Hexcel Corporation (NYSE:HXL) Q4 2022 Earnings Conference Call January 26, 2023 10:00 AM ET Company Participants Patrick Winterlich - Chief Financial Officer Nick Stanage - Chairman, President and CEO Kurt Goddard - Vice President, Investor Relations Conference Call Participants David Strauss - Barclays Pete Skibitski - Alembic Global Ron Epstein - Bank of America Myles Walton - Wolfe Research Robert Spingarn - Melius Research Kristine Liwag - Morgan Stanley Gautam Khanna - Cowen Mike Sison - Wells Fargo Mi ...

2 ©2023 Hexcel. All rights reserved. Leader in markets undergoing secular growth Broadest aerospace composite solution portfolio OUR HEXCEL PURPOSE | --- | --- | --- | |-------|----------------------------------------|------------------------------------------------------------------------------| | | | Leading, sole source positions in key markets with high barriers to entry | | • | INNOVATIVE SOLUTIONS | | | • | PROVEN EXECUTION | Sustainable competitive advantage | | | | | | • | EXPANDING MARGINS ON MARKE ...

Financial Data and Key Metrics Changes - Third quarter sales reached almost $365 million, representing a 12% increase in constant currency compared to Q3 2021 [10] - Adjusted diluted EPS for the third quarter was $0.33, up from $0.13 in the previous year [10] - Gross margin improved to 22.4% from 19.8% year-over-year, reflecting operating leverage despite inflationary pressures [22] - Year-to-date total sales increased by almost 22% year-over-year in constant currency, with EPS of $0.88 compared to $0.11 last year [16] Business Line Data and Key Metrics Changes - Commercial aerospace sales were approximately $209 million, up 26.5% in constant currency, driven by growth in Airbus A350 and A320 NEO programs [10][19] - Space and Defense sales totaled about $109 million, remaining flat in constant currency, but year-to-date sales increased nearly 5% [12][20] - Industrial sales decreased by over 8% in constant currency, primarily due to lower wind energy sales, despite growth in other industrial markets [21] Market Data and Key Metrics Changes - Commercial aerospace accounted for approximately 57% of total third quarter sales, while Space and Defense represented 30% [19] - The industrial segment comprised 13% of total sales, with wind energy making up around 20% of industrial sales [21] Company Strategy and Development Direction - The company aims to meet strong market demand, particularly in aerospace, as passenger numbers recover to pre-pandemic levels [6][39] - Hexcel is focused on operational excellence, streamlining processes, and driving productivity to enhance customer performance [9] - The company is committed to innovation in lightweight composite materials, positioning itself to capitalize on growth opportunities in aerospace and defense [8][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the aerospace market and the continued demand for lightweight composites [6][39] - The company is preparing for strong growth in 2023, with expectations of increased production rates from major customers [39][76] - Management acknowledged challenges such as inflationary pressures and supply chain constraints but remains focused on operational efficiency [9][22] Other Important Information - The company declared a quarterly dividend of $0.10, payable to stockholders of record as of November 4 [32] - Capital expenditures for the first nine months of 2022 were $49.1 million, reflecting higher maintenance and growth CapEx [29] - Free cash flow for the first nine months of 2022 was negative $1.9 million, primarily due to increased inventory levels [30] Q&A Session Summary Question: Free cash flow guidance and working capital - Management explained the decision to build inventory levels as a buffer against supply chain constraints, which is expected to strengthen free cash flow in 2023 [46][47] Question: Boeing product intake and sales pressure - Management confirmed that while Boeing's MAX program is ramping up, the 787 production remains slow, impacting sales [52][53] Question: Industrial segment outlook for 2023 - Management indicated that the industrial segment, particularly high-end automotive and recreation, is expected to remain strong despite potential economic downturns [61][62] Question: Labor challenges and training - Management acknowledged the ongoing challenges in training new hires but noted improvements in recruitment processes [77][78] Question: Seasonality impact on sales - Management clarified that Q3 sales typically decline due to seasonal factors in Europe, which returned to a more standard pattern post-pandemic [90] Question: Currency hedging and its impact - Management discussed the benefits of their hedging strategy, which is expected to provide margin stability moving into 2023 [105][106]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The unaudited condensed consolidated financial statements reflect significant performance improvement for the nine months ended September 30, 2022, with increased sales and a shift to net income [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets slightly decreased, driven by changes in property, plant, and equipment, while current assets increased and equity saw a modest decline Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $90.9 | $127.7 | | Inventories, net | $303.1 | $245.7 | | Total current assets | $685.2 | $616.3 | | Net property, plant and equipment | $1,629.3 | $1,746.1 | | **Total assets** | **$2,775.7** | **$2,819.4** | | **Liabilities & Equity** | | | | Total current liabilities | $283.7 | $247.6 | | Long-term debt | $797.0 | $822.4 | | **Total liabilities** | **$1,330.7** | **$1,333.9** | | **Total stockholders' equity** | **$1,445.0** | **$1,485.5** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported significant improvements in net sales and net income for both Q3 and the nine months ended September 30, 2022, reversing a prior-year net loss Key Operating Results (in millions, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $364.7 | $333.8 | $1,148.3 | $964.4 | | Gross margin | $81.8 | $66.0 | $258.0 | $181.0 | | Operating income | $40.8 | $22.8 | $134.7 | $28.8 | | Net income (loss) | $26.8 | $9.0 | $89.3 | $(2.8) | | Diluted EPS | $0.31 | $0.11 | $1.05 | $(0.03) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased for the nine months ended September 30, 2022, while investing and financing activities saw increased cash usage, impacting overall cash balance Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $56.4 | $64.2 | | Net cash used for investing activities | $(36.6) | $(15.0) | | Net cash used for financing activities | $(48.6) | $(44.8) | | **Net (decrease) increase in cash** | **$(36.8)** | **$2.5** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, significant transactions like asset sales, revenue by market, debt structure, derivative instruments, and contingencies including environmental liabilities - The company sold its Dublin, California facility, receiving **$21.2 million** in net proceeds and recording a gain of approximately **$19.4 million**[22](index=22&type=chunk) Revenue by Market (Nine Months Ended Sep 30, in millions) | Market | 2022 | 2021 | | :--- | :--- | :--- | | Commercial Aerospace | $655.6 | $468.5 | | Space & Defense | $338.7 | $329.0 | | Industrial | $154.0 | $166.9 | | **Total Net Sales** | **$1,148.3** | **$964.4** | Total Debt Composition (in millions) | Component | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Senior unsecured credit facility | $99.0 | $125.0 | | 4.7% senior notes - due 2025 | $300.0 | $300.0 | | 3.95% senior notes - due 2027 | $400.0 | $400.0 | | **Total debt** | **$797.3** | **$823.3** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the continued recovery in Commercial Aerospace driving sales growth, significant operating income improvement despite global challenges, and the company's solid liquidity position - The Commercial Aerospace market recovery continued into Q3 2022, with growth in air travel and aircraft build rates, despite ongoing global logistics, supply chain, and inflationary pressures[79](index=79&type=chunk) - The company monitors the Russia/Ukraine conflict, noting its impact on the global economy through increased inflation, energy costs, and constrained raw material availability[80](index=80&type=chunk) Financial Highlights (Nine Months Ended Sep 30) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,148.3M | $964.4M | 19.1% | | Operating income | $134.7M | $28.8M | 367.7% | | Net income (loss) | $89.3M | $(2.8)M | 3,289.3% | | Diluted EPS | $1.05 | $(0.03) | 3,600.0% | [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Net sales grew significantly for the first nine months of 2022, primarily driven by Commercial Aerospace, leading to improved gross margin and a substantial increase in operating income Net Sales by Market (Nine Months Ended Sep 30, in millions) | Market | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Commercial Aerospace | $655.6 | $468.5 | 39.9% | | Space & Defense | $338.7 | $329.0 | 2.9% | | Industrial | $154.0 | $166.9 | (7.7)% | | **Total** | **$1,148.3** | **$964.4** | **19.1%** | - Gross margin improved to **22.5%** for the first nine months of 2022 from **18.8%** in 2021, driven by higher sales and improved capacity utilization[92](index=92&type=chunk) - Operating income increased due to higher sales, strong gross margins, a gain from the Dublin, California facility sale, and reduced restructuring costs[96](index=96&type=chunk) [Financial Condition and Liquidity](index=21&type=section&id=Financial%20Condition%20and%20Liquidity) The company maintains a strong financial condition with solid liquidity, reduced debt, reinstated dividends, and increased capital expenditures for strategic growth projects - As of September 30, 2022, the company held **$90.9 million** in cash and **$651 million** in undrawn credit facility availability, with no significant debt repayments due until 2024[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Net cash from operating activities decreased to **$56.4 million** due to **$115.0 million** in working capital use to support higher sales[107](index=107&type=chunk) - Capital expenditures increased to **$58.3 million** for the first nine months of 2022, primarily for a new R&T center in Utah and facility expansion in Morocco[109](index=109&type=chunk) - The quarterly dividend of **$0.10 per share** was reinstated, with a new dividend declared payable in November 2022[106](index=106&type=chunk)[110](index=110&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to its market risk profile from the 2021 Annual Report, aside from the ongoing impacts of the COVID-19 pandemic and the Russia/Ukraine conflict - There have been no material changes in market risk from the year-end 2021 report, aside from the continued impacts of COVID-19 and the Russia/Ukraine conflict[123](index=123&type=chunk) [Controls and Procedures](index=24&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the third quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[124](index=124&type=chunk) - No material changes in internal control over financial reporting occurred during Q3 2022[125](index=125&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=25&type=section&id=ITEM%201.%20Legal%20Proceedings) Information on legal proceedings, including environmental matters, is incorporated by reference from Note 11, with management not expecting a material adverse impact - Details on legal proceedings, including commercial and environmental matters, are provided in Note 11 of the financial statements[64](index=64&type=chunk)[126](index=126&type=chunk) [Risk Factors](index=25&type=section&id=ITEM%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since the 2021 Annual Report on Form 10-K, and investors should consider previously disclosed factors - There have been no material changes in the Company's risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[127](index=127&type=chunk) [Exhibits](index=26&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - Exhibits filed with the report include CEO/CFO certifications and financial data in Inline XBRL format[130](index=130&type=chunk)

Hexcel Corporation (NYSE:HXL) Q2 2022 Earnings Conference Call July 26, 2022 10:00 AM ET Company Participants Patrick Winterlich - Chief Financial Officer Nick Stanage - Chairman, Chief Executive Officer & President Conference Call Participants Sheila Kahyaoglu - Jefferies David Strauss - Barclays Ron Epstein - Bank of America Michael Ciarmoli - Truist Securities John McNulty - BMO Capital Markets Pete Skibitski - Alembic Global Robert Spingarn - Melius Research Richard Safran - Seaport Research Partners Pa ...

HEXCEL Investor Briefing July 2022 Risks, | --- | --- | |-----------------|-------| | | | | | | | Uncertainties | | | and Other | | | Factors with | | | Respect to | | | Forward-Looking | | | Statements | | | Disclaimer | | Certain statements contained in this presentation constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements that are not of historical fact constitute "forward-looking statements" and accordingly, involve estimates ...

Part I: Financial Information [Condensed Consolidated Financial Statements](index=3&type=section&id=ITEM%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Hexcel Corporation's unaudited condensed consolidated financial statements, highlighting significant year-over-year performance improvement [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets and liabilities remained at **$2,819.4 million**, with current assets increasing by **$75.6 million** and stockholders' equity slightly decreasing | (In millions) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $691.9 | $616.3 | | **Total assets** | **$2,819.4** | **$2,819.4** | | **Total current liabilities** | $271.2 | $247.6 | | **Total liabilities** | $1,339.1 | $1,333.9 | | **Total stockholders' equity** | $1,480.3 | $1,485.5 | | **Total liabilities and stockholders' equity** | **$2,819.4** | **$2,819.4** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported strong year-over-year growth, with Q2 2022 net sales increasing **22.7%** to **$393.0 million** and net income surging to **$44.7 million** | (In millions, except per share data) | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $393.0 | $320.3 | $783.6 | $630.6 | | **Operating income** | $63.8 | $16.2 | $93.9 | $6.0 | | **Net income (loss)** | $44.7 | $2.2 | $62.5 | $(11.8) | | **Diluted net income (loss) per share** | $0.53 | $0.03 | $0.74 | $(0.14) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities for H1 2022 decreased to **$18.3 million** due to increased working capital, while investing activities used **$16.2 million** | (In millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $18.3 | $38.9 | | **Capital expenditures** | $(37.9) | $(9.2) | | **Proceeds from sale of asset** | $21.2 | - | | **Net cash used for investing activities** | $(16.2) | $(9.2) | | **Net cash used for financing activities** | $(26.6) | $(16.6) | | **Net (decrease) increase in cash** | $(28.5) | $12.0 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of financial statement items, including revenue disaggregation, segment performance, debt structure, and environmental liabilities - In Q2 2022, the company sold its Dublin, California facility, receiving approximately **$21.2 million** in net proceeds and recording a gain of **$19.4 million**[21](index=21&type=chunk) | Sales by Market (In millions) | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | | **Commercial Aerospace Sales** | $446.5 | $301.3 | | **Space & Defense Sales** | $230.1 | $218.6 | | **Industrial Sales** | $107.0 | $110.7 | - Total debt stood at **$812.5 million** as of June 30, 2022, with **$636 million** of undrawn availability under its **$750 million** senior unsecured credit facility[33](index=33&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - Aggregate environmental-related accruals increased to **$7.1 million** as of June 30, 2022, from **$2.1 million** at year-end 2021, primarily related to the Lower Passaic River site[67](index=67&type=chunk) [Management's Discussion and Analysis (MD&A)](index=18&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial results, highlighting a strong recovery driven by the Commercial Aerospace market, improved liquidity, and dividend reinstatement [Business and Financial Overview](index=18&type=section&id=Business%20and%20Financial%20Overview) Hexcel manufactures advanced composite materials, experiencing Commercial Aerospace recovery despite ongoing challenges from logistics, supply chains, and inflation - The company operates in a single industry, Advanced Composites, with two reportable segments: Composite Materials and Engineered Products[76](index=76&type=chunk) - The Commercial Aerospace market recovery continued into Q2 2022, though challenges from global logistics, supply chains, and inflationary pressures persist[77](index=77&type=chunk) - The company is monitoring the Russia-Ukraine conflict for potential impacts on inflation, energy costs, and raw material availability[78](index=78&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) The company reported significant year-over-year growth, with Q2 2022 net sales up **22.7%** and operating income increasing to **$63.8 million** | Sales by Market (Q2 2022 vs Q2 2021) | % Change | % Change (Constant Currency) | | :--- | :--- | :--- | | **Commercial Aerospace** | +48.1% | +49.5% | | **Space & Defense** | +4.7% | +7.0% | | **Industrial** | -10.4% | -3.5% | - Gross margin improved to **22.8%** in Q2 2022 from **19.3%** in Q2 2021, primarily due to higher sales and greater capacity utilization leading to improved cost absorption[89](index=89&type=chunk) - Q2 2022 operating income was **$63.8 million** (**16.2%** of sales) compared to **$16.2 million** (**5.1%** of sales) in Q2 2021, driven by higher sales, strong gross margins, and an asset sale gain[93](index=93&type=chunk) [Financial Condition and Liquidity](index=21&type=section&id=Financial%20Condition%20and%20Liquidity) The company maintains a solid liquidity position with **$99.2 million** in cash and **$636 million** available credit, despite negative free cash flow in H1 2022 - As of June 30, 2022, the company had **$99.2 million** in cash and **$636 million** in undrawn availability under its **$750 million** credit facility[98](index=98&type=chunk)[100](index=100&type=chunk) - Free cash flow (non-GAAP) was negative **$19.6 million** for H1 2022, compared to positive **$29.7 million** in H1 2021, due to higher working capital usage and capital expenditures[104](index=104&type=chunk)[115](index=115&type=chunk) - Capital expenditures increased to **$37.9 million** in H1 2022 from **$9.2 million** in H1 2021, driven by construction projects in Salt Lake City, Utah, and Morocco[105](index=105&type=chunk) - The Board of Directors declared a quarterly dividend of **$0.10 per share** on July 25, 2022[103](index=103&type=chunk) [Non-GAAP Financial Measures](index=22&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures to provide insight into ongoing operational performance, excluding items like asset sale gains and restructuring costs | (In millions) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | **GAAP operating income** | $63.8 | $16.2 | $93.9 | $6.0 | | **Adjusted operating income (non-GAAP)** | $44.7 | $19.3 | $75.8 | $21.2 | | (per share) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | **GAAP diluted EPS** | $0.53 | $0.03 | $0.74 | $(0.14) | | **Adjusted diluted EPS (non-GAAP)** | $0.33 | $0.08 | $0.55 | $(0.02) | [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its market risk profile from the 2021 Annual Report, except for ongoing effects of COVID-19 and the Russia-Ukraine conflict - There have been no material changes in market risk from the 2021 Form 10-K, other than the continued broad effects of COVID-19 and the Russia-Ukraine conflict[121](index=121&type=chunk) [Controls and Procedures](index=24&type=section&id=ITEM%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022[122](index=122&type=chunk) - No material changes in internal control over financial reporting were identified during the second quarter of 2022[123](index=123&type=chunk) Part II: Other Information [Legal Proceedings](index=25&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is involved in routine litigation and environmental matters, including its designation as a Potentially Responsible Party for the Lower Passaic River Superfund site - The company is a Potentially Responsible Party (PRP) in the environmental remediation of the Lower Passaic River Superfund site[62](index=62&type=chunk)[63](index=63&type=chunk) - As of June 30, 2022, aggregate environmental-related accruals were **$7.1 million**, a significant increase from **$2.1 million** at the end of 2021[67](index=67&type=chunk) [Risk Factors](index=25&type=section&id=ITEM%201A.%20Risk%20Factors) The company states no material changes to risk factors from its 2021 Annual Report on Form 10-K, directing investors to that filing for comprehensive discussion - There have been no material changes in the Company's risk factors from the Annual Report on Form 10-K for the year ended December 31, 2021[125](index=125&type=chunk) [Exhibits](index=26&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including management compensation agreements and required CEO/CFO certifications - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[129](index=129&type=chunk)

Hexcel Corporation (NYSE:HXL) Q1 2022 Earnings Conference Call April 26, 2022 10:00 AM ET Company Participants Patrick Winterlich - CFO Nick Stanage - Chairman, President and CEO Kurt Goddard - VP, IR Conference Call Participants Michael Ciarmoli - Truist Securities Ken Herbert - RBC Myles Walton - UBS Sheila Kahyaoglu - Jefferies Mike Sison - Wells Fargo John McNulty - BMO Capital Markets David Strauss - Barclays Pete Skibitski - Alembic Global Phil Gibbs - KeyBanc Capital Markets Richard Safran - Seaport ...

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, 2022 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) (State or Other Jurisdiction of Incorporation or Organization) ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) Hexcel Corporation is a global leader in advanced lightweight composites, serving the Commercial Aerospace, Space & Defense, and Industrial markets - Hexcel is a global leader in advanced lightweight composites technology with a product range including carbon fiber, prepregs, honeycomb, and composite structures for aerospace, defense, and industrial use[12](index=12&type=chunk) - The company operates through two reportable segments: Composite Materials and Engineered Products[14](index=14&type=chunk) - The COVID-19 pandemic significantly impacted operations, with lower demand due to reduced aircraft build rates and supply chain destocking, though signs of recovery began in **2021** including increased domestic air travel[15](index=15&type=chunk)[16](index=16&type=chunk) [Composite Materials Segment](index=3&type=section&id=Composite%20Materials) This segment, Hexcel's largest, manufactures and sells carbon fibers, fabrics, prepregs, adhesives, and honeycomb core for various applications - This segment manufactures core products like carbon fibers (HexTow®), fabrics (HexForce®), prepregs (HexPly®), structural adhesives (HexBond®), and honeycomb (HexWeb®)[18](index=18&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) Composite Materials Segment Net Sales | Year | Net Sales (in millions) | % of Total Company Sales | | :--- | :--- | :--- | | **2021** | **$1,019.4** | ~**80%** | | **2020** | **$1,185.9** | ~**80%** | | **2019** | **$1,863.1** | ~**80%** | - Key customers for this segment include Airbus, Boeing, General Electric, Lockheed Martin, Safran, and Vestas[31](index=31&type=chunk) [Engineered Products Segment](index=6&type=section&id=Engineered%20Products) This segment produces composite structures, precision machined honeycomb parts, and RF/EMI absorbing materials, primarily for the aerospace industry - This segment manufactures composite structures, engineered honeycomb parts, and RF interference control materials for aerospace applications[36](index=36&type=chunk)[37](index=37&type=chunk) Engineered Products Segment Net Sales | Year | Net Sales (in millions) | % of Total Company Sales | | :--- | :--- | :--- | | **2021** | **$305.3** | ~**20%** | | **2020** | **$316.5** | ~**20%** | | **2019** | **$492.6** | ~**20%** | - The segment holds a **50%** ownership in the Aerospace Composites Malaysia Sdn Bhd (ACM) joint venture with Boeing; as of January **1**, **2022**, Hexcel no longer purchases semi-finished components from ACM but continues to accrue **50%** of ACM's net income[38](index=38&type=chunk) [Markets and Customers](index=7&type=section&id=Markets%20and%20Customers) Hexcel serves Commercial Aerospace, Space & Defense, and Industrial markets, with Airbus and Boeing as its largest customers 2021 Net Sales by Market | Market | % of 2021 Net Sales | | :--- | :--- | | Commercial Aerospace | **50%** | | Space & Defense | **33%** | | Industrial | **17%** | Sales to Significant Customers (% of Total Net Sales) | Customer (and subcontractors) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Airbus | **33%** | **33%** | **39%** | | Boeing | **16%** | **19%** | **25%** | - Demand in the wind energy sub-market declined in **2021** due to commoditization and a technology shift from prepreg to infusion processes[57](index=57&type=chunk) - The F-**35** program is the largest in the Space & Defense market, representing less than **25%** of the market's revenue[53](index=53&type=chunk) [Operations and Strategy](index=9&type=section&id=Operations%20and%20Strategy) Hexcel maintains vertically integrated operations, focuses on research and technology, and is committed to environmental sustainability - The company is vertically integrated, producing its own PAN precursor for carbon fiber production, and in **2021**, it internally consumed **55-60%** of the carbon fiber it produced[60](index=60&type=chunk)[61](index=61&type=chunk) - Hexcel acknowledges risks from supply disruptions and material shortages due to global transportation issues and market volatility, and is working with key suppliers to mitigate impacts[64](index=64&type=chunk) - The company is focused on environmental sustainability, with initiatives like solar power projects at several manufacturing sites and efforts to reduce waste and emissions[68](index=68&type=chunk)[69](index=69&type=chunk) - As of December **31**, **2021**, the company employed **4,863** full-time employees and contract workers, an increase from **4,647** at the end of **2020**[83](index=83&type=chunk) [Risk Factors](index=13&type=page&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the ongoing COVID-19 pandemic, customer concentration, supply chain disruptions, international operations, environmental regulations, and cybersecurity threats - **COVID-19 Pandemic:** The pandemic continues to adversely affect the business through reduced demand for commercial aircraft, supply chain disruptions, and potential workforce impacts from health measures[91](index=91&type=chunk)[93](index=93&type=chunk) - **Customer Concentration:** A significant decline in business with Airbus or Boeing, who represented **33%** and **16%** of **2021** sales respectively, could materially harm operating results[101](index=101&type=chunk) - **Supply Chain & Raw Materials:** Profitability is dependent on the price and supply of raw materials like acrylonitrile and carbon fiber; the company experienced minor supply disruptions in **2021** and anticipates they may continue[112](index=112&type=chunk) - **International Operations:** With **59%** of customer sales outside the U.S. in **2021**, the company is exposed to risks from currency fluctuations, trade policies (tariffs), and geopolitical instability[114](index=114&type=chunk)[115](index=115&type=chunk) - **Environmental & ESG:** The company faces risks from evolving environmental laws, climate change impacts on operations, and increasing stakeholder focus on ESG matters, which could increase costs and damage reputation if not managed effectively[118](index=118&type=chunk)[120](index=120&type=chunk)[125](index=125&type=chunk) - **Cybersecurity:** The company depends heavily on IT systems and faces sophisticated cyberattacks, where a breach could lead to data loss, operational stoppages, and reputational harm[123](index=123&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[135](index=135&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) Hexcel owns and leases manufacturing facilities and offices globally, with corporate headquarters in Stamford, Connecticut, and major manufacturing sites across the U.S. and internationally - The company's principal corporate offices are leased in Stamford, Connecticut, while principal research and technology labs are located in California, Utah, England, and France[137](index=137&type=chunk) - Hexcel operates numerous manufacturing facilities in the U.S. and internationally, including sites in Arizona, Alabama, Utah, France, England, Spain, Germany, and China[140](index=140&type=chunk) - The wind energy prepreg production facility in Windsor, Colorado was closed in November **2020** and is currently held for sale[140](index=140&type=chunk) [Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) Hexcel is involved in various legal proceedings, primarily environmental matters, including the Lower Passaic River Superfund site, with an environmental remediation accrual of **$2.1 million** as of December **31**, **2021** - The company is named as a Potentially Responsible Party (PRP) for the Lower Passaic River Superfund site in New Jersey due to a former manufacturing site[399](index=399&type=chunk) - In June **2018**, Occidental Chemical Corporation (OCC) filed a suit against Hexcel and ~**120** other parties for cost recovery related to the Lower Passaic River cleanup[402](index=402&type=chunk) Environmental Remediation Reserve Activity (in millions) | Year | Beginning Balance | Cash Expenditures | Ending Balance | | :--- | :--- | :--- | :--- | | **2021** | **$2.4** | **$(0.3)** | **$2.1** | | **2020** | **$2.5** | **$(0.1)** | **$2.4** | | **2019** | **$2.7** | **$(0.2)** | **$2.5** | [Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[142](index=142&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hexcel's common stock trades on the NYSE under HXL, with dividends and stock repurchases suspended in April **2020** due to the pandemic but dividends reinstated in January **2022** - Common stock is traded on the NYSE under the symbol HXL[144](index=144&type=chunk) - Dividend payments and stock repurchases were suspended in April **2020** in response to the COVID-19 pandemic, with the dividend reinstated commencing with the first quarter of **2022**[145](index=145&type=chunk) - As of January **31**, **2022**, there were **449** holders of record of the company's common stock[146](index=146&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In **2021**, Hexcel's net sales decreased to **$1,324.7 million** due to the pandemic, but operating income and gross margin improved, with the company generating **$123.8 million** in free cash flow Financial Highlights (GAAP) | Metric (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net Sales | **$1,324.7** | **$1,502.4** | | Gross Margin % | **18.9%** | **16.0%** | | Operating Income | **$51.8** | **$14.1** | | Net Income | **$16.1** | **$31.7** | Non-GAAP Financial Measures | Metric (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Adjusted Operating Income | **$70.0** | **$72.0** | | Adjusted Net Income | **$23.2** | **$20.6** | | Free Cash Flow | **$123.8** | **$213.7** | - The company received **$10.5 million** in **2021** under the Aviation Manufacturing Jobs Protection (AMJP) program and anticipates receiving the remaining approved funds of up to **$20.9 million** in **2022**[177](index=177&type=chunk)[206](index=206&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Consolidated net sales for **2021** decreased **11.8%** to **$1,324.7 million**, with declines across all markets, yet gross margin improved to **18.9%** due to favorable sales mix and cost reductions 2021 vs 2020 Sales Change by Market (Constant Currency) | Market | % Change | | :--- | :--- | | Commercial Aerospace | (**19.1%**) | | Space & Defense | (**3.4%**) | | Industrial | (**7.3%**) | - Gross margin improved to **18.9%** in **2021** from **16.0%** in **2020**, attributed to a favorable sales mix towards carbon fiber and benefits from cost reduction actions[191](index=191&type=chunk) - SG&A expenses increased to **$135.0 million** (**10.2%** of sales) in **2021** from **$121.1 million** (**8.1%** of sales) in **2020**, mainly due to higher employee-related costs as temporary pandemic cost reductions ended[192](index=192&type=chunk) - Other operating expenses decreased to **$18.2 million** in **2021** from **$57.9 million** in **2020**, as **2020** included higher restructuring costs and expenses from the terminated merger with Woodward Inc[194](index=194&type=chunk) [Financial Condition and Liquidity](index=34&type=section&id=Financial%20Condition%20and%20Liquidity) Hexcel maintained a solid liquidity position in **2021** with **$127.7 million** in cash and **$625 million** undrawn credit, reducing total debt to **$823.3 million** and complying with amended credit facility covenants Key Balance Sheet & Cash Flow Items (in millions) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | **$127.7** | **$103.3** | | Total Debt | **$823.3** | **$926.4** | | Net Cash from Operating Activities (2021 vs 2020) | **$151.7** | **$264.3** | - The company amended its credit facility in January **2021**, temporarily replacing the maximum leverage ratio with a minimum liquidity requirement of **$250 million** through Q1 **2022** and reducing revolving commitments to **$750 million**[202](index=202&type=chunk)[312](index=312&type=chunk) - Financing activities in **2021** included a **$103 million** repayment of the senior unsecured credit facility[209](index=209&type=chunk) [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management identifies critical accounting policies requiring significant judgment, including income taxes, retirement benefits, and impairment testing of long-lived assets and goodwill - **Income Taxes:** Involves significant estimates for deferred tax asset realizability, requiring a valuation allowance when recovery is not more likely than not; as of Dec **31**, **2021**, the company had uncertain tax positions related to returns from **2013** onward[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) - **Retirement Benefits:** Accounting for pension and postretirement plans requires actuarial models with key assumptions for discount rates, expected return on assets, and compensation growth, which are set annually[219](index=219&type=chunk)[221](index=221&type=chunk) - **Long-Lived Assets and Goodwill:** Assets are reviewed for impairment when events indicate the carrying amount may not be recoverable, with this assessment requiring estimates of future undiscounted cash flows and fair value[227](index=227&type=chunk)[228](index=228&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Hexcel is exposed to market risks from currency exchange rates, interest rates, and commodity prices, using derivatives to hedge these exposures - The company is exposed to market risks from foreign currency exchange rates (primarily Euro and British pound), interest rates, and commodity prices[230](index=230&type=chunk) - A sensitivity analysis showed a hypothetical **10%** adverse movement in FX rates would impact **2021** operating income by ~**$3.7 million** with hedges in place, versus ~**$21.9 million** without hedges[237](index=237&type=chunk) - As of December **31**, **2021**, the company had foreign currency forward exchange contracts with an aggregate notional amount of **$316.4 million** to hedge forecasted transactions through June **2023**[393](index=393&type=chunk) - The company held commodity swap agreements with a notional value of **$18.9 million** as of Dec **31**, **2021**, to hedge against price fluctuations in raw materials like propylene[396](index=396&type=chunk) [Financial Statements and Supplementary Data](index=39&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Hexcel's audited consolidated financial statements for **2021**, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with notes and an unqualified audit opinion [Consolidated Financial Statements](index=45&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present Hexcel's financial position and results of operations, showing total assets of **$2,819.4 million** and net income of **$16.1 million** for **2021** Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | **$616.3** | **$535.9** | | Total Assets | **$2,819.4** | **$2,917.8** | | Total Current Liabilities | **$247.6** | **$183.1** | | Total Liabilities | **$1,333.9** | **$1,407.6** | | Total Stockholders' Equity | **$1,485.5** | **$1,510.2** | Consolidated Statement of Operations Highlights (in millions) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net Sales | **$1,324.7** | **$1,502.4** | **$2,355.7** | | Gross Margin | **$250.1** | **$239.7** | **$640.4** | | Operating Income | **$51.8** | **$14.1** | **$425.2** | | Net Income | **$16.1** | **$31.7** | **$306.6** | | Diluted EPS | **$0.19** | **$0.38** | **$3.57** | [Notes to the Consolidated Financial Statements](index=49&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on Hexcel's accounting policies and financial data, covering debt, retirement plans, income taxes, revenue recognition, restructuring, stock-based compensation, contingencies, and segment information - **Debt (Note 6):** Total debt as of Dec **31**, **2021** was **$823.3 million**, consisting primarily of a **$125 million** balance on the senior unsecured credit facility, **$300 million** of **4.7%** senior notes due **2025**, and **$400 million** of **3.95%** senior notes due **2027**[310](index=310&type=chunk) - **Retirement Plans (Note 8):** The company maintains various defined benefit and defined contribution plans, with net periodic pension expense of **$17.8 million** in **2021**, and European and U.S. defined benefit plans having deficits of **$9.1 million** and **$24.0 million**, respectively[337](index=337&type=chunk)[339](index=339&type=chunk) - **Segment Information (Note 18):** In **2021**, the Composite Materials segment had operating income of **$88.1 million** on **$1,019.4 million** in sales, while the Engineered Products segment had operating income of **$20.2 million** on **$305.3 million** in sales[414](index=414&type=chunk) - **Geographic Data (Note 18):** In **2021**, **52%** of net sales were generated from manufacturing facilities in the United States, with the remaining **48%** from international locations, and **59%** of sales delivered to international customers[415](index=415&type=chunk)[114](index=114&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=23&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[150](index=150&type=chunk) [Controls and Procedures](index=23&type=section&id=Item%209A.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of December **31**, **2021**, with no material changes in internal control over financial reporting during Q4 **2021** - The CEO and CFO concluded that disclosure controls and procedures were effective as of December **31**, **2021**[151](index=151&type=chunk) - No material changes to internal control over financial reporting occurred during the fourth quarter of **2021**[152](index=152&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=24&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item will be incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the forthcoming definitive proxy statement[157](index=157&type=chunk) [Executive Compensation](index=24&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item will be incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the forthcoming definitive proxy statement[158](index=158&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=24&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item will be incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the forthcoming definitive proxy statement[159](index=159&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=24&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item will be incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the forthcoming definitive proxy statement[160](index=160&type=chunk) [Principal Accountant Fees and Services](index=24&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information for this item will be incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the forthcoming definitive proxy statement[161](index=161&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=25&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form **10-K** - This section provides a list of all financial statements, schedules, and exhibits filed with the Form **10-K**[163](index=163&type=chunk) - Key exhibits listed include the Credit Agreement (**10.1**), various incentive stock and compensation plans (**10.5**, **10.7**), and certifications by the CEO and CFO (**31.1**, **31.2**)[165](index=165&type=chunk)[167](index=167&type=chunk) [Form 10-K Summary](index=29&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that no Form **10-K** summary is provided - None[168](index=168&type=chunk)