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 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,			March 31,			December 31,
(In millions)	2019			2018			2020			2019
Assets
Current assets:
Cash and cash equivalents	$	47.0		$	32.7		$	329.3		$	64.4
Accounts receivable, net		288.9			260.9			266.7		227.6
Inventories, net		352.2			297.8			354.4		333.1
Contract assets		56.4			50.5			55.9		52.7
Prepaid expenses and other current assets		27.1			33.9			34.0		27.1
Total current assets		771.6			675.8			1,040.3			704.9

Property, plant and equipment		3,014.5			2,902.1			3,071.5			3,075.1
Less accumulated depreciation		(1,090.8	)		(1,025.6	)		(1,156.0	)		(1,132.3	)
Net property, plant and equipment		1,923.7			1,876.5			1,915.5			1,942.8

Goodwill and other intangible assets		279.4			142.3
Goodwill and other intangible assets, net								276.6		280.4
Investments in affiliated companies		45.8			48.7			47.9		46.5
Other assets		134.7			80.8			153.0			154.0
Total assets	$	3,155.2		$	2,824.1		$	3,433.3		$	3,128.6

Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings	$	9.3		$	9.4		$	0.6		$	9.5
Accounts payable		164.5			161.9			151.9		157.6
Accrued compensation and benefits	70.6			75.8				50.7		74.4
Accrued liabilities		102.6			79.6			106.7		81.1
Total current liabilities		347.0			326.7			309.9		322.6

Commitments and contingencies (see Note 14)

Commitments and contingencies (see Note 12)
Long-term debt		1,115.2			947.4			1,389.5		1050.6
Retirement obligations		41.9			42.0			53.1			53.3
Other non-current liabilities		233.3			186.0			259.7			256.0
Total liabilities		1,737.4			1,502.1			2,012.2			1,682.5

Stockholders' equity:
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
Common stock, $0.01 par value, 200.0 shares authorized, 109.5 shares and 109.3 shares issued at March 31, 2020 and December 31, 2019, respectively								1.1			1.1
Additional paid-in capital		826.7			798.3			845.1			829.9
Retained earnings		1,920.0			1,726.5			2,007.1			1,978.9
Accumulated other comprehensive loss		(161.1	)		(108.0	)		(155.3	)		(118.7	)
		2,586.7			2,417.9			2,698.0			2,691.2
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	)
Less – Treasury stock, at cost, 26.1 shares at March 31, 2020 and 25.7 shares at December 31, 2019, respectively.								(1,276.9	)		(1,245.1	)
Total stockholders' equity		1,417.8			1,322.0			1,421.1			1,446.1
Total liabilities and stockholders' equity	$	3,155.2		$	2,824.1		$	3,433.3		$	3,128.6

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

Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income

	(Unaudited)
	Quarter Ended March 31,
(In millions)	2020			2019
Net Income	$	42.4		$	72.2
Currency translation adjustments		(24.8	)		(2.8	)
Net unrealized pension and other benefit actuarial gains (losses) and prior service credits (net of tax)		0.9			(0.4	)
Net unrealized losses on financial instruments (net of tax)		(12.7	)		(2.7	)
Total other comprehensive income		(36.6	)		(5.9	)
Comprehensive income	$	5.8		$	66.3

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

	(Unaudited)						(Unaudited)
	Nine Months Ended September 30,						Three Months Ended March 31,
(In millions)	2019			2018			2020			2019
Cash flows from operating activities
Net income	$	233.4		$	210.5		$	42.4		$	72.2
Reconciliation to net cash provided by operating activities:
Depreciation and amortization		107.1			90.8			35.5			38.7
Amortization related to financing		1.1			1.2			0.3			0.3
Deferred income taxes		9.3			27.5			(0.6	)		4.2
Equity in earnings from affiliated companies		(2.9	)		(4.3	)		(0.5	)		(2.0	)
Stock-based compensation		15.9			14.0			14.4			11.1
Merger and restructuring charges								14.7			-
Merger and restructuring cash payments								(2.1	)		-
Changes in assets and liabilities:
Increase in accounts receivable		(29.5	)		(27.7	)		(42.0	)		(59.4	)
Increase in inventories		(56.8	)		(32.1	)		(26.4	)		(32.3	)
Increase in prepaid expenses and other current assets		(12.5	)		(5.0	)		(7.6	)		(5.8	)
Increase in accounts payable/accrued liabilities		15.1			0.2
(Decrease) increase in accounts payable/accrued liabilities								(18.8	)		19.1
Other – net		(2.9	)		3.3			(0.7	)		(0.2	)
Net cash provided by operating activities		277.3			278.4			8.6			45.9

Cash flows from investing activities
Capital expenditures		(162.7	)		(150.2	)		(27.2	)		(61.1	)
Acquisition of business		(163.2	)		(0.7	)		-			(158.4	)
Net cash used for investing activities		(325.9	)		(150.9	)		(27.2	)		(219.5	)

Cash flows from financing activities
Repayments of Euro term loan		(9.0	)		(4.2	)		(49.9	)		-
Borrowing from senior unsecured credit facility - 2024		478.0		―				392.0			-
Repayment of senior unsecured credit facility - 2024		(99.0	)	―				(12.0	)		-
Borrowing from senior unsecured credit facility - 2021		345.0			662.0			-			289.0
Repayment of senior unsecured credit facility - 2021		(547.0	)		(477.0	)		-			(77.0	)
Repayment of finance lease obligation and other debt, net		(0.6	)		0.3			(0.1	)		(0.2	)
Issuance costs related to senior credit facility		(2.2	)	―
Dividends paid		(39.9	)		(35.5	)		(14.2	)		(12.7	)
Repurchase of stock		(66.9	)		(282.8	)		(24.6	)		(11.2	)
Activity under stock plans		6.4			0.4			(6.4	)		(3.0	)
Net cash provided by (used in) financing activities		64.8			(136.8	)
Net cash provided by financing activities								284.8			184.9
Effect of exchange rate changes on cash and cash equivalents		(1.9	)		(3.6	)		(1.3	)		(0.3	)
Net increase (decrease) in cash and cash equivalents		14.3			(12.9	)
Net increase in cash and cash equivalents								264.9			11.0
Cash and cash equivalents at beginning of period		32.7			60.1			64.4			32.7
Cash and cash equivalents at end of period	$	47.0		$	47.2		$	329.3		$	43.7
Supplemental data:
Accrual basis additions to plant, property and equipment	$	160.9		$	133.5		$	21.9		$	57.5

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

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~

			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					Additional		Accumulated			Other						Total
			Paid-In		Retained			Comprehensive			Treasury			Stockholders’					Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)	Par		Capital		Earnings			Income (Loss)			Stock			Equity			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		$	1.1	$	798.3	$	1,726.5		$	(108.0	)	$	(1,095.9	)	$	1,322.0
Net income	—		—			72.2		—			—				72.2		—		—		72.2			—			—				72.2
Dividends paid on common stock	—		—			(12.7	)	—			—				(12.7	)	—		—			(12.7	)	—			—				(12.7	)
Change in other comprehensive income – net of tax	—		—		—				(5.9	)	—				(5.9	)	—		—		—				(5.9	)	—				(5.9	)
Stock based compensation	—			13.5	—			—				(5.5	)		8.0		—			13.5	—			—				(5.5	)		8.0
Acquisition of treasury stock	—		—		—			—				(11.2	)		(11.2	)	—		—		—			—				(11.2	)		(11.2	)
Balance, March 31, 2019	$	1.1	$	811.8	$	1,786.0		$	(113.9	)	$	(1,112.6	)	$	1,372.4		$	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


																			Additional		Accumulated			Other						Total
																			Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)																	Par		Capital		Earnings			Income (Loss)			Stock			Equity
Balance, December 31, 2019																	$	1.1	$	829.9	$	1,978.9		$	(118.7	)	$	(1,245.1	)	$	1,446.1
Net income	—		—			80.3		—			—				80.3		—		—			42.4		—			—				42.4
Dividends paid on common stock	—		—			(14.4	)	—			—				(14.4	)	—		—			(14.2	)	—			—				(14.2	)
Change in other comprehensive income – net of tax	—		—		—				(43.0	)	—				(43.0	)	—		—		—				(36.6	)	—				(36.6	)
Stock based compensation	—			8.8	—			—				(0.6	)		8.2		—			15.2	—			—				(7.2	)		8.0
Acquisition of treasury stock	—		—		—			—				(55.7	)		(55.7	)	—		—		—			—				(24.6	)		(24.6	)
Balance, September 30, 2019	$	1.1	$	826.7	$	1,920.0		$	(161.1	)	$	(1,168.9	)	$	1,417.8
Balance, March 31, 2020																	$	1.1	$	845.1	$	2,007.1		$	(155.3	)	$	(1,276.9	)	$	1,421.1

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 included in the Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for a discussion of our significant accounting policies. S~~ignificant 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 842,~~ ~~Leases, (“ASC 842”) are discussed below in~~ ~~Recent Accounting Pronouncements~~ ~~as well as in Note 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, cash flows and statement of stockholder’s equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, ~~2018~~2019 was derived from the audited ~~2018~~2019 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 ~~2018~~2019 Annual Report on Form 10-K. Within the Unaudited Condensed Consolidated Balance Sheets as of December 31, 2018, property, plant and equipment and the related accumulated depreciation have been grossed up to conform to the current year presentation.

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

In ~~February~~June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No 2016-13, Financial Instruments – Credit Losses (Topic 326). The Accounting Standards ~~Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). This standard~~Codification 326, Financial Instruments- Credit Losses (“ASC 326”) requires ~~lessees~~a financial asset measured at amortized cost basis to ~~recognize a right of use asset and lease liability on~~be presented at the ~~balance sheet for all leases, with the exception of leases with a duration of one year or less.~~net amount expected to be collected. We adopted the ~~provisions of~~updated, effective January 1, 2020, applying this standard ~~on January 1, 2019, using~~to our Accounts Receivable and Contract Assets. Our high-quality credit review practice and good customer relationships has resulted in accounts receivable write offs to be below 0.5% of our annual sales. Due to the ~~modified transition method which allows companies~~requirements of ASC 326, we have reviewed and refined our bad debt reserve process. Management reviews the average annual charge-off rate along with an assessment of current micro and macro-economic factors to ~~recognize existing leases~~determine any required reserves. If at any time management finds that there are significant changes to any of these contributing factors, the ~~adoption date without requiring comparable presentation. As a result of~~reserve will be adjusted accordingly. In the ~~adoption of this standard~~quarter we ~~recognized approximately $50~~recorded $0.2 million of ~~right~~reserves and there were 0 write-offs against receivables resulting in a reserve balance 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 related liabilities were recorded in current accrued liabilities and other non-current liabilities. See Note 4 - Leases, for more details.$0.8 million at March 31, 2020.

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.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which amends and aims to simplify accounting disclosure requirements regarding a number of topics including: intraperiod tax allocation, accounting for deferred taxes when there are changes in consolidation of certain investments, tax basis step up in an acquisition and the application of effective rate changes during interim periods, amongst other improvements. This standard is effective for fiscal years beginning after December 15, 2020 and allows for early adoption. We are assessing the impact of this new standard on our consolidated balance sheets, statements of operations and our future disclosures.

	Quarter Ended September 30,				Nine Months Ended September 30,				Quarter Ended March 31,
(In millions, except per share data)	2019		2018		2019		2018		2020		2019
Basic net income per common share:
Net income	$	80.3	$	80.1	$	233.4	$	210.5	$	42.4	$	72.2
Weighted average common shares outstanding		85.1		87.0		85.1		88.6		83.7		85.0

Basic net income per common share	$	0.94	$	0.92	$	2.74	$	2.37	$	0.51	$	0.85

Diluted net income per common share:
Net income		80.3		80.1		233.4		210.5		42.4		72.2

Weighted average common shares outstanding — Basic		85.1		87.0		85.1		88.6		83.7		85.0
Plus incremental shares from assumed conversions:
Restricted stock units		0.4		0.5		0.4		0.4		0.3		0.4
Stock options		0.6		0.6		0.6		0.7		0.3		0.6
Weighted average common shares outstanding — Dilutive		86.1		88.1		86.1		89.7		84.3		86.0

Diluted net income per common share	$	0.93	$	0.91	$	2.71	$	2.35	$	0.50	$	0.84

Total shares underlying stock options of ~~0.1~~0.6 million and 0.3 million, were excluded from the computation of diluted net income per share for ~~both~~ the three ~~and nine~~ months ended ~~September 30,~~ March 31, 2020 and 2019, respectively, 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.


(In millions)	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Raw materials	$	182.6	$	131.4	$	175.9	$	154.9
Work in progress		39.7		43.6		42.5		40.9
Finished goods		129.9		122.8		136.0		137.3
Total Inventory	$	352.2	$	297.8	$	354.4	$	333.1

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,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:

	Quarter Ended September 30,					Nine Months Ended September 30,				Quarter Ended March 31,
(In millions)	2019		��	2018		2019		2018		2020		2019
U.S. Nonqualified Defined Benefit Retirement Plans
Service cost	$	0.3		$	0.2	$	0.9	$	0.8	$	0.3	$	0.3
Interest cost		0.2			0.1		0.5		0.4		0.1		0.2
Net amortization	—				0.1	—			0.1		0.1	—
Net periodic benefit cost	$	0.5		$	0.4	$	1.4	$	1.3	$	0.5	$	0.5

(In millions)	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans:
Accrued liabilities	$	0.9	$	0.9	$	1.3	$	1.4
Other non-current liabilities		18.0		17.2		19.3		18.9
	$	18.9	$	18.1	$	20.6	$	20.3

	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended March 31,
(In millions)	2019			2018			2019			2018			2020			2019
European Defined Benefit Retirement Plans
Service cost	$	0.3		$	0.3		$	0.8		$	0.8		$	0.2		$	0.3
Interest cost		1.1			1.2			3.3			3.4			0.9			1.1
Expected return on plan assets		(2.1	)		(2.4	)		(6.5	)		(7.1	)		(1.7	)		(2.2	)
Net amortization and deferral	—			—				0.2			0.2			0.1			0.1
Net periodic benefit credit	$	(0.7	)	$	(0.9	)	$	(2.2	)	$	(2.7	)	$	(0.5	)	$	(0.7	)

(In millions)	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Amounts recognized on the balance sheet for European defined benefit retirement plans:
Other assets	$	47.1	$	42.6	$	44.1	$	45.2

Accrued liabilities		0.3		0.4		1.3		0.6
Other non-current liabilities		18.1		18.8		18.8		18.9
Total accrued benefit	$	18.4	$	19.2	$	20.1	$	19.5

All costs related to our pensions are included as a component of operating income in our ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations.~~operations. For the three month periods ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ amounts unrelated to service costs were a benefit of ~~$0.8~~$0.5 million and ~~$1.0 million, respectively. For the nine months ended September 30, 2019 and 2018, amounts unrelated to the service costs were a benefit of $2.5 million and $3.0~~$0.8 million, respectively.

We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred. We have contributed approximately ~~$0.5~~$0.1 million in the first ~~nine~~three months of ~~2019~~2020 to cover unfunded benefits. We expect to contribute a total of ~~$0.9~~$1.4 million in ~~2019~~2020 to cover unfunded benefits. We contributed ~~$4.4~~$0.2 million to our U.S. non-qualified defined benefit retirement plans during the ~~first nine months of 2018.~~quarter ended March 31, 2019.

We contributed ~~$3.3~~$1.0 million and ~~$3.8~~$1.2 million to our European defined benefit retirement plans during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. We plan to contribute approximately $5.0 million during ~~2019~~2020 to our European plans.

We recorded $0.2 million and $0.3 million of net amortization gain deferral for the quarter ended September 30, 2019 and $0.7 million and $0.9 million for the nine months ended September 30, 2019 and 2018, respectively. There were 0 amounts related to the amortization gain deferral recorded during the three months ended ~~September 30, 2018.~~March 31, 2020 and 2019, respectively. Net periodic benefit costs of our postretirement health care and life insurance benefit plans for the ~~quarter and the nine~~three months ended ~~September 30,~~three months ended March 31, 2020 and 2019 ~~and 2018~~ were immaterial.

(In millions)	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Amounts recognized on the balance sheet:
Accrued liabilities	$	0.5	$	0.5	$	0.5	$	0.5
Other non-current liabilities	2.7		2.8		2.6		2.6
Total accrued benefit	$	3.2	$	3.3	$	3.1	$	3.1

Amounts contributed in connection with our postretirement plans were immaterial for both the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~September 30, 2018.~~March 31, 2019. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute less than $0.5 million in ~~2019~~2020 to cover unfunded benefits.

(In millions)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Current portion of finance lease	$	0.6		$	0.3		$	0.6		$	0.6
Current portion of Euro term loan		8.7			9.1			-			8.9
Current portion of debt		9.3			9.4			0.6			9.5
Non-current portion of Euro term loan		40.3			51.4			-			41.5
Senior unsecured credit facility		379.0			202.0			693.0			313.0
4.7% senior notes --- due 2025		300.0			300.0			300.0			300.0
3.95% senior notes --- due 2027		400.0			400.0			400.0			400.0
Senior notes --- original issue discount		(1.8	)		(2.0	)		(1.7	)		(1.7	)
Senior notes --- deferred financing costs		(4.3	)		(4.8	)		(4.0	)		(4.2	)
Non-current portion of finance lease and other debt		2.0			0.8			2.2			2.0
Long-term debt		1,115.2			947.4			1,389.5			1,050.6
Total debt	$	1,124.5		$	956.8		$	1,390.1		$	1,060.1

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 ismatures in June 2024. The ~~refinancing provides for a reduction in interest costs, as well as less restrictive covenants. The initial~~current 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,~~March 31, 2020, total borrowings under the Facility were ~~$379~~$693 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,~~March 31, 2020, there were 0 issued letters of credit under the Facility, resulting in undrawn availability under the Facility of ~~$621~~$307 million. The weighted average interest rate for the Facility was ~~4.17%~~2.88% for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

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 ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~3.88%~~3.87% inclusive of approximately a 0.25% benefit of treasury locks. Based on quoted prices the fair value of the senior unsecured notes due in 2027 was ~~$415.8~~$408.3 million at ~~September 30, 2019.~~March 31, 2020.

In ~~2016, we entered into a~~January 2020 w€60e used $49.9 million to repay and terminate the Euro 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 approximates ~~fair 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~~three months ended ~~September 30, 2019~~March 31, 2020 was 4.83%. Based on quoted prices, the fair value of these notes was ~~$324.1~~$346.0 million at ~~September 30, 2019.~~March 31, 2020.

~~At September 30, 2019 the Company had~~ i~~nterest~~In January 2020 we terminated €45 million of interest rate swaps ~~related to~~when we repaid the European ~~debt obligations which had~~term loan recognizing a ~~combined notional value~~charge of ~~approximately €44.9~~$0.7 million. These ~~derivatives swapped floating~~interest rate ~~obligations for~~swaps fixed the interest rate ~~obligations~~ at a weighted average ~~rate~~ of ~~0.52% against Euribor in Euros. The~~0.5%. These 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~~were designated as cash flow hedges ~~of the~~to floating rate ~~term loans. To ensure~~bank loans, therefore, the ~~swaps were highly effective, all of the critical terms of the swap matched the terms of the bank loans. The~~ fair value of the ~~interest rate swaps~~agreements was recorded in other assets or as a liability ~~of $0.7 million~~with a corresponding amount to other comprehensive income.~~at September 30, 2019, and$0.5 million at December 31, 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 these notes, we net settled the 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 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~~September 2022, which we account for as cash flow hedges. The aggregate notional amount of these contracts was ~~$439.6~~$418.9 million and ~~$416.5~~$426.9 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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 ~~$16.9 million and $25.7~~$17.3 million were recorded in other comprehensive income (“OCI”) for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and losses of ~~$0.6 million and $13.1~~$3.6 million for the three ~~and nine~~ months ended ~~September 30, 2018.~~March 31, 2019. We classified $0.2 million of the carrying amount of these contracts ~~of $0.3~~as assets ($0.1 million ~~in other assets and $31.6 million in other liabilities,~~ of which ~~$9.7~~was recorded in prepaid expenses and other current assets) and $24.9 million as liabilities ($7.0 million of which is recorded in non-current ~~liabilities,~~liabilities), on the ~~Condensed Consolidated Balance Sheets~~condensed consolidated balance sheets at ~~September 30, 2019~~March 31, 2020, and ~~$1.3~~$3.7 million of the carrying amount of these contracts was classified in assets ($1.3 million of which was recorded in prepaid expenses and other current assets) and $15.5 million as liabilities ($2.9 million of which is in other ~~assets and $15.3 million in other liabilities~~non-current liabilities) at December 31, ~~2018.~~2019. We recognized net losses of ~~$3.8 million and $8.4~~$4.4 million in gross margin during the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and net losses of ~~$0.9 million and net gains of $2.5~~$1.8 million for the three ~~and nine~~ months ended ~~September 30, 2018.~~March 31, 2019.

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 0 credit contingency features in these derivatives. During the quarters ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we recognized net foreign exchange losses of ~~$1.3~~$1.0 million and ~~$0.1~~$0.3 million, respectively, in the ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations. During the nine months ended September 30, 2019 and 2018, we recognized net foreign exchange losses of $1.9 million and $4.1 million, respectively.~~operations. 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 $0.2 million classified in other assets at March 31, 2020, and ~~$0.4~~$0.6 million classified in prepaid expenses and other current assets and less than $0.1 million of current liabilities ~~at September 30, 2019, and $0.3 million in other assets~~ on our consolidated balance sheets at December 31, ~~2018,~~2019, in the ~~Condensed Consolidated Balance Sheets.~~condensed consolidated balance 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 ended March 31, 2020 and ~~nine months ended September 30,~~March 31, 2019 ~~and September 30, 2018~~ was as follows:

	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended March 31,
(In millions)	2019			2018			2019			2018			2020			2019
Unrealized (losses) gains at beginning of period, net of tax	$	(13.8	)	$	(3.1	)	$	(10.6	)	$	8.6
Losses (gains) reclassified to net sales		3.0			0.7			6.5			(1.6	)
Unrealized losses at beginning of period, net of tax													$	(8.4	)	$	(10.6	)
Losses reclassified to net sales														3.3			1.3
Decrease in fair value		(12.9	)		(0.3	)		(19.6	)		(9.7	)		(13.6	)		(2.1	)
Unrealized losses at end of period, net of tax	$	(23.7	)	$	(2.7	)	$	(23.7	)	$	(2.7	)	$	(18.7	)	$	(11.4	)

Unrealized losses of ~~$16.3~~$17.8 million recorded in accumulated other comprehensive loss, ~~net~~less taxes of ~~tax of $5.2~~$4.3 million, as of ~~September 30, 2019,~~March 31, 2020, are expected to be reclassified into earnings over the next twelve months as 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,~~March 31, 2020, we had commodity swap agreements with a notional value of ~~$20.1~~$20.2 million. The swaps mature monthly through ~~September 2021.~~March 2022. 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~~$8.9 million ($1.7 million of which is in other non-current liabilities) at ~~September 30,~~March 31, 2020, and a liability of $5.4 million ($1.1 million of which is in other non-current liabilities) at December 31, 2019.

The effective tax rate was ~~18.4%~~21.9% compared to ~~9.1%~~22.7% for the ~~quarter~~quarters ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The current quarter 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 effective tax rate for the nine months ended September 30, 2019 and 2018 was 21.3% and 16.9%, respectively, as the 2018 period also included a $1.3 million discrete benefit related to the release of reserves for uncertain tax positions. Excluding these discrete benefits the effective tax rates were 22.3% and 21.3%. AllBoth periods benefited from deductions associated with ~~share based~~share-based compensation payments. Our underlying estimated effective income tax rate is expected to remain at ~~24%.~~23% for the year.

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 0 assets or liabilities that utilize Level 1 inputs. However, we have derivative instruments classified as liabilities and assets which utilize Level 2 inputs, and 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 ~~$0.5~~$0.4 million and ~~$37.3~~$33.8 million and $4.3 million and $21.7 million, respectively, at ~~September 30,~~March 31, 2020 and December 31, 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 Sheets.~~condensed consolidated balance sheets.

Below is a summary of valuation techniques for all Level 2 financial assets and liabilities:

Counterparties to the above contracts are highly rated financial institutions,NaN of which experienced any significant downgrades in the quarter ended ~~September 30, 2019~~March 31, 2020 that would reduce the receivable amount owed, if any, to the Company.

Liabilities classified as Level 3 — At March 31, 2020 we have a liability for ~~$3.1~~$3.2 million, which represents contingent consideration that was recognized in connection with the Company’s Oxford Performance Materials, Inc. acquisition. This amount was estimated based on certain contractual stipulations which 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~~There were no payments and the amount of interest related to this liability accreted was not material during the ~~quarter and nine~~three months ended ~~September 30, 2019 was not material.~~March 31, 2020.

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. In instances where our customers acquire our goods related to government contracts, the contracts are typically subject to terms similar, or equal to, the Federal Acquisition Regulation Part 52.249-2. This regulation contains a termination for convenience clause (“T for C”), which requires that the customer pay for the cost of both the finished and unfinished goods at the time of cancellation plus a reasonable profit.

We recognize revenue over time for those agreements that have T for C, and where the products being produced have no alternative use. As our production cycle is typically six months or less, it is expected that goods related to the revenue recognized over time will be shipped and billed within the next twelve months. Less than half of our agreements contain provisions which would require revenue to be recognized over time.

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, 2019~~March 31, 2020 and ~~2018:~~2019:

	Quarter Ended September 30,				Nine Months Ended September 30,				Quarter Ended March 31,
(In millions)	2019		2018		2019		2018		2020		2019
Consolidated Net Sales	$	572.5	$	540.5	$	1,791.4	$	1,628.1	$	541.0	$	609.9
Commercial Aerospace	385.9		373.1			1,217.9		1,139.6	362.9		415.5
Space & Defense		109.8		90.4		329.4		272.2		111.6		107.8
Industrial	76.8			77.0	244.1		216.3		66.5			86.6

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~~three months ended ~~September 30, 2019~~March 31, 2020 is as follows:

Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional.

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 quarter and ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:

	(Unaudited)									(Unaudited)
	Composite		Engineered		Corporate &					Composite		Engineered		Corporate &
(In millions)	Materials		Products		Other (a)			Total		Materials		Products		Other (a)			Total
Third Quarter 2019
First Quarter 2020
Net sales to external customers										$	438.5	$	102.5	$	—		$	541.0
Intersegment sales											24.8	0.5			(25.3	)		—
Total sales										$	463.3	$	103.0	$	(25.3	)	$	541.0
Other operating expense											0.6		0.3		13.8			14.7
Operating income											91.5		6.5		(32.3	)		65.7
Depreciation and amortization											31.8		3.7		—			35.5
Stock-based compensation											4.7		1.2		8.5			14.4
Accrual basis additions to capital expenditures											20.2		1.7		—			21.9

First Quarter 2019
Net sales to external customers	$	448.0	$	124.5	$	—		$	572.5	$	487.7	$	122.2	$	—		$	609.9
Intersegment sales		23.3	—			(23.3	)		—		19.2		0.1		(19.3	)		—
Total sales	$	471.3	$	124.5	$	(23.3	)	$	572.5	$	506.9	$	122.3	$	(19.3	)	$	609.9
Operating income		100.1		20.3		(10.5	)		109.9		112.5		14.8		(24.5	)		102.8
Depreciation and amortization		30.7		3.7		—			34.4		34.9		3.8		—			38.7
Stock-based compensation		1.2		0.2		1.0			2.4		4.1		0.8		6.2			11.1
Accrual basis additions to capital expenditures		51.0		2.3		—			53.3		56.8		0.7		—			57.5

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

Nine Months Ended September 30, 2019
Net sales to external customers	$	1,419.7	$	371.7	$	—		$	1,791.4
Intersegment sales		64.0		0.1		(64.1	)		—
Total sales	$	1,483.7	$	371.8	$	(64.1	)	$	1,791.4
Operating income		324.4		51.4		(48.0	)		327.8
Depreciation and amortization		95.7		11.3		0.1			107.1
Stock-based compensation		6.4		1.4		8.1			15.9
Accrual basis additions to capital expenditures		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
Intersegment sales		56.7		—		(56.7	)		—
Total sales	$	1,379.9	$	304.9	$	(56.7	)	$	1,628.1
Operating income		276.6		41.3		(42.5	)		275.4
Depreciation and amortization		83.9		6.8		0.1			90.8
Stock-based compensation		5.7		1.0		7.3			14.0
Accrual basis additions to capital expenditures		130.1		3.4		—			133.5

Goodwill and Intangible Assets	Composite			Engineered						Composite			Engineered
(In millions)	Materials			Products			Total			Materials			Products			Total
Balance at December 31, 2018	$	98.2		$	44.1		$	142.3
Balance at December 31, 2019										$	96.2		$	184.2		$	280.4
Amortization Expense		(1.6	)		(3.8	)		(5.4	)		(0.5	)		(1.3	)		(1.8	)
Additions		—			145.1			145.1
Currency translation adjustments		(2.6	)	—				(2.6	)		(2.0	)	—				(2.0	)
Balance at September 30, 2019	$	94.0		$	185.4		$	279.4
Balance at March 31, 2020										$	93.7		$	182.9		$	276.6

~~The addition to goodwill and intangible assets is due to the acquisition of ARC Technologies LLC, discussed in Note 13.~~ At ~~September 30, 2019,~~March 31, 2020, the balance of goodwill and intangible assets was ~~$187.8~~$188.3 million and ~~$91.6~~$88.3 million, respectively. ~~NaN impairments have been recorded against these amounts.~~During the first quarter of 2020 the Company determined that the economic uncertainty caused by the novel strain of coronavirus (“COVID-19”) pandemic was a trigger for an impairment review of goodwill. As a result of management’s review, we determined that it was not more likely than not that there was impairment.

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, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:

(In millions)	Unrecognized Net 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, 2018	$	(15.4	)	$	(5.8	)	$	(86.8	)	$	(108.0	)
Balance at December 31, 2019													$	(22.4	)	$	(6.9	)	$	(89.4	)	$	(118.7	)
Other comprehensive loss before reclassifications		0.6			(23.2	)		(37.3	)		(59.9	)		1.0			(17.3	)		(24.8	)		(41.1	)
Amounts reclassified from accumulated other comprehensive loss		(0.6	)		7.4		—				6.8			(0.1	)		4.6		—				4.5
Other comprehensive loss	—				(15.8	)		(37.3	)		(53.1	)		0.9			(12.7	)		(24.8	)		(36.6	)
Balance at September 30, 2019	$	(15.4	)	$	(21.6	)	$	(124.1	)	$	(161.1	)
Balance at March 31, 2020													$	(21.5	)	$	(19.6	)	$	(114.2	)	$	(155.3	)

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, 2019,~~March 31, 2020, were $0.2 ~~million with no material tax impact and $0.8~~ million less taxes of ~~$0.2 million, respectively.~~$0.1 million. 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, 2019~~March 31, 2020 were net losses of ~~$3.8~~$4.4 million less taxes of ~~$0.9~~$1.1 million, ~~and $8.4 million less taxes of $1.9 million, respectively,~~for those related to foreign currency forward exchange contracts and ~~$0.8~~$1.3 million less taxes of ~~$0.2~~$0.3 million, ~~and $2.4~~related to commodity swaps. We also recorded net losses of $0.4 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 three and nine month periods ended September 30, 2019, respectively.~~ swaps.

~~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. While it is impossible to predict the ultimate resolution of litigation, investigations and claims asserted against us, we believe, based upon our examination of currently available information, our experience to date, and advice from legal counsel, that, after taking into account our existing insurance coverage and amounts already provided for, the currently pending legal proceedings against us will not have a material adverse impact on our ~~Condensed Consolidated Statements~~consolidated results of ~~Operations, Balance Sheets~~operations, financial position or ~~Cash Flows.~~cash flows.

We have been named as a potentially responsible party (“PRP”) with respect to 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 the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) allows for joint and several liability in certain circumstances, we could be responsible for all remediation costs at such sites, even if we are one of many PRPs. We believe, based on the amount and nature of our waste, and the number of other financially viable PRPs, that our liability in connection with such environmental matters will not be ~~material.~~material.

Hexcel together with approximately 48 other PRPs that comprise the Lower Passaic Cooperating Parties Group (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 of environmental conditions of a 17-mile stretch of the Passaic River 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 Lower Passaic River at an expected cost ranging from $0.97 billion to $2.07 billion. This estimate does not include any costs related to a future remedy for the upper nine miles of the Lower Passaic River. In August 2017, the EPA appointed an independent third party allocation expert to make recommendations on the relative liability of approximately 120 identified non-government ~~PRP’s, which~~PRP’s. The allocation is ~~not~~ expected to be completed ~~until 2021.~~by the end of 2020.

In October 2016, pursuant to a settlement agreement with the EPA, Occidental Chemical Corporation (“OCC”), one of the PRPs, commenced performance of the remedial design required by the ROD, 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 contribution under CERCLA related to the Lower Passaic River. OnIn July ~~31,~~ 2019, the court ~~dismissed certain of OCC’s cost-recovery~~granted in part and denied in part the defendants’ motion to dismiss. Discovery for the remaining 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.is ongoing. We do not know whether this litigation will impact the EPA’s allocation process or the ultimate outcome of the matter.

The accrual was approximately $2.0 million as of ~~September 30, 2019~~March 31, 2020 and ~~$2.1 million at~~ December 31, ~~2018.~~2019. Given the uncertainty associated with the many elements of the Superfund process for the Lower Passaic River, the amounts accrued may not be indicative of the amounts for which we will ultimately be 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 to Hexcel either ~~1.25%~~1.2% or 2.18% of the waste tonnage (dependent on the specific location within the Omega Chemical Site) sent to the 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 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 $0.3 million at ~~September 30, 2019~~March 31, 2020 and at December 31, ~~2018.~~2019.

Our estimate of liability as a PRP and our remaining costs associated with our responsibility to remediate the Lower Passaic River and other sites are accrued in the Condensed Consolidated Balance Sheets. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, our aggregate environmental related accruals were ~~$2.5~~$2.7 million and ~~$2.7~~$2.5 million, respectively, of which ~~$0.6~~$0.8 million and ~~$0.8~~$0.6 million, respectively, was included in current other accrued liabilities with the remainder included in other non-current liabilities. As related to certain environmental matters the accrual was estimated at the low end of a range of possible outcomes since 0 amount within the range is a better estimate than any other amount. If we had accrued, 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 at ~~September 30,~~March 31, 2020 and December 31, 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 and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.

We provide standard assurance-type warranties for our products, which cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Warranty expense for the ~~nine months~~quarter ended ~~September 30, 2019,~~March 31, 2020, and accrued warranty cost, included in ~~“accrued~~“other accrued liabilities” in the ~~Condensed Consolidated Balance Sheets~~condensed consolidated balance sheets at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, were as follows:

	Product			Product
(In millions)	Warranties			Warranties
Balance as of December 31, 2018	$	4.8
Balance as of December 31, 2019				$	5.5
Warranty expense		2.4			1.3
Deductions and other		(0.3	)		(2.3	)
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
Balance as of March 31, 2020				$	4.5

In 2020, other operating expense consisted of $14.7 million of costs primarily related to the terminated merger agreement with Woodward, Inc.

As part of the Company’s response to the impact of the COVID-19 pandemic on its business, the Company is taking the following cost reduction measures: temporary salary reductions and unpaid furloughs for most salaried employees, including reducing the base salary of our Chairman, Chief Executive Officer and President by 50% and our other executive officers by 30%, reducing retainer fees for our non-employee directors by 50%, and suspending the Company’s 401(k) match, employee stock purchase plan, dividend payments and stock repurchases until further notice. Also, in furtherance of its objectives to reduce costs, the Company is targeting a 30% reduction in labor costs to be implemented on a rolling basis beginning in the second quarter of 2020. The Company is still developing this plan, and therefore, it cannot reasonably estimate restructuring costs relating to termination benefits at this time. The Company continues to analyze its cost structure and may implement additional cost reduction measures as may be necessary due to the on-going economic challenges resulting from the COVID-19 pandemic.

On January 12, 2020, we announced that we had entered into an agreement and plan of merger (the “Merger Agreement”) with Woodward, Inc. (“Woodward”), which provided for the combination of Hexcel and Woodward in an all stock merger of equals (the “Merger”). In response to the impact of the COVID-19 pandemic, on April 5, 2020, Hexcel and Woodward entered into an agreement to terminate the Merger Agreement.

On April 6, 2020, the Company declared a dividend of 1 preferred share purchase right (a “right”) for each outstanding share of the Company’s common stock and adopted a stockholder rights plan, as set forth in the rights agreement entered into as of April 6, 2020, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The dividend was payable on April 16, 2020 to stockholders of record of the Company’s common stock on such date. In general, the rights plan works by imposing a significant penalty upon any person or group which acquires 15% or more of the outstanding common stock without the approval of the board. If the rights become exercisable, each right will allow its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock for $150.00. This portion of a preferred share will give the stockholder approximately the same dividend, voting and liquidation rights as would one share of common stock. The rights will not be exercisable until ten days after the public announcement that a person or group has become an “acquiring person” (as defined in the rights agreement) by obtaining beneficial ownership of 15% or more of the outstanding common stock. Prior to exercise, the right does not give its holder any dividend, voting, or liquidation rights. The rights will expire on April 6, 2021.

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, radio frequency / electromagnetic interference (“RF/~~EMI~~ 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.

On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak a pandemic. The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

Our company is a sole provider for many programs, including critical defense programs. Consistent with national guidelines and with state and local orders to date, we currently continue to operate across our footprint. Notwithstanding our continued operations, COVID-19 has begun to have and may have further negative impacts on our operations, supply chain, transportation networks and customers all of which may compress our margins, even after the preventative and precautionary measures that we, other businesses and governments are taking. The COVID-19 outbreak is a widespread public health crisis that is adversely affecting the economies and financial markets of many countries. The resulting economic downturn has, and could for an extended period of time, adversely affect demand for our products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for our products, services and raw materials. The progression of the pandemic could also continue to negatively impact our business or results of operations through the temporary closure of our operating locations or those of our customers or suppliers.

In the first quarter of 2020, we began to see the impacts of COVID-19 on our markets and operations including significant decreases in air traffic, temporary shutdowns of our customers’ and suppliers’ facilities and decreased demand from our customers. In response, we are in the process of taking certain mitigating actions including reductions in workforce, compensation and benefits, and the suspension of dividend payments and stock repurchases. The extent to which COVID-19 will adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. While we expect the pandemic to continue to negatively impact our results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact to us cannot be reasonably estimated at this time.

Net sales for the quarter were ~~$572.5~~$541.0 million, ~~5.9% greater (6.6%~~11.3% lower (11.0% in constant currency) than the ~~$540.5~~$609.9 million reported for the ~~third~~first quarter of ~~2018. The increase~~2019. Declines in demand in the Commercial Aerospace and Industrial markets drove the decrease in sales for the ~~quarter was driven by strong growth in Space & Defense including sales attributable to the ARC acquisition.~~quarter.

Commercial Aerospace sales of ~~$385.9~~$362.9 million ~~increased 3.4% (3.6%~~decreased 12.7% (12.7% in constant currency) for the quarter as compared to the ~~third~~first quarter of ~~2018. The third quarter benefited from increased growth~~2019. Lower sales for ~~most programs with particularly strong performance for the A320neo and the B787 tempered by reduced demand from~~ the Boeing 737 MAX ~~program.~~was the largest contributor year over year, followed by the end of the A380 program, partially offset by higher sales year over year for the Boeing 787 and 777X programs

Sales to other commercial aerospace, which includes regional and business aircraft customers, were up ~~16.8%~~3.1% for the ~~third~~first quarter of ~~2019~~2020 as compared to ~~2018 driven by strong business jet sales.~~2019.

Space & Defense sales of ~~$109.8~~$111.6 million increased ~~21.5% (22.7%~~3.5% (4.1% in constant currency) for the quarter as compared to the ~~third~~first quarter of ~~2018 including sales attributable to~~2019. Rotorcraft, particularly the ~~ARC acquisition. Growth in~~Black Hawk program, and a number of Space programs drove the ~~F-35 Joint Strike Fighter (“JSF”) was the primary driver.~~increase.

period primarily due to temporary plant closures in China and Austria arising from the COVID-19 pandemic. Both of these facilities have reopened, but are operating with some ongoing labor access constraints.

Gross margin for the ~~third~~first quarter of 2020 decreased to 26.0% as compared to 27.4% for the first quarter of 2019 ~~was 27.6% as compared~~primarily related to ~~26.5% for~~ the ~~third quarter of 2018, as 2018 was negatively impacted by several headwinds including~~ ~~acrylonitrile (AN) and wind energy resin pricing.~~

Selling, general and administrative ~~expenses for the third quarter of 2019 were comparable as a percentage of sales to the prior year period as we maintained tight cost control. Research~~and research and technology expenses for the ~~third~~first quarter of ~~2019~~2020 were ~~about 2% higher~~lower than the ~~comparable 2018~~prior year period, ~~as we continued~~reflecting tight cost control.

Other operating expense of $14.7 million was primarily related to ~~invest~~professional fees incurred in ~~advance composite technology and innovation.~~connection with the Merger.

Operating cash flow for the first ~~nine~~three months of ~~2019~~2020 was ~~$277.3~~$8.6 million compared to ~~$278.4~~$45.9 million in ~~2018.~~2019 on lower earnings and higher working capital. Working capital increased resulting in a cash use of ~~$83.7~~$94.8 million in ~~2019~~2020 as compared to ~~a use of $64.6~~$78.4 million in ~~2018 reflecting growth in the underlying business.~~2019. For the first ~~nine~~three months of ~~2019,~~2020, capital expenditures were ~~$162.7~~$27.2 million as compared to ~~$150.2~~$61.1 million in the first ~~nine~~three months of ~~2018.~~2019. Free cash flow (defined as cash provided by operating activities less capital expenditures) for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$114.6~~a use of $18.6 million versus ~~$128.2~~$15.2 million in the comparable period of ~~2018.~~2019.

Accrual basis additions to capital expenditures were ~~$160.9~~$21.9 million for the first ~~nine~~three months of ~~2019~~2020 and ~~$133.5~~$57.5 million in ~~2018. We expect accrual basis capital expenditures to be in the $170 million to $190 million range for~~ 2019.

	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended March 31,
(In millions, except per share data)	2019			2018			% Change			2019			2018			% Change			2020			2019			% Change
Net sales	$	572.5		$	540.5			5.9	%	$	1,791.4		$	1,628.1			10.0	%	$	541.0		$	609.9			(11.3	)%
Net sales change in constant currency								6.6	%								11.2	%								(11.0	)%
Operating income	$	109.9		$	96.5			13.9	%	$	327.8		$	275.4			19.0	%	$	65.7		$	102.8			(36.1	)%
As a percentage of net sales		19.2	%		17.9	%					18.3	%		16.9	%					12.1	%		16.9	%
Net income		80.3		80.1				0.2	%	233.4			210.5				10.9	%		42.4		72.2				(41.3	)%
Diluted net income per common share	$	0.93		$	0.91			2.2	%	$	2.71		$	2.35			15.3	%	$	0.50		$	0.84			(40.1	)%

The ~~Company’s performance measurements include~~Company uses non-GAAP financial measures, including sales and expenses measured in constant dollars (prior year sales and expenses measured at current year exchange rates); operating income, net income and earnings per share adjusted for ~~special~~ items included in operating expense and non-operating expenses; and free cash ~~flow, which are non-GAAP measures.~~flow. Management believes these non-GAAP measurements are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating ~~results.~~results and comparisons to prior periods. These adjustments represent significant charges or credits that we believe are important to an understanding of Hexcel’s overall operating results in the periods presented. Such non-GAAP measurements are not ~~recognized~~determined in accordance with generally accepted accounting principles and should not be viewed in isolation or as an alternative to aor substitutes for GAAP ~~measure~~measures of performance. ~~The following is a reconciliation from GAAP~~Our calculation of these measures may not be comparable to ~~non-GAAP amounts.~~similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance. Reconciliations to adjusted operating income, adjusted net income, adjusted diluted net income per share and free cash flow are provided below.

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.

	Operating Income
	Quarter Ended March 31,
(In millions)	2020		2019
GAAP operating income	$	65.7		$	102.8
Other operating expense (a)		14.7			—
Adjusted operating income (non-GAAP)	$	80.4		$	102.8

(a) The quarter ended March 31, 2020 includes costs related to the Merger.

The following table summarizes net sales to third-party customers by segment and end market for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

	Quarter Ended September 30,							Nine Months Ended September 30,							Quarter Ended March 31,
(In millions)	2019		2018		% Change			2019		2018		% Change			2020		2019		% Change
Consolidated Net Sales	$	572.5	$	540.5		5.9	%	$	1,791.4	$	1,628.1		10.0	%	$	541.0	$	609.9		(11.3	)%
Commercial Aerospace		385.9		373.1		3.4	%		1,217.9		1,139.6		6.9	%		362.9		415.5		(12.7	)%
Space & Defense		109.8		90.4		21.5	%		329.4		272.2		21.0	%		111.6		107.8		3.5	%
Industrial	76.8			77.0		(0.3	)%		244.1	216.3			12.9	%	66.5			86.6		(23.2	)%

Composite Materials	$	448.0	$	432.8		3.5	%	$	1,419.7	$	1,323.2		7.3	%	$	438.5	$	487.7		(10.1	)%
Commercial Aerospace		294.5		285.7		3.1	%		941.6		889.5		5.9	%		300.2		323.4		(7.2	)%
Space & Defense		78.9		70.1		12.6	%		236.2		217.4		8.6	%		73.2		77.7		(5.8	)%
Industrial	74.6			77.0		(3.1	)%		241.9	216.3			11.8	%	65.1			86.6		(24.8	)%

Engineered Products	$	124.5	$	107.7		15.6	%	$	371.7	$	304.9		21.9	%	$	102.5	$	122.2		(16.1	)%
Commercial Aerospace	91.4		87.4			4.6	%	276.3		250.1			10.5	%	62.7		92.1			(31.9	)%
Space & Defense		30.9		20.3		52.2	%		93.2		54.8		70.1	%		38.4		30.1		27.6	%
Industrial		2.2		—	N/M				2.2		—	N/M				1.4		—	N/M

Composite Materials: Net sales of ~~$448.0~~$438.5 million in the ~~third~~first quarter of ~~2019 increased $15.2~~2020 decreased $49.2 million from the ~~$432.8~~$487.7 million in sales for the prior year quarter, driven by ~~strong growth in Space & Defense from the JSF program. Net sales of $1,419.7 million for the nine months ended September 30, 2019 increased 7.3% compared to the same period last year.~~declines across all markets. Commercial Aerospace sales ~~during 2019 benefited from increased production rates~~reflect lower sales related to the 737 MAX and ~~higher composite content on~~ the ~~new narrow-body planes, as well as~~end of the ~~A350~~A380 program partially offset by increases in the Boeing 787 and ~~B787~~777X programs. The decline in Space & Defense sales primarily ~~benefited from growth~~related to lower military helicopter and aircraft structure sales partially offset by higher space sales. The decline in ~~the JSF program.~~ Wind energy sales ~~were up~~primarily related to temporary plant closures in ~~2019 as~~China and Austria arising from the ~~transition to new generation blades that are longer with a higher composite content started in mid-2018.~~ COVID-19 pandemic.

Engineered Products: Net sales of ~~$124.5~~$102.5 million in the ~~third~~first quarter of 2019 ~~increased $16.8~~decreased $19.7 million from the ~~$107.7~~$122.2 million for ~~2018. Net~~2019, primarily reflecting lower sales ~~of $371.7 million~~ for the ~~first nine months of 2019 increased 21.9% primarily reflecting~~Boeing 737 MAX. The increase in Space & Defense sales reflects the ~~ARC acquisition and~~ growth ~~from~~in the ~~A320neo.~~Black Hawk program.

Commercial Aerospace sales of ~~$385.9~~$362.9 million ~~increased 3.4% (3.6%~~decreased 12.7% (12.7% in constant currency) for the quarter as compared to the ~~third~~first quarter of ~~2018. The third quarter benefited from increased growth for most programs with particularly strong performance~~2019. Lower sales for the ~~A320neo and B787 tempered~~Boeing 737 MAX was the largest contributor year over year, followed by ~~reduced demand from~~ the ~~737MAX. The 6.9% growth~~end of the A380 program, partially offset by higher sales year over year for the ~~first nine months of 2019 was driven by narrow-body build rate increases~~Boeing 787 and ~~the completion of the transition to the Neo and MAX configurations, as well as the A350 and B787~~777X programs.

Sales to other commercial aerospace, which includes regional and business aircraft customers, were up ~~16.8% for the third quarter and 9.9%~~3.1% for the first ~~nine months~~quarter of ~~2019~~2020 as compared to ~~2018 driven by strong business jet sales.~~2019.

Space & Defense sales of ~~$109.8~~$111.6 million increased ~~21.5% (22.7%~~3.5% (4.1% in constant currency) for the quarter as compared to the ~~third~~first quarter of ~~2018~~2019. Rotorcraft, particularly the Black Hawk program, and a number of ~~$329.4 million increased 21.0% (22.6% in constant currency) for~~Space programs drove 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.~~increase.

Total Industrial sales of ~~$76.8~~$66.5 million for the ~~third~~first quarter of ~~2019~~2020 were ~~in line with the third quarter of 2018 (an increase of 2.7%~~down 23.2% (21.6% in constant currency). as compared to the 2019 period. Wind energy sales ~~improved 6.9% (10.2%~~were down 23.2% (21.5% in constant currency) compared to the prior year period ~~a slower rate of growth than recent quarters, as~~primarily related to temporary plant closures in China and Austria arising from the ~~transition to~~ ~~the new generation of composite blades~~ started in mid-2018. Industrial sales for the nine months ended September 30, 2019 were $244.1 million, which were 18.0% higher in constant currency than the sales in the first nine months of 2018 driven by an almost 40% increase in wind energy sales.COVID-19 pandemic.

	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended March 31,
(In millions)	2019			2018			% Change			2019			2018			% Change			2020			2019			% Change
Gross margin	$	157.9		$	143.0			10.4	%	$	493.9		$	430.4			14.8	%	$	140.9		$	167.2			(15.7	)%
Percentage of sales		27.6	%		26.5	%					27.6	%		26.4	%					26.0	%		27.4	%

Gross margin for the ~~third~~first quarter ~~was 27.6%~~of 2020 declined to 26.0% compared to ~~26.5%~~27.4% in the ~~third~~first quarter of ~~2018~~2019, as we experienced volume declines in the Commercial Aerospace and ~~27.6% and 26.4% for the first nine months of 2019 and 2018, respectively. The 2018 periods were negatively impacted by several headwinds including AN and wind energy resin pricing.~~Industrial markets.

	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended March 31,
(In millions)	2019			2018			% Change			2019			2018			% Change			2020			2019			% Change
SG&A expense	$	33.8		$	32.6			3.7	%	$	122.8		$	114.3			7.4	%	$	46.5		$	49.5			(6.1	)%
Percentage of sales		5.9	%		6.0	%					6.9	%		7.0	%					8.6	%		8.1	%

R&T expense	$	14.2		$	13.9			2.2	%	$	43.3		$	40.7			6.4	%	$	14.0		$	14.9			(6.0	)%
Percentage of sales		2.5	%		2.6	%					2.4	%		2.5	%					2.6	%		2.4	%

Selling, general and administrative and research and technology expenses for the ~~third~~first quarter ~~and first nine months~~ of ~~2019, as a percentage of sales,~~2020 were ~~comparable to~~lower than the ~~2018 levels as we maintained~~prior year period, reflecting tight cost control. Research and technology expense increased for the third quarter and first nine months of 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 March 31
(In millions)	2019			2018			% Change			2019			2018			% Change			2020			2019			% Change
Consolidated operating income	$	109.9		$	96.5			13.9	%	$	327.8		$	275.4			19.0	%	$	65.7		$	102.8			(36.1	)%
Operating margin		19.2	%		17.9	%					18.3	%		16.9	%					12.1	%		16.9	%
Composite Materials		100.1			92.5			8.2	%		324.4		276.6				17.3	%		91.5			112.5			(18.7	)%
Operating margin		21.2	%		20.6	%					21.9	%		20.0	%					19.7	%		22.2	%
Engineered Products		20.3		15.5				31.0	%		51.4		41.3				24.5	%		6.5		14.8				(56.1	)%
Operating margin		16.3	%		14.4	%					13.8	%		13.5	%					6.3	%		12.1	%
Corporate & Other		(10.5	)		(11.5	)		(8.7	)%		(48.0	)		(42.5	)		12.9	%		(32.3	)		(24.5	)		31.8	%

Operating income for the ~~third~~first quarters of 2020 and 2019 ~~and 2018 was $109.9~~declined to $65.7 million and ~~$96.5~~$102.8 million, ~~respectively. Operating income for~~respectively on lower volumes in the ~~first nine months of 2019~~Commercial Aerospace and ~~2018 was $327.8 million and $275.4 million, respectively. Exchange rates favorably impacted the third~~Industrial markets. The first quarter of ~~2019 by approximately 10 basis points and~~2020 included $14.7 million of costs related to 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 2019 was $16.3 million higher than the comparable period for 2018.Merger.

	Quarter Ended September 30							Nine Months Ended September 30,							Quarter Ended March 31
(In millions)	2019		2018		% Change			2019		2018		% Change			2020		2019		% Change
Interest expense, net	$	11.0	$	10.6		3.8	%	$	34.9	$	27.3		27.8	%	$	12.0	$	12.0	—%

Interest expense for the ~~third~~first quarter ~~and nine months~~ ended ~~September 30, 2019 increased as compared~~March 31, 2020 was comparable to the same period last ~~year primarily due to higher debt levels as a result of the ARC acquisition.~~year.

	Quarter Ended September 30						Nine Months Ended September 30,						Quarter Ended March 31
(In millions)	2019			2018			2019			2018			2020			2019
Income tax expense	$	18.2		$	7.8		$	62.4		$	41.9		$	11.8		$	20.6
Effective tax rate		18.4	%		9.1	%		21.3	%		16.9	%		21.9	%		22.7	%

The effective tax rate for the current quarter was ~~18.4%~~21.9% compared to ~~9.1%~~22.7% for the quarter ended September 30, 2018 and 21.3% for the first nine months of 2019 compared to 16.9% for the first nine months of 2018. The three months ended September 30, 2019 included a $3.0 million benefit primarily due to tax credits identified in the quarter. The quarter 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 nine months ended September 30, 2018 also included a discrete benefit of $1.3 million related to the release of a reserve for uncertain tax positions.~~ ~~All~~March 31, 2019. Both periods benefited from deductions associated with ~~share based~~share-based compensation payments. Our underlying estimated effective income tax rate is expected to remain at ~~24%.~~23% for the year.

Liquidity: As of ~~September 30, 2019,~~March 31, 2020, our total debt, net of cash, was ~~$1,077.5~~$1,060.8 million, as compared to ~~$924.1~~$995.7 million at December 31, ~~2018.~~2019. The increase in net debt in the first ~~nine~~three months of ~~2019~~2020 primarily ~~reflects the ARC acquisition.~~relates to approximately $39 million of dividend payments and share repurchases. At ~~September 30, 2019,~~March 31, 2020, total borrowings under our $1 billion Senior Unsecured Revolving Credit Facility (“the Facility”) were ~~$379 million.~~$693 million, including an exceptional drawdown of $250 million in the quarter as a purely prudent response to the pandemic. The Facility agreement permits us to issue letters of credit up to an aggregate amount of $50.0 million. Any outstanding letters of credit reduce the amount available for borrowing under the Facility. As of ~~September 30, 2019,~~March 31, 2020, we had not issued any letters of credit under the Facility, resulting in undrawn availability under the Facility of ~~$621~~$307 million.

The Facility agreement contains financial and other covenants, including, but not limited 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.

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, 2019,~~March 31, 2020, long-term liquidity requirements consist primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until June 2024 when the Facility expires.

Operating Activities: Net cash provided by operating activities was ~~$277.3~~$8.6 million for the first ~~nine~~three months of ~~2019~~2020 and ~~$278.4~~$45.9 million for the comparable ~~2018 period. The change~~2019 period on lower earnings and higher working capital. Working capital increased resulting in ~~working capital was~~ a cash use of ~~$83.7~~$94.8 million in ~~2019~~2020 as compared to ~~$64.6~~$78.4 million in ~~2018, driven by growth in the underlying business.~~2019.

Investing Activities: Net cash used for investing activities was ~~$325.9~~$27.2 million and ~~$150.9~~$219.5 million in the first ~~nine~~three months of ~~2019~~2020 and ~~2018,~~2019, respectively. The 2019 period included ~~$163.2~~$158.4 million for the ARC Technologies, Inc. acquisition. Capital expenditures were ~~$162.7~~$27.2 million and ~~$150.2~~$61.1 million in ~~2019~~2020 and ~~2018,~~2019, respectively.

Financing Activities: Financing activities provided ~~$64.8~~$284.8 million of cash in the first ~~nine~~three months of ~~2019,~~2020 and ~~were a use of $136.8~~provided $184.9 million in the same period in ~~2018. This increase in cash provided was primarily due to amounts borrowed from~~2019. Borrowings under our Facility were higher in 2020 as we chose to ~~fund~~draw down an additional $250 million in late March as we focus on generating and preserving cash during this unsettled period. In January 2020, the ~~ARC acquisition.~~Company used $49.9 million to repay and terminate its Euro term loan. We also returned ~~$106.8~~$38.8 million to stockholders from stock repurchases and dividends in ~~2019~~the first quarter of 2020 compared to ~~$318.3~~$23.9 million in ~~2018.~~2019.

In response to the COVID-19 pandemic we announced that we have suspended our dividend payments and stock repurchases.

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

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, ~~2018. Significant changes to our accounting policies subsequent to the filing of our Form 10-K, relate to the adoption of Topic 842, Leases, as discussed in Notes 1 and 4 to our financial statements.~~2019.

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 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 Condensed Consolidated Balance Sheets. As of ~~September 30, 2019,~~March 31, 2020, our aggregate environmental related accruals were ~~$2.5~~$2.7 million, of which ~~$0.6~~$0.8 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 Private Securities ~~Exchange~~Litigation Reform Act of ~~1934, as amended.~~1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, “target”, “would”, “will” and similar terms and phrases, including references to assumptions. Such statements are based on current expectations, are inherently uncertain and are subject to changing assumptions.

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 with regard to the build rate and return to service of the Boeing 737 MAX and the related impact on our revenues (e) expectations of composite content on new commercial aircraft programs and our share of those requirements; ~~(e)~~(f) expectations of growth in revenues ~~from~~for space and defense applications, including whether certain programs might be curtailed or discontinued; ~~(f)~~(g) expectations regarding growth in sales for wind energy, recreation, automotive and other industrial applications; ~~(g)~~(h) expectations regarding working capital trends and expenditures; ~~(h)~~(i) expectations as to the level of capital expenditures and when we will complete the construction of capacity expansions and qualification of new products; ~~(i)~~(j) expectations regarding our ability to maintain and improve margins ~~as we add new facilities and~~ in view of the current economic environment; ~~(j)~~(k) expectations regarding the outcome of legal matters or the impact of changes in laws or regulations; ~~(k)~~(l) our projections regarding our ~~income~~ tax rate (m) the anticipated impact of the COVID-19 pandemic on worldwide air travel and ~~the realizability of net operating loss~~aircraft programs, as well as on our customers and ~~tax credit carryforwards;~~suppliers and, ~~(l)~~in turn, on our operations and financial results; and (n) the anticipated impact of the above factors and various market risks on our expectations of financial results for ~~2019~~2020 and beyond.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: the impact of the COVID-19 pandemic, including continued disruption in global financial markets, ongoing restrictions on movement and travel, employee absenteeism and reduced consumer demand for air travel, on the operations, business and financial condition of Hexcel and its customers and suppliers, reductions in sales to any significant customers, particularly Airbus, Boeing or Vestas, including ~~any~~ reduction in ~~sales to Boeing~~revenue related to a ~~decrease in~~

prolonged suspension of production ~~volume~~ of the Boeing 737 ~~MAX;~~MAX, as well as due to the impact of COVID-19 pandemic; changes in sales mix; changes in current pricing and cost levels; changes in aerospace delivery rates; changes in government defense procurement budgets; changes in military aerospace program technology; timely new product development or introduction; industry capacity; increased competition; availability and cost of raw materials; supply chain disruptions; inability to install, staff and

qualify necessary capacity or achievement of planned manufacturing improvements; cybersecurity breaches or intrusions; currency exchange rate fluctuations; changes in global 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.

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.~~SEC. For additional information regarding certain factors that may cause our actual results to differ from those expected or anticipated see the information under the caption “Risk Factors” which is located in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019, as well as in Item 1A. “Risk Factors” of this Form 10-Q. 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.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. As a result, the foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports we file with the SEC. For additional information regarding certain factors that may cause our actual results to differ from those expected or anticipated see the information under the caption “Risk Factors” which is located in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. 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~~Except for the broad effects of COVID-19 as a result of its negative impact on the global economy and major financial markets, there have been no material changes in market risk from the information provided in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of ~~September 30, 2019,~~March 31, 2020, and with the participation of the 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, 2019~~March 31, 2020 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 1412 on pages 1615 through 1816 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, ~~2018,~~2019, which could materially affect our business, financial condition or future results. ~~With the exception of the below risk factor, there were~~There have been no material changes in the Company’s risk factors from the aforementioned ~~10-K.~~ 10-K, except as set forth in the below risk factor and that, due to the termination of the Merger Agreement, the risk factors set forth in the Form 10-K under “Risks Relating to the Proposed Merger with Woodward” are no longer applicable.

Our business has been and will continue to be adversely affected by the COVID-19 pandemic.

In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business, and there is no guarantee our efforts to address the adverse impacts of COVID-19 will be effective.

We have experienced operational interruptions as a result of COVID-19, including the temporary suspension of operations due to the inability to staff facilities or government imposed restrictions, which will have an adverse effect on the productivity and profitability of such manufacturing facilities, and in turn is expected to have an adverse effect on our business and operations. Moreover, a prolonged pandemic, or the threat thereof, could result in continued worker absences and travel restrictions for our employees, lower productivity, voluntary closure of our offices and facilities, and other disruptions to our business. Any of these could have a material adverse effect on our business, financial condition or results of operations.

In addition, ~~future uncertainties~~several countries, including the United States, have taken steps to restrict air travel, and many companies have adopted policies prohibiting non-essential business travel by their employees. Even in the absence of formal restrictions and prohibitions, contagious illness and fear of contagion adversely affects travel behavior. Approximately 68% of our net sales for fiscal year ended December 31, 2019 were derived from sales to Commercial Aerospace customers, which included 87% from Airbus and Boeing aircraft, and 13% from regional and business aircraft. Current travel restrictions, as well as changes in the propensity for the general public to travel by air as a result of the COVID-19 pandemic, has caused reductions in demand for commercial aircraft, which will adversely impact our net sales and operating results and may ~~increase~~continue to do so for an extended period of time. While we are unable to predict the magnitude of ~~these adverse effects~~such impact at this time, the loss of, or ~~give rise~~significant reduction in, purchases by Airbus or Boeing will materially impair our business, operating results, prospects and financial condition.

Furthermore, the COVID-19 pandemic has resulted in market volatility which has caused a precipitous decline in our stock price subjecting us to ~~additional material risks not now contemplated.~~

~~If we fail~~increased takeover risk, impaired our ability to declare dividends or other distributions and conduct share buybacks, and may impact our ability to comply with ~~government procurement laws~~the covenants contained in the agreements that govern our indebtedness and ~~regulations, we~~raise additional funds when and as needed. We may also incur additional costs to remedy damages caused by business disruptions, performance delays or interruptions, payment defaults or bankruptcy of our third-party customers and suppliers, which could ~~lose~~adversely affect our financial condition and results of operations.

To the extent the COVID-19 pandemic or any worsening of the global business and ~~be liable~~economic environment as a result thereof adversely affects our business and financial results, it may also have the effect of heightening or exacerbating many of the other risks described in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for ~~various penalties or sanctions.~~

~~We must comply with laws and regulations~~our fiscal year ended December 31, 2019, such as those relating to the ~~formation, administration,~~cyclical nature of the markets in which we operate, our ability to maintain manufacturing efficiency, disruption of our operations at our manufacturing facilities or in our supply chain and ~~performance~~risks generally associated with international business operations.

Due to the evolving and highly uncertain nature of ~~U.S. government contracts, including~~this event, we cannot predict at this time the ~~government security requirements~~full extent to which the COVID-19 pandemic will adversely impact our business, results and ~~government export control laws~~financial condition, which will depend on many factors that are not known at this time. These include, among others, the extent of harm to public health, the continued disruption to the manufacturing of and ~~regulations. In complying~~demand for our products, and the impact of the global business and economic environment on liquidity and the availability of capital. We are staying in close communication with ~~these laws~~our manufacturing facilities, employees, customers, and ~~regulations,~~suppliers, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee that we ~~may incur significant costs, and non-compliance may result in the imposition of fines and penalties, including contractual damages. If we fail~~will be able 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 civil penalties, criminal penalties, or administrative sanctions, including suspension or debarment from contracting with the U.S. government.do so.

**Schedules and exhibits have been omitted pursuant to Regulation S-K, Item 601(a)(5). The Company will provide a copy of any omitted schedule or exhibit to the Securities and Exchange Commission or its staff upon request.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		94-1109521
(State or Other Jurisdiction of ~~Incorporation)~~Incorporation or Organization)		(I.R.S. Employer Identification No.)

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

Class		Outstanding at ~~October~~April 15, ~~2019~~2020
COMMON STOCK		~~84,378,114~~83,490,766

			Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)

	•	Condensed Consolidated Balance Sheets — ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	3

	•	Condensed Consolidated Statements of Operations — The three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4

	•	Condensed Consolidated Statements of Comprehensive Income — The three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4

	•	Condensed Consolidated Statements of Cash Flows — The ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	5

	•	Condensed Consolidated Statements of Stockholders’ Equity — The three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	6

	•	Notes to Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1918

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		2524

ITEM 4.	Controls and Procedures		2524

PART II.	OTHER INFORMATION		2524

ITEM 1.	Legal Proceedings		2524

ITEM 1A.	Risk Factors		25

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26

ITEM 5.	Other Information		26

ITEM 6.	Exhibits		27

	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, 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⁾

(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

`
(In millions)	Composite Material			Engineered Products			Total
Balance at December 31, 2018	$	12.9		$	37.6		$	50.5
Net revenue billed		(1.4	)		4.6			3.2
Balance at March 31, 2019		11.5			42.2			53.7
Net revenue billed		1.7			4.3			6.0
Balance at June 30, 2019		13.2			46.5			59.7
Net revenue billed		(1.7	)		(1.6	)		(3.3	)
Balance at September 30, 2019	$	11.5		$	44.9		$	56.4

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
January 1 — January 31, 2020		332,057	$	74.19		332,057	$	217,162,739
February 1 — February 29, 2020		—		—		—	$	217,162,739
March 1 — March 31, 2020		—		—		—	$	217,162,739
Total		332,057	$	74.19		332,057	$	217,162,739	(1)

Exhibit No.		Description


2.1**		Agreement and Plan of Merger, dated as of January 12, 2020, by and among Hexcel Corporation, Woodward, Inc. and Genesis Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated January 13, 2020).

3.1		Certificate of Designations of Series A Junior Participating Preferred Stock of Hexcel Corporation, as filed with the Secretary of the State of Delaware on April 6, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 6, 2020).

4.1		Rights Agreement, dated as of April 6, 2020, between Hexcel Corporation and American Stock Transfer & Trust Company, LLC, which includes the form of Certificate of Designations as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 6, 2020).

10.1		Mutual Termination Agreement, dated as of April 5, 2020, between Hexcel Corporation, Woodward, Inc. and Genesis Merger Sub, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 6, 2020).

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.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 104		Inline XBRL Instance Document: The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. Inline XBRL Taxonomy Extension Schema Inline XBRL Taxonomy Extension Calculation Linkbase Inline XBRL Taxonomy Extension Definition Linkbase Inline XBRL Taxonomy Extension Label Linkbase Inline XBRL Taxonomy Extension Presentation Linkbase Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and are contained within Exhibit 101.

		Hexcel Corporation

~~October 21, 2019~~April 20, 2020		/s/ Kimberly Hendricks
(Date)		Kimberly Hendricks
		Senior Vice President, Corporate Controller and
		Chief Accounting Officer