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 honeycomb and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. We propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are lighter, stronger and tougher, helping to create a better world for us all.
We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Asia Pacific, Europe, India, and Africa. We also have a presence in Malaysia where we are a partner in a joint venture which manufactures composite structures for Commercial Aerospace applications.
We are a manufacturer of products within a single industry: Advanced Composites. We have two reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product 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 and thermoplastic additive manufacturing.
The Commercial Aerospace market began to see signs of recovery from the economic impacts of the COVID-19 pandemic in the second half of 2021 which has continued into the second quarter of 2022 with further growth in air travel and customer inventory destocking now largely completed. Despite these improvements, global logistics, supply chains and inflationary pressures still remain a challenge. COVID-19 has had and may continue to have further negative impacts on our operations, supply chain, transportation networks and 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 taking.
We are also continuing to monitor developments in the ongoing 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 difficult 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 particular.
Financial Overview
Results 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) |
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2022 |
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2021 |
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% Change |
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2022 |
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2021 |
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% Change |
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Net sales |
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$ |
393.0 |
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$ |
320.3 |
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22.7 |
% |
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$ |
783.6 |
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$ |
630.6 |
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|
24.3 |
% |
Net sales change in constant currency |
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25.9 |
% |
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26.7 |
% |
Operating income |
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$ |
63.8 |
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$ |
16.2 |
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293.8 |
% |
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$ |
93.9 |
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$ |
6.0 |
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1,465.0 |
% |
As a percentage of net sales |
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16.2 |
% |
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5.1 |
% |
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12.0 |
% |
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1.0 |
% |
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Net income (loss) |
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44.7 |
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2.2 |
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1,931.8 |
% |
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62.5 |
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(11.8 |
) |
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629.7 |
% |
Diluted net income (loss) per common share |
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$ |
0.53 |
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$ |
0.03 |
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1,666.7 |
% |
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$ |
0.74 |
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$ |
(0.14 |
) |
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628.6 |
% |
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 2021:
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Quarter Ended June 30, |
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Six Months Ended June 30, |
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(In millions) |
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2022 |
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2021 |
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% Change |
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2022 |
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2021 |
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% Change |
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Consolidated Net Sales |
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$ |
393.0 |
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$ |
320.3 |
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22.7 |
% |
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$ |
783.6 |
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$ |
630.6 |
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24.3 |
% |
Commercial Aerospace |
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227.6 |
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153.7 |
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48.1 |
% |
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446.5 |
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301.3 |
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48.2 |
% |
Space & Defense |
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111.9 |
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106.9 |
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4.7 |
% |
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230.1 |
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218.6 |
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5.3 |
% |
Industrial |
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53.5 |
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59.7 |
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(10.4 |
)% |
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107.0 |
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110.7 |
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(3.3 |
)% |
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Composite Materials |
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$ |
318.1 |
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$ |
240.9 |
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32.0 |
% |
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$ |
631.9 |
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$ |
478.1 |
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32.2 |
% |
Commercial Aerospace |
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192.0 |
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116.4 |
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64.9 |
% |
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376.8 |
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228.9 |
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64.6 |
% |
Space & Defense |
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73.9 |
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66.0 |
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12.0 |
% |
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150.5 |
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140.8 |
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6.9 |
% |
Industrial |
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52.2 |
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58.5 |
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(10.8 |
)% |
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104.6 |
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108.4 |
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(3.5 |
)% |
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Engineered Products |
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$ |
74.9 |
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$ |
79.4 |
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(5.7 |
)% |
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$ |
151.7 |
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$ |
152.5 |
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(0.5 |
)% |
Commercial Aerospace |
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35.6 |
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37.3 |
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(4.6 |
)% |
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69.7 |
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72.4 |
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(3.7 |
)% |
Space & Defense |
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38.0 |
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40.9 |
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(7.1 |
)% |
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79.6 |
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77.8 |
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2.3 |
% |
Industrial |
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1.3 |
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1.2 |
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8.3 |
% |
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2.4 |
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2.3 |
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4.3 |
% |
Sales by Segment
Composite Materials: Net sales of $318.1 million in the second quarter of 2022 increased by $77.2 million or 32.0% from the prior 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 well as business jet growth. Net sales of $631.9 million for the first six months of 2022 increased 32.2% 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 primarily driven by slightly lower Space & Defense sales which were down $2.9 million or 7.1% in 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 sales of $227.6 million increased $73.9 million or 48.1% (49.5% in constant currency) for the second quarter of 2022 compared to the second quarter of 2021 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 six months of 2022, increased 48.2% (49.3% in constant currency) compared to the first six months of 2021 due to stronger narrowbody and A350 sales whereas sales in the prior year period were impacted by channel destocking. Sales of Other Commercial Aerospace, which includes business jets and regional aircraft, increased 72.9% for the first six months of 2022 compared to the same period in 2021.
Space & Defense sales of $111.9 million increased 4.7% (7.0% in constant currency) for the second quarter of 2022 compared to the second quarter of 2021 led by growth in Space, CH-53K heavy lift helicopters and a number of overseas programs. Sales of $230.1 million for the first six months of 2022 increased 5.3% (7.0% in constant currency) compared to the first six months of 2021 due to growth in Space and the CH-53K program.
.
Total Industrial sales in the second quarter of 2022 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 $107.0 million for the six months of 2022, decreased 3.3% (2.6% increase in constant currency) compared to the first six months of 2021 despite growth in automotive, recreation and other industrial markets which was not enough to offset the negative impact of lower wind energy sales.
19
Gross Margin
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Quarter Ended June 30, |
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Six Months Ended June 30, |
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(In millions) |
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2022 |
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2021 |
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% Change |
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2022 |
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2021 |
|
|
% Change |
|
Gross margin |
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$ |
89.5 |
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$ |
61.9 |
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44.6 |
% |
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$ |
176.2 |
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$ |
115.0 |
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53.2 |
% |
Percentage of sales |
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22.8 |
% |
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19.3 |
% |
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22.5 |
% |
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18.2 |
% |
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|
Gross margin for the second quarter of 2022 was 22.8% compared to 19.3% in the second quarter of 2021 and was 22.5% and 18.2% for the first six months of 2022 and 2021, respectively. The improvements in the gross margin for both the second quarter and first six months of 2022 compared to the same periods last year was primarily due to the higher sales and greater capacity utilization which led to improved cost absorption.
Operating Expenses
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Quarter Ended June 30, |
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Six Months Ended June 30, |
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(In millions) |
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2022 |
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2021 |
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% Change |
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2022 |
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2021 |
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% Change |
|
SG&A expense |
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$ |
33.5 |
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$ |
31.1 |
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7.7 |
% |
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$ |
78.2 |
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$ |
70.7 |
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10.6 |
% |
Percentage of sales |
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8.5 |
% |
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9.7 |
% |
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10.0 |
% |
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11.2 |
% |
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R&T expense |
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$ |
11.3 |
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$ |
11.5 |
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(1.7 |
)% |
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$ |
22.2 |
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$ |
23.1 |
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(3.9 |
)% |
Percentage of sales |
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2.9 |
% |
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3.6 |
% |
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2.8 |
% |
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3.7 |
% |
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Selling, general and administrative expenses were higher for the second quarter of 2022 compared to the same period in 2021, although the current quarter expenses were lower as a percentage of sales. The increase in selling, general and administrative expenses for the current 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 six 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 compared to the prior year due to lower depreciation expense.
Operating 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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% Change |
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2022 |
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2021 |
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% Change |
|
Consolidated operating income |
|
$ |
63.8 |
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|
$ |
16.2 |
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293.8 |
% |
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$ |
93.9 |
|
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$ |
6.0 |
|
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1,465.0 |
% |
Operating margin |
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|
16.2 |
% |
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|
5.1 |
% |
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|
12.0 |
% |
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|
1.0 |
% |
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Composite Materials |
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47.2 |
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24.5 |
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92.7 |
% |
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|
89.8 |
|
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|
31.9 |
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|
181.5 |
% |
Operating margin |
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|
14.0 |
% |
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|
9.6 |
% |
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|
13.5 |
% |
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|
6.3 |
% |
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|
Engineered Products |
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|
9.1 |
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5.9 |
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54.2 |
% |
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|
19.7 |
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|
10.6 |
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|
85.8 |
% |
Operating margin |
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|
12.0 |
% |
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|
7.4 |
% |
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|
12.9 |
% |
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|
6.9 |
% |
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|
Corporate & Other |
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|
7.5 |
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(14.2 |
) |
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N/M |
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(15.6 |
) |
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(36.5 |
) |
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|
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 six months of 2022 was $93.9 million compared to $6.0 million for the same period last year. The increase in operating 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
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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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% Change |
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|
2022 |
|
|
2021 |
|
|
% Change |
|
Interest expense, net |
|
$ |
8.9 |
|
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$ |
9.3 |
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(4.3 |
)% |
|
$ |
18.0 |
|
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$ |
19.6 |
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(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
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Quarter Ended June 30, |
|
|
Six Months Ended June 30, |
|
(In millions) |
|
2022 |
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2021 |
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|
2022 |
|
|
2021 |
|
Income tax expense (benefit) |
|
$ |
12.7 |
|
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$ |
4.0 |
|
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$ |
17.4 |
|
|
$ |
(3.5 |
) |
Effective tax rate |
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|
22.9 |
% |
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|
58.0 |
% |
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|
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 a result of an unfavorable tax rate change. Tax expense for the first six months ended June 30, 2022 was $17.4 million compared to a benefit of $3.5 million for the same period of 2021. The tax benefit for the six months ended June 30, 2021 included a discrete tax benefit related to a favorable U.S state tax law change in addition to the discrete tax charge previously mentioned.
Financial Condition
Liquidity: Cash on hand at June 30, 2022 was $99.2 million as compared to $127.7 million at December 31, 2021. 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 Facility agreement) of at least $250 million. Effective April 1, 2022, the original terms and conditions to the 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 remaining authorization under the share repurchase program at June 30, 2022 was $217 million.
As of June 30, 2022, total borrowings under the Facility were $114 million, which approximated fair value. The Facility 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 no 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.
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 June 30, 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 June 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 $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 same period in 2021 primarily driven by higher inventory and accounts receivable to support higher sales.
Investing Activities: Net cash used for investing activities was $16.2 million and $9.2 million in the first six months of 2022 and 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 $37.9 million compared 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 six months of 2022 compared to $16.6 million in the same period in 2021. Borrowings under the Facility during the first six months of 2022 was $35.0 million, while repayments were $46.0 million compared to $21.0 million in the prior year. In the first quarter 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 2022.
Financial Obligations and Commitments: The next significant scheduled debt maturity will not occur until 2024, when the Facility 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 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, 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 calculation of these 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.
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Operating 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 |
|
|
2021 |
|
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2022 |
|
|
2021 |
|
GAAP operating income |
|
$ |
63.8 |
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|
|
$ |
16.2 |
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$ |
93.9 |
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$ |
6.0 |
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Other operating (income) expense (a) |
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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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Adjusted operating income (non-GAAP) |
|
$ |
44.7 |
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|
|
$ |
19.3 |
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|
$ |
75.8 |
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|
$ |
21.2 |
|
22
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Quarter Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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|
2021 |
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(In millions, except per diluted share data) |
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Net Income |
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Diluted Net Income Per Share |
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Net income |
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Diluted Net Income Per Share |
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Net Income |
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Diluted Net Income Per Share |
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Net (Loss) Income |
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Diluted Net (Loss) Income Per Share |
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GAAP net income (loss) |
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$ |
44.7 |
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$ |
0.53 |
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$ |
2.2 |
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|
$ |
0.03 |
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|
$ |
62.5 |
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|
$ |
0.74 |
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|
$ |
(11.8 |
) |
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$ |
(0.14 |
) |
Other operating (income) expense, net of tax (a) |
|
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(16.3 |
) |
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(0.20 |
) |
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2.2 |
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|
|
0.02 |
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(15.5 |
) |
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(0.19 |
) |
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11.0 |
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|
0.13 |
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Other income |
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$ |
(0.3 |
) |
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$ |
(0.3 |
) |
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Tax benefit (b) |
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— |
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- |
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2.7 |
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|
0.03 |
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— |
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— |
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(0.5 |
) |
|
|
(0.01 |
) |
Adjusted net income (loss) (non-GAAP) |
|
$ |
28.1 |
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$ |
0.33 |
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$ |
7.1 |
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$ |
0.08 |
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$ |
46.7 |
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$ |
0.55 |
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$ |
(1.3 |
) |
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$ |
(0.02 |
) |
(a)The quarter and six months ended June 30, 2022 included the net gain of $19.4 million from the sale of our Dublin, California facility partially offset by restructuring costs primarily related to severance. The quarter and six months ended June 30, 2021 included restructuring costs primarily related to severance as well as a benefit related to the reduction of a contingent liability.
(b)The quarter ended June 30, 2021 included a discrete tax charge of $2.7 million related to the remeasurement of the net deferred tax liability in a foreign jurisdiction as a result of a change in tax rate and the six months ended June 30, 2021 also included a discrete tax benefit from the revaluation of deferred tax liabilities related to a favorable U.S. state tax law change.
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Six Months Ended June 30, |
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(In millions) |
|
2022 |
|
|
2021 |
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Net cash used for operating activities |
|
$ |
18.3 |
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|
$ |
38.9 |
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Less: Capital expenditures |
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(37.9 |
) |
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(9.2 |
) |
Free cash flow (non-GAAP) |
|
$ |
(19.6 |
) |
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$ |
29.7 |
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Forward-Looking Statements
This report contains 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,” “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 provided by Airbus, Boeing and others; (b) the revenues we may generate from an aircraft model or program; (c) the impact of the 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; (g) expectations regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; (h) expectations regarding sales for wind energy, recreation, automotive and other industrial applications; (i) expectations regarding working capital trends and expenditures and inventory levels; (j) expectations as to the level of capital expenditures and completion of capacity expansions and qualification of new products; (k) expectations regarding our ability to improve or maintain margins; (l) expectations regarding the outcome of legal 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 continued impact of the COVID-19 pandemic and the impact of the conflict 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 regarding our strategic initiatives and other goals, including, but not limited to, our sustainability goals; (p) expectations regarding the sale of certain of our assets; and (q) the anticipated impact of the above factors and various market risks on our expectations of financial results for 2022 and 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: the impact of the COVID-19 pandemic (including continued disruption in global 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 and financial condition of Hexcel and its customers and 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 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; availability and cost of raw materials, including 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 result of the conflict 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 effects of natural disasters, which may be worsened by the impact of climate change, and other severe catastrophic events; the potential impact of environmental, social and governance matters; and the unexpected outcome of legal matters or impact of changes in laws or regulations.
Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual results of operations and could cause actual results to differ materially from those expressed 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 may cause our actual results to differ from those expected or anticipated, see the information under the caption “Risk Factors,” which is located in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. We do not undertake any obligation to update our forward-looking statements or risk factors to reflect future events or circumstances, except as otherwise required by law.