
Total sales |
|
| 414.4 |
|
|
| 102.3 |
|
|
| (16.2 | ) |
|
|
|
| 500.5 |
|
Operating income |
|
| 88.8 |
|
|
| 12.9 |
|
|
| (12.6 | ) |
|
|
|
| 89.1 |
|
Depreciation and amortization |
|
| 21.7 |
|
|
| 1.8 |
|
|
| — |
|
|
|
|
| 23.5 |
|
Stock-based compensation |
|
| 0.7 |
|
|
| 0.1 |
|
|
| — |
|
|
|
|
| 0.8 |
|
Accrual basis additions to capital expenditures |
|
| 84.4 |
|
|
| 5.9 |
|
|
| 0.1 |
|
|
|
|
| 90.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 1,183.7 |
|
| $ | 277.9 |
|
| $ | — |
|
|
|
| $ | 1,461.6 |
|
Intersegment sales |
|
| 48.6 |
|
|
| — |
|
|
| (48.6 | ) |
|
|
|
| — |
|
Total sales |
|
| 1,232.3 |
|
|
| 277.9 |
|
|
| (48.6 | ) |
|
|
|
| 1,461.6 |
|
Operating income |
|
| 264.0 |
|
|
| 37.2 |
|
|
| (43.8 | ) |
|
|
|
| 257.4 |
|
Depreciation and amortization |
|
| 70.6 |
|
|
| 5.6 |
|
|
| 0.1 |
|
|
|
|
| 76.3 |
|
Stock-based compensation |
|
| 5.7 |
|
|
| 1.0 |
|
|
| 8.8 |
|
|
|
|
| 15.5 |
|
Accrual basis additions to capital expenditures |
|
| 208.5 |
|
|
| 9.5 |
|
|
| — |
|
|
|
|
| 218.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 1,219.3 |
|
| $ | 301.5 |
|
| $ | — |
|
|
|
| $ | 1,520.8 |
|
Intersegment sales |
|
| 53.2 |
|
|
| — |
|
|
| (53.2 | ) |
|
|
|
| — |
|
Total sales |
|
| 1,272.5 |
|
|
| 301.5 |
|
|
| (53.2 | ) |
|
|
|
| 1,520.8 |
|
Operating income |
|
| 281.2 |
|
|
| 36.8 |
|
|
| (44.9 | ) |
|
|
|
| 273.1 |
|
Depreciation and amortization |
|
| 63.5 |
|
|
| 5.4 |
|
|
| 0.1 |
|
|
|
|
| 69.0 |
|
Stock-based compensation |
|
| 4.9 |
|
|
| 0.9 |
|
|
| 7.8 |
|
|
|
|
| 13.6 |
|
Accrual basis additions to capital expenditures |
|
| 221.6 |
|
|
| 10.9 |
|
|
| 0.1 |
|
|
|
|
| 232.6 |
|
_________________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Unaudited) |
| |||||||||||||
|
| Composite |
|
| Engineered |
|
| Corporate & |
|
|
|
| ||||
(In millions) |
| Materials |
|
| Products |
|
| Other (a) |
|
| Total |
| ||||
Quarter Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales to external customers |
| $ | 318.1 |
|
| $ | 74.9 |
|
| $ | — |
|
| $ | 393.0 |
|
Intersegment sales |
|
| 18.5 |
|
|
| 1.0 |
|
|
| (19.5 | ) |
|
| — |
|
Total sales |
| $ | 336.6 |
|
| $ | 75.9 |
|
| $ | (19.5 | ) |
| $ | 393.0 |
|
Other operating (income) expense |
|
| 0.3 |
|
|
| 0 |
|
|
| (19.4 | ) |
|
| (19.1 | ) |
Operating income |
|
| 47.2 |
|
|
| 9.1 |
|
|
| 7.5 |
|
|
| 63.8 |
|
Depreciation and amortization |
|
| 28.1 |
|
|
| 3.5 |
|
|
| 0.1 |
|
|
| 31.7 |
|
Stock-based compensation |
|
| 0.9 |
|
|
| 0.3 |
|
|
| 1.2 |
|
|
| 2.4 |
|
Accrual basis additions to capital expenditures |
|
| 14.5 |
|
|
| 2.7 |
|
|
| 0 |
|
|
| 17.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Quarter Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales to external customers |
| $ | 240.9 |
|
| $ | 79.4 |
|
| $ | — |
|
| $ | 320.3 |
|
Intersegment sales |
|
| 14.6 |
|
|
| 0.8 |
|
|
| (15.4 | ) |
|
| — |
|
Total sales |
| $ | 255.5 |
|
| $ | 80.2 |
|
| $ | (15.4 | ) |
| $ | 320.3 |
|
Other operating (income) expense |
|
| 2.8 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| 3.1 |
|
Operating income |
|
| 24.5 |
|
|
| 5.9 |
|
|
| (14.2 | ) |
|
| 16.2 |
|
Depreciation and amortization |
|
| 30.5 |
|
|
| 3.6 |
|
|
| 0.1 |
|
|
| 34.2 |
|
Stock-based compensation |
|
| 0.8 |
|
|
| 0.1 |
|
|
| 3.4 |
|
|
| 4.3 |
|
Accrual basis additions to capital expenditures |
|
| 3.4 |
|
|
| 0.4 |
|
|
| 0 |
|
|
| 3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales to external customers |
| $ | 631.9 |
|
| $ | 151.7 |
|
| $ | — |
|
| $ | 783.6 |
|
Intersegment sales |
|
| 35.0 |
|
|
| 1.3 |
|
|
| (36.3 | ) |
|
| — |
|
Total sales |
| $ | 666.9 |
|
| $ | 153.0 |
|
| $ | (36.3 | ) |
| $ | 783.6 |
|
Other operating (income) expense |
|
| 1.2 |
|
|
| 0.1 |
|
|
| (19.4 | ) |
|
| (18.1 | ) |
Operating income |
|
| 89.8 |
|
|
| 19.7 |
|
|
| (15.6 | ) |
|
| 93.9 |
|
Depreciation and amortization |
|
| 56.7 |
|
|
| 7.1 |
|
|
| 0.1 |
|
|
| 63.9 |
|
Stock-based compensation |
|
| 3.5 |
|
|
| 1.0 |
|
|
| 8.3 |
|
|
| 12.8 |
|
Accrual basis additions to capital expenditures |
|
| 24.6 |
|
|
| 3.7 |
|
|
| 0 |
|
|
| 28.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales to external customers |
| $ | 478.1 |
|
| $ | 152.5 |
|
| $ | — |
|
| $ | 630.6 |
|
Intersegment sales |
|
| 27.8 |
|
|
| 1.4 |
|
|
| (29.2 | ) |
|
| — |
|
Total sales |
| $ | 505.9 |
|
| $ | 153.9 |
|
| $ | (29.2 | ) |
| $ | 630.6 |
|
Other operating (income) expense |
|
| 15.5 |
|
|
| (0.5 | ) |
|
| 0.2 |
|
|
| 15.2 |
|
Operating income |
|
| 31.9 |
|
|
| 10.6 |
|
|
| (36.5 | ) |
|
| 6.0 |
|
Depreciation and amortization |
|
| 61.3 |
|
|
| 7.3 |
|
|
| 0.1 |
|
|
| 68.7 |
|
Stock-based compensation |
|
| 1.4 |
|
|
| 0.3 |
|
|
| 11.6 |
|
|
| 13.3 |
|
Accrual basis additions to capital expenditures |
|
| 7.0 |
|
|
| 0.8 |
|
|
| 0 |
|
|
| 7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets
Goodwill and Intangible Assets |
| Composite |
|
| Engineered |
|
|
|
| |||
(In millions) |
| Materials |
|
| Products |
|
| Total |
| |||
Balance at December 31, 2021 |
| $ | 93.4 |
|
| $ | 174.1 |
|
| $ | 267.5 |
|
Amortization expense |
|
| (0.5 | ) |
|
| (1.3 | ) |
|
| (1.8 | ) |
Currency translation adjustments |
|
| (5.7 | ) |
|
| (1.2 | ) |
|
| (6.9 | ) |
Balance at June 30, 2022 |
| $ | 87.2 |
|
| $ | 171.6 |
|
| $ | 258.8 |
|
The carrying amountAt June 30, 2022, the balance of gross goodwill and intangible assets by segment is as follows:was $186.5 million and $72.3 million, respectively.
14
|
| September 30, |
|
| December 31, | ||||
(In millions) |
| 2017 |
|
| 2016 | ||||
Composite Materials |
| $ |
| 57.9 |
|
| $ | 56.1 | |
Engineered Products |
|
|
| 16.1 |
|
|
| 16.1 | |
Goodwill and intangible assets |
| $ |
|
| 74.0 |
|
| $ | 72.2 |
No impairments have been recorded against these amounts.
Note 10 — Accumulated Other Comprehensive (Loss) IncomeLoss
Comprehensive incomeloss represents net incomeloss and other gains and losses affecting stockholders’ equity that are not reflected in the Condensed Consolidated Statements of Operations. The components of accumulated other comprehensive (loss) incomeloss as of SeptemberJune 30, 20172022 and December 31, 20162021 were as follows:
(In millions) |
|
| Unrecognized Defined Benefit and Postretirement Plan Costs |
|
|
| Change in Fair Value of Derivatives Products (a) |
|
|
| Foreign Currency Translation |
|
|
| Total |
| ||||
Balance at December 31, 2016 |
| $ |
| (14.6 | ) |
| $ |
| (18.7 | ) |
| $ |
| (141.1 | ) |
| $ |
| (174.4 | ) |
Other comprehensive (loss) income before reclassifications |
|
|
| (1.1 | ) |
|
|
| 23.1 |
|
|
|
| 87.2 |
|
|
|
| 109.2 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
| (0.5 | ) |
|
|
| 8.5 |
|
|
|
| — |
|
|
|
| 8.0 |
|
Other comprehensive (loss) income |
|
|
| (1.6 | ) |
|
|
| 31.6 |
|
|
|
| 87.2 |
|
|
|
| 117.2 |
|
Balance at September 30, 2017 |
| $ |
| (16.2 | ) |
| $ |
| 12.9 |
|
| $ |
| (53.9 | ) |
| $ |
| (57.2 | ) |
(In millions) |
| Unrecognized |
|
| Change in Fair |
|
| Foreign |
|
| Total |
| ||||
Balance at December 31, 2021 |
| $ | (61.7 | ) |
| $ | (3.1 | ) |
| $ | (61.7 | ) |
| $ | (126.5 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 6.9 |
|
|
| (20.4 | ) |
|
| (50.5 | ) |
|
| (64.0 | ) |
Amounts reclassified from accumulated other comprehensive |
|
| 0.8 |
|
|
| (1.6 | ) |
| — |
|
|
| (0.8 | ) | |
Other comprehensive income (loss) |
|
| 7.7 |
|
|
| (22.0 | ) |
|
| (50.5 | ) |
|
| (64.8 | ) |
Balance at June 30, 2022 |
| $ | (54.0 | ) |
| $ | (25.1 | ) |
| $ | (112.2 | ) |
| $ | (191.3 | ) |
|
|
|
The amountsamount of net (gains) losses reclassified to earnings from the unrecognized net defined benefit and postretirement plan costs componentand derivative products components of accumulated other comprehensive lossincome (loss) for the quarter were $0.4 million of net gains less taxes of $0.1 million and were $0.7 million of net gains less $0.2 million of taxes for the ninesix months ended SeptemberJune 30, 2017. The amounts reclassified to earnings from the change in fair value of the derivatives component of accumulated other comprehensive loss for the three and nine months ended September 30, 20172022, were net losses of $0.4 million net taxes of $0.1 million and net losses of $10.7 million less taxes of $2.2 million, respectively. The currency translation adjustments are not currently adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.follows:
|
| Quarter Ended June 30, 2022 |
|
| Six Months Ended June 30, 2022 |
| ||||||||||
(In millions) |
| Pre-tax (gain) loss |
|
| Net of tax (gain) loss |
|
| Pre-tax (gain) loss |
|
| Net of tax (gain) loss |
| ||||
Defined Benefit and Postretirement Plan Costs |
| $ | 0.6 |
|
| $ | 0.5 |
|
| $ | 1.1 |
|
| $ | 0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative Products |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency forward exchange contracts |
|
| 3.6 |
|
|
| 2.7 |
|
|
| 4.3 |
|
|
| 3.1 |
|
Commodity swaps |
|
| (0.3 | ) |
|
| (0.2 | ) |
|
| (1.1 | ) |
|
| (0.8 | ) |
Interest rate swaps |
|
| 2.5 |
|
|
| 1.9 |
|
|
| (5.0 | ) |
|
| (3.9 | ) |
Total Derivative Products |
| $ | 5.8 |
|
| $ | 4.4 |
|
| $ | (1.8 | ) |
| $ | (1.6 | ) |
Note 11 — CommitmentsCommitments and Contingencies
We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. We estimate and accrue our liabilities when a loss becomes probable and estimable. These judgments take into consideration a variety of factors, including the stage of the proceeding; potential settlement value; assessments by internal and external counsel; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years.
While it is impossible to ascertainpredict the ultimate legalresolution of litigation, investigations and financial liability with respect to certain contingent liabilities and claimsasserted against us, we believe, based upon our examination of currently available information, our experience to date, and advice from legal counsel, that, the individual and aggregate liabilities resulting from the ultimate resolution of these contingent matters, after taking into considerationaccount our existing insurance coverage and amounts already provided for, the currently pending legal proceedings against us will not have a material adverse impact on our consolidated results of operations, financial position or cash flows.flows.
Environmental Matters
We are subject to various international, U.S., state and local environmental, and health and safety laws and regulations. We are also subject to liabilities arising under the Federal Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA” or “Superfund”), the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and similar state and international laws and regulations that impose responsibility for the control, remediation and abatement of air, water and soil pollutants and the manufacturing, storage, handling and disposal of hazardous substances and waste.
We have been named as a potentially responsible party (“PRP”) with respect to severalthe below and other hazardous waste disposal sites that we do not own or possess, which are included on, or proposed to be included on, the Superfund National Priority List of the U.S. Environmental Protection Agency (“EPA”) or on equivalent lists of various state governments. Because CERCLAthe Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) allows for joint and several liability in certain circumstances, we could be responsible for all remediation costs at such sites, even if we are one of many PRPs. We believe, based on the amount and nature of ourthe hazardous waste our existing insurance coverage, the amounts already provided forat issue, and the number of other financially viable PRPs at each site, that our liability in connection with such environmental matters will not be material.material.
Lower Passaic River Study Area
Hexcel and a group oftogether with approximately 5148 other PRPs that comprise the Lower Passaic Cooperating Parties Group (the “CPG”). Hexcel and the CPG, are subject to a May 2007 Administrative Order on Consent (“AOC”) with the EPA requiring the CPG to perform a Remedial
15
Investigation/Feasibility Study (“RI/FS”) of environmental conditions inof a 17-mile stretch of the Lower Passaic River watershed.in New Jersey (the “Lower Passaic River”). We were included in the CPG based on our operations at our former manufacturing site in Lodi, New Jersey.
In March 2016, the EPA issued a Record of Decision (“ROD”) setting forth the EPA’s selected remedy for the lower eight8 miles of the river. The ROD calls for capping and dredging of the lower eight miles of theLower Passaic River with the placement of an engineered cap over the entire eight miles, at an expected cost ranging from $0.97$0.97 billion to $2.07 billion, according to the EPA. Because the EPA has not yet selected a remedy for the upper nine miles of the Lower Passaic River, this$2.07 billion. This estimate range doesdid not include any costs related to a future remedy for the upper portion9 miles of the river. Now that it has issued the final ROD,Lower Passaic River. In August 2017, the EPA will seekappointed an independent third-party allocation expert to hold some combinationmake recommendations on the relative liability of approximately 120 identified non-government PRPs for the lower eight miles of the Lower Passaic River. In December 2020, the allocator issued its non-binding report on PRP liability (including Hexcel’s) to the EPA. In October 2021, the EPA released a ROD selecting an interim remedy for the upper 9 miles of the Lower Passaic River at an expected additional cost ranging from $308.7 million to $661.5 million.
In October 2016, pursuant to a settlement agreement with the EPA, Occidental Chemical Corporation (“OCC”), one of the PRPs, liable to perform the work selected through the ROD. At this point, we have not yet determined our allocable share of performing the selected remedy. However, based on a reviewcommenced performance of the Company’s position, and as no point withinremedial design required by the range is a more probable outcome than any other point,ROD for the Company has determined that its accrual is sufficient at this time. The accrual balance was $2.0 million as of September 30, 2017 and $2.1 million at December 31, 2016. Despite the issuancelower 8 miles of the final ROD, there continue to be many uncertainties associated withLower Passaic River, reserving its right of cost contribution from all other PRPs. In June 2018, OCC filed suit against approximately 120 parties, including Hexcel, in the selected remedy, the Company’s allocable shareU.S. District Court of the remediationDistrict of New Jersey seeking cost recovery and contribution under CERCLA related to the amountLower Passaic River. In July 2019, the court granted in part and denied in part the defendants’ motion to dismiss. In August 2020, the court granted defendants’ motion for summary judgement for certain claims. Discovery for the remaining claims is ongoing. On February 24, 2021, Hexcel and certain other defendants filed a third-party complaint against the Passaic Valley Sewerage Commission and certain New Jersey municipalities seeking recovery of insurance coverage. Given those uncertainties, the amounts accrued may not be indicative of the amountsPassaic-related cleanup costs incurred by defendants, as well as contribution for any cleanup costs incurred by OCC for which the Company is ultimately responsible and will be refined as events incourt deems the remediation process develop.defendants liable.
Omega Chemical Corporation Superfund Site, Whittier, California
We are a PRP at a former chemical waste site in Whittier, California. The PRPs at Omega have established a PRP Group, (the “Omega PRP Group”), and are currently investigating and remediating soil and groundwater at the site pursuant to a Consent Decree with the EPA. The Omega PRP Group has attributed approximately 1.07% of the waste tonnage sent to the site to Hexcel. In addition to the Omega site specifically, the EPA is investigating the scope of regional groundwater contamination in the vicinity of the Omega site and issued a Record of Decision; the Omega PRP Group members have been served notice by the EPA as PRPs who will be required to be involved in the remediation of the regional groundwater contamination in that vicinity as well. As a member of the Omega PRP Group, Hexcel will incur costs associated with the investigation and remediation of the Omega site and the regional groundwater remedy, although our ultimate liability, if any, in connection with this matter cannot be determined at this time. The total accrued liability relating to potential liability for both the Omega site and regional groundwater remedies was $0.6 million at both September 30, 2017 and at December 31, 2016, respectively.
Summary of Environmental Reserves
Our estimate of liability as a PRP and our remaining costs associated with our responsibility to remediate the Lower Passaic River and other sites are accrued in the consolidated balance sheets.Condensed Consolidated Balance Sheets. As of SeptemberJune 30, 2017,2022 and December 31, 2021, our aggregate environmental related accruals were $2.8$7.1 million and $2.1 million, respectively. These amounts are included in non-current liabilities with the exception of $0.1 million at December 31, 2021 which $0.9 million was included in accrued liabilities with the remainder included in non-current liabilities. As of December 31, 2016, our aggregate environmental related accruals were $3.2 million, of which $1.4 million was included in accrued liabilities with the remainder included in non-current liabilities. As related to certain environmental matters the accrual was estimated at the low end of a range of possible outcomes since no0 amount within the range is a better estimate than any other amount. If we had accrued at the high end of the range of possible outcomes for those sites where we are able to estimate our liability, our accrual would have been $16 million higher.
These accruals can change significantly from period to period due to such factors as additional information on the nature or extent of contamination, the methods of remediation required, changes in the apportionment of costs among responsible parties amount of insurance coverage, and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.
Environmental remediation spending charged to our reserve balance for each of the quarters ended September 30, 2017 and 2016 was $0.1 million and $0.2 million, respectively, and $0.3 million and $0.7 million for the nine months ended September 30, 2017 and 2016, respectively. In addition, our operating costs relating to environmental compliance charged to expense were $2.4 million and $2.6 million for the quarters ended September 30, 2017 and 2016, respectively and $7.1 million and $7.5 million for the nine months ended September 30, 2017 and 2016 , respectively.
Product Warranty
We provide standard assurance-type warranties for an estimated amount of product warranty expense,our products, which is provided by productcannot be purchased separately and based on historical warranty experience. In addition, we periodically review our warranty accrual and record any adjustments as deemed appropriate.do not meet the criteria to be considered a performance obligation. Warranty expense for the quarter and ninesix months ended SeptemberJune 30, 2017,2022, and accrued warranty cost, included in “accrued liabilities” in the Condensed Consolidated Balance Sheets at SeptemberJune 30, 20172022 and December 31, 2016,2021, were as follows:
|
| Product |
|
| Product |
| |||
(In millions) |
| Warranties |
|
| Warranties |
| |||
Balance as of December 31, 2016 |
| $ | 5.5 |
| |||||
Balance as of December 31, 2021 |
| $ | 2.5 |
| |||||
Warranty expense |
|
| 2.5 |
|
|
| 1.2 |
| |
Deductions and other |
|
|
| (1.8 | ) |
|
| (0.5 | ) |
Balance as of June 30, 2017 |
| $ | 6.2 |
| |||||
Balance as of March 31, 2022 |
| $ | 3.2 |
| |||||
Warranty expense |
|
| 0.2 |
|
|
| 0.5 |
| |
Deductions and other |
|
|
| (0.6 | ) |
|
| (0.8 | ) |
Balance as of September 30, 2017 |
| $ | 5.8 |
| |||||
Balance as of June 30, 2022 |
| $ | 2.9 |
|
16
Note 12 — Stock Repurchase PlanRestructuring
In October 2015, our Board authorized the repurchase
We recognized restructuring charges of $250$0.3 million of the Company’s stock (“2015 Repurchase Plan”). On February 9, 2017, our Board authorized the repurchase of $300 and $1.1million of the Company’s stock (“2017 Repurchase Plan”).
In the third quarter of 2017, the Company spent $1.2 million to repurchase our common stock and for the first ninequarter and six months ended June 30, 2022, respectively, primarily related to severance. Anticipated future cash payments as of 2017 the Company spent $122.0 million to repurchase our common stock. At SeptemberJune 30, 2017, the 2015 plan was completed and the Company has $270.7 million remaining under the 2017 Repurchase Plan. 2022 were $2.8 million.
Note 13 — Subsequent Event
|
|
|
| Activity for the Quarter Ended June 30, 2022 |
|
|
|
| |||||||||||||||
| March 31, |
|
| Restructuring |
|
|
|
|
| Cash |
|
|
|
|
| June 30, |
| ||||||
(In Millions) | 2021 |
|
| Charge |
|
| FX Impact |
|
| Paid |
|
| Non-Cash |
|
| 2022 |
| ||||||
Employee termination | $ | 3.8 |
|
| $ | 0.3 |
|
| $ | (0.1 | ) |
| $ | (1.2 | ) |
| $ | 0 |
|
| $ | 2.8 |
|
Impairment and other |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| — |
|
Total | $ | 3.8 |
|
| $ | 0.3 |
|
| $ | (0.1 | ) |
| $ | (1.2 | ) |
| $ | 0 |
|
| $ | 2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
| Activity for the Six Months Ended June 30, 2022 |
|
|
|
| |||||||||||||||
| December 31, |
|
| Restructuring |
|
|
|
|
| Cash |
|
|
|
|
| June 30, |
| ||||||
(In Millions) | 2021 |
|
| Charge |
|
| FX Impact |
|
| Paid |
|
| Non-Cash |
|
| 2022 |
| ||||||
Employee termination | $ | 9.0 |
|
| $ | 1.0 |
|
| $ | (0.3 | ) |
| $ | (6.9 | ) |
| $ | 0 |
|
| $ | 2.8 |
|
Impairment and other |
| 0 |
|
|
| 0.1 |
|
|
| 0 |
|
|
| (0.1 | ) |
|
| 0 |
|
|
| 0 |
|
Total | $ | 9.0 |
|
| $ | 1.1 |
|
| $ | (0.3 | ) |
| $ | (7.0 | ) |
| $ | 0 |
|
| $ | 2.8 |
|
On October 2,2017, we completed the acquisition of Structil SA (“Structil”). This acquisition further enhances our technology portfolio with new adhesive, prepreg and pultrusion technologies. Revenues and earnings from Structil will be consolidated into our results from the beginning of the fourth quarter.
17
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
We develop, manufacture, and market lightweight, high-performance structural materials, including carbon fibers, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, adhesives, radio frequency/electromagnetic interference (“RF/EMI”) and microwave absorbing materials, engineered corehoneycomb and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. Our productsWe propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are used inlighter, stronger and tougher, helping to create a wide variety of end applications, such as commercial and military aircraft, space launch vehicles and satellites, wind turbine blades, automotive, recreational products and other industrial applications.better world for us all.
We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Asia Pacific, Europe, RussiaIndia, and Africa. We also have a presence in Malaysia where we are also a partner in a joint venture in Malaysia, which manufactures composite structures for Commercial Aerospace applications.
Hexcel hasWe are a manufacturer of products within a single industry: Advanced Composites. We have two segments,reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resins,resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product lines.lines and pultruded profiles. The Engineered Products segment is comprised of lightweight high strength composite structures, RF/EMI and microwave absorbing materials, engineered core and specialty machined honeycomb products with added functionality.
functionality and thermoplastic additive manufacturing.
Net sales forThe Commercial Aerospace market began to see signs of recovery from the quarter were $491.5 million, 1.8% lower (2.4% lowereconomic impacts of the COVID-19 pandemic in constant currency) than the $500.5 million reported forsecond half of 2021 which has continued into the thirdsecond quarter of 2016. Year to date net sales were 3.5% lower2022 with further growth in constant currency driven by declines in both the commercial aerospaceair travel and industrial markets.
Commercial aerospace sales of $352.6 million decreased 2.2% (2.5% in constant currency) for the quarter as compared to the third quarter of 2016customer inventory destocking now largely completed. Despite these improvements, global logistics, supply chains and decreased 2.8% (2.7% in constant currency) for the nine month period as compared to 2016. The sales declines in certain legacy widebody aircraft (A380, B777inflationary pressures still remain a challenge. COVID-19 has had and B747) slightly more than offset the growth of the A350 and the new narrowbody aircraft.
Sales to other commercial aerospace, which includes regional and business aircraft customers, were down 6% for the third quarter 2017 and down about 7% for first nine months of 2017 as compared to 2016, driven by lower business jet sales.
Space & Defense sales of $82.7 million increased 1.5% (0.7% in constant currency) for the quarter as compared to the third quarter of 2016. Rotorcraft sales comprise just over half of Space & Defense with strong military performance offset by weaker commercial sales. Space & Defense sales for the first nine months of $247.3 million were 2.6% higher in constant currency than sales for the first nine months of 2016. The increase was driven by U.S. military rotorcraft and the Joint Strike Fighter (“JSF”) program.
Total Industrial sales of $56.2 million for the third quarter of 2017 were 3.8% lower (6.5% in constant currency) than the third quarter of 2016. Wind energy sales were down more than 25% for the third quarter compared to the 2016 quarter. Industrial sales for the first nine months of 2017 were $165.6 million or 15.4% lower in constant currency than the sales for the first nine months of 2016. Wind energy sales (the largest submarket in Industrial) are experiencing a challenging year and were down just over 30% for the first nine months of 2017 as compared to last year. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, as various legacy blades with lower composite content transition to longer, higher efficiency blades with higher composite content.
Gross margin for the third quarter was 27.6% compared to 27.1% in the third quarter of 2016, and 28.0% and 28.2% for the first nine months of 2017 and 2016, respectively, as all periods reflected strong operating performance. As expected, the first nine months of 2017 included about $8 million of costs related to the startup and training for the new greenfield sites in France and Morocco.
Selling, general and administrative expenses for the third quarter and first nine months were slightly lower in constant currency (3% for the first nine months) than the prior year as we maintained tight cost control. Research and technology expenses for the first nine months of $36.5 million was about 7% higher in constant currency than the comparable 2016 period as we continued to invest in innovative composite products and solutions to support our customers and next generation products.
Free cash flow (defined as cash provided by operating activities less capital expenditures) for the first nine months of 2017 was a source of $87 million versus $55 million in 2016. For the first nine months of 2017, working capital generated $5 million as compared to a $38 million use in the first nine months of 2016. The primary driver was an improvement in receivables due to continued strong collections.
Accrual basis additions to capital expenditures were $218 million in 2017 and $233 million in 2016. We expect accrual basis capital expenditures to be in the $270 million to $290 million range in 2017, as wemay continue to expand capacity to meet the planned needs ofhave further negative impacts on our customers.
Results of Operations
|
| Quarter Ended September 30, |
|
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
|
| ||||||||||||||
(In millions, except per share data) |
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
| ||||||||||
Net sales |
| $ | 491.5 |
|
| $ | 500.5 |
|
|
| (1.8 | )% |
| $ |
| 1,461.6 |
|
| $ |
| 1,520.8 |
|
|
| (3.9 | )% | ||
Net sales change in constant currency |
|
|
|
|
|
|
|
|
|
| (2.4 | )% |
|
|
|
|
|
|
|
| (3.5 | )% | ||||||
Operating income |
|
|
| 89.1 |
|
|
| 89.1 |
|
|
| (0.0 | )% |
|
| 257.4 |
|
|
|
| 273.1 |
|
|
| (5.7 | )% | ||
As a percentage of net sales |
| 18.1 |
| % | 17.8 |
| % |
|
|
|
|
| 17.6 |
| % | 18.0 |
| % |
|
|
| |||||||
Net income |
|
| 69.7 |
|
|
| 68.2 |
|
|
| 2.2 | % |
|
| 195.9 |
|
|
| 190.3 |
|
|
| 2.9 | % | ||||
Diluted net income per common share |
| $ |
| 0.76 |
|
| $ |
| 0.72 |
|
|
|
|
|
| $ |
| 2.13 |
|
| $ |
| 2.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Non-GAAP measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted net income |
| $ | 65.5 |
|
| $ | 61.6 |
|
|
| 6.3 | % |
| $ | 182.6 |
|
| $ |
| 184.0 |
|
|
| (0.8 | )% | |||
Adjusted diluted earnings per share |
| $ |
| 0.71 |
|
| $ |
| 0.65 |
|
|
|
|
|
| $ |
| 1.98 |
|
| $ |
| 1.94 |
|
|
|
|
|
The Company’s performance measurements include sales measured in constant dollars, net income adjusted for special itemsoperations, supply chain, transportation networks and free cash flow,customers, all of which have and may continue to compress our margins, even after the preventative and precautionary measures that we, other businesses, and governments are non-GAAP measures. Management believes these non-GAAP measurementstaking.
We are meaningfulalso continuing to investors because they provide a view of Hexcel with respect to ongoing operating results. Special items represent significant charges or credits that are important to understanding Hexcel’s overall operating resultsmonitor developments in the periods presented. Such non-GAAP measurementsongoing conflict between Russia and Ukraine including the related export controls and resulting sanctions imposed on Russia by the U.S. and other countries. Although we do not presently foresee direct material adverse effects upon our business, the global implications of the Russian/Ukraine conflict are not recognizeddifficult to predict at this time. Factors such as increased inflation, escalating energy costs, constrained raw material availability, and thus increasing costs, and embargos on flights from Russian airlines could impact the global economy and the aerospace industry in accordance with generally accepted accounting principles and should not be viewed as an alternative to GAAP measuresparticular.
Financial Overview
Results of performance. The following is a reconciliation from GAAP to non-GAAP amounts.Operations
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||
(In millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
Net income |
| $ | 69.7 |
|
| $ | 68.2 |
|
| $ | 195.9 |
|
| $ | 190.3 |
| ||||
Accelerated amortization of deferred financing costs |
|
| ― |
|
|
| ― |
|
|
| ― |
|
|
| 0.3 |
| ||||
Discrete tax benefits (a) |
|
|
| (4.2 | ) |
|
|
| (6.6 | ) |
|
|
| (13.3 | ) |
|
|
| (6.6 | ) |
Adjusted net income (Non-GAAP) |
| $ | 65.5 |
|
| $ | 61.6 |
|
| $ | 182.6 |
|
| $ |
| 184.0 |
|
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
(In millions, except per share data) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
Net sales |
| $ | 393.0 |
|
| $ | 320.3 |
|
|
| 22.7 | % |
| $ | 783.6 |
|
| $ | 630.6 |
|
|
| 24.3 | % |
Net sales change in constant currency |
|
|
|
|
|
|
|
| 25.9 | % |
|
|
|
|
|
|
|
| 26.7 | % | ||||
Operating income |
| $ | 63.8 |
|
| $ | 16.2 |
|
|
| 293.8 | % |
| $ | 93.9 |
|
| $ | 6.0 |
|
|
| 1,465.0 | % |
As a percentage of net sales |
|
| 16.2 | % |
|
| 5.1 | % |
|
|
|
|
| 12.0 | % |
|
| 1.0 | % |
|
|
| ||
Net income (loss) |
|
| 44.7 |
|
|
| 2.2 |
|
|
| 1,931.8 | % |
|
| 62.5 |
|
|
| (11.8 | ) |
|
| 629.7 | % |
Diluted net income (loss) per common share |
| $ | 0.53 |
|
| $ | 0.03 |
|
|
| 1,666.7 | % |
| $ | 0.74 |
|
| $ | (0.14 | ) |
|
| 628.6 | % |
|
|
|
| For the Nine Months Ended September 30, |
| |||||||
(In millions) |
| 2017 |
|
| 2016 |
| ||||
Net cash provided by operating activities |
| $ |
| 308.5 |
|
| $ | 286.8 |
| |
Less: Capital expenditures |
|
|
| (221.3 | ) |
|
|
| (231.8 | ) |
Free cash flow (Non-GAAP) |
| $ |
| 87.2 |
|
| $ |
| 55.0 |
|
18
Net Sales
The following table summarizes net sales to third-party customers by segment and end market for the quarters ended June 30, 2022 and nine months ended September 30, 2017 and 20162021:
|
| Quarter Ended September 30, |
|
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
|
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||
(In millions) |
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||||||||||||
Consolidated Net Sales |
| $ |
| 491.5 |
|
| $ |
| 500.5 |
|
|
| (1.8 | )% |
|
|
| 1,461.6 |
|
| $ |
| 1,520.8 |
|
|
| (3.9 | )% |
| $ | 393.0 |
|
| $ | 320.3 |
|
|
| 22.7 | % |
| $ | 783.6 |
|
| $ | 630.6 |
|
|
| 24.3 | % |
Commercial Aerospace |
| 352.6 |
|
| 360.6 |
|
|
| (2.2 | )% |
| 1,048.7 |
|
| 1,079.4 |
|
|
| (2.8 | )% |
|
| 227.6 |
|
|
| 153.7 |
|
|
| 48.1 | % |
|
| 446.5 |
|
|
| 301.3 |
|
|
| 48.2 | % | ||||||||
Space & Defense |
| 82.7 |
|
| 81.5 |
|
|
| 1.5 | % |
| 247.3 |
|
| 242.6 |
|
|
| 1.9 | % |
|
| 111.9 |
|
|
| 106.9 |
|
|
| 4.7 | % |
|
| 230.1 |
|
|
| 218.6 |
|
|
| 5.3 | % | ||||||||
Industrial |
| 56.2 |
|
| 58.4 |
|
|
| (3.8 | )% |
| 165.6 |
|
| 198.8 |
|
|
| (16.7 | )% |
|
| 53.5 |
|
|
| 59.7 |
|
|
| (10.4 | )% |
|
| 107.0 |
|
|
| 110.7 |
|
|
| (3.3 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Composite Materials |
| $ | 398.9 |
|
| $ | 398.2 |
|
|
| 0.2 | % |
| $ |
| 1,183.7 |
|
| $ |
| 1,219.3 |
|
|
| (2.9 | )% |
| $ | 318.1 |
|
| $ | 240.9 |
|
|
| 32.0 | % |
| $ | 631.9 |
|
| $ | 478.1 |
|
|
| 32.2 | % | ||
Commercial Aerospace |
| 277.1 |
|
| 276.0 |
|
|
| 0.4 | % |
| 820.2 |
|
| 828.3 |
|
|
| (1.0 | )% |
|
| 192.0 |
|
|
| 116.4 |
|
|
| 64.9 | % |
|
| 376.8 |
|
|
| 228.9 |
|
|
| 64.6 | % | ||||||||
Space & Defense |
| 65.6 |
|
| 63.8 |
|
|
| 2.8 | % |
| 197.9 |
|
| 192.2 |
|
|
| 3.0 | % |
|
| 73.9 |
|
|
| 66.0 |
|
|
| 12.0 | % |
|
| 150.5 |
|
|
| 140.8 |
|
|
| 6.9 | % | ||||||||
Industrial |
| 56.2 |
|
| 58.4 |
|
|
| (3.8 | )% |
| 165.6 |
|
| 198.8 |
|
|
| (16.7 | )% |
|
| 52.2 |
|
|
| 58.5 |
|
|
| (10.8 | )% |
|
| 104.6 |
|
|
| 108.4 |
|
|
| (3.5 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Engineered Products |
| $ |
| 92.6 |
|
| $ | 102.3 |
|
|
| (9.5 | )% |
| $ | 277.9 |
|
| $ | 301.5 |
|
|
| (7.8 | )% |
| $ | 74.9 |
|
| $ | 79.4 |
|
|
| (5.7 | )% |
| $ | 151.7 |
|
| $ | 152.5 |
|
|
| (0.5 | )% | |||
Commercial Aerospace |
| 75.5 |
|
| 84.6 |
|
|
| (10.8 | )% |
| 228.5 |
|
| 251.1 |
|
|
| (9.0 | )% |
|
| 35.6 |
|
|
| 37.3 |
|
|
| (4.6 | )% |
|
| 69.7 |
|
|
| 72.4 |
|
|
| (3.7 | )% | ||||||||
Space & Defense |
| 17.1 |
|
| 17.7 |
|
|
| (3.4 | )% |
| 49.4 |
|
| 50.4 |
|
|
| (2.0 | )% |
|
| 38.0 |
|
|
| 40.9 |
|
|
| (7.1 | )% |
|
| 79.6 |
|
|
| 77.8 |
|
|
| 2.3 | % | ||||||||
Industrial |
| — |
|
| — |
|
| N/A |
|
| — |
|
| — |
|
| N/A |
|
|
| 1.3 |
|
|
| 1.2 |
|
|
| 8.3 | % |
|
| 2.4 |
|
|
| 2.3 |
|
|
| 4.3 | % |
Sales by Segment
Composite Materials: Net sales of $398.9$318.1 million in the thirdsecond quarter of 20172022 increased $0.7by $77.2 million or 32.0% from the $398.2prior year quarter. Commercial Aerospace sales increased $75.6 million or 64.9% in the second quarter of 2022 as compared to the prior year quarter primarily due to stronger narrowbody and A350 sales as a 3.8% decrease in Industrial sales was offset by a slight increase in Commercial Aerospace and Space & Defense sales. Net sales for the first nine months of 2017 declined by 2.9%well as compared with the first nine months of 2016. As expected, wind energy sales were down about 30% in the quarter and the first nine months of 2017. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, once the transition from certain blade models with lower composite content to longer blades with higher content in 2018 is completed.
Engineered Products:business jet growth. Net sales of $92.6 million in the third quarter of 2017 decreased $9.7 million from the $102.3 million for 2016 as driven by a decline in Commercial Aerospace sales, primarily due to the decline in legacy widebody aircraft rates. The decrease of 7.8% in net sales to $277.9$631.9 million for the first ninesix months of 20172022 increased32.2% compared to the same period last year.
Engineered Products: For the second quarter of 2022, net sales of $74.9 million decreased $4.5 million or 5.7% as compared to the prior year quarter. The decrease was alsoprimarily driven by a declineslightly lower Space & Defense sales which were down $2.9 million or 7.1% in Commercial Aerospace sales.the second quarter of 2022 as compared to the same period in 2021. Net sales of $151.7 million for the first six months of 2022 were relatively flat compared to the same period last year.
Sales by Market
Commercial Aerospace:Commercial Aerospace sales of $352.6$227.6 million were 2.2% lower (2.5%increased $73.9 million or 48.1% (49.5% in constant currency) for the second quarter asof 2022 compared to the thirdsecond quarter of 2016. Net sales2021 led by growth in the A350 and A320neo programs as well as the 737 MAX program. Other Commercial Aerospace, which includes business jets and regional aircraft, increased 75.4% for the second quarter of 2022 compared to the second quarter of 2021. Sales were significantly lower in the prior year period for most programs as channel destocking was still occurring. Sales of $446.5 million for the first ninesix months of 2017 declined 2.7% on a2022, increased 48.2% (49.3% in constant currency basis to $1,048.7 million ascurrency) compared to the first ninesix months of 2016.2021due to stronger narrowbody and A350 sales whereas sales in the prior year period were impacted by channel destocking. Sales declines in certain legacy widebody aircraft (i.e. A380, B777 and B747) slightly more than offset the growth of the A350 and new narrowbody aircraft.
Sales to other commercial aerospace,Other Commercial Aerospace, which includes business jets and regional and business aircraft, customers, were down 6% for the third quarter 2017 and down about 7%increased 72.9% for the first ninesix months of 2017 as2022 compared to 2016, driven by lower business jet sales.the same period in 2021.
Space & Defense: Space & Defense sales of $82.7$111.9 million increased 1.5% (0.7%4.7% (7.0% in constant currency) for the second quarter asof 2022 compared to the thirdsecond quarter of 2016. Rotorcraft sales comprise just over half2021led by growth in Space, CH-53K heavy lift helicopters and a number of Space & Defense with strong military performance offset by weaker commercial sales. Space & Defense salesoverseas programs. Sales of $230.1 million for the first ninesix months of $247.3 million were 2.6% higher2022 increased 5.3% (7.0% in constant currency than sales forcurrency) compared to the first ninesix months of 2016. The increase was driven by U.S. military rotorcraft2021 due to growth in Space and the JSF program CH-53K program.
.
Industrial: SalesTotal Industrial sales in the second quarter of $56.22022 of $53.5 million decreased 10.4% (3.5% in constant currency) compared to the second quarter of 2021 as lower wind energy sales was only partially offset by growth in automotive, recreation and other industrial sales.Total Industrial sales of $107.0 million for the third quartersix months of 2017 were 3.8% lower (6.5%2022, decreased 3.3% (2.6% increase in constant currency) than the third quarter of 2016. Wind energy sales were down more than 25% for the third quarter compared to the 2016 quarter. Industrial sales for the first ninesix months of 2017 were $165.6 million or 15.4%2021 despite growth in automotive, recreation and other industrial markets which was not enough to offset the negative impact of lower in constant currency than sales for the first nine months of 2016. As expected, wind energy sales (the largest submarket in Industrial) are experiencing a challenging year and were down just over 30% for the first nine months of 2017 as compared to last year. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, as various legacy blades with lower composite content transition to longer, higher efficiency blades with higher composite content.sales.
19
Gross Margin
|
| Quarter Ended September 30, |
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
|
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||||||
(In millions) |
| 2017 |
| 2016 |
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||||||||||
Gross margin |
| $ | 135.6 |
| $ | 135.7 |
|
| (0.1 | )% |
| $ |
| 409.6 |
|
| $ |
| 429.0 |
|
|
| (4.5 | )% |
| $ | 89.5 |
|
| $ | 61.9 |
|
|
| 44.6 | % |
| $ | 176.2 |
|
| $ | 115.0 |
|
|
| 53.2 | % |
Percentage of sales |
| 27.6 | % | 27.1 | % |
|
|
|
| 28.0 |
| % | 28.2 |
| % |
|
|
|
|
| 22.8 | % |
|
| 19.3 | % |
|
|
|
|
| 22.5 | % |
|
| 18.2 | % |
|
|
|
Gross margin for the thirdsecond quarter of 2022 was 27.6%22.8% compared to 27.1%19.3% in the thirdsecond quarter of 2016,2021 and 28.0%was 22.5% and 28.2%18.2% for the first ninesix months of 20172022 and 2016, respectively, as all periods reflected strong operating performance. As expected,2021, respectively. The improvements in the gross margin for both the second quarter and first ninesix months of 2017 included about $8 million of costs related2022 compared to the startupsame periods last year was primarily due to the higher sales and traininggreater capacity utilization which led to improved cost absorption.
Operating Expenses
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
SG&A expense |
| $ | 33.5 |
|
| $ | 31.1 |
|
|
| 7.7 | % |
| $ | 78.2 |
|
| $ | 70.7 |
|
|
| 10.6 | % |
Percentage of sales |
|
| 8.5 | % |
|
| 9.7 | % |
|
|
|
|
| 10.0 | % |
|
| 11.2 | % |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
R&T expense |
| $ | 11.3 |
|
| $ | 11.5 |
|
|
| (1.7 | )% |
| $ | 22.2 |
|
| $ | 23.1 |
|
|
| (3.9 | )% |
Percentage of sales |
|
| 2.9 | % |
|
| 3.6 | % |
|
|
|
|
| 2.8 | % |
|
| 3.7 | % |
|
|
|
Selling, general and administrative expenses were higher for the new greenfield sitessecond quarter of 2022 compared to the same period in France and Morocco.
Operating Expenses
|
| Quarter Ended September 30, |
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
|
| ||||||||||||
(In millions) |
| 2017 |
| 2016 |
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
| |||||||||
SG&A expense |
| $ | 34.7 |
| $ |
| 35.1 |
|
| (1.1 | )% |
| $ |
| 115.7 |
|
| $ |
| 121.1 |
|
|
| (4.5 | )% |
Percentage of sales |
| 7.1 | % | 7.0 | % |
|
|
|
| 7.9 |
| % | 8.0 |
| % |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&T expense |
| $ | 11.8 |
| $ |
| 11.5 |
|
| 2.6 | % |
| $ | 36.5 |
|
| $ | 34.8 |
|
|
| 4.9 | % | ||
Percentage of sales |
| 2.4 | % | 2.3 | % |
|
|
|
| 2.5 |
| % | 2.3 |
| % |
|
|
|
Selling,2021, although the current quarter expenses were lower as a percentage of sales. The increase in selling, general and administrative expenses for the thirdcurrent quarter was primarily driven by higher employee compensation reflecting the increase in global headcount. Research and technology expenses were relatively flat compared to the prior year quarter. Selling, general and administrative expenses were higher for the first ninesix months of 2022 compared to the same period in 2021, although lower as a percentage of sales, due to higher employee compensation reflecting the increase in global headcount. Research and technology expenses for the first six months of 2022 were slightly lower in constant currency (3%compared to the prior year due to lower depreciation expense.
Operating Income
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
Consolidated operating income |
| $ | 63.8 |
|
| $ | 16.2 |
|
|
| 293.8 | % |
| $ | 93.9 |
|
| $ | 6.0 |
|
|
| 1,465.0 | % |
Operating margin |
|
| 16.2 | % |
|
| 5.1 | % |
|
|
|
|
| 12.0 | % |
|
| 1.0 | % |
|
|
| ||
Composite Materials |
|
| 47.2 |
|
|
| 24.5 |
|
|
| 92.7 | % |
|
| 89.8 |
|
|
| 31.9 |
|
|
| 181.5 | % |
Operating margin |
|
| 14.0 | % |
|
| 9.6 | % |
|
|
|
|
| 13.5 | % |
|
| 6.3 | % |
|
|
| ||
Engineered Products |
|
| 9.1 |
|
|
| 5.9 |
|
|
| 54.2 | % |
|
| 19.7 |
|
|
| 10.6 |
|
|
| 85.8 | % |
Operating margin |
|
| 12.0 | % |
|
| 7.4 | % |
|
|
|
|
| 12.9 | % |
|
| 6.9 | % |
|
|
| ||
Corporate & Other |
|
| 7.5 |
|
|
| (14.2 | ) |
| N/M |
|
|
| (15.6 | ) |
|
| (36.5 | ) |
|
| 57.3 | % |
Operating income for the second quarters of 2022 and 2021 was $63.8 million and $16.2 million, respectively. Operating income for the first ninesix months of 2022 was $93.9 million compared to $6.0 million for the same period last year. The increase in constant currency) thanoperating income for both the second quarter and six months of 2022 over the same periods last year was primarily driven by higher sales and strong gross margins as well as the gain on the sale of our Dublin, California facility and lower restructuring costs.
Interest Expense, Net
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
Interest expense, net |
| $ | 8.9 |
|
| $ | 9.3 |
|
|
| (4.3 | )% |
| $ | 18.0 |
|
| $ | 19.6 |
|
|
| (8.2 | )% |
Interest expense for both the quarter and six months ended June 30, 2022 was lower compared to the prior year periods due to lower average debt levels, partially offset by higher interest rates.
20
Provision for Income Taxes
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Income tax expense (benefit) |
| $ | 12.7 |
|
| $ | 4.0 |
|
| $ | 17.4 |
|
| $ | (3.5 | ) |
Effective tax rate |
|
| 22.9 | % |
|
| 58.0 | % |
|
| 22.8 | % |
|
| 25.7 | % |
The tax expense for the quarter ended June 30, 2022 was $12.7 million compared to $4.0 million for the second quarter of 2021. The quarter ended June, 2021 included a discrete tax charge of $2.7 million related to the remeasurement of the net deferred tax liability in a foreign tax jurisdiction as we maintained tight cost controls. Research and technologya result of an unfavorable tax rate change. Tax expense for the first ninesix months of $36.5ended June 30, 2022 was $17.4 million was about 7% higher in constant currency than the comparable 2016 period as we continue to invest in innovative composite products and solutions to support our customers and next-generation products.
Operating Income
|
| Quarter Ended September 30, |
|
|
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
|
|
| ||||||||||||||||
(In millions) |
| 2017 |
|
|
| 2016 |
|
|
| % Change |
|
| 2017 |
|
|
| 2016 |
|
|
| % Change |
| ||||||||||
Consolidated operating income |
|
| 89.1 |
|
|
| $ | 89.1 |
|
|
|
| (0.0 | )% |
| $ | 257.4 |
|
|
| $ |
| 273.1 |
|
|
|
| (5.7 | )% | |||
Operating margin |
|
|
| 18.1 |
| % |
|
|
| 17.8 |
| % |
|
|
|
|
|
|
| 17.6 |
| % |
|
|
| 18.0 |
| % |
|
|
|
|
Composite Materials |
|
|
| 90.0 |
|
|
|
| 88.8 |
|
|
|
| 1.4 | % |
|
|
| 264.0 |
|
|
|
| 281.2 |
|
|
|
| (6.1 | )% | ||
Operating margin |
|
|
| 21.7 |
| % |
|
|
| 21.4 |
| % |
|
|
|
|
|
|
| 21.4 |
| % |
|
|
| 22.1 |
| % |
|
|
|
|
Engineered Products |
|
| 12.1 |
|
|
|
| 12.9 |
|
|
|
| (6.2 | )% |
|
| 37.2 |
|
|
|
| 36.8 |
|
|
|
| 1.1 | % | ||||
Operating margin |
|
|
| 13.1 |
| % |
|
|
| 12.6 |
| % |
|
|
|
|
|
|
| 13.4 |
| % |
|
|
| 12.2 |
| % |
|
|
|
|
Corporate & Other |
|
|
| (13.0 | ) |
|
|
|
| (12.6 | ) |
|
|
| 3.2 | % |
|
|
| (43.8 | ) |
|
|
|
| (44.9 | ) |
|
|
| (2.4 | )% |
Operating income for each of the third quarters of 2017 and 2016 was $89.1 million. The quarter and first nine months of 2017 were favorably impacted from exchange rates by about 40 basis points and 50 basis points compared to the corresponding 2016 periods, respectively. For the first nine monthsa benefit of 2017, depreciation and amortization expense was $8$3.5 million higher in constant currency than the comparable period for 2016.
Interest Expense, Net
|
| Quarter Ended September 30, |
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
| ||||||||||||
(In millions) |
| 2017 |
|
| 2016 |
| % Change |
|
| 2017 |
|
| 2016 |
| % Change |
| ||||||||
Interest expense, net |
| $ |
| 7.0 |
|
| $ | 5.5 |
|
| 27.3 | % |
| $ |
| 20.0 |
|
| $ | 16.8 |
|
| 19.0 | % |
Interest expense for the third quarter and ninesame period of 2021. The tax benefit for the six months ended SeptemberJune 30, 2017 increased over the comparable period of 2016 due2021 included a discrete tax benefit related to a higher average interest ratefavorable U.S state tax law change in addition to the discrete tax charge previously mentioned.
Financial Condition
Liquidity: Cash on debt outstanding as a result of the Company issuance, in February 2017, of $400 million of 3.95% senior unsecured notes due in 2027. In addition, debt increased as we continue to invest in capacity, while also returning funds to stockholders through stock buybacks and dividends.
Provision for Income Taxes
|
| Quarter Ended September 30, |
|
|
| Nine Months Ended September 30, |
|
| ||||||||||||||||
(In millions) |
| 2017 |
|
|
| 2016 |
|
|
| 2017 |
|
|
| 2016 |
|
| ||||||||
Income tax expense |
| $ | 13.6 |
|
|
| $ | 16.1 |
|
|
| $ | 44.3 |
|
|
| $ | 67.5 |
|
| ||||
Effective tax rate |
|
|
| 16.5 |
| % |
|
|
| 19.3 |
| % |
|
|
| 18.6 |
| % |
|
|
| 26.4 |
| % |
The effective tax rate for the third quarterhand at June 30, 2022 was 16.5% compared to 19.3% for the third quarter of 2016, and the effective tax rate for the first nine months of 2017 was 18.6% compared to 26.4% in 2016. The quarter benefitted from the impact of tax credits identified during the quarter, while both the quarter and the first nine months’ provisions benefitted from deductions associated with share-based compensation payments. The third quarter provisions in 2017 and 2016 included non-recurring discrete benefits of $4.2 million and $6.6 million from the reversal of provisions for uncertain tax provisions. The provision for the first nine months of 2017 also included a non-recurring discrete benefit of $9.1 million from the release of a valuation allowance in a foreign jurisdiction. Excluding these discrete benefits, the effective tax rate for the first nine months was 24.2%.
Financial Condition
Liquidity: As of September 30, 2017, our total debt, net of cash, was $714.7$99.2 million as compared to $653.5$127.7 million at December 31, 2016. The increase in2021.As of June 30, 2022, total debt was $812.5 million as compared to $823.3 million at December 31, 2021.
In September 2020, we amended our Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period. On January 28, 2021, we entered into the Second Amendment, which further amended the Facility agreement to provide that, from January 28, 2021 through and including March 31, 2022, we would not be subject to a maximum leverage ratio covenant but instead be required to maintain Liquidity (as defined in the first nine monthsFacility agreement) of 2017 primarily reflects $122.0 million in stock repurchasesat least $250 million. Effective April 1, 2022, the original terms and dividends of $31 million partially offset by free cash flow of $87 million. In February 2017, the Company issued $400 million aggregate principal amount of 3.95% Senior Unsecured Notes due in 2027. The interest rate on these senior notes may be increased by 0.25% each time a credit rating applicableconditions to the notes is downgraded.Facility agreement were reinstated except the borrowing capacity which will remain at $750 million. As a result, share repurchases restrictions that had been in effect per the Second Amendment expired on March 31, 2022. The maximum rate is 5.95%. The net proceedsremaining authorization under the share repurchase program at June 30, 2022 was $217 million.
As of approximately $395 million were initially used to repay, in part, $350 million of our Senior Unsecured Revolving Credit Facility (the “Facility”) and the remainder was used for general purposes including share repurchases. At SeptemberJune 30, 2017,2022, total borrowings under our $700the Facility were $114 million, Facility were $75 million.which approximated fair value. The Facility agreement permits us to issue letters of credit up to an aggregate amount of $40.0$50 million. Outstanding letters of credit reduce the amount available for borrowing under our revolving loan.the Facility. As of SeptemberJune 30, 2017, we had not2022, there were no issued any letters of credit under the Facility, resulting in undrawn availability under the Facility as of September 30, 2017 of $625.0$636 million.
The Facility contains financial and other covenants, including, but not limited to, restrictions on the incurrence of debt and the granting of liens, as well as the maintenance of anweighted average interest coverage ratio and a leverage ratio. In accordance with the terms ofrate for the Facility we are required to maintain a minimum interest coverage ratio of 3.50 (based onwas 4.2% for the ratio of EBITDA, as defined in the credit agreement, to interest expense) and may not exceed a maximum leverage ratio of 3.50 (based on the ratio of total debt to EBITDA) throughout the term of the Facility. In addition, the Facility contains other terms and conditions such as customary representations and warranties, additional covenants and customary events of default. The conditions and covenants related to the senior notes are less restrictive than those of our Facility. As of Septembersix months ended June 30, 2017, we were in compliance with all debt covenants and expect to remain in compliance.2022.
We expect to meet our short-term liquidity requirements (including capital expenditures) through net cash from operating activities, cash on hand and the Facility. As of SeptemberJune 30, 2017,2022, long-term liquidity requirements consist primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until September 2021June 2024 when the Facility expires.
In 2021, the Company applied for the Aviation Manufacturing Jobs Protection ("AMJP") program, created under the American Rescue Plan Act of 2021, which provides funding to eligible businesses to pay up to half of their compensation costs for certain categories of employees, for up to six months. To qualify for funding, eligible companies must have involuntarily furloughed or laid off at least 10% of its U.S. workforce or have experienced at least a 15% decline in 2020 global operating revenue. In September 2021, the U.S. Department of Transportation announced that it had approved for the Company to receive up to $20.9 million under the AMJP program. The Company received $10.5 million of the offered funds in the fourth quarter of 2021 and anticipates receiving the remaining funds in 2022.
On July 25, 2022, our Board of Directors declared a quarterly dividend of $0.10 per share payable to stockholders of record as of August 5, 2022, with a payment date of August 12, 2022.
Operating Activities:Net cash provided by operating activities for the first six months of 2022 was $308.5$18.3 million compared to $38.9 million for the same period last year. Working capital was a cash use of $95.1 million for the first six months of 2022 compared to a use of $19.6 million in the first nine months of 2017, as compared to $286.8 millionsame period in the first nine months of 2016. Working capital generated $4.6 million of cash in the first nine months of 2017 versus a usage of $38.2 million in the first nine months of 2016, as2021 primarily driven by higher inventory and accounts receivable collections remain strong.to support higher sales.
Investing Activities: Net cash used for investing activities of $233was $16.2 million and $265$9.2 million in the first ninesix months of 20172022 and 2016, respectively, was for capital expenditures and investments.2021, respectively. The first six months of 2022 included net proceeds of approximately $21.2 million from the sale of our Dublin, California facility. Capital expenditures for the first six months of 2022 were $221.3$37.9 million and $231.8compared to $9.2 million in the same period in 2021. The increase in capital expenditures is primarily driven by two ongoing construction projects for the previously announced construction of a research and technology innovation center in Salt Lake City, Utah. and the expansion of Hexcel’s facility in Morocco.
21
Financing Activities: Net cash used for financing activities was $26.6 million for first ninesix months of 2017 and 2016, respectively.
In 2017, we made additional investments for a total of $122022 compared to $16.6 million in Oxford Performance Materials (“OPM”) and Carbon Conversions Incorporated (“CCI”). OPM produces thermoplastic, carbon fiber reinforced 3D printed parts for aerospace and medical
applications and CCI is a leaderthe same period in carbon fiber recycling and repurposing. The investment in 2016 represented2021. Borrowings under the acquisitionFacility during the first six months of the remaining 50% of Formax (UK) Limited the initial investment in OPM and a convertible secured loan2022 was $35.0 million, while repayments were $46.0 million compared to Luminati Aerospace LLC.
Financing Activities: Financing activities generated $1.0$21.0 million and used $27.3 million of net cash in the first nine months of 2017 and 2016, respectively. The first nine months ended September 30, 2017 reflects $400 million from the issuance of the 3.95% senior notes and $37 million from the issuance of the Euro term loan, offset by the repayment of $290 million of the Facility, and $153 million returned to stockholders from stock repurchases and dividends. The first nine months of 2016 primarily reflects increased borrowings of $63 million from the Facility and $27 million from the Euro term loan less $115 million returned to stockholders from stock repurchases and dividends.
prior year. In the first ninequarter of 2022, we reinstated our quarterly dividend payment, which had previously been suspended as of early 2020. $16.8 million in dividend payments were made to shareholders during the first six months of 2017, the Company repurchased $122 million of shares of common stock under the repurchase plans. In October 2015, our Board authorized the repurchase of $250 million of the Company’s stock (“2015 Repurchase Plan”) which was completed in the second quarter of 2017. In February 2017, our Board authorized the repurchase of an additional $300 million of the Company’s stock (“2017 Repurchase Plan”) of which $270.7 million remains under the 2017 Repurchase Plan.2022.
Financial Obligations and Commitments: As of September 30, 2017, the current portion of debt includes $4.2 million related to the Euro term loan.
The next significant scheduled debt maturity will not occur until 2021,2024, when the senior unsecured credit facilityFacility matures. Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases.
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors management believes to be relevant at the time our condensed consolidated financial statementsCondensed Consolidated Financial Statements are prepared. On a regular basis, management reviews accounting policies, assumptions, estimates and judgments to ensure our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our assumptions and estimates, and such differences could be material.
We describe our significant accounting policies and critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2021.
Commitments and Contingencies
We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors, including the stage of the proceeding; potential settlement value; assessments by internal and external counsel; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and circumstances may change, such as new developments, or a change in approach, including a change in settlement strategy or in an environmental remediation plan, or in our existing insurance coverage, that could cause the actual liability to exceed the estimates, or may require adjustments to the recorded liability balances in the future. For further discussion, see Note 11, Commitments and Contingencies, to the accompanying Condensed Consolidated Financial Statements of this Form 10-Q.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures, including sales and expenses measured in constant dollars (prior year sales and expenses measured at current year exchange rates); operating income, net income and earnings per share adjusted for items included in operating expense and non-operating expenses; and free cash flow. Management believes these non-GAAP measures are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results and comparisons to prior periods. These adjustments can represent significant charges or credits that we believe are important to an understanding of Hexcel’s overall operating results in the periods presented. Such non-GAAP measures are not determined in accordance with generally accepted accounting principles and should not be viewed in isolation or as an alternative to or substitutes for GAAP measures of performance. Our estimatecalculation of liabilitythese measures may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance. Reconciliations to adjusted operating income, adjusted net income, adjusted diluted net income per share and free cash flow are provided below.
|
| Operating Income |
| ||||||||||||||
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||
(In millions) | 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
GAAP operating income |
| $ | 63.8 |
|
|
| $ | 16.2 |
|
| $ | 93.9 |
|
| $ | 6.0 |
|
Other operating (income) expense (a) |
|
| (19.1 | ) |
|
|
| 3.1 |
|
|
| (18.1 | ) |
|
| 15.2 |
|
Adjusted operating income (non-GAAP) |
| $ | 44.7 |
|
|
| $ | 19.3 |
|
| $ | 75.8 |
|
| $ | 21.2 |
|
22
|
| Quarter Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
(In millions, except per diluted share data) |
| Net Income |
|
| Diluted Net Income Per Share |
|
| Net income |
|
| Diluted Net Income Per Share |
|
| Net Income |
|
| Diluted Net Income Per Share |
|
| Net (Loss) Income |
|
| Diluted Net (Loss) Income Per Share |
| ||||||||
GAAP net income (loss) |
| $ | 44.7 |
|
| $ | 0.53 |
|
| $ | 2.2 |
|
| $ | 0.03 |
|
| $ | 62.5 |
|
| $ | 0.74 |
|
| $ | (11.8 | ) |
| $ | (0.14 | ) |
Other operating (income) expense, net of tax (a) |
|
| (16.3 | ) |
|
| (0.20 | ) |
|
| 2.2 |
|
|
| 0.02 |
|
|
| (15.5 | ) |
|
| (0.19 | ) |
|
| 11.0 |
|
|
| 0.13 |
|
Other income |
| $ | (0.3 | ) |
|
|
|
|
|
|
|
|
|
| $ | (0.3 | ) |
|
|
|
|
|
|
|
|
| ||||||
Tax benefit (b) |
|
| — |
|
|
| - |
|
|
| 2.7 |
|
|
| 0.03 |
|
|
| — |
|
|
| — |
|
|
| (0.5 | ) |
|
| (0.01 | ) |
Adjusted net income (loss) (non-GAAP) |
| $ | 28.1 |
|
| $ | 0.33 |
|
| $ | 7.1 |
|
| $ | 0.08 |
|
| $ | 46.7 |
|
| $ | 0.55 |
|
| $ | (1.3 | ) |
| $ | (0.02 | ) |
|
| Six Months Ended June 30, |
| |||||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Net cash used for operating activities |
| $ | 18.3 |
|
| $ | 38.9 |
|
Less: Capital expenditures |
|
| (37.9 | ) |
|
| (9.2 | ) |
Free cash flow (non-GAAP) |
| $ | (19.6 | ) |
| $ | 29.7 |
|
Forward-Looking Statements
CertainThis report contains forward-looking statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “should”, “would”,“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should," "seek," “target,” “would,” “will” and similar terms and phrases, including references to assumptions. Such statements are based on current expectations, are inherently uncertain and are subject to changing assumptions.
Such forward-looking statements include, but are not limited to: (a) the estimates and expectations based on aircraft production rates made publicly availableprovided by Airbus, Boeing and others; (b) the revenues we may generate from an aircraft model or program; (c) the impact of the possible push-out in deliveries of the Airbus and Boeing backlog and the impact of delays in the startup or ramp-up of new aircraft programs or the final Hexcel composite material content once the design and material selection have been completed; (d) expectations with regard to regulatory clearances or the build rate of the Boeing 737 MAX or Boeing 787 and the related impact on our revenues; (e) expectations with regard to raw material cost and availability; (f) expectations of composite content on new commercial aircraft programs and our share of those requirements; (e)(g) expectations of growth inregarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; (f)(h) expectations regarding growth in sales for wind energy, recreation, automotive and other industrial applications; (g)(i) expectations regarding working capital trends and expenditures; (h)expenditures and inventory levels; (j) expectations as to the level of capital expenditures and when we will complete the constructioncompletion of capacity expansions and qualification of capacity expansions; (i)new products; (k) expectations regarding our ability to improve or maintain and improve margins in light of the ramp-up of capacity and new facilities and the current economic environment; (j)margins; (l) expectations regarding the outcome of legal matters; (k)matters or the impact of changes in laws or regulations or government policies; (m) our projections regarding our tax rate; (n) expectations with regard to the realizability of net operating loss and tax credit carryforwards; and (l) thecontinued impact of various market risks, including fluctuations in interest rates, currency exchange rates, environmental regulations and tax codes, fluctuations in commodity prices, and fluctuations in the market price of our common stock, the impact of work stoppages or other labor disruptionsCOVID-19 pandemic and the impact of the above factorsconflict between Russia and Ukraine on worldwide air travel and aircraft programs, as well as on our customers and suppliers and, in turn, on our operations and financial results; (o) expectations of 2017 financial resultsregarding our strategic initiatives and beyond. In addition, actual results may differ materially from the results anticipated in the forward looking statements due to a variety of factors,other goals, including, but not limited to, changingour sustainability goals; (p) expectations regarding the sale of certain of our assets; and (q) the anticipated impact of the above factors and various market conditions, increased competition, product mix, inability to achieve planned manufacturing improvements or to meet customer specifications, cost reductionsrisks on our expectations of financial results for 2022 and capacity additions, and conditions in the financial markets.beyond.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: changesthe impact of the COVID-19 pandemic (including continued disruption in general economicglobal financial markets and supply chains, ongoing restrictions on movement and travel, employee
23
absenteeism and labor shortages, and reduced demand for air travel) on the operations, business conditions; changes in current pricing and cost levels; changes in political, socialfinancial condition of Hexcel and economic conditionsits customers and local regulations; foreign currency fluctuations; changes in aerospace delivery rates;suppliers; reductions in sales to any significant customers, particularly Airbus or Boeing, including related to the timing of pending regulatory clearances for the Boeing 737 MAX and the Boeing 787, as well as due to the impact of the COVID-19 pandemic; our ability to effectively adjust production and inventory levels to align with customer demand; our ability to effectively motivate, retain and hire the necessary workforce; our ability to successfully implement or Vestas;realize our business strategies, plans, goals and objectives of management, including our sustainability goals and any restructuring or alignment activities in which we may engage; the impact of any government mandated COVID-19 precautions, including mandatory vaccination; changes in sales mix; changes in current pricing and cost levels, including cost inflation, as well as increasing energy prices resulting from the conflict between Russia and Ukraine;changes in aerospace delivery rates; changes in government defense procurement budgets; changes in military aerospace program technology; timely new product development or introduction; industry capacity; increased competition; disruptionsavailability and cost of established supply channels, particularly where raw materials, are obtained fromincluding the impact of supply shortages and inflation; supply chain disruptions, which may be exacerbated by the conflict between Russia and Ukraine; inability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; cybersecurity-related risks, including the potential impact of breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic conditions, including, but not limited to, the effect of change in global trade policies, such as sanctions imposed as a single or limited number of sources and cannot be substituted by unqualified alternatives; manufacturing capacity constraints; uncertainty regarding the exitresult of the U.K. fromconflict between Russia and Ukraine; work stoppages or other labor disruptions; our ability to successfully complete any strategic acquisitions, investments or dispositions; compliance with environmental, health, safety and other related laws and regulations, including those related to climate change; the European Union;effects of natural disasters, which may be worsened by the impact of climate change, and unforeseen vulnerabilityother severe catastrophic events; the potential impact of our networkenvironmental, social and systems to interruptionsgovernance matters; and the unexpected outcome of legal matters or failures.impact of changes in laws or regulations.
If one or more ofAlthough we believe that these risks or uncertainties materialize, or if underlyingforward-looking statements are based on reasonable assumptions, prove incorrect,you should be aware that many factors could affect our actual results may varyof operations and could cause actual results to differ materially from those expected, estimated or projected. In addition toexpressed in the forward-looking statements. As a result, the foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports we file with the SEC. For additional information regarding certain factors that affectmay cause our operatingactual results and financial position, neither past financial performance nor our expectations should be considered reliable indicatorsto differ from those expected or anticipated, see the information under the caption “Risk Factors,” which is located in Item 1A of future performance. Investors should not use historical trends to anticipate results or trends in future periods. Further, our stock price is subject to volatility. Any of the factors discussed above could have an adverse impact on the pricePart I of our securities. In addition, failure of sales or income in any quarter to meetAnnual Report on Form 10-K for the investment community’s expectations, as well as broader market trends, can have an adverse impact on the price of our securities.fiscal year ended December 31, 2021. We do not undertake anany obligation to update our forward-looking statements or risk factors to reflect future events or circumstances.circumstances, except as otherwise required by law.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There areExcept for the continued broad effects of COVID-19 and the Russian/Ukraine conflict on market risk, there have been no material changes in our market risk from the information provided in the Company’s 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2021.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of SeptemberJune 30, 20172022, and with the participation of the Company's management have concluded that these disclosure controls and procedures arewere effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or
submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer have concluded that there have not been any changes in our internal control over financial reporting during the third quarter of 2017three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II. OTHER INFORMATION
The information required by Item 1 is contained within Note 11 on pages 1415 through 16 of this Form 10-Q and is incorporated herein by reference.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, which could materially affect our business, financial condition or future results. In addition, future uncertainties may increaseThere have been no material changes in the magnitude of these adverse effects or give rise to additional material risksCompany's risk factors from the aforementioned Form 10-K.
ITEMS 2, 3, 4, and 5 are not now contemplated.applicable, and therefore have been omitted.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds25
Period |
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
| ||||
July 1 — July 31, 2017 |
|
| 23,200 |
|
| $ | 51.63 |
|
|
| 23,200 |
|
| $ | 270,744,906 |
|
August 1 — August 31, 2017 |
|
| --- |
|
|
| --- |
|
|
| --- |
|
|
| 270,744,906 |
|
September 1 — September 30, 2017 |
|
| --- |
|
|
| --- |
|
|
| --- |
|
|
| 270,744,906 |
|
Total |
|
| 23,200 |
|
| $ | 51.63 |
|
|
| 23,200 | (1) |
| $ | 270,744,906 |
|
|
|
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits
EXHIBIT INDEX
Exhibit No. |
| Description |
10.1* |
| |
| ||
10.2* |
| |
| ||
10.3* |
| |
|
| |
31.1 | Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 |
| |
| Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 |
| |
| ||
101
|
| |
| The following |
|
| |
| ||
| ||
|
| |
|
| |
| ||
|
| |
104 | Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and |
Signature* Indicates management contract or compensatory plan or arrangement
26
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereuntothereunto duly authorized.
|
| Hexcel Corporation |
|
|
|
|
| /s/ |
(Date) |
|
|
|
| Senior Vice President, |
|
| Chief Accounting Officer |
27