Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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 by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

	(Unaudited)						(Unaudited)
	September 30,			December 31,			September 30,			December 31,
(In millions)	2018			2017			2019			2018
Assets
Current assets:
Cash and cash equivalents	$	47.2		$	60.1		$	47.0		$	32.7
Accounts receivable, net		270.3			248.7			288.9			260.9
Inventories, net		308.7			314.0			352.2			297.8
Contract assets		43.7		―				56.4			50.5
Prepaid expenses and other current assets		29.1			33.9			27.1			33.9
Total current assets		699.0			656.7			771.6			675.8

Property, plant and equipment		2,839.8			2,743.9			3,014.5			2,902.1
Less accumulated depreciation		(945.6	)		(877.6	)		(1,090.8	)		(1,025.6	)
Net property, plant and equipment		1,894.2			1,866.3			1,923.7			1,876.5

Goodwill and other intangible assets		144.6			148.7			279.4			142.3
Investments in affiliated companies		45.9			47.7			45.8			48.7
Other assets		62.8			61.5			134.7			80.8
Total assets	$	2,846.5		$	2,780.9		$	3,155.2		$	2,824.1

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt	$	9.3		$	4.3
Short-term borrowings							$	9.3		$	9.4
Accounts payable		143.1			144.1			164.5			161.9
Accrued compensation and benefits	68.1				73.0		70.6			75.8
Accrued liabilities		50.4			40.7			102.6			79.6
Total current liabilities		270.9			262.1			347.0			326.7

Commitments and contingencies (see Note 13)
Commitments and contingencies (see Note 14)

Long-term debt		980.7			805.6			1,115.2			947.4
Retirement obligations		42.7			45.4			41.9			42.0
Other non-current liabilities		184.9			172.7			233.3			186.0
Total liabilities		1,479.2			1,285.8			1,737.4			1,502.1

Stockholders' equity:
Common stock, $0.01 par value, 200.0 shares authorized, 108.5 shares and 107.8 shares issued at September 30, 2018 and December 31, 2017, respectively		1.1			1.1
Common stock, $0.01 par value, 200.0 shares authorized, 109.3 shares and 108.5 shares issued at September 30, 2019 and December 31, 2018, respectively								1.1			1.1
Additional paid-in capital		795.2			774.3			826.7			798.3
Retained earnings		1,673.3			1,496.1			1,920.0			1,726.5
Accumulated other comprehensive loss		(81.6	)		(45.0	)		(161.1	)		(108.0	)
		2,388.0			2,226.5			2,586.7			2,417.9
Less – Treasury stock, at cost, 22.4 shares at September 30, 2018, and 18.2 shares at December 31, 2017, respectively.		(1,020.7	)		(731.4	)
Less – Treasury stock, at cost, 24.7 shares at September 30, 2019, and 23.7 shares at December 31, 2018, respectively.								(1,168.9	)		(1,095.9	)
Total stockholders' equity		1,367.3			1,495.1			1,417.8			1,322.0
Total liabilities and stockholders' equity	$	2,846.5		$	2,780.9		$	3,155.2		$	2,824.1

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

	(Unaudited)					(Unaudited)
	Quarter Ended September 30,					Nine Months Ended September 30,
(In millions, except per share data)	2019			2018		2019		2018
Net sales	$	572.5		$	540.5	$	1,791.4	$	1,628.1
Cost of sales		414.6			397.5		1,297.5		1,197.7
Gross margin		157.9			143.0		493.9		430.4
Selling, general and administrative expenses		33.8			32.6		122.8		114.3
Research and technology expenses		14.2			13.9		43.3		40.7
Operating income		109.9			96.5		327.8		275.4
Interest expense, net		11.0			10.6		34.9		27.3
Income before income taxes, and equity in earnings/(loss) from affiliated companies		98.9			85.9		292.9		248.1
Provision for income taxes		18.2			7.8		62.4		41.9
Income before equity in earnings/(loss) from affiliated companies		80.7			78.1		230.5		206.2
Equity in earnings/(loss) from affiliated companies		(0.4	)		2.0		2.9		4.3
Net income	$	80.3		$	80.1	$	233.4	$	210.5
Basic net income per common share	$	0.94		$	0.92	$	2.74	$	2.37
Diluted net income per common share	$	0.93		$	0.91	$	2.71	$	2.35
Dividends per share	$	0.17		$	0.15	$	0.47	$	0.40
Weighted-average common shares:
Basic		85.1			87.0		85.1		88.6
Diluted		86.1			88.1		86.1		89.7

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

(Unaudited)

(Unaudited)

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions, except per share data)

2018

2017

2018

2017

Net sales

$
540.5

$
491.5

$
1,628.1

$
1,461.6

Cost of sales

397.5

355.9

1,197.7

1,052.0

Gross margin

143.0

135.6

430.4

409.6

Selling, general and administrative expenses

32.6

34.7

114.3

115.7

Research and technology expenses

13.9

11.8

40.7

36.5

Other operating income (expense)

―

―

―

―

Operating income

96.5

89.1

275.4

257.4

Interest expense, net

10.6

7.0

27.3

20.0

     Income before income taxes, and equity in earnings from affiliated companies

85.9

82.1

248.1

237.4

Provision for income taxes

7.8

13.6

41.9

44.3

     Income before equity in earnings from affiliated companies

78.1

68.5

206.2

193.1

Equity in earnings from affiliated companies

2.0

1.2

4.3

2.8

     Net income

$
80.1

$
69.7

$
210.5

$
195.9

Basic net income per common share

$
0.92

$
0.77

$
2.37

$
2.16

Diluted net income per common share

$
0.91

$
0.76

$
2.35

$
2.13

Dividends per share

$
0.15

$
0.125

$
0.40

$
0.345

Weighted-average common shares:

     Basic

87.0

90.1

88.6

90.7

     Diluted

88.1

91.4

89.7

92.1

	(Unaudited)
	Nine Months Ended September 30,
(In millions)	2019			2018
Cash flows from operating activities
Net income	$	233.4		$	210.5
Reconciliation to net cash provided by operating activities:
Depreciation and amortization		107.1			90.8
Amortization related to financing		1.1			1.2
Deferred income taxes		9.3			27.5
Equity in earnings from affiliated companies		(2.9	)		(4.3	)
Stock-based compensation		15.9			14.0
Changes in assets and liabilities:
Increase in accounts receivable		(29.5	)		(27.7	)
Increase in inventories		(56.8	)		(32.1	)
Increase in prepaid expenses and other current assets		(12.5	)		(5.0	)
Increase in accounts payable/accrued liabilities		15.1			0.2
Other – net		(2.9	)		3.3
Net cash provided by operating activities		277.3			278.4

Cash flows from investing activities
Capital expenditures		(162.7	)		(150.2	)
Acquisition of business		(163.2	)		(0.7	)
Net cash used for investing activities		(325.9	)		(150.9	)

Cash flows from financing activities
Repayments of Euro term loan		(9.0	)		(4.2	)
Borrowing from senior unsecured credit facility - 2024		478.0		―
Repayment of senior unsecured credit facility - 2024		(99.0	)	―
Borrowing from senior unsecured credit facility - 2021		345.0			662.0
Repayment of senior unsecured credit facility - 2021		(547.0	)		(477.0	)
Repayment of finance lease obligation and other debt, net		(0.6	)		0.3
Issuance costs related to senior credit facility		(2.2	)	―
Dividends paid		(39.9	)		(35.5	)
Repurchase of stock		(66.9	)		(282.8	)
Activity under stock plans		6.4			0.4
Net cash provided by (used in) financing activities		64.8			(136.8	)
Effect of exchange rate changes on cash and cash equivalents		(1.9	)		(3.6	)
Net increase (decrease) in cash and cash equivalents		14.3			(12.9	)
Cash and cash equivalents at beginning of period		32.7			60.1
Cash and cash equivalents at end of period	$	47.0		$	47.2
Supplemental data:
Accrual basis additions to plant, property and equipment	$	160.9		$	133.5

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

Condensed Consolidated Statements of ~~Comprehensive Income~~Stockholders’ Equity

(Unaudited)

(Unaudited)

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions)

2018

2017

2018

2017

Net Income

$
80.1

$
69.7

$
210.5

$
195.9

Currency translation adjustments

(0.4
)

28.7

(26.2
)

87.2

Net unrealized pension and other benefit actuarial gains
and prior service credits

(0.6
)

(0.6
)

(0.1
)

(1.6
)
Net unrealized gains (losses) on financial instruments (net of tax)

0.2

7.7

(11.9
)

31.6

Total other comprehensive income

(0.8
)

35.8

(38.2
)

117.2

Comprehensive income

$
79.3

$
105.5

$
172.3

$
313.1

			Additional		Accumulated			Other						Total
			Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)	Par		Capital		Earnings			Income (Loss)			Stock			Equity
Balance, December 31, 2017	$	1.1	$	774.3	$	1,496.1		$	(45.0	)	$	(731.4	)	$	1,495.1
Net income	—		—		61.6			—			—				61.6
Dividends paid on common stock	—		—			(11.2	)	—			—				(11.2	)
Impact of new accounting pronouncements			—			2.2		1.6			—				3.8
Change in other comprehensive income – net of tax	—		—		—				35.6		—				35.6
Stock based compensation	—			13.4	—			—				(5.7	)		7.7
Acquisition of treasury stock	—		—		—			—				(30.1	)		(30.1	)
Balance, March 31, 2018	$	1.1	$	787.7	$	1,548.7		$	(7.8	)	$	(767.2	)	$	1,562.5
Net income	—		—			68.8		—			—				68.8
Dividends paid on common stock	—		—			(11.3	)	—			—				(11.3	)
Change in other comprehensive income – net of tax	—		—		—				(73.0	)	—				(73.0	)
Stock based compensation	—			4.3	—			—				(0.6	)		3.7
Acquisition of treasury stock	—		—		—			—				(150.9	)		(150.9	)
Balance, June 30, 2018	$	1.1	$	792.0	$	1,606.2		$	(80.8	)	$	(918.7	)	$	1,399.8
Net income	—		—			80.1		—			—				80.1
Dividends paid on common stock	—		—			(13.0	)	—			—				(13.0	)
Change in other comprehensive income – net of tax	—		—		—				(0.8	)	—				(0.8	)
Stock based compensation	—			3.2	—			—				(0.2	)		3.0
Acquisition of treasury stock	—		—		—			—				(101.8	)		(101.8	)
Balance, September 30, 2018	$	1.1	$	795.2	$	1,673.3		$	(81.6	)	$	(1,020.7	)	$	1,367.3


			Additional		Accumulated			Other						Total
			Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)	Par		Capital		Earnings			Income (Loss)			Stock			Equity
Balance, December 31, 2018	$	1.1	$	798.3	$	1,726.5		$	(108.0	)	$	(1,095.9	)	$	1,322.0
Net income	—		—			72.2		—			—				72.2
Dividends paid on common stock	—		—			(12.7	)	—			—				(12.7	)
Change in other comprehensive income – net of tax	—		—		—				(5.9	)	—				(5.9	)
Stock based compensation	—			13.5	—			—				(5.5	)		8.0
Acquisition of treasury stock	—		—		—			—				(11.2	)		(11.2	)
Balance, March 31, 2019	$	1.1	$	811.8	$	1,786.0		$	(113.9	)	$	(1,112.6	)	$	1,372.4
Net income	—		—			80.9		—			—				80.9
Dividends paid on common stock	—		—			(12.8	)	—			—				(12.8	)
Change in other comprehensive income – net of tax	—		—		—				(4.2	)	—				(4.2	)
Stock based compensation	—			6.1	—			—			—				6.1
Balance, June 30, 2019	$	1.1	$	817.9	$	1,854.1		$	(118.1	)	$	(1,112.6	)	$	1,442.4
Net income	—		—			80.3		—			—				80.3
Dividends paid on common stock	—		—			(14.4	)	—			—				(14.4	)
Change in other comprehensive income – net of tax	—		—		—				(43.0	)	—				(43.0	)
Stock based compensation	—			8.8	—			—				(0.6	)		8.2
Acquisition of treasury stock	—		—		—			—				(55.7	)		(55.7	)
Balance, September 30, 2019	$	1.1	$	826.7	$	1,920.0		$	(161.1	)	$	(1,168.9	)	$	1,417.8

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

(Unaudited)

Nine Months Ended September 30,

(In millions)

2018

2017

Cash flows from operating activities

Net income

$
210.5

$
195.9

Reconciliation to net cash provided by operating activities:

Depreciation and amortization

90.8

76.3

Amortization related to financing

1.2

0.6

Deferred income taxes

27.5

15.1

Equity in earnings from affiliated companies

(4.3
)

(2.8
)
Stock-based compensation

14.0

15.5

Changes in assets and liabilities:

(Increase) decrease in accounts receivable

(27.7
)

19.7

Increase in inventories

(32.1
)

(6.7
)
(Increase) decrease in prepaid expenses and other current assets

(5.0
)

1.4

Increase (decrease) in accounts payable/accrued liabilities

0.2

(9.8
)
Other – net

3.3

3.3

Net cash provided by operating activities

278.4

308.5

Cash flows from investing activities

Capital expenditures

(150.2
)

(221.3
)
Acquisition of business and investment in affiliate

(0.7
)

(12.0
)
Net cash used for investing activities

(150.9
)

(233.3
)

Cash flows from financing activities

Proceeds from senior notes due 2027 (including original issue discount of $1.7)

―

398.3

Issuance costs related to senior notes due 2027

―

(3.7
)
Proceeds from settlement of treasury locks associated with senior notes due 2027

―

10.0

Proceeds from Euro term loan

―

37.4

Repayments of Euro term loan

(4.2
)

(4.1
)
Borrowing from senior unsecured credit facility

662.0

342.0

Repayment of senior unsecured credit facility

(477.0
)

(632.0
)
Proceeds from (repayment of) capital lease obligation and other debt, net

0.3

(0.4
)
Dividends paid

(35.5
)

(31.3
)
Repurchase of stock

(282.8
)

(122.0
)
Activity under stock plans

0.4

6.8

Net cash (used in) provided by financing activities

(136.8
)

1.0

Effect of exchange rate changes on cash and cash equivalents

(3.6
)

7.7

Net (decrease) increase in cash and cash equivalents

(12.9
)

83.9

Cash and cash equivalents at beginning of period

60.1

35.2

Cash and cash equivalents at end of period

$
47.2

$
119.1

Supplemental data:

Accrual basis additions to property, plant and equipment

$
133.5

$
218.0

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

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~~Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for a discussion of our significant accounting policies. Significant changes to our accounting policies subsequent to the filing of our Form 10-K, relate solely to the adoption of Accounting Standard Codification (“ASC”) Topic ~~606, Revenue from Contracts with Customers,~~842, Leases, (“ASC 842”) are discussed below in Recent Accounting Pronouncements as well as in Note 9.4.

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, ~~and~~ cash flows and statement of stockholder’s equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, ~~2017~~2018 was derived from the audited ~~2017 consolidated balance sheet.~~2018 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 ~~2017~~2018 Annual Report on Form 10-K. Within the Unaudited Condensed Consolidated ~~Statement~~Balance Sheets as of ~~Cash Flows for~~December 31, 2018, property, plant and equipment and the ~~nine months ended September 30, 2017, borrowings and repayments~~ related ~~to our revolving credit facility previously presented net within financing activities~~accumulated depreciation have been ~~presented gross~~grossed up to conform to the current year presentation.

We have a 50% equity investment in Aerospace Composites Malaysia Sdn. Bhd. ~~(“ACM”),~~ and a 25% equity investment in Hexcut ~~Services.~~Services SAS. These investments are accounted for using the equity method of accounting.

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2014-09 (ASU 2014-09),~~ ~~Revenue from Contracts with Customers (“ASC 606”).~~ The update clarified the principles for recognizing revenue and developed a common revenue standard for all industries. We adopted this new standard January 1, 2018, using the modified retrospective method, as a result we adjusted the opening balance of our retained earnings by approximately $3.8 million, which represented the cumulative net earnings effect of revenue recognized over time prior to the date of adoption, related to those contracts whose performance obligations were not fully satisfied by the adoption date.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). This ~~ASU~~standard requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of ~~short-term~~ leases ~~(those of~~with a duration of one year or ~~less).~~less. We ~~will adopt~~adopted the provisions of this standard on January 1, ~~2019. We will adopt~~2019, using the ~~provisions of this standard using the~~modified transition method which allows companies to recognize existing leases at the adoption date without requiring comparable presentation. ~~We are in the process of finalizing our analysis and assessment of the impact this new standard will have on our financial statements.~~

~~In March 2017, the FASB issued Accounting Standards Update No. 2017-07 (ASU 2017-07),~~ ~~Compensation-Retirement Benefits,~~ that amends the presentation of net periodic pension cost and net periodic postretirement benefit cost. This amendment requires entities to disaggregate the service cost component from the other components of net periodic benefit cost, to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit cost separately as a line item below operating income on our statement of operations. In addition, capitalization of net periodic benefit cost in assets is limited to the service cost component. We adopted this amendment on January 1, 2018. The adoption did not have a material impact to our financial statements or disclosures.

~~In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (ASU 2017-12),~~ ~~Targeted Improvement to Accounting for Hedging Activities,~~ which better aligns hedge accounting with an organization’s risk management activities in the financial statements. In addition, the standard simplified the application of hedge accounting guidance in areas where practice issues exist. We adopted this standard on January 1, 2018, with no material impact to our results of operations, or financial position.

~~In February 2018, the FASB issued Accounting Standards Update No. 2018-02 (ASU 2018-02),~~ ~~Income Statement—Reporting Comprehensive Income (Topic 220),~~ which amends the previous guidance to allow for certain tax effects “stranded” in accumulated other comprehensive income, which are impacted by the Tax Cuts and Jobs Act (the “Act”), to be reclassified from accumulated other comprehensive income into retained earnings. This amendment pertains only to those items impacted by the new tax law and will not apply to any future tax effects stranded in accumulated other comprehensive income. This standard is effective for fiscal years beginning after December 15, 2018, and allows for early adoption. The Company elected to early adopt this standard during the quarter ended March 31, 2018. As a result of the adoption of this standard we recognized approximately $50 million of right of use assets and related liabilities for operating leases that existed prior to January 1, 2019. These right of use assets were recorded in non-current other assets, and the ~~Company reduced the opening balance of retained earnings by approximately $1.6 million.~~related liabilities were recorded in current accrued liabilities and other non-current liabilities. See Note 4 - Leases, for more details.

In August 2018, the FASB issued Accounting Standards Update 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 and allows for early adoption. We do not expect this new standard to have a significant impact to our disclosures.

	Quarter Ended September 30,				Nine Months Ended September 30,				Quarter Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2018		2017		2018		2017		2019		2018		2019		2018
Basic net income per common share:
Net income	$	80.1	$	69.7	$	210.5	$	195.9	$	80.3	$	80.1	$	233.4	$	210.5
Weighted average common shares outstanding		87.0		90.1		88.6		90.7		85.1		87.0		85.1		88.6

Basic net income per common share	$	0.92	$	0.77	$	2.37	$	2.16	$	0.94	$	0.92	$	2.74	$	2.37

Diluted net income per common share:
Net income		80.1		69.7		210.5		195.9		80.3		80.1		233.4		210.5

Weighted average common shares outstanding — Basic		87.0		90.1		88.6		90.7		85.1		87.0		85.1		88.6
Plus incremental shares from assumed conversions:
Restricted stock units		0.5		0.4		0.4		0.4		0.4		0.5		0.4		0.4
Stock options		0.6		0.9		0.7		1.0		0.6		0.6		0.6		0.7
Weighted average common shares outstanding — Dilutive		88.1		91.4		89.7		92.1		86.1		88.1		86.1		89.7

Diluted net income per common share	$	0.91	$	0.76	$	2.35	$	2.13	$	0.93	$	0.91	$	2.71	$	2.35

Total shares underlying stock options of 0.1 million, were excluded from the computation of diluted net income per share for both the three and nine months ended September 30, 2019, as they were anti-dilutive. Total shares underlying stock options of 0.2 million were excluded from the computation of diluted net income per share for both the three and nine months ended September 30, 2018, as they were anti-dilutive. Total shares underlying stock options of 0.1 million and 0.2 million, respectively, were excluded from the computation of diluted net income per share for the three and nine months ended September 30, 2017~~, as they were anti-dilutive.~~

	September 30,		December 31,
(In millions)	2018		2017		September 30, 2019		December 31, 2018
Raw materials	$	143.7	$	126.7	$	182.6	$	131.4
Work in progress		50.6		52.1		39.7		43.6
Finished goods		114.4		135.2		129.9		122.8
Total Inventory	$	308.7	$	314.0	$	352.2	$	297.8

The Company regularly enters into operating leases for certain buildings, equipment, parcels of land, and vehicles. As of January 1, 2019, we adopted the provisions of ASC 842, accounting for leases. Accordingly, we capitalized all agreements with terms for more than one year, where a right of use asset was identified. In connection with the adoption of ASC 842 on January 1, 2019 we elected certain practical expedients available under ASC 842-10-65-1 that provide certain concessions to ease the burden of transition, such as the treatment of indirect lease costs, and service contracts which may contain embedded leases. In addition, we elected certain expedients not related to the transition, such as the election to capitalize lease and non-lease components of an agreement as a single component for purposes of simplicity, with the exception of those related to equipment and machinery.

Generally, amounts capitalized represent the present value of minimum lease payments over the term, and the duration is equivalent to the base agreement, however, management used certain assumptions when determining the value and duration of leases. These assumptions include, but are not limited to, the probability of renewing a lease term, certain future events impacting lease payments, as well as fair values not explicit in an agreement. Such assumptions impacted the duration of many of our building leases, as well as certain of our equipment leases.

In determining the lease renewal, management considered the need and ability to substitute a given asset, as well as certain conditions such as related contractual obligations to our customers (i.e. a contractual obligation of a customer requiring certain manufacturing proximities). In determining fair value, management considered the stand alone value of an asset in an ordinary market as well as incurring certain costs to terminate an agreement. Most of our leases do not include variable payments but contain scheduled escalations. Any lease payments tied to certain future indexes are adjusted on a go forward basis as those indexes become known.

At September 30, 2019, we had approximately $67.5 million of right of use assets recorded in non-current other assets, and $67.5 million of related liabilities, $55.0 million of which was included in other non-current liabilities with the current portion in accrued liabilities. The weighted average of the remaining lease terms was approximately 9 years.

We discount the future lease payments of our leases using the prevailing rates extended to us by our lenders relevant to the period of inception. These rates are comprised of LIBOR plus a stated spread less a component related to collateralization. The rates are relative to the duration of the lease at inception and the country to which the lease agreement pertains to. The weighted average interest rate used in calculating the fair values listed above was 2.9%.

The following table lists the schedule of cash payments related to right of use assets by year:

Operating lease expense recognized during the quarter and nine months ending September 30, 2019, relating to right of use assets, was $2.7 million and $8.2 million, respectively, and was recorded in cost of goods sold as well as in operating expenses, in our Condensed Consolidated Statements of Operations. Expense related to operating leases which have a duration of a year or less were not material for the same period. Finance leases at September 30, 2019 were immaterial.

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.

Net periodic benefit costs of our defined benefit retirement plans for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were as follows:

	Quarter Ended September 30,				Nine Months Ended September 30,				Quarter Ended September 30,					Nine Months Ended September 30,
(In millions)	2018		2017		2018		2017		2019		��	2018		2019		2018
U.S. Nonqualified Defined Benefit Retirement Plans
Service cost	$	0.2	$	0.4	$	0.8	$	1.1	$	0.3		$	0.2	$	0.9	$	0.8
Interest cost	0.1		0.1		0.4		0.4			0.2			0.1		0.5		0.4
Settlement expense	―		0.2		―		0.3
Net amortization and deferral	0.1		0.1		0.1		0.3
Net amortization									—				0.1	—			0.1
Net periodic benefit cost	$	0.4	$	0.8	$	1.3	$	2.1	$	0.5		$	0.4	$	1.4	$	1.3

(In millions)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Amounts recognized on the balance sheet:
Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans:
Accrued liabilities	$	1.0	$	4.5	$	0.9	$	0.9
Other non-current liabilities		17.8	16.9			18.0		17.2
	$	18.8	$	21.4	$	18.9	$	18.1

	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended September 30,						Nine Months Ended September 30,
(In millions)	2018			2017			2018			2017			2019			2018			2019			2018
European Defined Benefit Retirement Plans
Service cost	$	0.3		$	0.3		$	0.8		$	0.7		$	0.3		$	0.3		$	0.8		$	0.8
Interest cost	1.2			1.1			3.4			3.3				1.1			1.2			3.3			3.4
Expected return on plan assets		(2.4	)		(2.0	)		(7.1	)		(6.1	)		(2.1	)		(2.4	)		(6.5	)		(7.1	)
Net amortization and deferral		—		―			0.2			0.2			—			—				0.2			0.2
Net periodic benefit credit	$	(0.9	)	$	(0.6	)	$	(2.7	)	$	(1.9	)	$	(0.7	)	$	(0.9	)	$	(2.2	)	$	(2.7	)

(In millions)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Amounts recognized on the balance sheet:
Noncurrent asset	$	38.8	$	32.2
Amounts recognized on the balance sheet for European defined benefit retirement plans:
Other assets					$	47.1	$	42.6

Accrued liabilities		1.0		0.3		0.3		0.4
Other non-current liabilities		21.0		19.6		18.1		18.8
Total accrued benefit	$	22.0	$	19.9	$	18.4	$	19.2

All costs related to our pensions are included as a component of operating income in our ~~consolidated statements~~Condensed Consolidated Statements of ~~operations.~~Operations. For the three ~~months~~month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, amounts unrelated to service costs were a benefit of $0.8 million and $1.0 million, ~~and $0.5 million, respectively, and for~~respectively. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, amounts unrelated to the service costs were a benefit of $2.5 million and $3.0 million, ~~and $1.6 million,~~ respectively.

We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred. We have contributed approximately ~~$4.4~~$0.5 million in the first nine months of ~~2018~~2019 to cover unfunded benefits. We expect to contribute a total of ~~$4.6~~$0.9 million in ~~2018~~2019 to cover unfunded benefits. We contributed ~~$0.4~~$4.4 million to our U.S. non-qualified defined benefit retirement plans during the first nine months ~~ended September 30, 2017.~~of 2018.

We contributed ~~$3.8~~$3.3 million and ~~$2.8~~$3.8 million to our European defined benefit retirement plans induring the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. We plan to contribute approximately $5.0 million during ~~2018~~2019 to our European plans.

We recorded ~~$0.3 million and $0.9~~$0.2 million of net amortization gain deferral for the ~~three and nine months~~quarter ended September 30, ~~2017,~~2019 and $0.7 million and $0.9 million ~~of net amortization gain deferral~~ for the nine months ended September 30, ~~2018.~~2019 and 2018, respectively. There were no0 amounts related to the amortization gain deferral recorded during the three months ended September 30, 2018. Net periodic benefit costs of our postretirement health care and life insurance benefit plans for the ~~three~~quarter and the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were immaterial.

(In millions)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Amounts recognized on the balance sheet:
Accrued liabilities	$	0.5	$	0.5	$	0.5	$	0.5
Other non-current liabilities	3.9		3.6		2.7		2.8
Total accrued benefit	$	4.4	$	4.1	$	3.2	$	3.3

InAmounts contributed in connection with our postretirement plans ~~we contributed about $0.3 million during~~were immaterial for both the nine months ended September 30, ~~2018~~2019 and September 30, ~~2017.~~2018. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute ~~approximately $0.4~~less than $0.5 million in ~~2018~~2019 to cover unfunded benefits.

(In millions)	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Current portion of finance lease							$	0.6		$	0.3
Current portion of Euro term loan	$	9.3		$	4.3			8.7			9.1
Current portion of debt		9.3			4.3			9.3			9.4
Non-current portion of Euro term loan		52.5			63.3			40.3			51.4
Senior unsecured credit facility - due 2021		235.0			50.0
4.7% senior notes due 2025		300.0			300.0
3.95% senior notes due 2027		400.0			400.0
Senior notes original issue discount		(2.1	)		(2.3	)
Senior notes deferred financing costs		(5.0	)		(5.5	)
Other debt		0.3			0.1
Senior unsecured credit facility								379.0			202.0
4.7% senior notes --- due 2025								300.0			300.0
3.95% senior notes --- due 2027								400.0			400.0
Senior notes --- original issue discount								(1.8	)		(2.0	)
Senior notes --- deferred financing costs								(4.3	)		(4.8	)
Non-current portion of finance lease and other debt								2.0			0.8
Long-term debt		980.7			805.6			1,115.2			947.4
Total debt	$	990.0		$	809.9		$	1,124.5		$	956.8

In June 2019, the Company refinanced its senior unsecured credit facility (“the Facility”), increasing borrowing capacity from $700 million to $1 billion. The maturity of the Facility is June 2024. The refinancing provides for a reduction in interest costs, as well as less restrictive covenants. The initial interest rate for the Facility is LIBOR + 1.0%. The interest rate ranges from LIBOR + 0.875% to a maximum of LIBOR + 1.50%, depending upon the better of the Company’s leverage ratio or the credit rating. As of September 30, 2019, total borrowings under the Facility were $379 million, which approximates 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, 2019, there were 0 issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $621 million. The weighted average interest rate for the Facility was 4.17% for the nine months ended September 30, 2019.

The Facility agreement contains financial and other covenants, including, but not limited to customary restrictions on the incurrence of debt by our subsidiaries and the granting of liens, as well as the maintenance of an interest coverage ratio and a leverage ratio. As defined in the Facility agreement, we are required to maintain a minimum interest coverage ratio of 3.50 (based on the ratio of EBITDA to interest expense) and may not exceed a maximum leverage ratio of 3.75 (based on the ratio of total debt to EBITDA) with a step up to 4.25 allowed following certain acquisitions. In addition, the Facility agreement contains other customary terms and conditions such as representations and warranties, additional covenants and events of default.

In 2017, the Company issued $400 million in aggregate principal amount of 3.95% Senior Unsecured Notes due in 2027. The interest rate on these senior notes may be increased 0.25% each time a credit rating applicable to the notes is downgraded. Conversely, such increases would be reversed should the credit rating be subsequently upgraded. The maximum rate is 5.95%. The effective interest rate for ~~the~~ nine months ended September 30, ~~2018~~2019 was 3.88% inclusive of approximately a 0.25% benefit of treasury locks. ~~The~~Based on quoted prices the fair value of the senior unsecured notes due in 2027 ~~based on quoted prices utilizing Level 2 inputs~~ was ~~$387.8~~$415.8 million at September 30, ~~2018.~~2019.

In 2016, we entered into a€60 million term loan. The loan has 2 tranches of which the first tranche for €25 million has a rate of Euribor +1.2% and a final maturity date of June 30, 2023, and a second tranche for €35 million has a rate of Euribor +1.25% with a final maturity date of June 30, 2024. The loans are payable in annual installments that began on June 30, 2017, for the first tranche, and on June 30, 2019, for the second. There is a 0 percent floor on the Euribor. Amounts outstanding under this loan at September 30, 2019 were $49.0 million which approximatesfair value under the market approach.

In 2015, the Company issued $300 million in aggregate principal amount of 4.7% Senior Unsecured Notes due in 2025. The interest rate on these senior notes may be increased by 0.25% each time a credit rating applicable to the notes is downgraded. Conversely, such increases would be reversed should the credit rating be subsequently upgraded. The maximum rate is 6.7%. The effective interest rate for the nine months ended September 30, ~~2018~~2019 was ~~4.84%~~4.83%. ~~The~~Based on quoted prices, the fair value of ~~the~~these notes ~~due in 2025 based on quoted prices utilizing Level 2 inputs~~ was ~~$305.5~~$324.1 million at September 30, ~~2018.~~2019.

The Company has a revolving credit facility (the “Facility”) that allows up to $700 million of borrowings. The Facility matures in June 2021. The interest rate for the Facility at September 30, 2018 is LIBOR + 1.25%. The interest rate ranges from LIBOR + 0.875% to a maximum of LIBOR + 1.875%, depending upon the Company’s leverage ratio.

The Facility contains financial and other covenants, including, but not limited to, restrictions on the incurrence of debt and the granting of liens, as well as the maintenance of an interest coverage ratio and a leverage ratio. In accordance with the terms of the Facility, we are required to maintain a minimum interest coverage ratio of 3.50 (based on the ratio of EBITDA, as defined in the

Credit Agreement, to interest expense) and may not exceed a maximum leverage ratio of 3.50 (based on the ratio of total debt to EBITDA) throughout the term of the Facility. In addition, the Facility contains other terms and conditions such as customary representations and warranties, additional covenants and customary events of default.

As of September 30, 2018, total borrowings under the Facility were $235.0 million, which approximates fair value using Level 2 inputs. The Facility permits us to issue letters of credit up to an aggregate amount of $40 million. Outstanding letters of credit reduce the amount available for borrowing under our revolving loan. As of September 30, 2018, there were no outstanding letters of credit under the Facility, resulting in undrawn availability under the Facility as of September 30, 2018 of $465.0 million. The weighted average interest rate for the Facility was 3.34% for the nine months ended September 30, 2018.

~~In 2016, we entered into a~~ €~~60 million term loan. The loan has two tranches of which the first tranche for~~ €~~25 million has a rate of Euribor +1.2% and a final maturity date of June 30, 2023, and a second tranche for~~ €35 million has a rate of Euribor +1.25% with a final maturity date of June 30, 2024. The loans are payable in annual installments that began on June 30, 2017, for the first tranche, and beginning on June 30, 2019, for the second. There is a zero percent floor on the Euribor. Amounts outstanding under this loan at September 30, 2018 were ~~$61.8 million which approximates fair value using Level 2 inputs under the market approach.~~

As of September 30, 2018, the Company had interest rate swaps, having a combined notional value of $50.0 million, that swap floating rate obligations for fixed rate obligations at an average rate of 1.09% against LIBOR in U.S. dollars. Both swaps mature in September 2019. The swaps are accounted for as cash flow hedges of our floating rate bank loan. To ensure the swaps were highly effective, all of the critical terms of the swaps matched the terms of the bank loan. The fair value of the interest rate swaps was an asset of $0.8 million at both September 30, 2018 and December 31, 2017, respectively.

At September 30, ~~2018, we~~2019 the Company had interest rate swaps related to European debt obligations which had a combined notional value of approximately ~~€52.9~~€44.9 million. These derivatives swapped floating rate obligations for fixed rate obligations at a weighted average rate of ~~0.51%~~0.52% against Euribor in Euros. The swaps amortize through the final maturities of the obligations, on June 30, 2023 and June 30, 2024, in annual installments. The derivatives are accounted for as cash flow hedges of the floating rate term loans. To ensure the swaps were highly effective, all of the ~~principal~~critical terms of the swap matched the terms of the bank loans. The fair value of the interest rate swaps was a liability of ~~$0.3~~$0.7 millionat September 30, ~~2018,~~2019, and ~~a liability of $0.4~~$0.5 million at December 31, ~~2017.~~2018.

The Company had treasury lock agreements to protect against unfavorable movements in the benchmark treasury rate related to the issuance of our 3.95% Senior Unsecured Notes. These hedges were designated as cash flow hedges therefore any change in fair value was recorded as a component of other comprehensive income. As part of the issuance of ~~our senior~~these notes, we net settled ~~these~~the derivatives ~~for $10 million in cash. As a result of settling these derivatives~~and therefore the previously deferred gains recorded in other comprehensive income will be released to interest expense over the life of the senior notes. The effect of these treasury locks reduced the effective interest rate on ~~the senior~~these notes by approximately 0.25%.

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 ~~2021,~~2022, which we account for as cash flow hedges. The aggregate notional amount of these contracts was ~~$408.6~~$439.6 million and ~~$285.4~~$416.5 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The purpose of these contracts is to hedge a portion of the forecasted transactions of our European subsidiaries under long-term sales contracts with certain customers. These contracts are expected to provide us with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing our exposure to fluctuations in currency exchange rates. The effective portion of the hedges, losses of ~~$0.6~~$16.9 million and ~~$13.1~~$25.7 million ~~respectively,~~ were recorded in other comprehensive income (“OCI”) for the three and nine months ended September 30, ~~2018,~~2019 and ~~gains~~losses of ~~$9.7~~$0.6 million and ~~$31.7~~$13.1 million for the three and nine months ended September 30, ~~2017, respectively.~~2018. We classified the carrying amount of these contracts of ~~$4.8~~$0.3 million in other assets and ~~$8.5~~$31.6 million in other liabilities, of which $9.7 million is recorded in non-current liabilities, on the Condensed Consolidated Balance Sheets at September 30, ~~2018~~2019 and ~~$14.7~~$1.3 million in other assets and ~~$2.8~~$15.3 million in other liabilities at December 31, ~~2017.~~2018. We recognized net losses of ~~$0.9~~$3.8 million and ~~net gains of $2.5~~$8.4 million in gross margin during the three and nine months ended September 30, ~~2018,~~2019 and net losses of ~~$0.6~~$0.9 million and ~~$11.4~~net gains of $2.5 million for the three and nine months ended September 30, ~~2017, respectively.~~2018.

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 re-measurement 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 no0 credit

contingency features in these derivatives. During the quarters ended September 30, ~~2018~~2019 and ~~2017,~~2018, we recognized net foreign exchange losses of ~~$0.1~~$1.3 million and ~~gains of $4.0~~$0.1 million, respectively, in the Condensed Consolidated Statements of Operations. During the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we recognized net foreign exchange losses of $1.9 million and $4.1 million, ~~and gains of $15.4 million, respectively, in the Condensed Consolidated Statements of Operations.~~respectively. The net foreign exchange impact recognized from these hedges offset the translation exposure of these transactions. The carrying amount of the contracts for derivatives not designated as hedging instruments was ~~$0.5~~$0.2 million classified in other assets and ~~$0.1~~$0.4 million in other liabilities at September 30, 2019, and ~~$1.3~~$0.3 million ~~classified~~ in other assets ~~and $0.1 million in other liabilities on the September 30, 2018 and~~at December 31, ~~2017~~2018, in the Condensed Consolidated Balance ~~Sheets, respectively.~~Sheets.

The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive income for the quarters and nine months ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018 was as follows:

	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended September 30,						Nine Months Ended September 30,
(In millions)	2018			2017			2018			2017			2019			2018			2019			2018
Unrealized (losses) gains at beginning of period, net of tax	$	(3.1	)	$	(1.3	)	$	8.6		$	(25.9	)	$	(13.8	)	$	(3.1	)	$	(10.6	)	$	8.6
Losses (gains) reclassified to net sales		0.7			0.6			(1.6	)		8.9			3.0			0.7			6.5			(1.6	)
(Decrease) increase in fair value		(0.3	)		7.2			(9.7	)		23.5
Unrealized (loss) gain at end of period, net of tax	$	(2.7	)	$	6.5		$	(2.7	)	$	6.5
Decrease in fair value														(12.9	)		(0.3	)		(19.6	)		(9.7	)
Unrealized losses at end of period, net of tax													$	(23.7	)	$	(2.7	)	$	(23.7	)	$	(2.7	)

~~We expect~~Unrealized losses of $16.3 million recorded in accumulated other comprehensive loss, net of tax of $5.2 million, as of September 30, 2019, are expected to ~~reclassify $0.7 million of unrealized losses~~be reclassified into earnings over the next twelve months as ~~revenue is~~the hedged sales are recorded.

On occasion we enter into commodity swap agreements to hedge against price fluctuations of raw materials, including propylene (the principal component of acrylonitrile). As of September 30, 2019, we had commodity swap agreements with a notional value of $20.1 million. The swaps mature monthly through September 2021. The swaps are accounted for as a cash flow hedge of our forward raw material purchases. To ensure the swaps are highly effective, all of the critical terms of the swap matched the terms of the hedged items. The fair value of the commodity swap agreements was a liability of $4.6 million at September 30, 2019.

The effective tax rate ~~for the current quarter~~ was ~~9.1%~~18.4% compared to ~~16.5%~~9.1% for the quarter ended September 30, ~~2017.~~2019 and 2018, respectively. The current quarter ~~benefitted~~benefited primarily from tax credits identified during the quarter of $3.0 million. The third quarter of 2018 included discrete benefits of $9.6 million primarily related to a change in ~~tax~~ accounting method and ~~the~~ release of a valuation allowance in a foreign jurisdiction. ~~The third quarter of 2017 included a non-recurring discrete benefit of $4.2 million resulting from the reversal of reserves for uncertain tax positions.~~ The effective tax rate for the nine months ended September 30, 2019 and 2018 was 21.3% and 16.9% ~~compared to 18.6% for~~, respectively, as the ~~nine months ended September 30, 2017. The provision for the nine months ended September 30,~~ 2018 period also included a $1.3 million discrete benefit ~~of $1.3 million~~ related to the release of reserves for uncertain tax ~~positions. The provision for the nine months ended September 30, 2017, also included nonrecurring discrete benefits of $9.1 million related to the release of a valuation allowance in a foreign jurisdiction.~~positions. Excluding these discrete benefits the effective tax rates were ~~21.3%~~22.3% and ~~24.2%, respectively. The 2018~~21.3%. All periods ~~also reflect the cumulative impact of the reduction of our underlying estimated annual effective rate to 24% from 25%. Both periods benefitted~~benefited from deductions associated with ~~share-based~~share based compensation payments.

~~The Tax Cuts and Jobs Act (the “Act”)~~ ~~enacted in 2017, resulted in the U.S. Federal~~ Our underlying estimated effective income tax rate ~~being reduced~~is expected to 21% from 35% for the same period last year. During the measurement period, which is one year from the date of enactment, or the completion of all estimates made in connection with the Act, companies are permitted to make additional income tax adjustments and revisions of estimates related to the Act. During the quarter ended September 30, 2018, there were no material adjustments made to previously made estimates related to the Act. We are currently in the process of completing our estimates for the transition tax related to our 2018 earnings, which will be finalized during the fourth quarter of 2018.

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 no0 assets or liabilities that utilize Level 1 inputs. However, we have derivative instruments classified as liabilities and assets which utilize Level 2 inputs, and ~~one~~1 liability that utilizes Level 3 inputs.

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 approximately ~~$6.0~~$0.5 million and ~~$8.9~~$37.3 million, respectively, at September 30, ~~2018.~~2019. 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 ~~Sheet.~~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, ~~none~~NaN of which experienced any significant downgrades in the ~~nine months~~quarter ended September 30, ~~2018~~2019 that would reduce the receivable amount owed, if any, to the Company.

Liabilities classified as Level 3— we have a liability for ~~$3.0~~$3.1 million, which ~~represented~~represents contingent consideration that was recognized in connection with ~~an acquisition completed during~~ the ~~prior year.~~Company’s Oxford Performance Materials, Inc. acquisition. This amount was estimated based on certain contractual stipulations which ~~requires~~require payments to be made to the seller in the future based upon the achievement of certain results. We used forecasted results which were discounted using an internally derived discount rate. Future amounts payable may differ from this estimate by the difference between the actual and forecasted results. The amount of interest related to this liability accreted during the quarter and nine months ended September 30, ~~2018,~~2019 was not material.

Our revenue is primarily derived from the sale of inventory under long-term agreements with our customers. We have determined that individual purchase orders (“PO”), whose terms and conditions taken with a master agreement, create the ASC 606 contracts which are generally short-term in nature. For those sales, which are not tied to a long-term agreement, we generate a PO that is subject to our standard terms and conditions. The majority of our sales are covered under long-term agreements, with the remaining sales coming from POs. Our agreements (including POs) generally do not have multiple performance obligations and thus do not require an allocation of a single price amongst multiple goods or services. All pricing is fixed and determinable. A majority of our revenue is earned when goods are shipped to a customer. 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, which~~52.249-2. This regulation contains a termination for convenience clause (“T for C”)~~. T for C allows for a customer to cancel a contract at any point for any reason, but also~~, 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 relative to the work performed. Generally these arrangements relate to unique products manufactured to customer specifications and have no alternative use.~~profit.

~~Upon adoption of~~ ~~ASC 606 we~~We recognize revenue over time for those agreements that have T for C, and where the products being produced have no alternative use. Prior to the adoption date, revenue related to these agreements was recognized when the goods were shipped, however, as a result of the adoption of ASC 606 a portion of our revenue may be earned in periods earlier than it would have been in prior years. The cumulative adjustment to retained earnings upon adoption represents those earnings, which would have been recognized in the previous year had ASC 606 been in effect during that time. As our production cycle is typically six months or less, it is expected that goods related to the revenue ~~represented in that adjustment~~recognized over time will be shipped and billed within the ~~current year.~~next twelve months. Less than half of our agreements contain provisions which would require revenue to be recognized over time. For revenue recognized over time, we estimate the amount of revenue earned at a given point during the production cycle based on certain costs factors such as raw materials and labor, incurred to date, plus a reasonable profit. We believe this method, which is the cost-to-cost input method, best estimates the revenue recognizable for T for C agreements.

We disaggregate our revenue based on market for analytical purposes. The following table details our revenue by market for the three and nine months ended September 30, ~~2018~~2019 and ~~2017:~~2018:

	Quarter Ended September 30,				Nine Months Ended September 30,				Quarter Ended September 30,				Nine Months Ended September 30,
(In millions)	2018		2017		2018		2017		2019		2018		2019		2018
Consolidated Net Sales	$	540.5	$	491.5	$	1,628.1	$	1,461.6	$	572.5	$	540.5	$	1,791.4	$	1,628.1
Commercial Aerospace		373.1		352.6		1,139.6		1,048.7	385.9		373.1			1,217.9		1,139.6
Space & Defense	90.4		82.7		272.2			247.3		109.8		90.4		329.4		272.2
Industrial	77.0		56.2		216.3		165.6		76.8			77.0	244.1		216.3

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. The activity related to contract assets for the nine months ended September 30, ~~2018~~2019 is as follows:

`	Composite			Engineered
(In millions)	Materials			Products			Total			Composite Material			Engineered Products			Total
Opening adjustment - January 1, 2018	$	15.1		$	23.0		$	38.1
Balance at December 31, 2018										$	12.9		$	37.6		$	50.5
Net revenue billed		(0.5	)		(2.4	)		(2.9	)		(1.4	)		4.6			3.2
Balance at March 31, 2018	$	14.6		$	20.6		$	35.2
Balance at March 31, 2019											11.5			42.2			53.7
Net revenue billed		2.4			0.1			2.5			1.7			4.3			6.0
Balance at June 30, 2018	$	17.0		$	20.7		$	37.7
Balance at June 30, 2019											13.2			46.5			59.7
Net revenue billed		(1.8	)		7.8			6.0			(1.7	)		(1.6	)		(3.3	)
Balance at September 30, 2018	$	15.2		$	28.5		$	43.7

Balance at September 30, 2019										$	11.5		$	44.9		$	56.4

Upon adoption of ASC 606, the Company recorded $38.1 million of contract assets for revenue that was unbilled at December 31, 2017, and a $33.0 million reduction in inventory representing the value of the inventory associated with the revenue recognized over time, with the offset recorded to the opening balance of retained earnings (less $1.3 million in taxes). The amount of contract assets billed, and subsequently reclassified to trade accounts receivable, during the quarter ended September 30, 2018, was approximately $37.7 million. Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional.

The financial results were not significantly impacted by the adoption of ASC 606. Under ASC 606 revenue and gross margin for the quarter ended September 30, 2018 were higher by $6.0 million and $0.4 million, respectively, than they would have been under ASC 605. For the nine months ended September 30, 2018, the impact of ASC 606 to revenue was approximately $5.6 million and to gross margin was $0.2 million. There was not a material impact earnings on per share for the quarter or nine months ended September 30, 2018. At September 30, 2018 our inventory was $38.4 million lower as a result of ASC 606.

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.

Financial information for our operating segments for the ~~quarters~~quarter and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were as follows:

	(Unaudited)									(Unaudited)
	Composite		Engineered		Corporate &					Composite		Engineered		Corporate &
(In millions	Materials		Products		Other (a)			Total
(In millions)										Materials		Products		Other (a)			Total
Third Quarter 2019
Net sales to external customers										$	448.0	$	124.5	$	—		$	572.5
Intersegment sales											23.3	—			(23.3	)		—
Total sales										$	471.3	$	124.5	$	(23.3	)	$	572.5
Operating income											100.1		20.3		(10.5	)		109.9
Depreciation and amortization											30.7		3.7		—			34.4
Stock-based compensation											1.2		0.2		1.0			2.4
Accrual basis additions to capital expenditures											51.0		2.3		—			53.3

Third Quarter 2018
Net sales to external customers	$	432.8	$	107.7	$	—		$	540.5	$	432.8	$	107.7	$	—		$	540.5
Intersegment sales		17.2		—		(17.2	)		—		17.2		—		(17.2	)		—
Total sales	$	450.0	$	107.7	$	(17.2	)	$	540.5	$	450.0	$	107.7	$	(17.2	)	$	540.5
Operating income		92.5		15.5		(11.5	)		96.5		92.5		15.5		(11.5	)		96.5
Depreciation and amortization		28.9		2.3		—			31.2		28.9		2.3		—			31.2
Stock-based compensation		1.2		0.2		0.6			2.0		1.2		0.2		0.6			2.0
Accrual basis additions to capital expenditures		41.4		2.1		—			43.5		41.4		2.1		—			43.5

Third Quarter 2017
Nine Months Ended September 30, 2019
Net sales to external customers	$	398.9	$	92.6	$	—		$	491.5	$	1,419.7	$	371.7	$	—		$	1,791.4
Intersegment sales		16.4		—		(16.4	)		—		64.0		0.1		(64.1	)		—
Total sales	$	415.3	$	92.6	$	(16.4	)	$	491.5	$	1,483.7	$	371.8	$	(64.1	)	$	1,791.4
Operating income		90.0		12.1		(13.0	)		89.1		324.4		51.4		(48.0	)		327.8
Depreciation and amortization		24.8		1.9		0.1			26.8		95.7		11.3		0.1			107.1
Stock-based compensation		1.1		0.1		1.0			2.2		6.4		1.4		8.1			15.9
Accrual basis additions to capital expenditures		47.4		0.5		—			47.9		156.8		4.1		—			160.9

Nine Months Ended September 30, 2018
Net sales to external customers	$	1,323.2	$	304.9	$	—		$	1,628.1	$	1,323.2	$	304.9	$	—		$	1,628.1
Intersegment sales		56.7		—		(56.7	)		—		56.7		—		(56.7	)		—
Total sales	$	1,379.9	$	304.9	$	(56.7	)	$	1,628.1	$	1,379.9	$	304.9	$	(56.7	)	$	1,628.1
Operating income		276.6		41.3		(42.5	)		275.4		276.6		41.3		(42.5	)		275.4
Depreciation and amortization		83.9		6.8		0.1			90.8		83.9		6.8		0.1			90.8
Stock-based compensation		5.7		1.0		7.3			14.0		5.7		1.0		7.3			14.0
Accrual basis additions to capital expenditures		130.1		3.4		—			133.5		130.1		3.4		—			133.5

Nine Months Ended September 30, 2017
Net sales to external customers	$	1,183.7	$	277.9	$	—		$	1,461.6
Intersegment sales		48.6		—		(48.6	)		—
Total sales	$	1,232.3	$	277.9	$	(48.6	)	$	1,461.6
Operating income		264.0		37.2		(43.8	)		257.4
Depreciation and amortization		70.6		5.6		0.1			76.3
Stock-based compensation		5.7		1.0		8.8			15.5
Accrual basis additions to capital expenditures		208.5		9.5		—			218.0

The ~~carrying amount of gross~~addition to goodwill and intangible assets ~~by segment~~ is ~~as follows:~~

Nodue to the acquisition of ARC Technologies LLC, discussed in Note 13. At September 30, 2019, the balance of goodwill and intangible assets was $187.8 million and $91.6 million, respectively. NaN impairments have been recorded against these amounts.

Comprehensive income represents net income and other gains and losses affecting stockholders’ equity that are not reflected in the Condensed Consolidated Statements of Operations. The components of accumulated other comprehensive loss as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:

(In millions)	Unrecognized Defined Benefit and Postretirement Plan Costs			Change in Fair Value of Derivatives Products (1)			Foreign Currency Translation			Total			Unrecognized Net Defined Benefit and Postretirement Plan Costs			Change in Fair Value of Derivatives Products (1)			Foreign Currency Translation			Total
Balance at December 31, 2017	$	(18.5	)	$	14.8		$	(41.3	)	$	(45.0	)
Other comprehensive (loss) income before reclassifications		0.4			(8.1	)		(26.2	)		(33.9	)
Balance at December 31, 2018													$	(15.4	)	$	(5.8	)	$	(86.8	)	$	(108.0	)
Other comprehensive loss before reclassifications														0.6			(23.2	)		(37.3	)		(59.9	)
Amounts reclassified from accumulated other comprehensive loss		(0.5	)		(2.2	)	―				(2.7	)		(0.6	)		7.4		—				6.8
Other comprehensive loss		(0.1	)		(10.3	)		(26.2	)		(36.6	)	—				(15.8	)		(37.3	)		(53.1	)
Balance at September 30, 2018	$	(18.6	)	$	4.5		$	(67.5	)	$	(81.6	)
Balance at September 30, 2019													$	(15.4	)	$	(21.6	)	$	(124.1	)	$	(161.1	)

The amounts of net gains reclassified to earnings from the unrecognized net defined benefit and postretirement plan costs component of accumulated other comprehensive loss for the three and nine months ended September 30, ~~2018,~~2019, were ~~$0.6~~$0.2 million with no material tax impact and $0.8 million less taxes of $0.2 million, ~~and $0.7 million less $0.2 million of taxes.~~respectively. The amounts reclassified to earnings from the change in fair value of the derivatives component of accumulated other comprehensive loss for the three and nine months ended September 30, ~~2018~~2019 were net losses of ~~$0.6 million with no material tax impact, and net gains of $3.4~~$3.8 million less taxes of ~~$1.2 million. The currency translation adjustments are not currently adjusted for income~~$0.9 million and $8.4 million less taxes ~~as they relate to indefinite investments in non-U.S. subsidiaries.~~

~~During the second quarter~~ of ~~2018 we recorded $7.3~~$1.9 million, ~~in other operating income (expense)~~respectively, related to ~~an environmental insurance recovery which was offset by the write-down~~foreign currency forward exchange contracts and $0.8 million less taxes of ~~our investment in Carbon Conversions, Inc., as well as an additional environmental reserve~~$0.2 million and $2.4 million less taxes of $0.6 million, respectively, related to commodity swaps. We also recorded net gains of $0.3 million less taxes of less than $0.1 million and $1.1 million less taxes of $0.2 million related to interest rate swaps, in the ~~Lower Passaic River matter described in Note 13 below.~~three and nine month periods ended September 30, 2019, respectively.

During the first quarter of 2019, we acquired all of the outstanding equity interests in ARC Technologies LLC, a leading supplier of customer RF/EMI and microwave absorbing composite materials for military, aerospace and industrial applications, for $163.2 million. This acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations.

In connection with the acquisition, the Company recognized $82.1 million of goodwill, and approximately $63.0 million of intangible assets which are included in our Engineered Products segment.

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 when a loss becomes probable and estimable. These judgments take into consideration 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. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years.

While it is impossible to ~~ascertain~~predict the ultimate ~~legal~~resolution of litigation, investigations and ~~financial liability with respect to certain contingent liabilities and~~ claimsasserted against us, we believe, based upon our examination of currently available information, our experience to date, and advice from legal counsel, that, ~~the individual and aggregate liabilities resulting from the ultimate resolution of these contingent matters,~~ after taking into ~~consideration~~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~~Condensed Consolidated Statements of ~~operations, financial position~~Operations, Balance Sheets or ~~cash flows.~~Cash Flows.

We are subject to various international, U.S., state and local environmental, and health and safety laws and regulations. We are also subject to liabilities arising under the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”), the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and similar state and international laws and regulations that impose responsibility for the control, remediation and abatement of air, water and soil pollutants and the manufacturing, storage, handling and disposal of hazardous substances and waste.

We have been named as a potentially responsible party (“PRP”) with respect to ~~several~~the below 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 ~~CERCLA~~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, ~~our existing insurance coverage, the amounts already provided for~~ and the number of other financially viable PRPs, that our liability in connection with such environmental matters will not be material.

Hexcel ~~and a group of~~together with approximately 48 other PRPs that comprise the Lower Passaic Cooperating Parties Group (the “CPG”)~~. Hexcel and the CPG~~, are subject to a May 2007 Administrative Order on Consent (“AOC”) with the EPA requiring the CPG to perform a Remedial Investigation/Feasibility Study ~~(“RI/FS”)~~ of environmental conditions inof a 17-mile stretch of the ~~Lower~~ Passaic River ~~watershed.~~in New Jersey (the “Lower Passaic River”). We were included in the CPG based on our operations at our former manufacturing site in Lodi, New Jersey.

In March 2016, the EPA issued a Record of Decision (“ROD”) setting forth the EPA’s selected remedy for the lower eight miles of the ~~river. The ROD calls for capping and dredging of the lower eight miles of the~~Lower Passaic River ~~with the placement of an engineered cap over the entire eight miles,~~ at an expected cost ranging from $0.97 billion to $2.07 billion. ~~Because the EPA has not yet selected a remedy for the upper nine miles of the Lower Passaic River, this~~This estimate does not include any costs related to a future remedy for the upper ~~portion~~nine miles of the ~~river. The~~Lower Passaic River. In August 2017, the EPA ~~has~~ appointed an independent third party allocation expert ~~(the “Allocator”)~~ to ~~conduct a complete review of and~~ make recommendations ~~to the EPA~~ on the relative liability of approximately 120 identified ~~non-governmental PRP’s. Hexcel is cooperating in the allocation process,~~non-government PRP’s, which is not expected to be completed until ~~2020. However, based on~~2021.

In October 2016, pursuant to a ~~review~~settlement agreement with the EPA, Occidental Chemical Corporation (“OCC”), one of the ~~Company’s position,~~PRPs, commenced performance of the remedial design required by the ROD, reserving its right of cost contribution from all other PRPs. In June 2018, OCC filed suit against approximately 120 parties, including Hexcel, in the U.S. District Court of the District of New Jersey seeking cost recovery and ~~as no point within~~contribution under CERCLA related to the ~~range is a more probable~~Lower Passaic River. On July 31, 2019, the court dismissed certain of OCC’s cost-recovery claims and, on August 14, 2019, Hexcel filed its answer to the complaint, which included counterclaims against OCC. On September 13, 2019, OCC filed its answer to Hexcel’s counterclaims and asserted new cost-recovery and contribution counterclaims against Hexcel and other defendants. We do not know whether this litigation will impact the EPA’s allocation process or the ultimate outcome ~~than any other point,~~of the ~~Company has determined that its accrual is sufficient at this time.~~ matter.

The accrual ~~balance~~ was ~~$2.2~~$2.0 million as of September 30, ~~2018~~2019 and $2.1 million at December 31, ~~2017. Despite~~2018. Given the ~~issuance of the final ROD, and given the ongoing work of the Allocator, there continues to be many uncertainties~~uncertainty associated with the ~~selected remedy, the Company’s allocable share~~many elements of the ~~remediation and~~Superfund process for the ~~amount of insurance coverage. Given those uncertainties,~~Lower Passaic River, the amounts accrued may not be indicative of the amounts for which ~~the Company is~~we will ultimately ~~responsible and will~~ be ~~refined as events in the remediation process develop.~~responsible.

We are a PRP at a former chemical waste site in Whittier, California. The PRPs at Omega have established The Omega Chemical Site PRP Organized Group, (the “OPOG”), and are currently investigating and remediating soil and groundwater at the site pursuant to a Consent Decree with the EPA. OPOG has attributed ~~approximately 1.07%~~to Hexcel either 1.25% or 2.18% of the waste tonnage (dependent on the specific location within the Omega Chemical Site) sent to the ~~site to Hexcel.~~site. In addition to the Omega site specifically, the EPA is investigating the scope of regional groundwater contamination in the vicinity of the Omega site and issued a ~~Record of Decision; the Omega PRP Group~~ROD. The OPOG members have been served notice by the EPA as PRPs who will be required to be involved in the remediation of the regional groundwater contamination in that vicinity as well. As a member of OPOG, Hexcel will incur costs associated with the investigation and remediation of the Omega site and the regional groundwater remedy, although our ultimate liability, if any, in connection with this matter cannot be determined at this time. The total accrued liability relating to potential liability for both the Omega site and regional groundwater remedies was ~~$0.4~~$0.3 million at September 30, ~~2018,~~2019 and ~~$0.6 million~~ at December 31, ~~2017.~~2018.

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 ~~consolidated balance sheets.~~Condensed Consolidated Balance Sheets. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, our aggregate environmental related accruals were ~~$2.8~~$2.5 million and $2.7 million, respectively, of which ~~$0.9~~$0.6 million and $0.8 million, respectively, was included in accrued liabilities with the remainder included in non-current liabilities. As related to certain environmental matters the accrual was estimated at the low end of a range of possible outcomes since no0 amount within the range is a better estimate than any other amount. If we had accrued, ~~at the high end of the range of possible outcomes~~ for those sites where we are able to estimate our liability, at the high end of the range of possible outcomes, our accrual would have been $16 million ~~higher.~~ higher at September 30, 2019.

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 ~~amount of insurance coverage,~~ and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.

Environmental remediation spending charged to our reserve balance for each of the quarters ended September 30, 2018 and 2017 was $0.3 million and $0.1 million, respectively, and $0.6 million and $0.4 million for the nine months ended September 30, 2018 and September 30, 2017, respectively. In addition, our operating costs relating to environmental compliance charged to expense were $4.2 million and $2.4 million for the quarters ended September 30, 2018 and September 30, 2017, respectively, and $11.4 million and $7.1 million for the nine months ended September 30, 2018 and 2017, respectively.

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 ~~quarter and~~ nine months ended September 30, ~~2018,~~2019, and accrued warranty cost, included in “accrued liabilities” in the Condensed Consolidated Balance Sheets at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, were as follows:

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

We develop, manufacture, and market lightweight, high-performance structural materials, including carbon fibers, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, adhesives, 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, Russia, India and Africa. We are also a partner in a joint venture in Malaysia, which manufactures composite structures for Commercial Aerospace applications.

On January 3, 2019, we acquired ARC Technologies, LLC (“ARC”), a leading supplier of custom RF/EMI and microwave absorbing composite materials for military, aerospace and industrial applications. The acquisition strengthens our existing advanced materials portfolio in structural composites and thermoplastics.

We have two segments, Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resins, prepregs and other fiber-reinforced matrix materials, 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.

Net sales for the quarter were ~~$540.5~~$572.5 million, ~~10.0%~~5.9% greater ~~(10.4%~~(6.6% in constant currency) than the ~~$491.5~~$540.5 million reported for the third quarter of ~~2017.~~ ~~Year to date net sales were 10.3% higher~~2018. The increase in ~~constant currency~~sales for the quarter was driven by strong growth in ~~all markets.~~Space & Defense including sales attributable to the ARC acquisition.

Commercial Aerospace sales of ~~$373.1~~$385.9 million increased ~~5.8% (6.1%~~3.4% (3.6% in constant currency) for the quarter as compared to the third quarter of ~~2017,~~ ~~and increased 8.7% (8.4% in constant currency) for the nine-month period as compared to 2017~~.2018. The third quarter ~~and the nine-month period~~ benefited from increased ~~production rates~~growth for most programs with particularly strong performance for the A320neo and ~~higher composite content on~~ the ~~new narrow body planes.~~B787 tempered by reduced demand from the Boeing 737 MAX program.

Sales to other commercial aerospace, which includes regional and business aircraft customers, were up ~~15% and approximately 30%~~16.8% for the third quarter ~~and first nine months~~ of ~~2018, respectively,~~2019 as compared to ~~2017, reflecting strengthening of~~2018 driven by strong business jet ~~sales following an extended period of softness.~~sales.

Space & Defense sales of ~~$90.4~~$109.8 million increased ~~9.3% (9.7%~~21.5% (22.7% in constant currency) for the quarter as compared to the third quarter of ~~2017.~~2018 including sales attributable to the ARC acquisition. Growth ~~was broad-based across a number of military, rotocraft and space programs.~~ ~~Space & Defense sales for~~in the ~~first nine months of 2018 were $272.2 million, which were 8.6% higher in constant currency than the sales for the first nine months of 2017, driven by the~~F-35 Joint Strike Fighter ~~program.~~(“JSF”) was the primary driver.

Total Industrial sales of ~~$77.0~~$76.8 million for the third quarter of ~~2018 increased 37.0% (38.2%~~2019 were in ~~constant currency) as compared to~~line with the third quarter of ~~2017.~~2018 (an increase of 2.7% in constant currency). Wind energy sales ~~are experiencing a period of substantial growth following lower sales last year as a new generation of composite blades are adopted. Industrial sales for the first nine months of 2018 were $216.3 million or 24.0% higher~~improved 6.9% (10.2% in constant ~~currency than~~currency) compared to the ~~sales for the first nine months of 2017, as wind energy sales have increased more than 50% in constant currency.~~ prior year period.

Gross margin for the third quarter of ~~2018~~2019 was ~~26.5%~~27.6% as compared to ~~27.6%~~26.5% for the third quarter of ~~2017,~~ ~~and 26.4% and 28.0% for the first nine months of~~ 2018, ~~and 2017, respectively. We~~ ~~continued to experience~~as 2018 was negatively impacted by several headwinds ~~related to~~ including acrylonitrile (AN)~~, as an indirect result of increased oil prices,~~ and wind energy resins, related to pollution control measures taken in China, and tariffs. Both periods in 2018 included additional depreciation and amortization, as well as costs related to the startup of the new greenfield site in France.resin pricing.

Selling, general and administrative expenses for the third quarter ~~and first nine months~~ of ~~2018~~2019 were ~~lower in constant currency than~~comparable as a percentage of sales to the prior year ~~periods~~period as we maintained tight cost control. Research and technology expenses for the third quarter ~~and first nine months~~ of ~~2018~~2019 were about ~~19% and 9%~~2% higher ~~respectively, in constant currency~~ than the comparable ~~2017~~2018 period, as we continued to invest in advance composite technology and innovation.

Operating cash flow for the first nine months of ~~2018~~2019 was ~~$278.4~~$277.3 million compared to ~~$308.5~~$278.4 million in ~~2017 as working~~2018. Working capital increased resulting in a cash use of $83.7 million in 2019 as compared to a use of $64.6 million in 2018 ~~as compared to a source of $4.6 million~~reflecting growth in ~~2017.~~the underlying business. For the first nine months of ~~2018,~~2019, capital expenditures were ~~$150.2~~$162.7 million as compared to ~~$221.3~~$150.2 million in the first nine months of ~~2017.~~2018. Free cash flow (defined as cash provided by operating activities less capital expenditures) for the ~~first~~ nine months ~~of 2018~~ended September 30, 2019 was $114.6 million versus $128.2 million ~~versus $87.2 million~~ in ~~2017.~~the comparable period of 2018.

Accrual basis additions to capital expenditures were ~~$133.5~~$160.9 million for the first nine months of ~~2018~~2019 and ~~$218.0~~$133.5 million in ~~2017.~~2018. We expect accrual basis capital expenditures to be in the $170 million to $190 million range for ~~2018.~~2019.

	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended September 30,									Nine Months Ended September 30,
(In millions, except per share data)	2018			2017			% Change			2018			2017			% Change			2019			2018			% Change			2019			2018			% Change
Net sales	$	540.5		$	491.5			10.0	%	$	1,628.1		$	1,461.6			11.4	%	$	572.5		$	540.5			5.9	%	$	1,791.4		$	1,628.1			10.0	%
Net sales change in constant currency								10.4	%								10.3	%								6.6	%								11.2	%
Operating income	$	96.5		$	89.1			8.3	%	$	275.4		$	257.4			7.0	%	$	109.9		$	96.5			13.9	%	$	327.8		$	275.4			19.0	%
As a percentage of net sales		17.9	%		18.1	%					16.9	%		17.6	%					19.2	%		17.9	%					18.3	%		16.9	%
Net income	80.1			69.7				14.9	%	210.5			195.9				7.5	%		80.3		80.1				0.2	%	233.4			210.5				10.9	%
Diluted net income per common share	$	0.91		$	0.76			19.7	%	$	2.35		$	2.13			10.3	%	$	0.93		$	0.91			2.2	%	$	2.71		$	2.35			15.3	%

Non-GAAP measures:
Adjusted net income	$	70.5		$	65.5			7.6	%	$	199.6		$	182.6			9.3	%
Adjusted diluted earnings per share	$	0.80		$	0.71			12.7	%	$	2.23		$	1.98			12.6	%

The Company’s performance measurements include ~~sales measured in constant dollars,~~ net income adjusted for special items and free cash flow, ~~all of~~ which are non-GAAP measures. Management believes these non-GAAP measurements are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results. ~~Special items represent significant charges or credits that are important to understanding Hexcel’s overall operating results in the periods presented. Such~~These non-GAAP measurements are not recognized in accordance with generally accepted accounting principles and should not be viewed as an alternative to a GAAP ~~measures~~measure of performance. The following is a reconciliation from GAAP to non-GAAP amounts.

	Quarter Ended September 30,										Nine Months Ended September 30,
	2019					2018					2019					2018
(In millions, except per diluted share data)	Net Income			Tax Rate %		Net Income			Tax Rate %		Net Income			Tax Rate %		Net Income			Tax Rate %
GAAP net income	$	80.3			18.4	$	80.1			9.1	$	233.4			21.3	$	210.5			16.9
Discrete tax benefits (a)		(3.0	)		3.0		(9.6	)		11.2		(3.0	)		1.0		(10.9	)		4.4
Adjusted net income (non-GAAP)	$	77.3			21.4	$	70.5			20.3	$	230.4			22.3	$	199.6			21.3
Adjusted diluted net income per share (non-GAAP)	$	0.90				$	0.80				$	2.68				$	2.23

(a) The quarter ended September 30, 2019 benefited primarily from tax credits identified during the quarter of $3.0 million. The third quarter of 2018 included discrete benefits of $9.6 million primarily related to a change in accounting method and release of a valuation allowance in a foreign jurisdiction. The nine months ended September 30, 2018 also included a discrete benefit of $1.3 million from the release of reserves for uncertain tax positions.

	Nine Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2018			2017			2019			2018
Net cash provided by operating activities	$	278.4		$	308.5		$	277.3		$	278.4
Less: Capital expenditures		(150.2	)		(221.3	)		(162.7	)		(150.2	)
Free cash flow (Non-GAAP)	$	128.2		$	87.2
Free cash flow (non-GAAP)							$	114.6		$	128.2

The following table summarizes net sales to third-party customers by segment and end market for the three and nine months ended September 30, ~~2018~~2019 and ~~2017:~~2018:

	Quarter Ended September 30,							Nine Months Ended September 30,							Quarter Ended September 30,							Nine Months Ended September 30,
(In millions)	2018		2017		% Change			2018		2017		% Change			2019		2018		% Change			2019		2018		% Change
Consolidated Net Sales	$	540.5	$	491.5		10.0	%	$	1,628.1	$	1,461.6		11.4	%	$	572.5	$	540.5		5.9	%	$	1,791.4	$	1,628.1		10.0	%
Commercial Aerospace		373.1		352.6		5.8	%		1,139.6		1,048.7		8.7	%		385.9		373.1		3.4	%		1,217.9		1,139.6		6.9	%
Space & Defense		90.4		82.7		9.3	%		272.2		247.3		10.1	%		109.8		90.4		21.5	%		329.4		272.2		21.0	%
Industrial		77.0	56.2			37.0	%	216.3		165.6			30.6	%	76.8			77.0		(0.3	)%		244.1	216.3			12.9	%

Composite Materials	$	432.8	$	398.9		8.5	%	$	1,323.2	$	1,183.7		11.8	%	$	448.0	$	432.8		3.5	%	$	1,419.7	$	1,323.2		7.3	%
Commercial Aerospace		285.7		277.1		3.1	%		889.5		820.2		8.4	%		294.5		285.7		3.1	%		941.6		889.5		5.9	%
Space & Defense		70.1		65.6		6.9	%		217.4		197.9		9.9	%		78.9		70.1		12.6	%		236.2		217.4		8.6	%
Industrial		77.0	56.2			37.0	%	216.3		165.6			30.6	%	74.6			77.0		(3.1	)%		241.9	216.3			11.8	%

Engineered Products	$	107.7	$	92.6		16.3	%	$	304.9	$	277.9		9.7	%	$	124.5	$	107.7		15.6	%	$	371.7	$	304.9		21.9	%
Commercial Aerospace	87.4		75.5			15.8	%	250.1		228.5			9.5	%	91.4		87.4			4.6	%	276.3		250.1			10.5	%
Space & Defense	20.3		17.1			18.7	%	54.8		49.4			10.9	%		30.9		20.3		52.2	%		93.2		54.8		70.1	%
Industrial																2.2		—	N/M				2.2		—	N/M

Composite Materials: Net sales of ~~$432.8~~$448.0 million in the third quarter of ~~2018~~2019 increased ~~$33.9~~$15.2 million from the ~~$398.9~~$432.8 million in sales for the prior year quarter, driven by strong growth in ~~wind energy sales in Industrial.~~ Space & Defense from the JSF program. Net sales of $1,419.7 million for the ~~first~~ nine months ~~of 2018~~ended September 30, 2019 increased ~~by 11.8%~~7.3% compared to the same period last year. ~~The increase in~~ Commercial Aerospace ~~for the first nine months of 2018 benefitted~~sales during 2019 benefited from increased production rates and higher composite content on the new ~~narrow body~~narrow-body planes, as well as ~~strong business jet~~ ~~sales. Growth in~~ the ~~F35 Joint Strike Fighter program drove the increase in~~A350 and B787 programs. Space & Defense ~~sales. Wind~~sales primarily benefited from growth in the JSF program. Wind energy sales were up in ~~2018~~2019 as ~~production of~~the transition to new generation blades that are longer with a higher composite ~~content.~~ content started in mid-2018.

Engineered Products: Net sales of ~~$107.7~~$124.5 million in the third quarter of ~~2018~~2019 increased ~~$15.1~~$16.8 million from the ~~$92.6~~$107.7 million for ~~2017. This was attributable to an increase in Commercial Aerospace~~2018. Net sales ~~reflecting strong growth in the A320neo and 737 MAX. The increase~~ of ~~9.7% in net sales to $304.9~~$371.7 million for the first nine months of ~~2018 was driven by~~2019 increased 21.9% primarily reflecting the ARC acquisition and growth ~~in Commercial Aerospace sales.~~from the A320neo.

Commercial Aerospace sales of ~~$373.1~~$385.9 million increased ~~5.8% (6.1%~~3.4% (3.6% in constant currency) for the quarter as compared to the third quarter of ~~2017,~~ ~~and increased 8.7% (8.4% in constant currency) for the nine-month period as compared to 2017~~.2018. The third quarter benefited from increased ~~production rates~~growth for most programs with particularly strong performance for the A320neo and ~~higher composite content on~~B787 tempered by reduced demand from the ~~new narrow body planes.~~ 737MAX. The 6.9% growth for the first nine months of ~~2018~~2019 was driven by ~~the narrow body~~narrow-body build rate increases and the completion of the transition to the Neo and MAX configurations, as well as the A350 and ~~787~~B787 programs.

Sales to other commercial aerospace, which includes regional and business aircraft customers, were up ~~15% and approximately 30%~~16.8% for the third quarter and 9.9% for the first nine months of ~~2018~~2019 as compared to ~~2017, reflecting strengthening of~~2018 driven by strong business jet ~~sales following an extended period of softness.~~sales.

Space & Defense sales of ~~$90.4~~$109.8 million increased ~~9.3% (9.7%~~21.5% (22.7% in constant currency) for the quarter as compared to the third quarter of ~~2017. Growth was broad-based across a number~~2018 and of ~~military, rotocraft and space programs.~~ ~~Space & Defense sales~~$329.4 million increased 21.0% (22.6% in constant currency) for the first nine months of 2019 including sales attributable to the ARC acquisition. Growth in the JSF was the primary driver along with other fixed-wing programs.

Total Industrial sales of $76.8 million for the third quarter of 2019 were in line with the third quarter of 2018 (an increase of 2.7% in constant currency). Wind energy sales improved 6.9% (10.2% in constant currency) compared to the prior year period, a slower rate of growth than recent quarters, as the transition to the new generation of composite blades started in mid-2018. Industrial sales for the nine months ended September 30, 2019 were ~~$272.2~~$244.1 million, which were ~~8.6%~~18.0% higher in constant currency than the sales ~~for the first nine months of 2017, driven by the Joint Strike Fighter program.~~

~~Total Industrial sales of $77.0 million for the third quarter of 2018 increased 37.0% (38.2%~~ in constant currency) as compared to the third quarter of 2017. Wind energy sales are experiencing a period of substantial growth following lower sales last year as a new generation of composite blades are adopted. I~~ndustrial sales for~~ the first nine months of 2018 ~~were $216.3 million, or 24.0% higher~~driven by an almost 40% increase in ~~constant currency, than the sales for the first nine months of 2017, as~~ wind energy ~~sales have increased more than 50% in constant currency.~~ sales.

	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended September 30,									Nine Months Ended September 30,
(In millions)	2018			2017			% Change			2018			2017			% Change			2019			2018			% Change			2019			2018			% Change
Gross margin	$	143.0		$	135.6			5.5	%	$	430.4		$	409.6			5.1	%	$	157.9		$	143.0			10.4	%	$	493.9		$	430.4			14.8	%
Percentage of sales		26.5	%		27.6	%					26.4	%		28.0	%					27.6	%		26.5	%					27.6	%		26.4	%

Gross margin for the third quarter was ~~26.5%~~27.6% compared to ~~27.6%~~26.5% in the third quarter of ~~2017,~~ 2018 and 27.6% and 26.4% ~~and 28.0%~~ for the first nine months of 2019 and 2018, ~~and 2017, respectively~~. We ~~continued to experience~~respectively. The 2018 periods were negatively impacted by several headwinds ~~related to acrylonitrile (AN), as an indirect result of increased oil prices,~~including AN and wind energy resins, related to pollution control measures taken in China, and tariffs. 2018 included higher depreciation and amortization, as well as costs related to the startup of the new greenfield site in France.resin pricing.

	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended September 30,									Nine Months Ended September 30,
(In millions)	2018			2017			% Change			2018			2017			% Change			2019			2018			% Change			2019			2018			% Change
SG&A expense	$	32.6		$	34.7			(6.1	)%	$	114.3		$	115.7			(1.2	)%	$	33.8		$	32.6			3.7	%	$	122.8		$	114.3			7.4	%
Percentage of sales		6.0	%		7.1	%					7.0	%		7.9	%					5.9	%		6.0	%					6.9	%		7.0	%

R&T expense	$	13.9		$	11.8			17.8	%	$	40.7		$	36.5			11.5	%	$	14.2		$	13.9			2.2	%	$	43.3		$	40.7			6.4	%
Percentage of sales		2.6	%		2.4	%					2.5	%		2.5	%					2.5	%		2.6	%					2.4	%		2.5	%

Selling, general and administrative expenses for the third quarter and first nine months of 2019, as a percentage of sales, were comparable to the 2018 ~~were lower in constant currency than the comparable periods in 2017~~levels as we maintained tight cost control. Research and technology expense increased for the third quarter and first nine months of ~~2018 of $13.9 million and $40.7 million, respectively, was about 19% and 9% higher, respectively, in constant currency than the comparable periods of 2017~~2019 as we continue to invest in innovative composite products and solutions to support our customers and next-generation products.

	Quarter Ended September 30,										Nine Months Ended September 30,									Quarter Ended September 30									Nine Months Ended September 30,
(In millions)	2018				2017			% Change			2018			2017			% Change			2019			2018			% Change			2019			2018			% Change
Consolidated operating income		$	96.5		$	89.1			8.3	%	$	275.4		$	257.4			7.0	%	$	109.9		$	96.5			13.9	%	$	327.8		$	275.4			19.0	%
Operating margin			17.9	%		18.1	%					16.9	%		17.6	%					19.2	%		17.9	%					18.3	%		16.9	%
Composite Materials			92.5			90.0			2.8	%		276.6		264.0				4.8	%		100.1			92.5			8.2	%		324.4		276.6				17.3	%
Operating margin			20.6	%		21.7	%					20.0	%		21.4	%					21.2	%		20.6	%					21.9	%		20.0	%
Engineered Products			15.5		12.1				28.1	%		41.3		37.2				11.0	%		20.3		15.5				31.0	%		51.4		41.3				24.5	%
Operating margin			14.4	%		13.1	%					13.5	%		13.4	%					16.3	%		14.4	%					13.8	%		13.5	%
Corporate & Other			(11.5	)		(13.0	)		(11.5	)%		(42.5	)		(43.8	)		(3.0	)%		(10.5	)		(11.5	)		(8.7	)%		(48.0	)		(42.5	)		12.9	%

Operating income for the third quarters of 2019 and 2018 was $109.9 million and ~~2017 was~~ $96.5 million, ~~and $89.1 million,~~ respectively. ~~The impact of exchange rates were not significant for the quarter and nine months ended 2018.~~ Operating income for the first nine months of 2019 and 2018 was $327.8 million and ~~2017 was~~ $275.4 million, respectively. Exchange rates favorably impacted the third quarter of 2019 by approximately 10 basis points and ~~$257.4 million, respectively.~~the first nine months of 2019 by approximately 35 basis points as compared to 2018. Depreciation and amortization expense for the first nine months of ~~2018~~2019 was ~~$14.5~~$16.3 million higher than the comparable period for ~~2017.~~2018.

	Quarter Ended September 30,							Nine Months Ended September 30,							Quarter Ended September 30							Nine Months Ended September 30,
(In millions)	2018		2017		% Change			2018		2017		% Change			2019		2018		% Change			2019		2018		% Change
Interest expense, net	$	10.6	$	7.0		51.4	%	$	27.3	$	20.0		36.5	%	$	11.0	$	10.6		3.8	%	$	34.9	$	27.3		27.8	%

Interest expense for the third quarter and nine months ended September 30, ~~2018~~2019 increased as compared to the same period last year ~~increased~~ primarily due to higher debt levels as ~~we continue to return funds to stockholders with share repurchases and dividends. Interest expense for the nine months ended September 30, 2018 increased over the comparable period for 2017 as~~ a result of ~~an increase in debt levels and~~ ~~an increase in interest rates.~~the ARC acquisition.

	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended September 30						Nine Months Ended September 30,
(In millions)	2018			2017			2018			2017			2019			2018			2019			2018
Income tax expense	$	7.8		$	13.6		$	41.9		$	44.3		$	18.2		$	7.8		$	62.4		$	41.9
Effective tax rate		9.1	%		16.5	%		16.9	%		18.6	%		18.4	%		9.1	%		21.3	%		16.9	%

The effective tax rate for the current quarter was ~~9.1%~~18.4% compared to ~~16.5%~~9.1% for the quarter ended September 30, ~~2017.~~2018 and 21.3% for the first nine months of 2019 compared to 16.9% for the first nine months of 2018. The ~~current~~three months ended September 30, 2019 included a $3.0 million benefit primarily due to tax credits identified in the quarter. The quarter ~~benefitted from~~ended September 30, 2018 included discrete benefits of $9.6 million primarily related to a change in tax accounting method and the release of a valuation allowance in a foreign jurisdiction. The third quarter of 2017 included a non-recurring discrete benefit of $4.2 million resulting from the reversal of reserves for uncertain tax positions. The effective tax rate for the nine months ended September 30, 2018, was 16.9% compared to 18.6% for the nine months ended September 30, 2017. The provision for the nine months ended September 30, 2018 also included a discrete benefit of $1.3 million related to the release of ~~reserves~~a reserve for uncertain tax ~~positions~~. The provision for the nine months ended September 30, 2017, also included nonrecurring discrete benefits of $9.1 million related to the release of a valuation allowance in a foreign jurisdiction. Excluding these discrete benefits, the effective tax rates were 21.3% and 24.2%, respectively. The 2018positions. All periods ~~also reflect the cumulative impact of the reduction of our underlying effective rate to 24% from 25%. Both periods benefitted~~benefited from deductions associated with ~~share-based~~share based compensation payments.

Our underlying estimated effective income tax rate ~~may change by the end of the fiscal year as guidance continues~~is expected to ~~be issued in relation to interpreting the new Act.~~remain at 24%.

Liquidity: As of September 30, ~~2018,~~2019, our total debt, net of cash, was ~~$942.8~~$1,077.5 million, as compared to ~~$749.8~~$924.1 million at December 31, ~~2017.~~2018. The increase in debt in the first nine months of ~~2018~~2019 primarily reflects ~~$282.8 million in share repurchases and dividends of $35.5 million,~~ ~~partially offset by $128.2 million of free cash flow~~. the ARC acquisition. At September 30, ~~2018,~~2019, total borrowings under our ~~$700 million~~$1 billion Senior Unsecured Revolving Credit Facility (“the Facility”) were ~~$235~~$379 million. The Facility agreement permits us to issue letters of credit up to an aggregate amount of ~~$40.0~~$50.0 million. Any outstanding letters of credit reduce the amount available for borrowing under ~~our revolving loan.~~the Facility. As of September 30, ~~2018,~~2019, we had not issued any letters of credit under the Facility, resulting in undrawn availability under the Facility as of ~~September 30, 2018 of $465.0~~$621 million.

The Facility agreement contains financial and other covenants, including, but not limited ~~to,~~customary restrictions on the incurrence of debt by our subsidiaries and the granting of liens, as well as the maintenance of an interest coverage ratio and a leverage ratio. ~~In accordance with~~As defined in the ~~terms of the~~ Facility agreement, we are required to maintain a minimum interest coverage ratio of 3.50 (based on the ratio of EBITDA ~~as defined in the credit agreement,~~ to interest expense) and may not exceed a maximum leverage ratio of ~~3.50~~3.75 (based on the ratio of total debt to EBITDA) ~~throughout the term of the Facility.~~with a step up to 4.25 allowed following certain acquisitions. In addition, the Facility agreement contains other customary terms and conditions such as ~~customary~~ representations and warranties, additional covenants and ~~customary~~ events of default. The conditions and covenants related to the senior notes are less restrictive than those of our Facility. As of September 30, 2018, we were in compliance with all debt covenants and expect to remain in compliance.

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, ~~2018,~~2019, long-term liquidity requirements consist primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until ~~September 2021~~June 2024 when the Facility expires.

Operating Activities: Net cash provided by operating activities was $277.3 million for the first nine months of 2019 and $278.4 million for the comparable 2018 period. The change in working capital was a use of $83.7 million in 2019 as compared to $64.6 million in 2018, driven by growth in the underlying business.

Investing Activities: Net cash used for investing activities was $325.9 million and $150.9 million in the first nine months of 2019 and 2018, ~~as compared to $308.5~~respectively. The 2019 period included $163.2 million for the ARC acquisition. Capital expenditures were $162.7 million and $150.2 million in ~~the first nine months of 2017. In~~2019 and 2018, ~~working capital increased resulting in a cash use of $64.6 million as compared to a source of $4.6 million in 2017.~~

~~Investing Activities:~~ ~~Net cash used for investing activities, primarily for capital expenditures, was $150.9 million and $233.3 million in the first nine months of 2018 and 2017,~~ respectively. ~~During 2018 and 2017 we~~ ~~made various strategic investments in companies to enhance our technology.~~

Financing Activities: Financing activities ~~used $136.8~~provided $64.8 million ~~and generated $1.0 million~~ of ~~net~~ cash in the first nine months of ~~2018~~2019, and ~~2017, respectively.~~were a use of $136.8 million in the same period in 2018. This increase in cash provided was primarily due to amounts borrowed from our Facility to fund the ARC acquisition. We returned ~~$318.3~~$106.8 million to stockholders from stock repurchases and dividends in ~~2018~~2019 compared to ~~$153.3~~$318.3 million in ~~2017.~~2018.

~~On May 7, 2018, our Board gave us authorization to repurchase an additional $500 million of our common stock, of which $460 million remained at September 30, 2018.~~

Financial Obligations and Commitments: As of September 30, ~~2018,~~2019, the current portion of debt included ~~$9.3~~$8.7 million related to the Euro term loan. The next significant scheduled debt maturity will not occur until ~~2021,~~2024, when the Facility matures. Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases.

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, ~~2017.~~2018. Significant changes to our accounting policies subsequent to the filing of our Form 10-K, relate ~~solely~~ to the adoption of Topic ~~606, Revenue from Contracts with Customers,~~842, Leases, as discussed in Notes 1 and 94 to our financial statements.

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.

Our estimate of liability as a ~~PRP~~potentially responsible party and our remaining costs associated with our responsibility to remediate the Lower Passaic River in New Jersey and other sites are accrued in the ~~consolidated balance sheets.~~Condensed Consolidated Balance Sheets. As of September 30, ~~2018,~~2019, our aggregate environmental related accruals were ~~$2.8~~$2.5 million, of which ~~$0.9~~$0.6 million was included in accrued liabilities, with the remainder included in non-current liabilities. As related to certain environmental matters, the accrual was estimated at the low end of a range of possible outcomes since no amount within the range is a better estimate than any other amount. If we had accrued at the high end of the range of possible outcomes, for those sites where we are able to estimate our liability, our accrual would have been approximately $16 million higher. 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, the amount of insurance coverage and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “should”, “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.

Such forward-looking statements include, but are not limited to: (a) the estimates and expectations based on aircraft production rates made publicly available 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 of composite content on new commercial aircraft programs and our share of those requirements; (e) expectations of growth in revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; (f) expectations regarding growth in sales for wind energy, recreation, automotive and other industrial applications;

(g) expectations regarding working capital trends and expenditures; (h) expectations as to the level of capital expenditures and when we will complete the construction of capacity expansions and qualification of new products; (i) expectations regarding our ability to maintain and improve margins as we add new facilities and in view of the current economic environment; (j) expectations regarding the outcome of legal matters or the impact of changes in laws or regulations; (k) our projections regarding our income tax rate and the realizability of net operating loss and tax credit carryforwards; and (l) the anticipated impact of the above factors and various market risks on our expectations of financial results for ~~2018~~2019 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: reductions in sales to any significant customers, particularly Airbus, Boeing or ~~Vestas;~~Vestas, including any reduction in sales to Boeing related to a decrease in production volume of the 737 MAX; 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; inability to install, staff and

qualify necessary capacity or achievement of planned manufacturing improvements; cybersecurity breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic ~~conditions;~~conditions, including but not limited to, the effect of change in global trade policies and the exit of the U.K. from the European Union; work stoppages or other labor disruptions; and the unexpected outcome of legal matters or impact of changes in laws or ~~regulations; and unforeseen vulnerability of our network and systems to interruptions or failures.~~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 the other cautionary statements included in this and other reports we file with the Securities and Exchange Commission. 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, ~~2017.~~2018. We do not undertake an obligation to update our forward-looking statements or risk factors to reflect future events or circumstances, except as otherwise required by law.

There are no material changes in market risk from the information provided in the Company’s ~~2017~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2018.

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of September 30, ~~2018,~~2019, and with the participation of the ~~company's~~Company's management have concluded that these disclosure controls and procedures are 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 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.

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, ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The information required by Item 1 is contained within Note 1314 on pages 1516 through 1618 of this Form 10-Q and is incorporated herein by reference.

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, ~~2017,~~2018, which could materially affect our business, financial condition or future results. With the exception of the below risk factor, ~~there have been~~there were no material changes ~~or additions to those disclosed~~ in the Company’s risk factors from the aforementioned 10-K. In addition, future uncertainties may increase the magnitude of these adverse effects or give rise to additional material risks not now contemplated.

~~Certain~~If we fail to comply with government procurement laws and regulations, we could lose business and be liable for various penalties or sanctions.

We must comply with laws and regulations relating to the formation, administration, and performance of ~~our materials~~U.S. government contracts, including the government security requirements and government export control laws and regulations. In complying with these laws and regulations, we may incur significant costs, and non-compliance may result in the imposition of fines and penalties, including contractual damages. If we fail to comply with these laws and regulations or if a government audit, review, or investigation uncovers improper or illegal activities, we may be subject to the effects of various trade agreements, treaties and tariffs. As a result, our cost for these materials may increase dramatically depending on the circumstances, which could materially impact our gross profit margin. Currently,civil penalties, criminal penalties, or administrative sanctions, including suspension or debarment from contracting with the U.S. Federal Government has altered its policy on certain trade agreements and imposed tariffs on certain goods. This, in turn, may lead to retaliatory tariffs on U.S. goods that could potentially make our products sold from the U.S. more expensive to our non-U.S. customers, in addition to increasing our cost of production. At the present time, it is not possible to predict the outcome this current shift in policy will have on our operations, or the duration of these changes in U.S. trade policy. government.

~~ITEM 5. Other Information~~ITEMS 3, 4, and 5 are not applicable, and therefore have been omitted.

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 ~~hereunto~~thereunto duly authorized.

Delaware		94-1109521
(State of Incorporation)		(I.R.S. Employer Identification No.)

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

~~Emerging growth company~~ ☐		Emerging growth company ☐

Class		Outstanding at October 15, ~~2018~~2019
COMMON STOCK		~~86,095,483~~84,378,114

			Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)

	●•	Condensed Consolidated Balance Sheets — September 30, ~~2018~~2019 and December 31, ~~2017~~2018	3

	●•	Condensed Consolidated Statements of Operations — The three and nine months ended September 30, 2019 and 2018 ~~and 2017~~	4

	●•	Condensed Consolidated Statements of Comprehensive Income — The three and nine months ended September 30, 2019 and 2018 ~~and 2017~~	4

	●•	Condensed Consolidated Statements of Cash Flows — The nine months ended September 30, 2019 and 2018 ~~and 2017~~	5

	●•	Condensed Consolidated Statements of Stockholders’ Equity — The three and nine months ended September 30, 2019 and 2018	6

	•	Notes to Condensed Consolidated Financial Statements	67

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1819

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		2425

ITEM 4.	Controls and Procedures		2425

PART II.	OTHER INFORMATION		2425

ITEM 1.	Legal Proceedings		2425

ITEM 1A.	Risk Factors		2425

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2526

ITEM 6.	Exhibits		2627

	SIGNATURE		28

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1 — July 31, 2018	150,400	$	68.77	150,400	$	551,181,958
August 1 — August 31, 2018	1,330,143		68.79	1,330,143		459,685,198
September 1 — September 30, 2018	—		—	—		—
Total	1,480,543	$	68.79	1,480,543	$	459,685,198(1)

(In millions)
Remainder of 2019	$	3.1
2020		12.6
2021		11.0
2022		9.1
2023		8.5
Thereafter		36.0
Total	$	80.3

Goodwill and Intangible Assets	Composite			Engineered
(In millions)	Materials			Products			Total
Balance at December 31, 2018	$	98.2		$	44.1		$	142.3
Amortization Expense		(1.6	)		(3.8	)		(5.4	)
Additions		—			145.1			145.1
Currency translation adjustments		(2.6	)	—				(2.6	)
Balance at September 30, 2019	$	94.0		$	185.4		$	279.4

	Product
(In millions)	Warranties
Balance as of December 31, 2018	$	4.8
Warranty expense		2.4
Deductions and other		(0.3	)
Balance as of March 31, 2019		6.9
Warranty expense		0.6
Deductions and other		(1.0	)
Balance as of June 30, 2019		6.5
Warranty expense		(0.1	)
Deductions and other		0.2
Balance as of September 30, 2019	$	6.6

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1 – July 31, 2019	22,050	$	83.34	22,050	$	371,757,269
August 1 – August 31, 2019	410,804		80.52	410,804		338,677,974
September 1 – September 30, 2019	251,449		82.87	251,449		317,841,050
Total	684,303	$	81.48	684,303	$	317,841,050 ⁽¹⁾

Exhibit No.		Description

10.1*		~~Amendment to the Offer of Employment Letter between Hexcel Corporation and Nick L. Stanage, dated July 22, 2013.~~

10.2*		~~Amendment to the Officer Severance Agreement between Hexcel Corporation and Patrick Winterlich, dated October 2, 2017.~~

10.3*		~~Amendment to the Officer Severance Agreement between Hexcel Corporation and Gail E. Lehman, dated October 2, 2017.~~

10.4*		~~Amendment to the Amended and Restated Executive Severance Agreement between Hexcel Corporation and Robert G. Hennemuth, dated December 31, 2008.~~

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		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101~~ 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 104		XBRL Instance Document: The ~~following materials from~~XBRL Instance Document does not appear in the ~~Hexcel Corporation Quarterly Report on Form 10-Q for~~Interactive Data File because its XBRL tags are embedded within the ~~quarter ended September 30, 2018, formatted in Extensible Business Reporting Language (XBRL): (i)~~Inline XBRL document. XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase Cover Page Interactive Data File: the Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows,cover page XBRL tags are embedded within the Inline XBRL document and ~~(v) related notes.~~are contained within Exhibit 101.

~~Exhibit No.~~		~~Description~~

10.1*		~~Amendment to the Offer of Employment Letter between Hexcel Corporation and Nick L. Stanage, dated July 22, 2013.~~

10.2*		~~Amendment to the Officer Severance Agreement between Hexcel Corporation and Patrick Winterlich, dated October 2, 2017.~~

10.3*		~~Amendment to the Officer Severance Agreement between Hexcel Corporation and Gail E. Lehman, dated October 2, 2017.~~

10.4*		~~Amendment to the Amended and Restated Executive Severance Agreement between Hexcel Corporation and Robert G. Hennemuth, dated December 31, 2008.~~

~~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		~~Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101~~		The following materials from the Hexcel Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, and (v) related notes.

		Hexcel Corporation

October ~~22, 2018~~21, 2019		/s/ Kimberly Hendricks
(Date)		Kimberly Hendricks
		Senior Vice President, Corporate Controller and
		Chief Accounting Officer