Hexcel(HXL) - 2019 Q4 - Annual Report

PART I Business Overview Hexcel, a leading advanced composites company, serves aerospace and industrial markets, with a proposed merger and recent acquisition General Development of Business 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] - 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] - 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] Business Segments 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] 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 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] 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] 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 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] - 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] Raw Materials and Production Activities 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] - Hexcel consumes about 75% by value of the carbon fiber it produces and also purchases significant quantities from external sources[55] - 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] Research and Technology; Patents and Know-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] - Hexcel holds over 1,680 patents and pending applications worldwide and actively enforces its proprietary rights[59] 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 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] 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] Sales and Marketing 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] 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] - Competitive factors include approvals, database of usage, technology, product performance, delivery, service, price, customer preference for sole sourcing, and customer preferred processes[65] 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] Other Information 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] Forward-Looking Statements 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] - 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][70] Risk Factors 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][74][78] - 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] - 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] - 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][84] - 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][87][90][93][98][101] Unresolved Staff Comments Hexcel Corporation has no unresolved staff comments to report - There are no unresolved staff comments[102] Properties 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] - 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] 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 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] - 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][112] - 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] Mine Safety Disclosures This item is not applicable to Hexcel Corporation - Item 4, Mine Safety Disclosures, is not applicable to Hexcel Corporation[114] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - On February 3, 2020, the Board of Directors declared a $0.17 quarterly dividend, payable February 21, 2020[118] 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] Selected Financial Data 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 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][152] - 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] - 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] Business Overview 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 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] - 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] - 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] Results of Operations 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] 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 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] 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] - 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] - 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][187] 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 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] - 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][205] - 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] - 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][215] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] - 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] Financial Statements and Supplementary Data 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][239] - 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][244][255] Management's Responsibility for Consolidated Financial Statements 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] - 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] Management's Report on Internal Control Over Financial Reporting 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] - 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] Reports of Independent Registered Public Accounting Firm 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] - Ernst & Young LLP also issued an unqualified opinion on Hexcel's internal control over financial reporting as of December 31, 2019[245][255] - 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][251] Consolidated Financial Statements 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 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] - 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] 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][355] 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 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 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] Controls and Procedures 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] - 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] Other Information 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] PART III Directors, Executive Officers and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions and Director Independence 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] Principal Accountant Fees and Services 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] PART IV Exhibits and Financial Statement Schedules 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] - 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][140][141] 10-K Summary This item indicates that no 10-K Summary is provided in this report - No 10-K Summary is provided in this report[142] 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][146]