Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022

☐ 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 Incorporation or Organization)		(I.R.S. Employer Identification No.)

Two Stamford Plaza

281 Tresser Boulevard

Stamford, Connecticut 06901-3238

(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 every Interactive Data File required to be submitted 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 such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer 		Accelerated filer 
Non-accelerated filer 		Smaller reporting company ☐
		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 in Rule 12b-2 of the Exchange Act). Yes ☐ No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at October 20, 2022
COMMON STOCK		84,171,313

HEXCEL CORPORATION AND SUBSIDIARIES

INDEX


			Page
PART I.	FINANCIAL INFORMATION		3

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)		3

	•	Condensed Consolidated Balance Sheets — September 30 2022, and December 31, 2021	3

	•	Condensed Consolidated Statements of Operations — The quarter and nine months ended September 30, 2022 and 2021	4

	•	Condensed Consolidated Statements of Comprehensive Loss — The quarter and nine months ended September 30, 2022 and 2021	4

	•	Condensed Consolidated Statements of Cash Flows — The nine months ended September 30, 2022 and 2021	5

	•	Condensed Consolidated Statements of Stockholders’ Equity — The quarter and nine months ended September 30, 2022 and 2021	6

	•	Notes to Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		24

ITEM 4.	Controls and Procedures		24

PART II.	OTHER INFORMATION		25

ITEM 1.	Legal Proceedings		25

ITEM 1A.	Risk Factors		25

ITEM 6.	Exhibits		26

	SIGNATURE		27

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

Hexcel Corporation and Subsidiaries

Condensed Consolidated Balance Sheets


	(Unaudited)
	September 30,			December 31,
(In millions)	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	90.9		$	127.7
Accounts receivable, net		202.7			160.3
Inventories, net		303.1			245.7
Contract assets		32.9			30.5
Prepaid expenses and other current assets		43.0			39.5
Assets held for sale		12.6			12.6
Total current assets		685.2			616.3

Property, plant and equipment		3,004.6			3,110.0
Less accumulated depreciation		(1,375.3	)		(1,363.9	)
Net property, plant and equipment		1,629.3			1,746.1

Goodwill and other intangible assets, net		253.1			267.5
Investments in affiliated companies		47.0			44.6
Other assets		161.1			144.9
Total assets	$	2,775.7		$	2,819.4

Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings	$	0.3		$	0.9
Accounts payable		113.2			113.2
Accrued compensation and benefits		69.4			54.4
Financial instruments		39.9			5.7
Accrued liabilities		60.9			73.4
Total current liabilities		283.7			247.6

Long-term debt		797.0			822.4
Retirement obligations		47.4			52.6
Deferred income taxes		121.2			140.0
Other non-current liabilities		81.4			71.3
Total liabilities		1,330.7			1,333.9
Stockholders' equity:
Common stock, $0.01 par value, 200.0 shares authorized, 110.3 shares and 110.1 shares issued at September 30, 2022 and December 31, 2021, respectively		1.1			1.1
Additional paid-in capital		898.9			878.6
Retained earnings		2,076.4			2,012.5
Accumulated other comprehensive loss		(249.1	)		(126.5	)
		2,727.3			2,765.7
Less – Treasury stock, at cost, 26.2 shares at September 30, 2022 and 26.1 shares at December 31, 2021		(1,282.3	)		(1,280.2	)
Total stockholders' equity		1,445.0			1,485.5
Total liabilities and stockholders' equity	$	2,775.7		$	2,819.4

The accompanying notes are an integral part of these condensed consolidated financial statements.


Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Operations

	(Unaudited)				(Unaudited)
	Quarter Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2022		2021		2022			2021
Net sales	$	364.7	$	333.8	$	1,148.3		$	964.4
Cost of sales		282.9		267.8		890.3			783.4
Gross margin		81.8		66.0		258.0			181.0
Selling, general and administrative expenses		29.0		32.0		107.2			102.7
Research and technology expenses		11.6		10.4		33.8			33.5
Other operating expense (income)		0.4		0.8		(17.7	)		16.0
Operating income		40.8		22.8		134.7			28.8
Interest expense, net		9.0		9.5		27.0			29.1
Other income		-		-		(0.3	)		-
Income (loss) before income taxes, and equity in earnings from affiliated companies		31.8		13.3		108.0			(0.3	)
Income tax expense		6.8		5.1		24.2			1.6
Income (loss) before equity in earnings from affiliated companies		25.0		8.2		83.8			(1.9	)
Equity in earnings (losses) from affiliated companies		1.8		0.8		5.5			(0.9	)
Net income (loss)	$	26.8	$	9.0	$	89.3		$	(2.8	)
Basic net income (loss) per common share	$	0.32	$	0.11	$	1.06		$	(0.03	)
Diluted net income (loss) per common share	$	0.31	$	0.11	$	1.05		$	(0.03	)
Weighted-average common shares:
Basic		84.4		84.1		84.4			84.1
Diluted		85.1		84.7		85.0			84.1


Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss

	(Unaudited)						(Unaudited)
	Quarter Ended September 30,						Nine Months Ended September 30,
(In millions)	2022			2021			2022			2021
Net income (loss)	$	26.8		$	9.0		$	89.3		$	(2.8	)
Currency translation adjustments		(38.2	)		(14.5	)		(88.7	)		(22.3	)
Net unrealized pension and other benefit actuarial gains (losses) and prior service credits (net of tax)		4.7			1.0			12.4			(0.9	)
Net unrealized losses on financial instruments (net of tax)		(24.3	)		(7.1	)		(46.3	)		(11.0	)
Total other comprehensive loss		(57.8	)		(20.6	)		(122.6	)		(34.2	)
Comprehensive loss	$	(31.0	)	$	(11.6	)	$	(33.3	)	$	(37.0	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows


	(Unaudited)
	Nine Months Ended September 30,
(In millions)	2022			2021
Cash flows from operating activities
Net income (loss)	$	89.3		$	(2.8	)
Reconciliation to net cash used by operating activities:
Depreciation and amortization		94.9			102.4
Amortization related to financing		0.6			2.7
Deferred income taxes		(8.5	)		(3.2	)
Equity in (earnings) losses from affiliated companies		(5.5	)		0.9
Stock-based compensation		15.2			16.2
Merger and restructuring expenses, net of payments		(6.1	)		(4.4	)
Gain on sale of asset		(19.4	)		-
Gain on sale of investment		(0.3	)		-
Changes in assets and liabilities:
Increase in accounts receivable		(53.1	)		(55.6	)
Increase in inventories		(82.0	)		(37.3	)
(Increase) decrease in prepaid expenses and other current assets		(11.6	)		3.6
Increase in accounts payable/accrued liabilities		31.7			43.3
Other – net		11.2			(1.6	)
Net cash provided by operating activities		56.4			64.2

Cash flows from investing activities
Capital expenditures		(58.3	)		(15.0	)
Proceeds from sale of asset		21.2			-
Proceeds from sale of investments		0.5			-
Net cash used for investing activities		(36.6	)		(15.0	)

Cash flows from financing activities
Borrowing from senior unsecured credit facility - 2024		35.0			-
Repayment of senior unsecured credit facility - 2024		(61.0	)		(49.0	)
Repayment of finance lease obligation and other debt, net		(0.4	)		(0.7	)
Dividends paid		(25.3	)		-
Activity under stock plans		3.1			4.9
Net cash used for financing activities		(48.6	)		(44.8	)
Effect of exchange rate changes on cash and cash equivalents		(8.0	)		(1.9	)
Net (decrease) increase in cash and cash equivalents		(36.8	)		2.5
Cash and cash equivalents at beginning of period		127.7			103.3
Cash and cash equivalents at end of period	$	90.9		$	105.8
Supplemental data:
Accrual basis additions to plant, property and equipment	$	49.1		$	14.3

The accompanying notes are an integral part of these condensed consolidated financial statements.

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

For the Quarter and Nine Months ended September 30, 2022, and September 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
Net income	—		—			9.0		—			—				9.0
Change in other comprehensive loss– net of tax	—		—		—				(20.6	)	—				(20.6	)
Stock based compensation	—			3.7	—			—				(0.6	)		3.1
Balance, September 30, 2021	$	1.1	$	873.4	$	1,993.6		$	(93.8	)	$	(1,280.0	)	$	1,494.3


								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
Net income	—		—			26.8		—			—				26.8
Dividends on common stock ($0.10 per share)						(8.4	)								(8.4	)
Change in other comprehensive loss– net of tax	—		—		—				(57.8	)	—				(57.8	)
Stock based compensation	—			4.8	—			—				(0.7	)		4.1
Balance, September 30, 2022	$	1.1	$	898.9	$	2,076.4		$	(249.1	)	$	(1,282.3	)	$	1,445.0

The accompanying notes are an integral part of these condensed consolidated financial statements.

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, 2021 for a discussion of our significant accounting policies.

Basis of Presentation

The accompanying condensed 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 statements include all normal recurring adjustments as well as any non-recurring adjustments necessary to present fairly the statement of financial position, comprehensive loss, results of operations, cash flows and statement of stockholders’ equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from the audited 2021 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 2021 Annual Report on Form 10-K.

Investments in Affiliated Companies

We have a 50% equity investment in Aerospace Composites Malaysia Sdn. Bhd. This investment is accounted for using the equity method of accounting.

Assets Held for Sale

In 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 Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021. The sale of these assets is expected to occur during 2022.

During the first quarter of 2022, we entered into an agreement to sell our Dublin, California facility. The sale of the facility closed during the second quarter of 2022, and we received approximately $21.2 million in net proceeds from the sale and recorded a gain on the sale of approximately $19.4 million which is included in other operating (income) expense in the Condensed Consolidated Statement of Operations. The Company will be relocating certain of its Dublin-based research, technology and laboratory support personnel and equipment to a newly constructed facility in Salt Lake City, Utah.

Recently Enacted Government Legislation

On August 16, 2022, the U.S. enacted the Inflation Reduction Act (the "IRA") of 2022. The IRA contains a number of tax provisions including a new corporate alternative minimum tax, an excise tax on stock buybacks, and incentives for energy and climate initiatives. These provisions are effective for taxable years beginning after December 31, 2022. Currently, we do not qualify for the corporate alternative minimum tax. The impact of the excise tax will be dependent on the extent of share repurchases made in future periods. We are assessing the applicability and impact to Hexcel of incentives for energy and climate initiatives.

Note 2 — Net Income (Loss) Per Common Share


	Quarter Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2022		2021		2022		2021
Basic net income (loss) per common share:
Net income (loss)	$	26.8	$	9.0	$	89.3	$	(2.8	)
Weighted average common shares outstanding		84.4		84.1		84.4		84.1

Basic net income (loss) per common share	$

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