UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
or
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
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Outstanding at October 14, 2021 |
COMMON STOCK |
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HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
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PART I. |
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3 |
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ITEM 1. |
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3 |
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Condensed Consolidated Balance Sheets — September 30, 2021 and December 31, 2020 |
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Condensed Consolidated Statements of Cash Flows — The nine months ended September 30, 2021 and 2020 |
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7 |
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ITEM 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 6. |
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29 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
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(Unaudited) |
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September 30, |
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December 31, |
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(In millions) |
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2021 |
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2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Contract assets |
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Prepaid expenses and other current assets |
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Assets held for sale |
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Total current assets |
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Property, plant and equipment |
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Less accumulated depreciation |
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Net property, plant and equipment |
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Goodwill and other intangible assets, net |
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Investments in affiliated companies |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Short-term borrowings |
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$ |
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$ |
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Accounts payable |
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Accrued compensation and benefits |
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Financial instruments |
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Accrued liabilities |
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Total current liabilities |
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Long-term debt |
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Retirement obligations |
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Deferred income taxes |
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Other non-current liabilities |
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Total liabilities |
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Stockholders' equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Less – Treasury stock, at cost, |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Hexcel Corporation and Subsidiaries |
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Condensed Consolidated Statements of Operations |
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(Unaudited) |
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(Unaudited) |
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Quarter Ended September 30, |
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Nine Months Ended September 30, |
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(In millions, except per share data) |
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2021 |
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2020 |
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2021 |
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2020 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross margin |
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Selling, general and administrative expenses |
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Research and technology expenses |
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Other operating expense |
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Operating income (loss) |
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Interest expense, net |
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Income (loss) before income taxes, and equity in earnings from affiliated companies |
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Income tax expense (benefit) |
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( |
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( |
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Income (loss) before equity in earnings from affiliated companies |
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Equity in earnings (losses) from affiliated companies |
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Net income (loss) |
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$ |
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$ |
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$ |
( |
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$ |
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Basic net income (loss) per common share |
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$ |
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$ |
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$ |
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$ |
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Diluted net income (loss) per common share |
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$ |
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$ |
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$ |
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$ |
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Weighted-average common shares: |
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Basic |
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Diluted |
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Hexcel Corporation and Subsidiaries |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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(Unaudited) |
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(Unaudited) |
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Quarter Ended September 30, |
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Nine Months Ended September 30, |
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(In millions) |
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2021 |
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2020 |
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2021 |
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2020 |
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Net income (loss) |
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$ |
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$ |
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$ |
( |
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$ |
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Currency translation adjustments |
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( |
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( |
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Net unrealized pension and other benefit actuarial gains (losses) and prior service credits (net of tax) |
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( |
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( |
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( |
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Net unrealized (losses) gains on financial instruments (net of tax) |
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( |
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( |
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Total other comprehensive (loss) income |
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( |
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( |
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Comprehensive (loss) income |
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$ |
( |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
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(Unaudited) |
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Nine Months Ended September 30, |
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(In millions) |
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2021 |
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2020 |
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Cash flows from operating activities |
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Net (loss) income |
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$ |
( |
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$ |
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Reconciliation to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization related to financing |
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Deferred income taxes |
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( |
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( |
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Equity in earnings from affiliated companies |
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( |
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Stock-based compensation |
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Merger and restructuring expenses, net of payments |
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( |
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Changes in assets and liabilities: |
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(Increase) decrease in accounts receivable |
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( |
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(Increase) decrease in inventories |
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( |
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Decrease in prepaid expenses and other current assets |
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Increase (decrease) in accounts payable/accrued liabilities |
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( |
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Other – net |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Capital expenditures |
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( |
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( |
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Net cash used for investing activities |
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( |
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( |
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Cash flows from financing activities |
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Repayments of Euro term loan |
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- |
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( |
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Borrowing from senior unsecured credit facility - 2024 |
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- |
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Repayment of senior unsecured credit facility - 2024 |
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( |
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( |
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Repayment of finance lease obligation and other debt, net |
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( |
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( |
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Issuance costs related to senior credit facility |
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- |
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( |
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Dividends paid |
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- |
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( |
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Repurchase of stock |
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- |
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( |
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Activity under stock plans |
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( |
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Net cash used for financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental data: |
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Accrual basis additions to plant, property and equipment |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months ended September 30, 2021, and September 30, 2020
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Accumulated |
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Additional |
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Other |
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Total |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders’ |
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(In millions) |
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Par |
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Capital |
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Earnings |
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Loss |
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Stock |
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Equity |
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Balance, December 31, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Dividends paid on common stock ($ |
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— |
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— |
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( |
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— |
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— |
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( |
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Change in other comprehensive income (loss)– net of tax |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock based compensation |
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— |
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— |
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— |
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( |
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Acquisition of treasury stock |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance, March 31, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Change in other comprehensive income (loss)– net of tax |
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— |
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— |
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— |
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— |
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Stock based compensation |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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Balance, June 30, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Change in other comprehensive income (loss)– net of tax |
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— |
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— |
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— |
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— |
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Stock based compensation |
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— |
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— |
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— |
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( |
) |
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— |
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Balance, September 30, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Accumulated |
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Additional |
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Other |
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Total |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders’ |
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(In millions) |
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Par |
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Capital |
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Earnings |
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Loss |
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Stock |
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Equity |
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||||||
Balance, December 31, 2020 |
|
$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Net loss |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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Change in other comprehensive income (loss)– net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Stock based compensation |
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— |
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— |
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— |
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( |
) |
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|
|||||
Balance, March 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
|
|
||||||
Change in other comprehensive income (loss)– net of tax |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
||||||
Stock based compensation |
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
||||||
Balance, June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
|
|
||||||
Change in other comprehensive income (loss)– net of tax |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
— |
|
|
|
( |
) |
||||
Stock based compensation |
|
— |
|
|
|
|
|
— |
|
|
|
- |
|
|
|
( |
) |
|
|
|
||||
Balance, September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Significant Accounting Policies
In these notes, the terms “Hexcel,” “the Company,” “we,” “us,” or “our” mean Hexcel Corporation and subsidiary companies. The accompanying condensed consolidated financial statements are those of Hexcel Corporation. Refer to Note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of our significant accounting policies.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared from the unaudited accounting records of Hexcel pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the SEC. In the opinion of management, the condensed consolidated financial statements include all normal recurring adjustments as well as any non-recurring adjustments necessary to present fairly the statement of financial position, results of operations, cash flows and statement of stockholders’ equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from the audited 2020 consolidated balance sheet. Interim results are not necessarily indicative of results expected for any other interim period or for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2020 Annual Report on Form 10-K.
Investments in Affiliated Companies
Assets Held for Sale
In early November 2020 we closed our wind energy prepeg production facility in Windsor, Colorado and as a result, certain plant assets to be sold have been recorded in “Assets held for sale” in the Condensed Consolidated Balance Sheets at both September 30, 2021 and December 31, 2020. The sale of these assets is expected to occur in the fourth quarter of 2021.
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued No. 2018-14 (ASU 2018-14), Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), which amends the current disclosure requirements regarding defined benefit pensions and other post retirement plans, and allows for the removal of certain disclosures, while adding certain new disclosure requirements. This standard is effective for fiscal years beginning after December 15, 2020. Adoption of this new standard did not have a significant impact to our disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which amends and aims to simplify requirements regarding a number of topics including intraperiod tax allocation, accounting for deferred taxes when there are changes in consolidation of certain investments, tax basis step up in an acquisition and the application of effective rate changes during interim periods, among other improvements. This standard is effective for fiscal years beginning after December 15, 2020. Adoption of this new standard did not have a material impact on the Company.
7
Note 2 — Net Income (Loss) Per Common Share
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In millions, except per share data) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Basic net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic net income (loss) per common share |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding — Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Plus incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding — Dilutive |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted net income (loss) per common share |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Total common stock equivalents of
Note 3 — Inventories
|
|
|
|
|
|
|
||
(In millions) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total Inventory |
|
$ |
|
|
$ |
|
||
Note 4 — Retirement and Other Postretirement Benefit Plans
We maintain qualified and nonqualified defined benefit retirement plans covering certain current and former U.S. and European employees, retirement savings plans covering eligible U.S. and U.K. employees and certain postretirement health care and life insurance benefit plans covering eligible U.S. retirees. We also participate in a union sponsored multi-employer pension plan covering certain U.S. employees with union affiliations.
Defined Benefit Retirement Plans
Net Periodic Benefit Costs
Net periodic benefit costs of our defined benefit retirement plans for the quarter and nine months ended September 30, 2021 and 2020 were as follows:
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
U.S. Nonqualified Defined Benefit Retirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net amortization |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
8
(In millions) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans: |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
European Defined Benefit Retirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net amortization and deferral |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit cost (credit) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
(In millions) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Amounts recognized on the balance sheet for European defined benefit retirement plans: |
|
|
|
|
|
|
||
Other assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
Total accrued benefit |
|
$ |
|
|
$ |
|
||
All costs related to our pensions are included as a component of operating income in our Condensed Consolidated Statements of Operations. For the quarters ended September 30, 2021 and 2020, amounts unrelated to service costs were a charge of $
Contributions
We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred. We contributed approximately $
We contributed $
Postretirement Health Care and Life Insurance Benefit Plans
We recorded $
(In millions) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Amounts recognized on the balance sheet: |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
||
Other non-current liabilities |
|
|
|
|
|
|||
Total accrued benefit |
|
$ |
|
|
$ |
|
||
Amounts contributed in connection with our postretirement plans were immaterial for both the nine months ended September 30, 2021 and 2020. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute less than $
9
Note 5 –– Debt
(In millions) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Current portion of finance lease |
|
$ |
|
|
$ |
|
||
Current portion of debt |
|
|
|
|
|
|
||
Senior unsecured credit facility |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Senior notes --- original issue discount |
|
|
( |
) |
|
|
( |
) |
Senior notes --- deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Non-current portion of finance lease and other debt |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Total debt |
|
$ |
|
|
$ |
|
||
In June 2019, the Company refinanced its senior unsecured credit facility (the “Facility”), increasing borrowing capacity from $
In September 2020, we amended the Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period.
As of September 30, 2021, total borrowings under the Facility were $
In 2017, the Company issued $
In 2015, the Company issued $
Note 6 — Derivative Financial Instruments
Interest Rate Swap and Interest Lock Agreements
At September 30, 2021 and December 31, 2020, we had
10
The Company had treasury lock agreements to protect against unfavorable movements in the benchmark treasury rate related to the issuance of our
Cross Currency and Interest Rate Swap Agreements
In November 2020, we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a €
Foreign Currency Forward Exchange Contracts
A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British pound sterling. We entered into contracts to exchange U.S. dollars for Euros and British pound sterling through March 2024. The aggregate notional amount of these contracts was $
In addition, we enter into foreign exchange forward contracts which are not designated as hedges. These are used to provide an offset to transactional gains or losses arising from the remeasurement of non-functional monetary assets and liabilities such as accounts receivable. The change in the fair value of the derivatives is recorded in the statement of operations. There are
11
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Unrealized gains (losses) at beginning of period, net of tax |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
(Gains) losses reclassified to net sales |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
(Decrease) increase in fair value |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized (losses) gains at end of period, net of tax |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Unrealized gains of $
Commodity Swap Agreements
Note 7 — Income Taxes
Note 8 — Fair Value Measurements
The authoritative guidance for fair value measurements establishes a hierarchy for observable and unobservable inputs used to measure fair value, into three broad levels, which are described below:
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value.
We have
For derivative assets and liabilities that utilize Level 2 inputs, we prepare estimates of future cash flows of our derivatives, which are discounted to a net present value. The estimated cash flows and the discount factors used in the valuation model are based on observable inputs, and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of Hexcel when the derivative is in a net liability position). The fair value of these assets and liabilities was $
12
at December 31, 2020. In addition, the fair value of these derivative contracts, which are subject to a master netting arrangement under certain circumstances, is presented on a gross basis in the Condensed Consolidated Balance Sheets.
Below is a summary of valuation techniques for all Level 2 financial assets and liabilities:
Counterparties to the above contracts are highly rated financial institutions,
Liabilities classified as Level 3 — At September 30, 2021 we had a liability for $
Note 9 — Revenue
Our revenue is primarily derived from the sale of inventory under long-term contracts with our customers. We have determined that individual purchase orders (“PO”), the terms and conditions of which are taken with a master agreement, create the ASC 606 contracts which are generally short-term in nature. For those sales that are not tied to a long-term agreement, we generate a PO that is subject to our standard terms and conditions. In instances where our customers acquire our goods related to government contracts, the contracts are typically subject to terms similar, or equal to, the Federal Acquisition Regulation Part 52.249-2. This regulation contains a termination for convenience clause (“T for C”), which requires that the customer pay for the cost of both the finished and unfinished goods at the time of cancellation plus a reasonable profit.
We recognize revenue over time for those agreements that have T for C, and where the products being produced have no alternative use.
We disaggregate our revenue based on market for analytical purposes.
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Consolidated Net Sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial Aerospace |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Space & Defense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
13
Revenue recognized over time gives rise to contract assets, which represent revenue recognized but unbilled. Contract assets are included in our Condensed Consolidated Balance Sheets as a component of current assets.
(In millions) |
|
Composite Material |
|
|
Engineered Products |
|
|
Total |
|
|||
Balance at December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net revenue billed |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at March 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net revenue billed |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net revenue billed |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Note 10 — Segment Information
The financial results for our operating segments are prepared using a management approach, which is consistent with the basis and manner in which we internally segregate financial information for the purpose of assisting in making internal operating decisions. We evaluate the performance of our operating segments based on operating income, and generally account for intersegment sales based on arm’s length prices. Corporate and certain other expenses are not allocated to the operating segments, except to the extent that the expense can be directly attributable to the business segment.
14
Financial information for our operating segments for the quarters and nine months ended September 30, 2021 and 2020 were as follows:
|
|
(Unaudited) |
|
|||||||||||||
|
|
Composite |
|
|
Engineered |
|
|
Corporate & |
|
|
|
|
||||
(In millions) |
|
Materials |
|
|
Products |
|
|
Other (a) |
|
|
Total |
|
||||
Third Quarter 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intersegment sales |
|
|
|
|
|
|
|
|
(15.4 |
) |
|
|
— |
|
||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
333.8 |
|
||
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrual basis additions to capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Third Quarter 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intersegment sales |
|
|
|
|
|
|
|
|
(8.5 |
) |
|
|
— |
|
||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
286.9 |
|
||
Other operating expense |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Operating (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Accrual basis additions to capital expenditures |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intersegment sales |
|
|
|
|
|
|
|
|
(44.6 |
) |
|
|
— |
|
||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
964.4 |
|
||
Other operating expense |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrual basis additions to capital expenditures |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intersegment sales |
|
|
|
|
|
|
|
|
(49.6 |
) |
|
|
— |
|
||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
1,206.6 |
|
||
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrual basis additions to capital expenditures |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Goodwill and Intangible Assets |
|
Composite |
|
|
Engineered |
|
|
|
|
|||
(In millions) |
|
Materials |
|
|
Products |
|
|
Total |
|
|||
Balance at December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Amortization expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Currency translation adjustments |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
15
Note 11 — Accumulated Other Comprehensive Loss
Comprehensive loss represents net loss and other gains and losses affecting stockholders’ equity that are not reflected in the Condensed Consolidated Statements of Operations.
(In millions) |
|
Unrecognized |
|
|
Change in Fair |
|
|
Foreign |
|
|
Total |
|
||||
Balance at December 31, 2020 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive loss income before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive |
|
|
|
|
|
( |
) |
|
— |
|
|
|
( |
) |
||
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2021 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
The amounts of net losses reclassified to earnings from the unrecognized net defined benefit and postretirement plan costs component of accumulated other comprehensive loss for the quarter and nine months ended September 30, 2021, were less than $
Note 12 — Commitments and Contingencies
We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. While it is impossible to predict the ultimate resolution of litigation, investigations and claims asserted against us, we believe, based upon our examination of currently available information, our experience to date, and advice from legal counsel, that, after taking into account our existing insurance coverage and amounts already provided for, the currently pending legal proceedings against us will not have a material adverse impact on our consolidated results of operations, financial position or cash flows.
Environmental Matters
We have been named as a potentially responsible party (“PRP”) with respect to the below and other hazardous waste disposal sites that we do not own or possess, which are included on, or proposed to be included on, the Superfund National Priority List of the U.S. Environmental Protection Agency (“EPA”) or on equivalent lists of various state governments. Because the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) allows for joint and several liability in certain circumstances, we could be responsible for all remediation costs at such sites, even if we are one of many PRPs. We believe, based on the amount and nature of our waste, and the number of other financially viable PRPs, that our liability in connection with such environmental matters will not be material.
Lower Passaic River Study Area
Hexcel together with approximately
In March 2016, the EPA issued a Record of Decision (“ROD”) setting forth the EPA’s selected remedy for the lower
16
PRPs. In December 2020, the allocator issued its non-binding report on PRP liability (including Hexcel’s) to the EPA, which did not result in any change to Hexcel’s accrual for the Passaic matter. We do not know to what extent, if at all, this non-binding report will impact the ultimate outcome of the matter. In October 2021, the EPA released a ROD selecting an interim remedy for the upper
In October 2016, pursuant to a settlement agreement with the EPA, Occidental Chemical Corporation (“OCC”), one of the PRPs, commenced performance of the remedial design required by the ROD for the lower
The accrual related to the Lower Passaic River site was approximately $
Summary of Environmental Reserves
Our estimate of liability as a PRP and our remaining costs associated with our responsibility to remediate the Lower Passaic River and other sites are accrued in the Condensed Consolidated Balance Sheets. As of September 30, 2021 and December 31, 2020, our aggregate environmental related accruals were $
These accruals can change significantly from period to period due to such factors as additional information on the nature or extent of contamination, the methods of remediation required, changes in the apportionment of costs among responsible parties and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.
Product Warranty
We provide standard assurance-type warranties for our products, which cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Warranty expense for the nine months ended September 30, 2021, and accrued warranty cost, included in “accrued liabilities” in the Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020, were as follows:
|
|
Product |
|
|
(In millions) |
|
Warranties |
|
|
Balance as of December 31, 2020 |
|
$ |
|
|
Warranty expense |
|
|
|
|
Deductions and other |
|
|
( |
) |
Balance as of March 31, 2021 |
|
$ |
|
|
Warranty expense |
|
|
( |
) |
Deductions and other |
|
|
( |
) |
Balance as of June 30, 2021 |
|
$ |
|
|
Warranty expense |
|
|
|
|
Deductions and other |
|
|
( |
) |
Balance as of September 30, 2021 |
|
$ |
|
|
Note 13 — Other Operating Expense
We recognized restructuring charges of $
17
For the quarter ended September 30, 2020, we recognized a restructuring charge of $
|
|
|
|
Activity for the Quarter Ended September 30, 2021 |
|
|
|
|
|||||||||||||||
|
June 30, |
|
|
Restructuring |
|
|
|
|
|
Cash |
|
|
|
|
|
September 30, |
|
||||||
(In Millions) |
2021 |
|
|
Charge |
|
|
FX Impact |
|
|
Paid |
|
|
Non-Cash |
|
|
2021 |
|
||||||
Employee termination |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|||
Impairment and other |
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|||
Total |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
Activity for the Nine Months Ended September 30, 2021 |
|
|
|
|
|||||||||||||||
|
December 31, |
|
|
Restructuring |
|
|
|
|
|
Cash |
|
|
|
|
|
September 30, |
|
||||||
(In Millions) |
2020 |
|
|
Charge |
|
|
FX Impact |
|
|
Paid |
|
|
Non-Cash |
|
|
2021 |
|
||||||
Employee termination |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|||
Impairment and other |
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
||
Total |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
18
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
We develop, manufacture, and market lightweight, high-performance structural materials, including carbon fibers, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, adhesives, radio frequency / electromagnetic interference (“RF/EMI”) and microwave absorbing materials, engineered honeycomb and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. Our products are used in a wide variety of end applications, such as commercial and military aircraft, space launch vehicles and satellites, wind turbine blades, automotive, recreational products, and other industrial applications.
We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Asia Pacific, Europe, India, and Africa. We also have a presence in Malaysia where we are a partner in a joint venture which manufactures composite structures for Commercial Aerospace applications.
We are a manufacturer of products within a single industry: Advanced Composites. We have two reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product lines and pultruded profiles. The Engineered Products segment is comprised of lightweight high strength composite structures, RF/EMI and microwave absorbing materials, engineered core and specialty machined honeycomb products with added functionality and 3D thermoplastic printing.
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, travel restrictions, business curtailments, school closures, mandatory vaccinations and other measures. While some of these measures have been lightened or removed, the impacts of the COVID-19 pandemic continue to be unpredictable and, in some cases, previously lifted measures have been reimplemented or new measures imposed as continued sporadic outbreaks of COVID-19 cases occur in various part of the world.
Since the pandemic began, we have seen the impacts of COVID-19 on our markets and operations, including significant decreases in air traffic, temporary shutdowns of our customers’ and suppliers’ facilities and decreased demand from our customers. In 2020 and through the first nine months of 2021, our operations, margins and results were adversely impacted by lower demand for our products due to substantial reductions in original equipment manufacturer build rates combined with a move to reduce inventory throughout our supply chain, particularly carbon fiber. The COVID-19 pandemic has had and may have further negative impacts on our operations, supply chain, transportation networks and customers, all of which may continue to compress our margins, even after the preventative and precautionary measures that we, other businesses and governments have taken and may take in the future. The COVID-19 pandemic is adversely affecting the economies and financial markets globally and has contributed to volatile supply and demand conditions affecting prices and volumes in the markets for our products, services and raw materials, which could continue for an extended period of time.
The extent to which COVID-19 continues to adversely impact our business depends on future developments, including availability of effective vaccines and medical treatments for all age groups and the rate of vaccinations and their effectiveness against new variants of COVID-19, as well as any other new information concerning the effectiveness of actions taken globally to contain or mitigate the effects of COVID-19 and the emergence and impact of new variants of COVID-19. While we expect the pandemic to continue to negatively impact our results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the continuing financial impact to us cannot be reasonably estimated at this time.
19
Financial Overview
Results of Operations
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(In millions, except per share data) |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
||||||
Net sales |
|
$ |
333.8 |
|
|
$ |
286.9 |
|
|
|
16.3 |
% |
|
$ |
964.4 |
|
|
$ |
1,206.6 |
|
|
|
(20.1 |
)% |
Net sales change in constant currency |
|
|
|
|
|
|
|
|
15.9 |
% |
|
|
|
|
|
|
|
|
(21.1 |
)% |
||||
Operating income (loss) |
|
$ |
22.8 |
|
|
$ |
(37.6 |
) |
|
|
160.6 |
% |
|
$ |
28.8 |
|
|
$ |
34.5 |
|
|
|
(16.5 |
)% |
As a percentage of net sales |
|
|
6.8 |
% |
|
|
(13.1 |
)% |
|
|
|
|
|
3.0 |
% |
|
|
2.9 |
% |
|
|
|
||
Net income (loss) |
|
|
9.0 |
|
|
|
9.7 |
|
|
|
(7.2 |
)% |
|
|
(2.8 |
) |
|
|
51.1 |
|
|
|
(105.5 |
)% |
Diluted net income (loss) per common share |
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
|
(8.3 |
)% |
|
$ |
(0.03 |
) |
|
$ |
0.61 |
|
|
|
(104.9 |
)% |
The Company uses non-GAAP financial measures, including sales and expenses measured in constant dollars (prior year sales and expenses measured at current year exchange rates); operating income, net income and earnings per share adjusted for items included in operating expense and non-operating expenses; and free cash flow. Management believes these non-GAAP measurements are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results and comparisons to prior periods. These adjustments can represent significant charges or credits that we believe are important to an understanding of Hexcel’s overall operating results in the periods presented. Such non-GAAP measurements are not determined in accordance with generally accepted accounting principles and should not be viewed in isolation or as an alternative to or substitutes for GAAP measures of performance. Our calculation of these measures may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance. Reconciliations to adjusted operating income, adjusted net income, adjusted diluted net income per share and free cash flow are provided below.
|
|
Operating Income |
|
||||||||||||||||
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|||||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
|
2020 |
|
||||||
GAAP operating income (loss) |
|
|
$ |
22.8 |
|
|
|
$ |
(37.6 |
) |
|
$ |
28.8 |
|
|
|
$ |
34.5 |
|
Other operating expense (a) |
|
|
|
0.8 |
|
|
|
|
15.8 |
|
|
|
16.0 |
|
|
|
|
43.6 |
|
Adjusted operating income (loss) (non-GAAP) |
|
|
$ |
23.6 |
|
|
|
$ |
(21.8 |
) |
|
$ |
44.8 |
|
|
|
$ |
78.1 |
|
|
|
Quarter Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
|
2021 |
|
|
2020 |
|
||||||||||||||||||||||||
(In millions, except per diluted share data) |
|
Net Income |
|
|
Diluted Net Income Per Share |
|
|
Net (Loss) Income |
|
Diluted Net (Loss) Income Per Share |
|
Net (Loss) Income |
|
|
Diluted Net (Loss) Income Per Share |
|
|
Net Income (Loss) |
|
Diluted Net Income (Loss) Per Share |
|
||||||||||||||||
GAAP net income (loss) |
|
|
$ |
9.0 |
|
|
|
$ |
0.11 |
|
|
$ |
9.7 |
|
|
|
$ |
0.12 |
|
|
|
$ |
(2.8 |
) |
|
$ |
(0.03 |
) |
|
$ |
51.1 |
|
|
|
$ |
0.61 |
|
Other operating expense (a) |
|
|
|
0.7 |
|
|
|
|
- |
|
|
|
12.2 |
|
|
|
|
0.14 |
|
|
|
|
11.7 |
|
|
|
0.14 |
|
|
|
33.7 |
|
|
|
|
0.40 |
|
Tax expense (benefit) (b) |
|
|
|
1.3 |
|
|
|
|
0.02 |
|
|
|
(46.2 |
) |
|
|
|
(0.55 |
) |
|
|
|
0.8 |
|
|
|
— |
|
|
|
(48.9 |
) |
|
|
|
(0.58 |
) |
Adjusted net income (loss) (non-GAAP) |
|
|
$ |
11.0 |
|
|
|
$ |
0.13 |
|
|
$ |
(24.3 |
) |
|
|
$ |
(0.29 |
) |
|
|
$ |
9.7 |
|
|
$ |
0.11 |
|
|
$ |
35.9 |
|
|
|
$ |
0.43 |
|
20
|
|
Nine Months Ended September 30, |
|
|||||
(In millions) |
|
2021 |
|
|
2020 |
|
||
Net cash provided by operating activities |
|
$ |
64.2 |
|
|
$ |
157.0 |
|
Less: Capital expenditures |
|
|
(15.0 |
) |
|
|
(47.8 |
) |
Free cash flow (non-GAAP) |
|
$ |
49.2 |
|
|
$ |
109.2 |
|
Net Sales
The following table summarizes net sales to third-party customers by segment and end market for the quarters and nine months ended September 30, 2021 and 2020:
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
||||||
Consolidated Net Sales |
|
$ |
333.8 |
|
|
$ |
286.9 |
|
|
|
16.3 |
% |
|
$ |
964.4 |
|
|
$ |
1,206.6 |
|
|
|
(20.1 |
)% |
Commercial Aerospace |
|
|
167.2 |
|
|
|
128.8 |
|
|
|
29.8 |
% |
|
|
468.5 |
|
|
|
695.6 |
|
|
|
(32.6 |
)% |
Space & Defense |
|
|
110.4 |
|
|
|
108.8 |
|
|
|
1.5 |
% |
|
|
329.0 |
|
|
|
328.8 |
|
|
|
0.1 |
% |
Industrial |
|
|
56.2 |
|
|
|
49.3 |
|
|
|
14.0 |
% |
|
|
166.9 |
|
|
|
182.2 |
|
|
|
(8.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Composite Materials |
|
$ |
254.1 |
|
|
$ |
215.7 |
|
|
|
17.8 |
% |
|
$ |
732.2 |
|
|
$ |
960.4 |
|
|
|
(23.8 |
)% |
Commercial Aerospace |
|
|
125.6 |
|
|
|
95.6 |
|
|
|
31.4 |
% |
|
|
354.5 |
|
|
|
567.6 |
|
|
|
(37.5 |
)% |
Space & Defense |
|
|
73.5 |
|
|
|
71.9 |
|
|
|
2.2 |
% |
|
|
214.3 |
|
|
|
214.5 |
|
|
|
(0.1 |
)% |
Industrial |
|
|
55.0 |
|
|
|
48.2 |
|
|
|
14.1 |
% |
|
|
163.4 |
|
|
|
178.3 |
|
|
|
(8.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Engineered Products |
|
$ |
79.7 |
|
|
$ |
71.2 |
|
|
|
11.9 |
% |
|
$ |
232.2 |
|
|
$ |
246.2 |
|
|
|
(5.7 |
)% |
Commercial Aerospace |
|
|
41.6 |
|
|
|
33.2 |
|
|
|
25.3 |
% |
|
|
114.0 |
|
|
|
128.0 |
|
|
|
(10.9 |
)% |
Space & Defense |
|
|
36.9 |
|
|
|
36.9 |
|
|
|
— |
|
|
|
114.7 |
|
|
|
114.3 |
|
|
|
0.3 |
% |
Industrial |
|
|
1.2 |
|
|
|
1.1 |
|
|
|
9.1 |
% |
|
|
3.5 |
|
|
|
3.9 |
|
|
|
(10.3 |
)% |
Sales by Segment
Composite Materials: Net sales of $254.1 million in the third quarter of 2021 increased by $38.4 million from $215.7 million in the prior year quarter. The increase in sales was largely driven by stronger narrowbody sales in Commercial Aerospace as well as an increase in Industrial sales, primarily in the automotive and recreation markets. Net sales of $732.2 million for the first nine months of 2021 decreased 23.8% compared to the same period last year as the impact of the pandemic did not take effect until the second quarter of 2020.
Engineered Products: Net sales of $79.7 million for the third quarter of 2021 increased $8.5 million as compared to $71.2 million for the third quarter of 2020 due to an increase in Commercial Aerospace sales. Net sales of $232.2 million for the first nine months of 2021 decreased 5.7% compared to the same period last year.
Sales by Market
Commercial Aerospace sales of $167.2 million increased $38.4 million or 29.8% (also 29.8% in constant currency) for the third quarter of 2021 as compared to the third quarter of 2020 on stronger narrowbody sales. Sales of $468.5 million for the first nine months of 2021, decreased 32.6% (33.0% in constant currency) compared to the first nine months of 2020. Sales were higher in the prior year period as the impact of production cuts and destocking due to the pandemic did not begin to occur until the second quarter of 2020.
Sales to “Other Commercial Aerospace,” which include regional and business aircraft, increased by 9.4% for the third quarter of 2021 compared to the third quarter of 2020 primarily due to growth in business jet sales. Sales for the nine months ended September 30, 2021 decreased 28.6% as compared to the same period in 2020.
Space & Defense sales of $110.4 million increased 1.5% (1.4% in constant currency) for the third quarter of 2021 as compared to the third quarter of 2020 driven by strength in F-35, CH-53K, civil helicopters in Europe and unmanned aerial vehicles in the U.S. Sales of $329.0 million for the first nine months of 2021 were unchanged (0.8% lower in constant currency) compared to the first nine months of 2020.
Total Industrial sales in the third quarter of 2021 of $56.2 million increased 14.0 % (11.7% in constant currency) compared to the third quarter of 2020. Strength in automotive and recreation markets as well as sales growth supported by actions to direct carbon fiber
21
to other industrial markets offset lower wind energy sales. Wind energy sales (the largest submarket in Industrial), experienced a decline of 29.8% (31.6% in constant currency) during the third quarter of 2021 compared to the third quarter of 2020 due to cessation of sales in North America and subdued demand. Total Industrial sales of $166.9 million for the nine months ended September 30, 2021 decreased 8.4% (12.4% in constant currency) compared to the first nine months of 2020. For the first nine months of 2021, wind energy sales decreased 37.6% (40.3% in constant currency) compared to the same period last year reflecting lower demand and the cessation of sales in North America.
Gross Margin
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
||||||
Gross margin |
|
$ |
66.0 |
|
|
$ |
13.5 |
|
|
|
388.9 |
% |
|
$ |
181.0 |
|
|
$ |
209.3 |
|
|
|
(13.5 |
)% |
Percentage of sales |
|
|
19.8 |
% |
|
|
4.7 |
% |
|
|
|
|
|
18.8 |
% |
|
|
17.3 |
% |
|
|
|
||
Gross margin for the third quarter of 2021 and 2020 was 19.8% and 4.7%, respectively. The improvement in the third quarter of 2021 compared to the same period last year was due to a favorable sales mix oriented towards carbon fiber combined with the benefits of prior cost reduction actions that reduced the overhead cost base. Gross margin for the first nine months of 2021 and 2020 was 18.8% and 17.3%, respectively.
Operating Expenses
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
||||||
SG&A expense |
|
$ |
32.0 |
|
|
$ |
24.6 |
|
|
|
30.1 |
% |
|
$ |
102.7 |
|
|
$ |
95.2 |
|
|
|
7.9 |
% |
Percentage of sales |
|
|
9.6 |
% |
|
|
8.6 |
% |
|
|
|
|
|
10.6 |
% |
|
|
7.9 |
% |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
R&T expense |
|
$ |
10.4 |
|
|
$ |
10.7 |
|
|
|
(2.8 |
)% |
|
$ |
33.5 |
|
|
$ |
36.0 |
|
|
|
(6.9 |
)% |
Percentage of sales |
|
|
3.1 |
% |
|
|
3.7 |
% |
|
|
|
|
|
3.5 |
% |
|
|
3.0 |
% |
|
|
|
||
Selling, general and administrative and research and technology expenses were higher for both the third quarter and nine months ended September 30, 2021 compared to the same periods in 2020, primarily due an increase in employee-related costs as the prior year period included benefits from lower stock compensation expense and temporary salary reductions.
Operating Income
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
||||||
Consolidated operating income (loss) |
|
$ |
22.8 |
|
|
$ |
(37.6 |
) |
|
|
160.6 |
% |
|
$ |
28.8 |
|
|
$ |
34.5 |
|
|
|
(16.5 |
)% |
Operating margin |
|
|
6.8 |
% |
|
|
(13.1 |
)% |
|
|
|
|
|
3.0 |
% |
|
|
2.9 |
% |
|
|
|
||
Composite Materials |
|
|
30.0 |
|
|
|
(36.6 |
) |
|
|
182.0 |
% |
|
|
61.9 |
|
|
|
75.0 |
|
|
|
(17.5 |
)% |
Operating margin |
|
|
11.1 |
% |
|
|
(16.4 |
)% |
|
|
|
|
|
8.0 |
% |
|
|
7.4 |
% |
|
|
|
||
Engineered Products |
|
|
6.5 |
|
|
|
(2.7 |
) |
|
|
340.7 |
% |
|
|
17.1 |
|
|
|
3.3 |
|
|
|
418.2 |
% |
Operating margin |
|
|
8.1 |
% |
|
|
(3.8 |
)% |
|
|
|
|
|
7.3 |
% |
|
|
1.3 |
% |
|
|
|
||
Corporate & Other |
|
|
(13.7 |
) |
|
|
1.7 |
|
|
N/M |
|
|
|
(50.2 |
) |
|
|
(43.8 |
) |
|
|
(14.6 |
)% |
|
Operating income (loss) for the third quarters of 2021 and 2020 was $22.8 million and $(37.6) million, respectively. The increase in operating income for the third quarter of 2021 over the same period last year was primarily driven by strong gross margins, resulting from favorable sales mix and a reduction in the overhead cost base, as well as lower severance costs. Operating income for the first nine months of 2021 and 2020 was $28.8 million and $34.5 million, respectively. The decrease in operating income for the nine months ended September 30, 2021 as compared to the same period last year was largely due to lower gross margins resulting from a pandemic-related decline in sales partially offset by lower other operating expenses due to lower severance in 2021 and costs incurred in 2020 related to the terminated merger with Woodward, Inc.
22
Interest Expense, Net
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
||||||
Interest expense, net |
|
$ |
9.5 |
|
|
$ |
9.7 |
|
|
|
(2.1 |
)% |
|
$ |
29.1 |
|
|
$ |
32.4 |
|
|
|
(10.2 |
)% |
Interest expense for the third quarter ended September 30, 2021 was slightly lower compared to the third quarter of 2020 and interest expense for the nine months ended September 30, 2021 was lower compared to the same period last year primarily due to lower average debt levels.
Provision for Income Taxes
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Income tax expense (benefit) |
|
$ |
5.1 |
|
|
$ |
(56.9 |
) |
|
$ |
1.6 |
|
|
$ |
(48.7 |
) |
Effective tax rate |
|
|
38.3 |
% |
|
N/M |
|
|
N/M |
|
|
N/M |
|
|||
The effective tax rate for the quarter ended September 30, 2021 was 38.3% and included a discrete tax charge of $1.3 million related to the remeasurement of the net state deferred tax liabilities. The tax expense for the nine months ended September 30, 2021 was $1.6 million and included a net discrete tax charge of $0.8 million resulting from the revaluation of U.S. and foreign deferred tax liabilities. The tax benefit for the quarter ended September 30, 2020 was $56.9 million and included a $46.2 million benefit primarily due to the release of a valuation allowance in a foreign jurisdiction due to a legal entity rationalization and treasury realignment initiative. The tax benefit of $48.7 million for the first nine months of 2020 also included a $2.7 million benefit for the release of reserves of unrecognized tax benefits as a result of tax audit settlements.
Financial Condition
Liquidity: Cash on hand at September 30, 2021 was $105.8 million as compared to $103.3 million at December 31, 2020. As of September 30, 2021, total debt was $877.3 million as compared to $926.4 million at December 31, 2020.
In September 2020, we amended our Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period. On January 28, 2021, we entered into the Second Amendment, which further amended the Facility agreement to provide that, from January 28, 2021 through and including March 31, 2022, we will not be subject to a maximum leverage ratio covenant but will instead be required to maintain Liquidity (as defined in the Facility agreement) of at least $250 million. Additionally, during such period, the Company will be subject to limitations on share repurchases, cash dividends, and its ability to incur secured debt, in each case subject to certain exceptions; the applicable margin and commitment fees are increased; the incremental facility will not be available; and if the Company’s public debt rating is downgraded to (i) BB or lower by Standard & Poor’s and (ii) Ba2 or lower by Moody’s, we will be required to grant liens on certain of our assets, which liens will be released upon the Company’s public debt rating being upgraded to BB+ or higher by Standard & Poor’s or Ba1 or higher by Moody’s. The Company’s public debt rating as of September 30, 2021 is BB+/Baa3. In addition, the Second Amendment provides that the Company will not be subject to an interest coverage ratio covenant until the test period ending December 31, 2021 and revolving commitments under the Facility were reduced to $750 million. In connection with the Second Amendment, we accelerated a portion of the deferred financing costs and recognized $0.9 million in interest expense during the first quarter of 2021. As of September 30, 2021, we were in compliance with all debt covenants.
As of September 30, 2021, total borrowings under the Facility were $179.0 million, which approximated fair value. The Facility agreement permits us to issue letters of credit up to an aggregate amount of $50 million. Outstanding letters of credit reduce the amount available for borrowing under the Facility. As of September 30, 2021, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $571 million. The weighted average interest rate for the Facility was 4.16% for the nine months ended September 30, 2021.
We expect to meet our short-term liquidity requirements (including capital expenditures) through net cash from operating activities, cash on hand and the Facility. As of September 30, 2021, long-term liquidity requirements consist primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until June 2024 when the Facility expires.
Earlier this year, the Company applied for the Aviation Manufacturing Jobs Protection ("AMJP") program, created under the American Rescue Plan Act of 2021, which provides funding to eligible businesses to pay up to half of their compensation costs for certain categories of employees, for up to six months. To qualify for funding, eligible companies must have involuntarily furloughed or laid off at least 10% of its U.S. workforce or have experienced at least a 15% decline in 2020 global operating revenue. In September, the U.S. Department of Transportation announced that it had approved for the Company to receive up to $20.9 million
23
under the AMJP program. The Company anticipates receiving approximately half of the offered funds in the fourth quarter of 2021 and the remaining funds in 2022.
Operating Activities: Net cash provided by operating activities for the first nine months of 2021 was $64.2 million compared to $157.0 million for the same period last year. Working capital was a cash use of $46.0 million for the first nine months of 2021 compared to a source of $28.7 million in the same period in 2020.
Investing Activities: Net cash used for investing activities was $15.0 million and $47.8 million in the first nine months of 2021 and 2020, respectively, reflecting a decline in capital expenditures.
Financing Activities: Financing activities used $44.8 million of cash in the first nine months of 2021 compared to $106.9 million in the same period in 2020. In response to the impacts of the COVID-19 pandemic, we announced in the early part of 2020 that we had suspended our dividend payments and stock repurchases. During the third quarter ended September 30, 2020, we repaid $266 million under our Facility although borrowings were higher in 2020 as they included the remaining $125 million of our initial exceptional drawdown of $250 million, which we chose to draw down as we focused on preserving cash during our initial response to the COVID-19 pandemic. In addition, in January 2020, the Company used $49.9 million to repay and terminate its Euro term loan. We also returned $38.8 million to stockholders in the form of stock repurchases and dividends in the first half of 2020.
Financial Obligations and Commitments: The next significant scheduled debt maturity will not occur until 2024, when the Facility matures. Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases.
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews accounting policies, assumptions, estimates and judgments to ensure our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our assumptions and estimates, and such differences could be material.
We describe our significant accounting policies and critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Commitments and Contingencies
We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors, including the stage of the proceeding; potential settlement value; assessments by internal and external counsel; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and circumstances may change, such as new developments, or a change in approach, including a change in settlement strategy or in an environmental remediation plan, that could cause the actual liability to exceed the estimates, or may require adjustments to the recorded liability balances in the future. For further discussion, see Note 12, Commitments and Contingencies, to the accompanying Condensed Consolidated Financial Statements of this Form 10-Q.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” “will” and similar terms and phrases, including references to assumptions. Such statements are based on current expectations, are inherently uncertain and are subject to changing assumptions.
24
Such forward-looking statements include, but are not limited to: (a) the estimates and expectations based on aircraft production rates provided by Airbus, Boeing and others; (b) the revenues we may generate from an aircraft model or program; (c) the impact of the possible push-out in deliveries of the Airbus and Boeing backlog and the impact of delays in the startup or ramp-up of new aircraft programs or the final Hexcel composite material content once the design and material selection have been completed; (d) expectations with regard to the build rate of the Boeing 737 MAX following its return to service and the related impact on our revenues; (e) expectations with regard to the timing of inventory destocking resulting from the pandemic-induced decrease in customer demand; (f) expectations with regard to raw material cost and availability; (g) expectations of composite content on new commercial aircraft programs and our share of those requirements; (h) expectations regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; (i) expectations regarding sales for wind energy, recreation, automotive and other industrial applications; (j) expectations regarding working capital trends and expenditures and inventory levels; (k) expectations as to the level of capital expenditures and completion of capacity expansions and qualification of new products; (l) expectations regarding our ability to maintain and improve margins; (m) expectations regarding the outcome of legal matters or the impact of changes in laws or regulations or government policies; (n) our projections regarding our tax rate; (o) expectations with regard to the continued impact of the COVID-19 pandemic on worldwide air travel and aircraft programs, as well as on our customers and suppliers and, in turn, on our operations and financial results; and (p) the anticipated impact of the above factors and various market risks on our expectations of financial results for 2021 and beyond.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: the impact of the COVID-19 pandemic (including continued disruption in global financial markets, ongoing restrictions on movement and travel, employee absenteeism and reduced demand for air travel) on the operations, business and financial condition of Hexcel and its customers and suppliers; reductions in sales to any significant customers, particularly Airbus or Boeing, including reduction in revenue related to the timing of ramp-up of production of the Boeing 737 MAX, as well as due to the impact of the COVID-19 pandemic; our ability to effectively adjust production and inventory levels to align with customer demand; inability to effectively motivate, retain and hire necessary workforce; our ability to successfully implement or realize our business strategies, plans and objectives of management, including any restructuring or alignment activities in which we may engage; the impact of any government mandated COVID-19 precautions, including mandatory vaccination; timing of inventory destocking caused by the COVID-19 pandemic; changes in sales mix; changes in current pricing and cost levels; changes in aerospace delivery rates; changes in government defense procurement budgets; changes in military aerospace program technology; timely new product development or introduction; industry capacity; increased competition; availability and cost of raw materials; supply chain disruptions; our ability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; cybersecurity breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic conditions, including, but not limited to, the effect of change in global trade policies and the impact of the exit of the U.K. from the European Union; work stoppages or other labor disruptions; our ability to successfully complete any strategic acquisitions, investments or dispositions; compliance with environmental, health, safety and other related laws and regulations, including those related to climate change; and the unexpected outcome of legal matters or impact of changes in laws or regulations.
Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. As a result, the foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports we file with the SEC. For additional information regarding certain factors that may cause our actual results to differ from those expected or anticipated, see the information under the caption “Risk Factors” which is located in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as well as in Item 1A. “Risk Factors” of this Form 10-Q. We do not undertake any obligation to update our forward-looking statements or risk factors to reflect future events or circumstances, except as otherwise required by law.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Except for the continued broad effects of COVID-19 on market risk, there have been no material changes in our market risk from the information provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of September 30, 2021, and with the participation of the Company's management have concluded that these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to
25
ensure that information required to be disclosed by us in the reports we file or submit, is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer have concluded that there have not been any changes in our internal control over financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The information required by Item 1 is contained within Note 12 on pages 16 through 17 of this Form 10-Q and is incorporated herein by reference.
ITEM 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition or future results. There have been no material changes in the Company’s risk factors from the aforementioned 10-K, except as set forth in the below risk factor, and the risk factor entitled “The short-term rights agreement that we entered into in 2020 could discourage third parties from seeking strategic transactions with us that could be beneficial to our stockholders.” is no longer applicable as our stockholder rights plan expired on April 6, 2021.
Our business has been and will continue to be adversely affected by the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will adversely impact our business, financial condition and results of operations is highly uncertain and cannot be predicted.
In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. The COVID-19 pandemic has created significant uncertainty and economic disruption and has negatively affected the business and results of operations for the Company. We have taken steps to align our business with the unfavorable economic conditions, including headcount reductions, reductions in employee hours, and/or furloughs, at many of our sites. Given the ongoing and dynamic nature of the pandemic, it is difficult to predict the full extent of the adverse impact of the COVID-19 pandemic on our business, and there is no guarantee our efforts to address the adverse impacts of COVID-19 will be effective.
We have experienced lower demand and operational interruptions as a result of COVID-19, including the temporary suspension of operations due to the inability to staff facilities or government-imposed restrictions, which has had an adverse effect on the productivity and profitability of such manufacturing facilities, and in turn an adverse effect on our business and operations. While most of our manufacturing sites are currently in operation, we have reduced or furloughed certain operations in response to government measures, employee welfare concerns and the impact of COVID-19 on the global demand and supply chain. Our manufacturing operations may be further adversely affected by impacts from COVID-19 including, among other things, additional government actions and other responsive measures, further decreases in demand and/or deeper supply chain disruptions, and health and availability of essential onsite personnel.
We are heavily dependent on sales to customers in the aerospace industry, which has been materially negatively impacted by the COVID-19 pandemic. Approximately 55% of our sales for fiscal year ended December 31, 2020 were derived from sales to Commercial Aerospace customers, which included 84% from Airbus and Boeing aircraft, and 16% from regional and business aircraft. Travel restrictions, as well as changes in the propensity for the general public to travel by air as a result of the COVID-19 pandemic, have caused reductions in demand for commercial aircraft, which has had an adverse impact our sales and operating results and may continue to do so for an extended period of time. While we are unable to predict the magnitude and duration of such and impact at this time, the further loss of, or significant reduction in, purchases by Airbus or Boeing will materially impair our business, operating results, prospects, and financial condition.
Furthermore, the COVID-19 pandemic has resulted in market volatility, which caused a significant decline in our stock price, subjecting us to increased takeover risk, impaired our ability to declare dividends or other distributions and conduct share buybacks, and may impact our ability to comply with the covenants contained in the agreements that govern our indebtedness and raise additional funds when and as needed. We may also incur additional costs to remedy damages caused by business disruptions,
26
performance delays or interruptions, payment defaults or bankruptcy of our third-party customers and suppliers, which could lead to additional charges, impairments, and other adverse financial impacts.
On September 9, 2021, President Biden directed the Department of Labor’s Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard (“ETS”) requiring that all employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19 or obtain a negative COVID-19 test at least once a week. President Biden also issued an Executive Order requiring certain COVID-19 precautions for government contractors and their subcontractors, including mandatory employee vaccination (subject to medical and religious exemptions). It is not currently possible to predict with any certainty the exact impact on the Company of the OSHA ETS, which has not yet been issued, or the requirements for government contractors and their subcontractors. Any requirement to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in employee attrition and difficulty securing future labor needs and may have an adverse effect on future profit margins. In addition, any requirement to impose obligations on our suppliers under the Executive Order covering government contractors and their subcontractors could impact the price and continuity of supply of raw materials and our results of operations and financial condition could be adversely affected.
We cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact our business, results, and financial condition, which will depend on many factors that are not known at this time, as the situation is unprecedented and continues to evolve. These include, among others, the extent of harm to public health, including the duration of the pandemic, any potential subsequent waves of COVID-19 infection, the emergence of new variants of COVID-19, which may be more transmissible or virulent than the initial strain, the availability of effective vaccines and medical treatments for all age groups and the rate of vaccinations, further disruption to the manufacturing of and demand for our products, our ability to effectively manage raw material supply and inventory levels and to adjust our production schedules to align with changing demand, potential future restructuring actions, impairments and other charges, the impact of the global business and economic environment on liquidity and the availability of capital, the costs incurred to keep our employees safe and comply with government requirements while maintaining continued operations, and our ability to effectively motivate and retain the necessary workforce. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of its global economic impact and the impact on air travel.
In addition to the foregoing, many of the risk factors disclosed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K have been, and we anticipate will continue to be further, heightened or exacerbated by the impact of the COVID-19 pandemic.
ITEMS 2, 3, 4 and 5 are not applicable, and therefore have been omitted.
27
ITEM 6. Exhibits
EXHIBIT INDEX
Exhibit No. |
|
Description |
10.1 |
|
|
31.1 |
|
Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32 |
|
|
|
|
|
101
|
|
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements.
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104 |
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Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and are contained within Exhibit 101. |
* Indicates management contract or compensatory plan or arrangement
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Hexcel Corporation |
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October 18, 2021 |
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/s/ Amy S. Evans |
(Date) |
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Amy S. Evans |
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Senior Vice President, |
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Chief Accounting Officer |
29