Hexcel Corporation and Subsidiaries Net Sales by Segment and Market For the Quarters Ended March 31, 2020 and 2019 and the Quarter and Year Ended December 31, 2019 | --- | --- | --- | --- | --- | --- | --- | --- | --- | |----------------------------------------|-------|------------------------|-------|-----------------------------|-------|-------------|-------|--------------| | (In millions) | | Commercial Aerospace | | Unaudited \nSpace & Defense | | Industrial | | Total | | | | | | | | | | | | First Quart ...

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 March 31, 2020 or ☐ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from to Registrant's telephone number, including area code: (203) 969-0666 Commission File Number 1-8472 Securities registered pursuant to Section 12(b) of the Act: Hexcel C ...

PART I [Business Overview](index=4&type=section&id=Item%201%20Business) Hexcel, a leading advanced composites company, serves aerospace and industrial markets, with a proposed merger and recent acquisition [General Development of Business](index=4&type=section&id=General%20Development%20of%20Business) Hexcel, an advanced composites leader, is pursuing a merger with Woodward and acquired ARC Technologies in 2019 - Hexcel Corporation, founded in 1946 and reincorporated in Delaware in 1983, is a leading advanced composites company[12](index=12&type=chunk) - On January 12, 2020, Hexcel entered into a definitive merger agreement with Woodward, Inc. to combine in an all-stock merger of equals, with Hexcel shareholders receiving 0.625 shares of Woodward common stock for each Hexcel share, resulting in Hexcel shareholders owning approximately **45% of the combined company**[14](index=14&type=chunk) - On January 3, 2019, Hexcel acquired ARC Technologies, LLC, a leading supplier of custom RF/EMI and microwave absorbing composite materials, enhancing its advanced materials portfolio[15](index=15&type=chunk) [Business Segments](index=4&type=section&id=Business%20Segments) Hexcel operates in advanced composites via Composite Materials and Engineered Products, with the former accounting for ~80% of net sales - Hexcel operates in a single industry (Advanced Composites) with two reportable segments: Composite Materials and Engineered Products[16](index=16&type=chunk) Composite Materials Segment Net Sales (2017-2019) | Year | Net Sales (Millions USD) | % of Total Net Sales | | :--- | :--- | :--- | | 2019 | $1,863 | ~80% | | 2018 | $1,771 | ~80% | | 2017 | $1,597 | ~80% | Engineered Products Segment Net Sales (2017-2019) | Year | Net Sales (Millions USD) | % of Total Net Sales | | :--- | :--- | :--- | | 2019 | $493 | ~20% | | 2018 | $419 | ~20% | | 2017 | $376 | ~20% | [Significant Customers](index=8&type=section&id=Significant%20Customers) Airbus and Boeing are Hexcel's primary customers, accounting for 39% and 25% of 2019 net sales Net Sales to Major Customers (2017-2019) | Customer | 2019 Net Sales | 2018 Net Sales | 2017 Net Sales | | :--- | :--- | :--- | :--- | | Airbus & subcontractors | 39% | 41% | 44% | | Boeing & subcontractors | 25% | 25% | 25% | - In 2019, sales to Airbus and its subcontractors were **36% Commercial Aerospace** and **3% Space & Defense**. Sales to Boeing and its subcontractors were **23% Commercial Aerospace** and **2% Space & Defense**[38](index=38&type=chunk) [Markets](index=8&type=section&id=Markets) Commercial Aerospace is Hexcel's largest market, contributing 68% of 2019 net sales, with Space & Defense and Industrial also significant Net Sales by Market (2017-2019) | Market | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Commercial Aerospace | 68% | 70% | 72% | | Space & Defense | 19% | 17% | 17% | | Industrial | 13% | 13% | 11% | - Commercial Aerospace revenues increased by approximately **4.8% in 2019** and **8.2% in 2018**, driven by increased aircraft deliveries and the 'secular penetration of composites'[46](index=46&type=chunk) Airbus and Boeing Combined Aircraft Deliveries (2017-2019) | Year | Airbus Deliveries | Boeing Deliveries | Total Deliveries | | :--- | :--- | :--- | :--- | | 2019 | 863 | 380 | 1,243 | | 2018 | 800 | 806 | 1,606 | | 2017 | 730 | 763 | 1,493 | [Backlog](index=11&type=section&id=Backlog) Hexcel's short lead times render a twelve-month backlog an unreliable indicator, despite Airbus and Boeing's significant combined backlog - Twelve-month order backlog is not a meaningful trend indicator for Hexcel due to short lead times and 'just-in-time' delivery[53](index=53&type=chunk) - The combined backlog for Airbus and Boeing at December 31, 2019, was **13,107 planes**, representing about **10 years of production** based on 2019 deliveries, which were unusually low due to the Boeing 737 MAX grounding[53](index=53&type=chunk) [Raw Materials and Production Activities](index=11&type=section&id=Raw%20Materials%20and%20Production%20Activities) Hexcel's vertically integrated operations produce carbon fibers and composite materials, relying on limited sources for key raw materials - Hexcel's manufacturing operations are vertically integrated, producing carbon fibers, industrial fabrics, composite materials, and composite structures for internal use and third-party sales[54](index=54&type=chunk) - Hexcel consumes about **75% by value** of the carbon fiber it produces and also purchases significant quantities from external sources[55](index=55&type=chunk) - Many key raw materials are available from relatively few sources, and the cost of product qualification makes developing multiple sources impractical, posing supply chain disruption risks[57](index=57&type=chunk) [Research and Technology; Patents and Know-How](index=11&type=section&id=Research%20and%20Technology%3B%20Patents%20and%20Know-How) Hexcel maintains R&T expertise in advanced composites, holding over 1,680 patents, with 2019 R&T expenses at **$56.5 million** - Hexcel maintains expertise in precursor and carbon fiber, chemical and polymer formulation, fabric forming, advanced composite structures, and process engineering through its R&T activities[58](index=58&type=chunk) - Hexcel holds over **1,680 patents** and pending applications worldwide and actively enforces its proprietary rights[59](index=59&type=chunk) Research and Technology Expenses (2017-2019) | Year | R&T Expenses (Millions USD) | YoY Change (Constant Currency) | | :--- | :--- | :--- | | 2019 | $56.5 | +3.3% | | 2018 | $55.9 | +11% | | 2017 | $49.4 | - | [Environmental Matters](index=12&type=section&id=Environmental%20Matters) Hexcel is subject to environmental regulations, with 2019 operating compliance costs of **$17.1 million** and accruals of **$2.5 million** - Hexcel is subject to various U.S. and international federal, state, and local environmental and health and safety laws and regulations[61](index=61&type=chunk) Environmental Related Accruals and Costs (2017-2019) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Aggregate environmental accruals | $2.5 | $2.7 | N/A | | Operating costs for environmental compliance | $17.1 | $15.6 | $9.9 | | Capital expenditures for environmental matters | $3.6 | $6.9 | $8.4 | - If accrued at the high end of the estimated liability range, environmental accruals would have been **$16 million higher** at December 31, 2019 and 2018[62](index=62&type=chunk) [Sales and Marketing](index=12&type=section&id=Sales%20and%20Marketing) Hexcel sells and markets its products globally through salaried staff, distributors, representatives, and sales offices across multiple regions - Hexcel sells and markets its products directly to customers worldwide through salaried staff, independent distributors, manufacturer representatives, and sales offices in the Americas, Europe, Asia Pacific, India, and Africa[64](index=64&type=chunk) [Competition](index=12&type=section&id=Competition) Hexcel faces intense competition from similar products and substitute materials, with technology, performance, and customer preference as key factors - Hexcel competes with numerous U.S. and international companies offering similar products and with producers of substitute composites (e.g., structural foam, thermoplastics, wood, and metal)[65](index=65&type=chunk) - Competitive factors include approvals, database of usage, technology, product performance, delivery, service, price, customer preference for sole sourcing, and customer preferred processes[65](index=65&type=chunk) [Employees](index=12&type=section&id=Employees) Hexcel employed **6,977 individuals** globally in 2019, with ~**17% of U.S. employees** covered by collective bargaining agreements Employee Count (as of December 31) | Year | Total Employees | U.S. Employees | Other Countries Employees | | :--- | :--- | :--- | :--- | | 2019 | 6,977 | 4,021 | 2,956 | | 2018 | 6,626 | N/A | N/A | | 2017 | 6,259 | N/A | N/A | - Approximately **17% of employees** in the United States and the majority of those in Europe were represented by collective bargaining agreements[66](index=66&type=chunk) [Other Information](index=13&type=section&id=Other%20Information) Hexcel provides its SEC filings, including Form 10-Ks, 10-Qs, and 8-Ks, free of charge on its website - Hexcel makes its Form 10-Ks, 10-Qs, 8-Ks, and amendments available free of charge on its website, www.hexcel.com, as soon as reasonably practicable after filing with the SEC[67](index=67&type=chunk) [Forward-Looking Statements](index=13&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements subject to inherent uncertainties and risks, including aircraft production rates and the Woodward merger - The report contains forward-looking statements based on forecasts and estimates, identified by terms such as 'anticipate', 'believe', 'expect', 'intend', 'may', 'plan', 'project', 'should', 'target', 'would', and 'will'[68](index=68&type=chunk) - These statements are inherently uncertain and subject to various known and unknown risks, including aircraft production rates, program delays (e.g., Boeing 737 MAX grounding), raw material availability and cost, and the anticipated impact of the merger with Woodward[69](index=69&type=chunk)[70](index=70&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A%20Risk%20Factors) Hexcel faces risks from cyclical markets, customer concentration, supply chain reliance, international operations, cybersecurity, environmental regulations, and merger complexities - The markets in which Hexcel operates are cyclical, and downturns, especially in Commercial Aerospace (**68% of 2019 net sales**), may adversely affect operations, with factors like the Boeing 737 MAX grounding posing significant risks[73](index=73&type=chunk)[74](index=74&type=chunk)[78](index=78&type=chunk) - A significant decline in business with concentrated customers like Airbus, Boeing, or Vestas could materially impact Hexcel's business, operating results, and financial condition[77](index=77&type=chunk) - Profitability depends heavily on the price and continuity of supply of raw materials, many from sole or limited sources, which could lead to supply restrictions or cost increases[79](index=79&type=chunk) - International operations (**47% of 2019 production, 54% of customer sales outside U.S.**) are subject to numerous risks, including general economic, political, legal, social, and health conditions (e.g., coronavirus), currency exchange rate fluctuations, and tariffs (e.g., Brexit)[83](index=83&type=chunk)[84](index=84&type=chunk) - Cybersecurity breaches, environmental and safety requirements (including Superfund liabilities and climate change regulations), and the operational and financial risks associated with acquisitions and the proposed merger with Woodward (e.g., integration difficulties, regulatory approvals, potential termination fees) are significant concerns[86](index=86&type=chunk)[87](index=87&type=chunk)[90](index=90&type=chunk)[93](index=93&type=chunk)[98](index=98&type=chunk)[101](index=101&type=chunk) [Unresolved Staff Comments](index=17&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) Hexcel Corporation has no unresolved staff comments to report - There are no unresolved staff comments[102](index=102&type=chunk) [Properties](index=19&type=section&id=Item%202%20Properties) Hexcel operates global manufacturing facilities and sales offices, with corporate and R&T centers across the U.S. and Europe - Hexcel owns and leases manufacturing facilities and sales offices located throughout the United States and in other countries, with corporate offices in Stamford, Connecticut[103](index=103&type=chunk) - Research and technology administration and principal laboratories are located in Dublin, California; Duxford, England; Les Avenières, France; Salt Lake City, Utah; and Decatur, Alabama[103](index=103&type=chunk) Major Manufacturing Facilities by Segment and Principal Products (Selected) | Facility Location | Segment | Principal Products | | :--- | :--- | :--- | | Amesbury, Massachusetts | Engineered Products | Microwave and RF absorbing composite materials | | Decatur, Alabama | Composite Materials | PAN Precursor (used to produce Carbon Fibers) | | Salt Lake City, Utah | Composite Materials | Carbon Fibers; Prepregs | | Duxford, England | Composite Materials | Prepregs; Adhesives; Honeycomb and Honeycomb Parts | | Casablanca, Morocco | Engineered Products | Engineered Honeycomb Parts | [Legal Proceedings](index=19&type=section&id=Item%203%20Legal%20Proceedings) Hexcel is involved in various legal proceedings, including environmental matters, but anticipates no material adverse impact on financial results - Hexcel is involved in litigation, investigations, and claims arising out of the normal conduct of its business, including environmental matters, but believes these will not have a material adverse impact on its consolidated results of operations, financial position, or cash flows[107](index=107&type=chunk) - Hexcel is a Potentially Responsible Party (PRP) for the Lower Passaic River cleanup, with an accrued liability of **$2.0 million** at December 31, 2019[109](index=109&type=chunk)[112](index=112&type=chunk) - Hexcel is also a PRP at the Omega Chemical Corporation Superfund Site, with an accrued liability of **$0.3 million** at December 31, 2019[113](index=113&type=chunk) [Mine Safety Disclosures](index=20&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to Hexcel Corporation - Item 4, Mine Safety Disclosures, is not applicable to Hexcel Corporation[114](index=114&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%205%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hexcel common stock trades on NYSE (HXL), declared a **$0.17 quarterly dividend**, and repurchased **$143 million** in shares in 2019 - Hexcel common stock is traded on the New York Stock Exchange under the symbol **HXL**[117](index=117&type=chunk) - On February 3, 2020, the Board of Directors declared a **$0.17 quarterly dividend**, payable February 21, 2020[118](index=118&type=chunk) Share Repurchases (2017-2019) | Year | Amount Repurchased (Millions USD) | | :--- | :--- | | 2019 | $143 | | 2018 | $358 | | 2017 | $151 | - As of December 31, 2019, **$241.8 million** was still available under the **$500 million** share repurchase authorization announced on May 7, 2018[120](index=120&type=chunk) [Selected Financial Data](index=29&type=section&id=Item%206%20Selected%20Financial%20Data) Hexcel's selected financial data for 2015-2019 shows consistent growth in net sales, operating income, net income, and diluted EPS Selected Financial Data (2015-2019, in millions, except per share data) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,355.7 | $2,189.1 | $1,973.3 | $2,004.3 | $1,861.2 | | Operating income | $425.2 | $371.2 | $350.6 | $360.1 | $332.4 | | Net income | $306.6 | $276.6 | $284.0 | $249.8 | $237.2 | | Diluted net income per common share | $3.57 | $3.11 | $3.09 | $2.65 | $2.44 | | Total assets | $3,128.6 | $2,824.1 | $2,780.9 | $2,400.6 | $2,187.4 | | Long-term notes payable and capital lease obligations | $1,050.6 | $947.4 | $805.6 | $684.4 | $576.5 | | Dividends per share of common stock | $0.64 | $0.55 | $0.47 | $0.44 | $0.40 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Hexcel's 2019 net sales grew **7.6%** to **$2,355.7 million**, with improved gross margin and operating income, generating **$287.0 million** in free cash flow Consolidated Financial Highlights (2019 vs 2018, in millions USD) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total assets | $3,128.6 | $2,824.1 | | Total liabilities | $1,682.5 | $1,502.1 | | Total stockholders' equity | $1,446.1 | $1,322.0 | | Net sales | $2,355.7 | $2,189.1 | | Net income | $306.6 | $276.6 | | Net cash provided by operating activities | $491.1 | $421.4 | Net Sales Growth by Market (2019 vs 2018) | Market | 2019 Sales Growth | | :--- | :--- | | Commercial Aerospace | +4.8% (+5.1% constant currency) | | Space & Defense | +20.2% (+21.6% constant currency) | | Industrial | +6.5% (+10.6% constant currency) | - Hexcel ended 2019 with **$995.7 million** in net debt and generated **$287.0 million** in free cash flow, an increase from **$237.3 million** in 2018[180](index=180&type=chunk)[152](index=152&type=chunk) - The company refinanced its Senior Unsecured Revolving Facility in June 2019, increasing borrowing capacity to **$1 billion** with improved terms, and had **$687.0 million** available borrowings at year-end[184](index=184&type=chunk) - Critical accounting policies involve significant estimates for deferred tax assets and liabilities, unrecognized tax benefits, retirement and postretirement benefit plans, and impairment of long-lived assets and goodwill[199](index=199&type=chunk) [Business Overview](index=30&type=section&id=Business%20Overview) Hexcel's 2019 saw net sales increase by **7.6%** to **$2,355.7 million**, with improved gross margin, operating income, and **$287.0 million** in free cash flow Consolidated Financial Highlights (2018-2019) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $2,355.7 | $2,189.1 | +7.6% (+8.6% constant currency) | | Gross margin % | 27.2% | 26.5% | +0.7 pp | | Operating income | $425.2 | $371.2 | +14.5% | | Operating income % | 18.0% | 17.0% | +1.0 pp | | Net income | $306.6 | $276.6 | +10.8% | | Diluted net income per common share | $3.57 | $3.11 | +14.8% | Adjusted Operating Income and Free Cash Flow (Non-GAAP, 2018-2019) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | | :--- | :--- | :--- | | Adjusted operating income | $425.2 | $378.9 | | Free cash flow | $287.0 | $237.3 | [Business Trends](index=31&type=section&id=Business%20Trends) Total sales increased **7.6%** in 2019, driven by growth in Commercial Aerospace, Space & Defense, and Industrial markets - Total sales in 2019 increased by **7.6%** (**8.6% in constant currency**) compared to 2018, with increases across all markets: Commercial Aerospace (**+4.8%**), Space & Defense (**+20.2%**), and Industrial (**+6.5%**)[153](index=153&type=chunk) - Commercial Aerospace sales growth was driven by narrow-body build rate increases, A350 and B787 program growth, and higher composite content, partially offset by reduced 737 MAX production[155](index=155&type=chunk) - Space & Defense sales growth was largely attributable to the ARC acquisition and strong sales for the F-35 Joint Strike Fighter, while Industrial sales growth was primarily from wind energy due to the transition to higher composite content blades[155](index=155&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Hexcel's 2019 gross margin improved to **27.2%**, with net sales of **$2,355.7 million**, driven by Composite Materials and Engineered Products segments Net Sales by Segment and Market (2019 vs 2018, in millions USD) | Segment/Market | 2019 Net Sales | 2018 Net Sales | | :--- | :--- | :--- | | **Composite Materials** | **$1,863.1** | **$1,770.5** | | Commercial Aerospace | $1,234.6 | $1,183.0 | | Space & Defense | $318.1 | $293.3 | | Industrial | $310.4 | $294.2 | | **Engineered Products** | **$492.6** | **$418.6** | | Commercial Aerospace | $363.1 | $342.0 | | Space & Defense | $126.6 | $76.6 | | Industrial | $2.9 | $0.0 | | **Total Consolidated** | **$2,355.7** | **$2,189.1** | - Gross margin for 2019 was **27.2% of net sales**, up from **26.5% in 2018**, driven by operational efficiency and productivity improvements[166](index=166&type=chunk) Key Expense Metrics (2018-2019, in millions USD) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | SG&A expenses | $158.7 (6.7% of sales) | $146.0 (6.7% of sales) | | R&T expenses | $56.5 (2.4% of sales) | $55.9 (2.6% of sales) | | Interest expense, net | $45.5 | $37.7 | | Provision for income taxes | $76.8 (20.2% effective rate) | $62.5 (18.8% effective rate) | [Financial Condition](index=34&type=section&id=Financial%20Condition) Hexcel ended 2019 with **$995.7 million** in net debt and generated **$287.0 million** in free cash flow - In 2019, Hexcel ended the year with total debt, net of cash, of **$995.7 million** and generated **$491.1 million** of operating cash, resulting in **$287.0 million** of free cash flow[180](index=180&type=chunk) [Liquidity](index=34&type=section&id=Liquidity) Hexcel's total debt increased to **$1,060.1 million** in 2019, but the company refinanced its **$1 billion** revolving facility and remains compliant with debt covenants - Total debt as of December 31, 2019, was **$1,060.1 million**, an increase of **$103.3 million** from 2018, primarily reflecting the ARC acquisition, **$143.0 million** of stock repurchases, and **$54.2 million** of dividend payments[182](index=182&type=chunk) - In June 2019, Hexcel refinanced its Senior Unsecured Revolving Facility, increasing borrowing capacity from **$700 million to $1 billion**, with **$687.0 million** undrawn availability at December 31, 2019[184](index=184&type=chunk) - Hexcel was in compliance with all debt covenants as of December 31, 2019, and has no significant required debt repayments until June 2024 when the Facility expires[185](index=185&type=chunk)[187](index=187&type=chunk) Scheduled Maturities of Financial Obligations (as of Dec 31, 2019, in millions USD) | Obligation Type | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Senior unsecured credit facility due 2024 | $0 | $0 | $0 | $0 | $313.0 | $0 | $313.0 | | 4.7% senior notes due 2025 | $0 | $0 | $0 | $0 | $0 | $300.0 | $300.0 | | 3.95% senior notes due 2027 | $0 | $0 | $0 | $0 | $0 | $400.0 | $400.0 | | Euro term loan | $8.9 | $8.9 | $8.9 | $13.8 | $9.9 | $0 | $50.4 | | Operating leases | $12.9 | $11.3 | $9.4 | $8.6 | $7.7 | $29.5 | $79.4 | [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant estimates for deferred taxes, retirement plans, asset impairment, and environmental accruals - The determination of deferred tax assets and liabilities, including the required valuation allowance, involves significant estimates regarding the timing and amount of reversal of taxable temporary differences and future taxable income[202](index=202&type=chunk) - Unrecognized tax benefits were **$18.1 million** at December 31, 2019, with a potential decrease of **$4.2 million to $4.4 million** in 2020 due to audit settlements and the expiration of statutes of limitation[203](index=203&type=chunk)[205](index=205&type=chunk) - Hexcel uses actuarial models for pension and postretirement plans, requiring annual review and setting of assumptions such as expected long-term rate of return, discount rate, and compensation increase[209](index=209&type=chunk) - The company performs annual impairment reviews for goodwill and long-lived assets, using qualitative assessments and discounted cash flow models, which require significant judgment in determining fair values[214](index=214&type=chunk)[215](index=215&type=chunk) - Environmental related accruals were **$2.5 million** at December 31, 2019, with a potential for **$16 million higher** if estimated at the high end of the range of possible outcomes[217](index=217&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Hexcel manages market risks from currency, interest rates, and commodity prices through hedging, with a **10% adverse currency movement** impacting 2019 operating income by **$4.2 million** - Hexcel is exposed to market risks from fluctuations in currency exchange rates (primarily U.S. dollar, British pound sterling, and Euro), interest rates on variable-rate debt, and commodity prices (e.g., electricity, natural gas, acrylonitrile)[220](index=220&type=chunk) - A hypothetical **10% adverse movement** in foreign currency exchange rates would have about a **$4.2 million impact** on Hexcel's 2019 operating income[228](index=228&type=chunk) - Hexcel uses foreign currency forward exchange contracts (aggregate notional amount of **$426.9 million** at December 31, 2019) to hedge a portion of forecasted transactions of European subsidiaries, reducing exposure to currency fluctuations[229](index=229&type=chunk) - Commodity swap agreements (notional value of **$20.4 million** at December 31, 2019) are used to hedge against price fluctuations of raw materials like propylene[383](index=383&type=chunk) [Financial Statements and Supplementary Data](index=42&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Hexcel's consolidated financial statements, management reports, auditor opinions, and detailed notes on accounting policies and financial instruments - Hexcel management is responsible for preparing consolidated financial statements in accordance with GAAP, and the Audit Committee reviews and monitors these statements[238](index=238&type=chunk)[239](index=239&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2019, and Ernst & Young LLP issued an unqualified opinion on both the financial statements and internal controls[241](index=241&type=chunk)[244](index=244&type=chunk)[255](index=255&type=chunk) [Management's Responsibility for Consolidated Financial Statements](index=43&type=section&id=Management%27s%20Responsibility%20for%20Consolidated%20Financial%20Statements) Hexcel management is responsible for preparing GAAP-compliant consolidated financial statements, reviewed and monitored by the Audit Committee - Hexcel management is responsible for preparing the consolidated financial statements and related financial data in accordance with U.S. GAAP[238](index=238&type=chunk) - The Audit Committee of the Board of Directors reviews and monitors the consolidated financial statements and accounting policies, which are audited by Ernst & Young LLP[239](index=239&type=chunk) [Management's Report on Internal Control Over Financial Reporting](index=43&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) Hexcel management assessed its internal control over financial reporting as effective as of December 31, 2019, affirmed by Ernst & Young LLP - Hexcel management assessed the effectiveness of its internal control over financial reporting as of December 31, 2019, based on COSO criteria, and concluded it was effective[241](index=241&type=chunk) - The effectiveness of Hexcel's internal control over financial reporting as of December 31, 2019, was audited by Ernst & Young LLP, who expressed an unqualified opinion thereon[242](index=242&type=chunk) [Reports of Independent Registered Public Accounting Firm](index=44&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued unqualified opinions on Hexcel's 2019 consolidated financial statements and internal control over financial reporting - Ernst & Young LLP issued an unqualified opinion on Hexcel's consolidated financial statements for the three years ended December 31, 2019[244](index=244&type=chunk) - Ernst & Young LLP also issued an unqualified opinion on Hexcel's internal control over financial reporting as of December 31, 2019[245](index=245&type=chunk)[255](index=255&type=chunk) - The valuation of deferred tax assets was identified as a critical audit matter due to its materiality and the subjective estimation and audit judgment involved[248](index=248&type=chunk)[251](index=251&type=chunk) [Consolidated Financial Statements](index=47&type=section&id=Consolidated%20Financial%20Statements) This section provides Hexcel's consolidated balance sheets, statements of operations, cash flows, and comprehensive income for the specified periods Consolidated Balance Sheet Highlights (2018-2019, in millions USD) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total assets | $3,128.6 | $2,824.1 | | Total liabilities | $1,682.5 | $1,502.1 | | Total stockholders' equity | $1,446.1 | $1,322.0 | | Cash and cash equivalents | $64.4 | $32.7 | | Long-term debt | $1,050.6 | $947.4 | Consolidated Statements of Operations Highlights (2017-2019, in millions USD, except per share data) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net sales | $2,355.7 | $2,189.1 | $1,973.3 | | Gross margin | $640.4 | $580.8 | $551.8 | | Operating income | $425.2 | $371.2 | $350.6 | | Net income | $306.6 | $276.6 | $284.0 | | Diluted net income per common share | $3.57 | $3.11 | $3.09 | Consolidated Statements of Cash Flows Highlights (2017-2019, in millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $491.1 | $421.4 | $428.7 | | Net cash used for investing activities | $(367.3) | $(187.5) | $(354.1) | | Net cash used for financing activities | $(91.4) | $(257.3) | $(58.3) | | Cash and cash equivalents at end of period | $64.4 | $32.7 | $60.1 | [Notes to the Consolidated Financial Statements](index=50&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Detailed notes cover Hexcel's accounting policy adoptions (ASC 606, ASC 842), debt structure, tax benefits, and stock-based compensation - Hexcel adopted ASC 606 (Revenue from contracts with customers) on January 1, 2018, recognizing revenue over time for contracts with termination for convenience clauses and no alternative use for products[286](index=286&type=chunk) - Hexcel adopted ASC 842 (Leases) on January 1, 2019, recognizing approximately **$50 million** of right-of-use assets and related liabilities for operating leases[295](index=295&type=chunk) Total Debt (2018-2019, in millions USD) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total debt | $1,060.1 | $956.8 | | Senior unsecured credit facility | $313.0 | $202.0 | | 4.7% senior notes — due 2025 | $300.0 | $300.0 | | 3.95% senior notes — due 2027 | $400.0 | $400.0 | | Euro term loan | $50.4 | $60.5 | - Unrecognized tax benefits were **$18.1 million** at December 31, 2019, with a potential decrease of **$4.2 million to $4.4 million** in 2020 due to audit settlements and statute of limitations expirations[353](index=353&type=chunk)[355](index=355&type=chunk) Stock-Based Compensation Expense (2017-2019, in millions USD) | Type of Award | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Non-qualified stock options | $4.5 | $3.6 | $4.0 | | Restricted stock, service based | $6.4 | $6.1 | $6.4 | | Restricted stock, performance based | $6.2 | $5.8 | $6.7 | | Employee stock purchase plan | $0.6 | $0.5 | $0.4 | | **Total** | **$17.7** | **$16.0** | **$17.5** | [Schedule II — Valuation and Qualifying Accounts](index=80&type=section&id=Schedule%20II%20%E2%80%94%20Valuation%20and%20Qualifying%20Accounts) Schedule II details Hexcel's valuation and qualifying accounts, including allowances for doubtful accounts and deferred tax asset valuation Valuation and Qualifying Accounts (2017-2019, in millions USD) | Account | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts | $0.6 | $0.3 | $0.3 | | Valuation allowance for deferred tax assets | $44.7 | $48.8 | $54.9 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=21&type=section&id=Item%209%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Hexcel reported no changes or disagreements with accountants on accounting and financial disclosure for the period - There were no changes in and disagreements with accountants on accounting and financial disclosure[125](index=125&type=chunk) [Controls and Procedures](index=22&type=section&id=Item%209A%20Controls%20and%20Procedures) Hexcel's CEO and CFO concluded disclosure controls were effective as of December 31, 2019, with no material changes in internal control - Hexcel's Chief Executive Officer and Chief Financial Officer evaluated and concluded that disclosure controls and procedures were effective as of December 31, 2019[126](index=126&type=chunk) - There have not been any changes in internal control over financial reporting during the fourth quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[127](index=127&type=chunk) [Other Information](index=22&type=section&id=Item%209B%20Other%20Information) Hexcel Corporation reported no other information required to be disclosed under this item - No other information is required to be disclosed under Item 9B[128](index=128&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=23&type=section&id=Item%2010%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance will be incorporated by reference from a definitive proxy statement - Information required by Item 10 will be incorporated by reference in accordance with Instruction G(3) to Form 10-K no later than 120 days after the end of the registrant's fiscal year[131](index=131&type=chunk) [Executive Compensation](index=23&type=section&id=Item%2011%20Executive%20Compensation) Executive compensation details will be incorporated by reference from a definitive proxy statement filed within 120 days of fiscal year-end - Information required by Item 11 will be incorporated by reference in accordance with Instruction G(3) to Form 10-K no later than 120 days after the end of the registrant's fiscal year[132](index=132&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=23&type=section&id=Item%2012%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management will be incorporated by reference from a definitive proxy statement - Information required by Item 12 will be incorporated by reference in accordance with Instruction G(3) to Form 10-K no later than 120 days after the end of the registrant's fiscal year[133](index=133&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=23&type=section&id=Item%2013%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Details on certain relationships, related transactions, and director independence will be incorporated by reference from a definitive proxy statement - Information required by Item 13 will be incorporated by reference in accordance with Instruction G(3) to Form 10-K no later than 120 days after the end of the registrant's fiscal year[134](index=134&type=chunk) [Principal Accountant Fees and Services](index=23&type=section&id=Item%2014%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services will be incorporated by reference from a definitive proxy statement - Information required by Item 14 will be incorporated by reference in accordance with Instruction G(3) to Form 10-K no later than 120 days after the end of the registrant's fiscal year[135](index=135&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=24&type=section&id=Item%2015%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits, including the Woodward merger agreement and various corporate documents - This item includes the Reports of Independent Registered Public Accounting Firms, Consolidated Balance Sheets, Consolidated Statements of Operations, Comprehensive Income, Stockholders' Equity, Cash Flows, Notes to the Consolidated Financial Statements, and Schedule II — Valuation and Qualifying Accounts[137](index=137&type=chunk) - Key exhibits include the Agreement and Plan of Merger with Woodward, Inc. (Exhibit 2.1), Restated Certificate of Incorporation, Amended and Restated Bylaws, Indentures for Senior Notes, and various incentive stock plans and executive compensation agreements[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [10-K Summary](index=27&type=section&id=Item%2016%2010-K%20Summary) This item indicates that no 10-K Summary is provided in this report - No 10-K Summary is provided in this report[142](index=142&type=chunk) [Signatures](index=28&type=section&id=Signatures) The report is signed by Hexcel's Chairman, CEO, President, CFO, Chief Accounting Officer, and other Directors - The report is signed by Nick L. Stanage (Chairman of the Board, CEO, and President), Patrick Winterlich (Executive Vice President and CFO), Kimberly Hendricks (Senior Vice President, Corporate Controller and Chief Accounting Officer), and other Directors[144](index=144&type=chunk)[146](index=146&type=chunk)

Financial Data and Key Metrics Changes - Fourth quarter sales reached $564 million, a nominal increase from Q4 2018, with adjusted diluted EPS at $0.86, reflecting a 5% year-over-year increase [8][10] - Full year 2019 sales were $2.356 billion, up 8% year-over-year, with adjusted diluted EPS at $3.54, an increase of over 16% compared to the previous year [13][55] - Free cash flow generation reached a record $287 million in 2019, surpassing the previous year's $237.3 million [23][53] Business Line Data and Key Metrics Changes - Aerospace sales in Q4 were impacted by the slowdown in 737 MAX production, but business jets saw a 20% year-over-year sales increase, primarily driven by Gulfstream programs [10][12] - Space & Defense sales increased by 18% in Q4 compared to Q4 2018, with strong contributions from the ARC acquisition and various defense programs [11][44] - Industrial sales declined by approximately 11% compared to a strong Q4 last year, although wind energy sales increased significantly throughout the year [12][46] Market Data and Key Metrics Changes - Commercial aerospace sales for 2019 were 5.1% higher than 2018, totaling almost $1.6 billion, with strong performance from the Airbus A350 and Boeing 787 programs [16][18] - Space & Defense sales for 2019 reached almost $445 million, a 21.6% increase over 2018, driven by the F-35 Joint Strike Fighter and other military programs [18] - Industrial sales in 2019 were $313 million, a 10.6% increase year-over-year, with wind energy sales showing strong growth [19] Company Strategy and Development Direction - The company is focused on operational excellence, continuous improvement, and developing new technologies to enhance customer solutions [22][30] - A transformational merger with Woodward was announced, aimed at creating a premier integrated systems provider to address challenges in fuel efficiency and emissions reduction [31][32] - The company is transitioning its Kent plant strategy to focus on more complex, highly engineered product manufacturing [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the return of the 737 MAX to service and its impact on future sales, while acknowledging the challenges posed by production suspensions [15][64] - The guidance for 2020 includes flat to low-single digit sales growth and low-to-mid single digit EPS growth, with expectations of strong margin intensity despite headwinds [29][56] - The company anticipates continued investment in research and technology to maintain its leadership position in aerospace composites [60] Other Important Information - The company repurchased approximately $76 million of common stock in Q4 2019, totaling $143 million for the year, with $242 million remaining under the share repurchase program [54] - The effective tax rate for Q4 2019 was 16.6%, with a full-year rate of 21% [52] Q&A Session Summary Question: Synergy potential with Airbus in the Woodward merger - Management noted that while Woodward does not have significant direct sales to Airbus, they have strong positions through engines and tier one suppliers, and discussions on new opportunities are ongoing [70][71] Question: 737 MAX shipsets guidance - In 2019, the company was in the range of 42 to 52 shipsets, and for 2020, they are guiding for 200 shipsets, with production expected to resume midyear [72][73] Question: Capital expenditure reductions - The reduction in capital expenditures is primarily due to productivity initiatives and the slowdown in the MAX production, allowing for a push of spending to future years [76][77] Question: Revenue impact from Kent plant transition - The transition of work from the Kent plant will take two to three years, with efforts to win new packages already underway [83][84] Question: Inventory management challenges - The biggest headwind for 2020 is expected to be inventory management, particularly with uncertainties in the market and the timing of the 737 MAX return to service [90][91] Question: Profitability profile and margin guidance - Management confirmed that the guidance accounts for potential margin pressures from the MAX and 787, but they expect to maintain strong margins through productivity and efficiency improvements [94][96]

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, 2019 or ☐ 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 of Incorporation) (I.R.S. Empl ...

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 June 30, 2019 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 ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Hexcel Corporation's unaudited condensed consolidated financial statements and management's analysis for the quarter ended March 31, 2019 [ITEM 1. Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents Hexcel Corporation's unaudited condensed consolidated financial statements for the quarter ended March 31, 2019, including balance sheets, statements of operations, comprehensive income, cash flows, and stockholders' equity, along with detailed notes on significant accounting policies, debt, derivatives, and recent acquisition [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section details Hexcel Corporation's financial position, including assets, liabilities, and equity, as of March 31, 2019, and December 31, 2018 | Metric | March 31, 2019 (Millions) | December 31, 2018 (Millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | | Total Assets | $3,166.0 | $2,824.1 | | Total Liabilities | $1,793.6 | $1,502.1 | | Total Stockholders' Equity | $1,372.4 | $1,322.0 | | Goodwill and other intangible assets | $286.2 | $142.3 | | Long-term debt | $1,160.0 | $947.4 | - Total assets increased by **$341.9 million**, and total liabilities increased by **$291.5 million** from December 31, 2018, to March 31, 2019, primarily driven by the ARC acquisition and related debt[10](index=10&type=chunk)[119](index=119&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents Hexcel Corporation's revenues, costs, and net income for the quarters ended March 31, 2019, and March 31, 2018 | Metric | Quarter Ended March 31, 2019 (Millions) | Quarter Ended March 31, 2018 (Millions) | YoY Change (%) | | :------------------------------------------ | :-------------------------------------- | :-------------------------------------- | :------------- | | Net sales | $609.9 | $540.1 | 12.9% | | Cost of sales | $442.7 | $397.5 | 11.4% | | Gross margin | $167.2 | $142.6 | 17.3% | | Operating income | $102.8 | $82.4 | 24.8% | | Net income | $72.2 | $61.6 | 17.2% | | Basic net income per common share | $0.85 | $0.68 | 25.0% | | Diluted net income per common share | $0.84 | $0.68 | 23.5% | | Dividends per share | $0.15 | $0.125 | 20.0% | - Gross margin improved to **27.4%** in Q1 2019 from 26.4% in Q1 2018, benefiting from the new Roussillon plant and reduced headwinds from acrylonitrile and wind energy resin pricing[11](index=11&type=chunk)[94](index=94&type=chunk)[110](index=110&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section outlines Hexcel Corporation's comprehensive income, including net income and other comprehensive income components, for the specified quarters | Metric | Quarter Ended March 31, 2019 (Millions) | Quarter Ended March 31, 2018 (Millions) | | :------------------------------------------------ | :-------------------------------------- | :-------------------------------------- | | Net Income | $72.2 | $61.6 | | Currency translation adjustments | $(2.8) | $31.6 | | Net unrealized pension and other benefit actuarial gains and prior service credits | $(0.4) | $(0.8) | | Net unrealized (losses) gains on financial instruments (net of tax) | $(2.7) | $4.8 | | Total other comprehensive (loss) income | $(5.9) | $35.6 | | Comprehensive income | $66.3 | $97.2 | - Total other comprehensive income shifted from a gain of **$35.6 million** in Q1 2018 to a loss of **$5.9 million** in Q1 2019, primarily due to negative currency translation adjustments and unrealized losses on financial instruments[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details Hexcel Corporation's cash flows from operating, investing, and financing activities for the three months ended March 31, 2019, and 2018 | Cash Flow Activity | Three Months Ended March 31, 2019 (Millions) | Three Months Ended March 31, 2018 (Millions) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $45.9 | $62.6 | | Net cash used for investing activities | $(219.5) | $(59.5) | | Net cash provided by (used in) financing activities | $184.9 | $(15.5) | | Net increase (decrease) in cash and cash equivalents | $11.0 | $(10.3) | - Net cash used for investing activities significantly increased in Q1 2019 to **$219.5 million**, primarily due to the **$158.4 million** acquisition of ARC Technologies LLC[14](index=14&type=chunk)[123](index=123&type=chunk) - Financing activities provided **$184.9 million** in Q1 2019, a substantial increase from a **$15.5 million** use in Q1 2018, mainly driven by borrowings from the senior unsecured credit facility to fund the ARC acquisition[14](index=14&type=chunk)[124](index=124&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section presents changes in Hexcel Corporation's stockholders' equity, including net income, dividends, and treasury stock, for the specified periods | Metric | Balance, March 31, 2019 (Millions) | Balance, March 31, 2018 (Millions) | | :--------------------------------------- | :--------------------------------- | :--------------------------------- | | Total Stockholders' Equity | $1,372.4 | $1,562.5 | | Net income | $72.2 | $61.6 | | Dividends paid on common stock | $(12.7) | $(11.2) | | Change in other comprehensive income – net of tax | $(5.9) | $35.6 | | Acquisition of treasury stock | $(11.2) | $(30.1) | - Stockholders' equity decreased from **$1,562.5 million** at March 31, 2018, to **$1,372.4 million** at March 31, 2019, influenced by net income, dividends, and a negative change in other comprehensive income[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of significant accounting policies, debt, acquisitions, and other financial statement items - The company adopted ASC 842, Leases, on January 1, 2019, recognizing approximately **$50 million** of right-of-use assets and related liabilities for existing operating leases[18](index=18&type=chunk)[21](index=21&type=chunk) Inventory Category | Inventory Category | March 31, 2019 (Millions) | December 31, 2018 (Millions) | | :----------------- | :------------------------ | :--------------------------- | | Raw materials | $170.3 | $131.4 | | Work in progress | $40.8 | $43.6 | | Finished goods | $123.4 | $122.8 | | Total Inventory | $334.5 | $297.8 | - Total debt increased to **$1,169.7 million** at March 31, 2019, from **$956.8 million** at December 31, 2018, primarily due to increased borrowings under the senior unsecured credit facility to fund the ARC acquisition[40](index=40&type=chunk)[119](index=119&type=chunk) - The company acquired ARC Technologies LLC for approximately **$158.4 million** in cash, recognizing **$82.8 million** of goodwill and **$63.0 million** of intangible assets within the Engineered Products segment[71](index=71&type=chunk)[72](index=72&type=chunk) - Aggregate environmental related accruals were **$2.6 million** as of March 31, 2019, with a potential high-end liability of **$16 million** higher for sites where liability can be estimated[80](index=80&type=chunk)[129](index=129&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis highlights strong sales growth across all markets, particularly in Commercial Aerospace and Industrial (wind energy), driven by increased production rates and the ARC Technologies acquisition. Profitability improved with higher gross margins and operating income, while operating cash flow decreased due to working capital increases and significant investment in the ARC acquisition - Hexcel acquired ARC Technologies, LLC on January 3, 2019, enhancing its advanced materials portfolio in structural composites and thermoplastics[87](index=87&type=chunk) Net Sales by Market Segment | Market Segment | Q1 2019 Net Sales (Millions) | Q1 2018 Net Sales (Millions) | YoY Change (%) | YoY Change (Constant Currency %) | | :--------------- | :--------------------------- | :--------------------------- | :------------- | :------------------------------- | | Consolidated Net Sales | $609.9 | $540.1 | 12.9% | 14.9% | | Commercial Aerospace | $415.5 | $382.7 | 8.6% | 9.6% | | Space & Defense | $107.8 | $90.1 | 19.6% | 21.8% | | Industrial | $86.6 | $67.3 | 28.7% | 36.8% | - Commercial Aerospace sales were driven by strong performance in A320neo, 737 MAX, 787, and A350 programs, along with strengthening business jet sales[90](index=90&type=chunk)[91](index=91&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Wind energy sales within the Industrial segment improved by **66.6%** (**78.0%** in constant currency) due to the transition to new generation composite blades[93](index=93&type=chunk)[108](index=108&type=chunk) Profitability Metrics | Metric | Q1 2019 | Q1 2018 | YoY Change (%) | | :-------------------------- | :------ | :------ | :------------- | | Gross margin (%) | 27.4% | 26.4% | +1.0 pp | | Operating income (Millions) | $102.8 | $82.4 | 24.8% | | Operating margin (%) | 16.9% | 15.3% | +1.6 pp | | R&T expense (Millions) | $14.9 | $13.8 | 8.0% | | SG&A expense (% of sales) | 8.1% | 8.6% | -0.5 pp | Cash Flow and Debt Metrics | Cash Flow Metric | Q1 2019 (Millions) | Q1 2018 (Millions) | | :-------------------------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $45.9 | $62.6 | | Capital expenditures | $(61.1) | $(59.5) | | Free cash flow (Non-GAAP) | $(15.2) | $3.1 | | Total debt, net of cash | $1,126.0 | $924.1 | | Undrawn credit facility availability | $286.0 | N/A | [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reported no material changes in market risk from the information previously disclosed in its 2018 Annual Report on Form 10-K - No material changes in market risk from the Company's 2018 Annual Report on Form 10-K[135](index=135&type=chunk) [ITEM 4. Controls and Procedures](index=24&type=section&id=ITEM%204.%20Controls%20and%20Procedures) The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2019, and there were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2019[136](index=136&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2019[137](index=137&type=chunk) [PART II. OTHER INFORMATION](index=24&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, and exhibits for Hexcel Corporation [ITEM 1. Legal Proceedings](index=24&type=section&id=ITEM%201.%20Legal%20Proceedings) Information regarding legal proceedings, including environmental matters such as the Lower Passaic River Study Area and Omega Chemical Corporation Superfund Site, is incorporated by reference from Note 13 of the financial statements - Legal proceedings information is incorporated by reference from Note 13 on pages 15-16 of this Form 10-Q[138](index=138&type=chunk) - Aggregate environmental related accruals were **$2.6 million** as of March 31, 2019, with a potential high-end liability of **$16 million** higher for estimable sites[80](index=80&type=chunk)[129](index=129&type=chunk) [ITEM 1A. Risk Factors](index=24&type=section&id=ITEM%201A.%20Risk%20Factors) The company reported no material changes to its risk factors from the 2018 Annual Report on Form 10-K, except for the addition of a new risk factor concerning non-compliance with government procurement laws and regulations - No material changes in risk factors from the 2018 Annual Report on Form 10-K, with the exception of a new risk factor[139](index=139&type=chunk) - A new risk factor highlights that failure to comply with government procurement laws and regulations could lead to business loss, penalties, or sanctions[140](index=140&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=25&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 193,603 shares of common stock in January 2019 at an average price of $57.75 per share, with approximately $373.6 million remaining under the authorized share repurchase program as of March 31, 2019 Share Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------ | :----------------------------- | :--------------------------- | | January 1 – January 31, 2019 | 193,603 | $57.75 | | February 1 – February 28, 2019 | — | — | | March 1 – March 31, 2019 | — | — | | Total | 193,603 | $57.75 | - As of March 31, 2019, **$373,594,906** remained available under the **$500 million** share repurchase authorization announced on May 7, 2018[141](index=141&type=chunk) [ITEM 6. Exhibits](index=26&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including executive severance agreements, certifications from the CEO and CFO, and the XBRL-formatted financial statements - Key exhibits include Form of Executive Severance Agreement (10.1\*), Certifications of Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32), and XBRL Financial Statements (101)[143](index=143&type=chunk)[146](index=146&type=chunk) [SIGNATURE](index=28&type=section&id=SIGNATURE) The report was formally signed on behalf of Hexcel Corporation by Kimberly Hendricks, Senior Vice President, Corporate Controller and Chief Accounting Officer, on April 23, 2019 - The report was signed by Kimberly Hendricks, Senior Vice President, Corporate Controller and Chief Accounting Officer, on April 23, 2019[149](index=149&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Commission File Number 1-8472 Hexcel Corporation (Exact name of registrant as specified in its charter) Delaware 94-1109521 (State of Incorporation) (I.R.S. Employer Identification No.) Washington, D. C. 20549 FORM 10–K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2018 or ☐ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transitio ...