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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                    

Commission File Number 1-8472

 

Hexcel Corporation

(Exact name of registrant as specified in its charter)

 

 Delaware

 

94-1109521

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

Two Stamford Plaza

281 Tresser Boulevard

Stamford, Connecticut 06901-3238

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (203) 969-0666

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01

 

HXL

 

New York Stock Exchange

 

 

 

 

 

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.

 

Large accelerated filer 

 

Accelerated filer 

Non-accelerated filer 

 

Smaller reporting company 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

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

 

Class

 

Outstanding at April 15, 2021

COMMON STOCK

 

83,772,604

 

 

 

 


 

 

HEXCEL CORPORATION AND SUBSIDIARIES

INDEX

 

 

 

 

  

Page

PART I.

 

FINANCIAL INFORMATION

  

3

 

 

 

 

 

ITEM 1.

 

Condensed Consolidated Financial Statements (Unaudited)

  

3

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets — March 31, 2021 and December 31, 2020 

  

3

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations — The three months ended March 31, 2021 and 2020 

  

4

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income — The three months ended March 31, 2021 and 2020 

  

4

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — The three months ended March 31, 2021 and 2020 

  

5

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity — The three months ended March 31, 2021 and 2020 

 

6

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

  

7

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

17

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

23

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

  

23

 

 

 

 

 

PART II.

 

OTHER INFORMATION

  

24

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

  

24

 

 

 

 

 

ITEM 1A.

 

Risk Factors

  

24

 

 

 

 

 

ITEM 6.

 

Exhibits

  

25

 

 

 

 

 

 

 

SIGNATURE

 

26

 

 

 

2


 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1. Condensed Consolidated Financial Statements

Hexcel Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

(In millions)

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

82.0

 

 

$

103.3

 

Accounts receivable, net

 

 

164.4

 

 

125.4

 

Inventories, net

 

 

217.4

 

 

213.5

 

Contract assets

 

 

42.3

 

 

 

43.1

 

Prepaid expenses and other current assets

 

 

50.7

 

 

 

38.0

 

Assets held for sale

 

 

12.6

 

 

 

12.6

 

Total current assets

 

 

569.4

 

 

 

535.9

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

3,109.8

 

 

 

3,139.7

 

Less accumulated depreciation

 

 

(1,281.4

)

 

 

(1,265.5

)

Net property, plant and equipment

 

 

1,828.4

 

 

 

1,874.2

 

 

 

 

 

 

 

 

 

 

Goodwill and other intangible assets, net

 

 

274.4

 

 

277.8

 

Investments in affiliated companies

 

 

44.4

 

 

44.7

 

Other assets

 

 

176.9

 

 

 

185.2

 

Total assets

 

$

2,893.5

 

 

$

2,917.8

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

0.3

 

 

$

0.9

 

Accounts payable

 

 

88.5

 

 

 

70.0

 

Accrued compensation and benefits

 

 

56.1

 

 

43.2

 

Financial instruments

 

 

2.8

 

 

 

3.6

 

        Accrued liabilities

 

 

72.2

 

 

65.4

 

        Total current liabilities

 

 

219.9

 

 

 

183.1

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

912.0

 

 

 

925.5

 

Retirement obligations

 

 

52.2

 

 

 

53.9

 

Deferred income taxes

 

 

141.5

 

 

 

153.0

 

Other non-current liabilities

 

 

81.0

 

 

92.1

 

Total liabilities

 

 

1,406.6

 

 

 

1,407.6

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 200.0 shares authorized, 109.9 shares and 109.7 shares issued at March 31, 2021 and December 31, 2020, respectively

 

 

1.1

 

 

1.1

 

Additional paid-in capital

 

 

861.5

 

 

 

849.7

 

Retained earnings

 

 

1,982.4

 

 

 

1,996.4

 

Accumulated other comprehensive loss

 

 

(78.7

)

 

 

(59.6

)

 

 

 

2,766.3

 

 

 

2,787.6

 

Less – Treasury stock, at cost, 26.1 shares at March 31, 2021 and 26.1 shares

at December 31, 2020, respectively.

 

 

(1,279.4

)

 

 

(1,277.4

)

Total stockholders' equity

 

 

1,486.9

 

 

 

1,510.2

 

Total liabilities and stockholders' equity

 

$

2,893.5

 

 

$

2,917.8

 

 

 

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

3


 

 

Hexcel Corporation and Subsidiaries

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

Quarter Ended March 31,

 

(In millions, except per share data)

 

2021

 

 

2020

 

Net sales

 

$

310.3

 

 

$

541.0

 

Cost of sales

 

 

257.2

 

 

 

400.1

 

Gross margin

 

 

53.1

 

 

 

140.9

 

Selling, general and administrative expenses

 

 

39.6

 

 

 

46.5

 

Research and technology expenses

 

 

11.6

 

 

 

14.0

 

Other operating expense

 

 

12.1

 

 

 

14.7

 

Operating income

 

 

(10.2

)

 

 

65.7

 

Interest expense, net

 

 

10.3

 

 

 

12.0

 

    (Loss) income before income taxes, and equity in earnings from affiliated companies

 

 

(20.5

)

 

 

53.7

 

Income tax (benefit) expense

 

 

(7.5

)

 

 

11.8

 

     (Loss) income before equity in earnings from affiliated companies

 

 

(13.0

)

 

 

41.9

 

Equity in (losses) earnings from affiliated companies

 

 

(1.0

)

 

 

0.5

 

     Net (loss) income

 

$

(14.0

)

 

$

42.4

 

Basic net (loss) income per common share

 

$

(0.17

)

 

$

0.51

 

Diluted net (loss) income per common share

 

$

(0.17

)

 

$

0.50

 

Dividends per share

 

$

-

 

 

$

0.17

 

Weighted-average common shares:

 

 

 

 

 

 

 

 

     Basic

 

 

84.0

 

 

 

83.7

 

     Diluted

 

 

84.0

 

 

 

84.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hexcel Corporation and Subsidiaries

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

Quarter Ended March 31,

 

(In millions)

 

2021

 

 

2020

 

Net (loss) income

 

$

(14.0

)

 

$

42.4

 

Currency translation adjustments

 

 

(12.0

)

 

 

(24.8

)

Net unrealized pension and other benefit actuarial (losses) gains and prior service credits (net of tax)

 

 

(1.7

)

 

 

0.9

 

Net unrealized losses on financial instruments (net of tax)

 

 

(5.4

)

 

 

(12.7

)

Total other comprehensive loss

 

 

(19.1

)

 

 

(36.6

)

Comprehensive (loss) income

 

$

(33.1

)

 

$

5.8

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

 

4


 

 

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

 

 

(Unaudited)

 

 

 

Quarter Ended March 31,

 

(In millions)

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(14.0

)

 

$

42.4

 

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

34.5

 

 

 

35.5

 

Amortization related to financing

 

 

1.5

 

 

 

0.3

 

Deferred income taxes

 

 

(8.8

)

 

 

(0.6

)

Equity in earnings from affiliated companies

 

 

1.1

 

 

 

(0.5

)

Stock-based compensation

 

 

9.0

 

 

 

14.4

 

Merger and restructuring expenses, net of payments

 

 

1.5

 

 

 

12.6

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(42.0

)

 

 

(42.0

)

Increase in inventories

 

 

(7.6

)

 

 

(26.4

)

Increase in prepaid expenses and other current assets

 

 

(6.8

)

 

 

(7.6

)

Increase (decrease) in accounts payable/accrued liabilities

 

 

30.2

 

 

 

(18.8

)

Other net

 

 

0.2

 

 

 

(0.7

)

Net cash (used for) provided by operating activities

 

 

(1.2

)

 

 

8.6

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4.9

)

 

 

(27.2

)

Net cash used for investing activities

 

$

(4.9

)

 

$

(27.2

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayments of Euro term loan

 

 

-

 

 

 

(49.9

)

Borrowing from senior unsecured credit facility - 2024

 

 

-

 

 

 

392.0

 

Repayment of senior unsecured credit facility - 2024

 

 

(14.0

)

 

 

(12.0

)

Repayment of finance lease obligation and other debt, net

 

 

(0.3

)

 

 

(0.1

)

Dividends paid

 

 

-

 

 

 

(14.2

)

Repurchase of stock

 

 

-

 

 

 

(24.6

)

Activity under stock plans

 

 

0.8

 

 

 

(6.4

)

Net cash (used for) provided by financing activities

 

 

(13.5

)

 

 

284.8

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1.7

)

 

 

(1.3

)

Net (decrease) increase in cash and cash equivalents

 

 

(21.3

)

 

 

264.9

 

Cash and cash equivalents at beginning of period

 

 

103.3

 

 

 

64.4

 

Cash and cash equivalents at end of period

 

$

82.0

 

 

$

329.3

 

Supplemental data:

 

 

 

 

 

 

 

 

Accrual basis additions to plant, property and equipment

 

$

4.0

 

 

$

21.9

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

5


 

 

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

For the Quarter Ended March 31, 2021 and 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders’

 

(In millions)

 

Par

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance, December 31, 2019

 

$

1.1

 

 

$

829.9

 

 

$

1,978.9

 

 

$

(118.7

)

 

$

(1,245.1

)

 

$

1,446.1

 

Net income

 

 

 

 

 

42.4

 

 

 

 

 

 

 

42.4

 

Dividends paid on common stock ($0.17 per share)

 

 

 

 

 

 

(14.2

)

 

 

 

 

 

 

(14.2

)

Change in other comprehensive loss – net of tax

 

 

 

 

 

 

 

 

(36.6

)

 

 

 

 

(36.6

)

Stock based compensation

 

 

 

 

15.2

 

 

 

 

 

 

 

(7.2

)

 

 

8.0

 

Acquisition of treasury stock

 

 

 

 

 

 

 

 

 

 

(24.6

)

 

 

(24.6

)

Balance, March 31, 2020

 

$

1.1

 

 

$

845.1

 

 

$

2,007.1

 

 

$

(155.3

)

 

$

(1,276.9

)

 

$

1,421.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders’

 

(In millions)

 

Par

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance, December 31, 2020

 

$

1.1

 

 

$

849.7

 

 

$

1,996.4

 

 

$

(59.6

)

 

$

(1,277.4

)

 

$

1,510.2

 

Net loss

 

 

 

 

 

 

(14.0

)

 

 

 

 

 

 

(14.0

)

Dividends paid on common stock

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Change in other comprehensive loss – net of tax

 

 

 

 

 

 

 

 

(19.1

)

 

 

 

 

(19.1

)

Stock based compensation

 

 

 

 

11.8

 

 

 

 

 

 

 

(2.0

)

 

 

9.8

 

Acquisition of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Balance, March 31, 2021

 

$

1.1

 

 

$

861.5

 

 

$

1,982.4

 

 

$

(78.7

)

 

$

(1,279.4

)

 

$

1,486.9

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

.

 

 


6


 

 

HEXCEL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1 — Significant Accounting Policies

In these notes, the terms “Hexcel,” “the Company,” “we,” “us,” or “our” mean Hexcel Corporation and subsidiary companies. The accompanying Condensed Consolidated Financial Statements are those of Hexcel Corporation.  Refer to Note 1 to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of our significant accounting policies.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements have been prepared from the unaudited accounting records of Hexcel pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.  Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the SEC. In the opinion of management, the Condensed Consolidated Financial Statements include all normal recurring adjustments as well as any non-recurring adjustments necessary to present fairly the statement of financial position, results of operations, cash flows and statement of stockholder’s equity for the interim periods presented.  The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from the audited 2020 Consolidated Balance Sheet.  Interim results are not necessarily indicative of results expected for any other interim period or for the full year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2020 Annual Report on Form 10-K.

Investments in Affiliated Companies

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

Asset Held for sale  

In early November 2020 we closed our wind energy prepeg production facility in Windsor, Colorado and as a result, certain plant assets to be sold have been recorded in “Assets held for sale” in the Condensed Consolidated Balance Sheets at both March 31, 2021 and December 31, 2020. The sale of these assets is expected to occur in the second or third quarter of 2021.

Recently Adopted Accounting Pronouncements 

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. Adoption of this new standard did not have a significant impact to our disclosures.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which amends and aims to simplify 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. Adoption of this new standard did not have a material impact on the Company. 

7


 

 

Note 2 — Net (Loss) Income per Common Share

 

 

 

Quarter Ended March 31,

 

(In millions, except per share data)

 

2021

 

 

2020

 

Basic net (loss) income per common share:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(14.0

)

 

$

42.4

 

Weighted average common shares outstanding

 

 

84.0

 

 

 

83.7

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per common share

 

$

(0.17

)

 

$

0.51

 

 

 

 

 

 

 

 

 

 

Diluted net (loss) income per common share:

 

 

 

 

 

 

 

 

Net (loss) income

 

 

(14.0

)

 

 

42.4

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — Basic

 

 

84.0

 

 

 

83.7

 

Plus incremental shares from assumed conversions:

 

 

 

 

 

 

 

 

Restricted stock units

 

 

-

 

 

 

0.3

 

Stock options

 

 

-

 

 

 

0.3

 

Weighted average common shares outstanding — Dilutive

 

 

84.0

 

 

 

84.3

 

 

 

 

 

 

 

 

 

 

Diluted net (loss) income per common share

 

$

(0.17

)

 

$

0.50

 

 

Total common stock equivalents of, 1.1 million and 0.6 million, were excluded from the computation of diluted net (loss) income per share for the three months ended March 31, 2021 and 2020, respectively, because to do so would have been anti-dilutive.

 

 

Note 3 Inventories

 

 

 

 

 

 

 

 

 

 

(In millions)

 

March 31, 2021

 

 

December 31, 2020

 

Raw materials

 

$

93.9

 

 

$

94.9

 

Work in progress

 

 

29.4

 

 

 

23.6

 

Finished goods

 

 

94.1

 

 

 

95.0

 

Total Inventory

 

$

217.4

 

 

$

213.5

 

 

 

 

Note 4 Retirement and Other Postretirement Benefit Plans

We maintain qualified and nonqualified defined benefit retirement plans covering certain current and former U.S. and European employees, retirement savings plans covering eligible U.S. and U.K. employees and certain postretirement health care and life insurance benefit plans covering eligible U.S. retirees. We also participate in a union sponsored multi-employer pension plan covering certain U.S. employees with union affiliations.

Defined Benefit Retirement Plans

Net Periodic Benefit Costs

Net periodic benefit costs of our defined benefit retirement plans for the three months ended March 31, 2021 and 2020 were as follows:

 

 

 

Quarter Ended March 31,

 

(In millions)

 

2021

 

 

2020

 

U.S. Nonqualified Defined Benefit Retirement Plans

 

 

 

 

 

 

 

 

Service cost

 

$

0.2

 

 

$

0.3

 

Interest cost

 

 

0.1

 

 

 

0.1

 

Net amortization

 

 

0.2

 

 

 

0.1

 

Net periodic benefit cost

 

$

0.5

 

 

$

0.5

 

 

 

 

 

 

 

 

 

 

8


 

 

 

(In millions)

 

March 31, 2021

 

 

December 31, 2020

 

Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans:

 

 

 

 

 

 

 

 

Accrued liabilities

 

 

3.8

 

 

$

3.8

 

Other non-current liabilities

 

 

19.6

 

 

 

19.4

 

Total accrued benefit

 

$

23.4

 

 

$

23.2

 

 

 

 

Quarter Ended March 31,

 

(In millions)

 

2021

 

 

2020

 

European Defined Benefit Retirement Plans

 

 

 

 

 

 

 

 

Service cost

 

$

0.2

 

 

$

0.2

 

Interest cost

 

 

0.5

 

 

 

0.9

 

Expected return on plan assets

 

 

(0.9

)

 

 

(1.7

)

Net amortization and deferral

 

 

0.3

 

 

 

0.1

 

Net periodic benefit cost (credit)

 

$

0.1

 

 

$

(0.5

)

 

 

 

 

 

 

 

 

 

 

(In millions)

 

March 31, 2021

 

 

December 31, 2020

 

Amounts recognized on the balance sheet for European defined benefit retirement plans:

 

 

 

 

 

 

 

 

Other assets

 

$

33.5

 

 

$

31.5

 

 

 

 

 

 

 

 

 

 

Accrued liabilities

 

 

1.0

 

 

 

0.9

 

Other non-current liabilities

 

 

19.1

 

 

 

17.7

 

Total accrued benefit

 

$

20.1

 

 

$

18.6

 

 

 

All costs related to our pensions are included as a component of operating income in our Condensed Consolidated Statements of Operations. For the three-month periods ended March 31, 2021 and 2020, amounts unrelated to service costs were an expense of $0.2 million and a credit of $0.5 million, respectively. 

 

Contributions

We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred.  We have contributed approximately $0.2 million in the first three months of 2021 to cover unfunded benefits.  We expect to contribute a total of $3.4 million in 2021 to cover unfunded benefits.  We contributed $0.1 million to our U.S. non-qualified defined benefit retirement plans during the quarter ended March 31, 2020.

We contributed $1.1 million and $1.0 million to our European defined benefit retirement plans during the three months ended March 31, 2021 and 2020, respectively.  We plan to contribute approximately $5.6 million during 2021 to our European plans.

Postretirement Health Care and Life Insurance Benefit Plans

We recorded $0.2 million and $0.2 million of net amortization gain deferral for the three months ended March 31, 2021 and 2020, respectively. Net periodic benefit costs of our postretirement health care and life insurance benefit plans for the three months ended three months ended March 31, 2021 and 2020 were immaterial.

 

(In millions)

 

March 31, 2021

 

 

December 31, 2020

 

Amounts recognized on the balance sheet:

 

 

 

 

 

 

 

 

Accrued liabilities

 

$

0.4

 

 

$

0.4

 

Other non-current liabilities

 

 

2.2

 

 

 

2.2

 

Total accrued benefit

 

$

2.6

 

 

$

2.6

 

Amounts contributed in connection with our postretirement plans were immaterial for both the three months ended March 31, 2021 and March 31, 2020. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute approximately $0.4 million in 2021 to cover unfunded benefits.

9


 

 

Note 5 –– Debt

 

(In millions)

 

March 31, 2021

 

 

December 31, 2020

 

Current portion of finance lease

 

$

0.3

 

 

$

0.9

 

Current portion of debt

 

 

0.3

 

 

 

0.9

 

Senior unsecured credit facility

 

 

214.0

 

 

 

228.0

 

4.7% senior notes --- due 2025

 

 

300.0

 

 

 

300.0

 

3.95% senior notes --- due 2027

 

 

400.0

 

 

 

400.0

 

Senior notes --- original issue discount

 

 

(1.4

)

 

 

(1.5

)

Senior notes --- deferred financing costs

 

 

(3.4

)

 

 

(3.5

)

Non-current portion of finance lease and other debt

 

 

2.8

 

 

 

2.5

 

Long-term debt

 

 

912.0

 

 

 

925.5

 

Total debt

 

$

912.3

 

 

$

926.4

 

 

 

 

 

 

 

 

 

 

In June 2019, the Company refinanced its senior unsecured credit facility (the “Facility”), increasing borrowing capacity from $700 million to $1 billion. The Facility matures in June 2024. 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. The Facility agreement contains financial and other covenants, including, but not limited to customary restrictions on the incurrence of debt by our subsidiaries and the granting of liens, as well as the maintenance of an interest coverage ratio and a leverage ratio. 

 

In September 2020, we amended the Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period.  On January 28, 2021, we further amended the Facility agreement (the “Second Amendment”), to provide that, from January 28, 2021 through and including March 31, 2022, we will not be subject to a maximum leverage ratio covenant but will instead be required to maintain Liquidity (as defined in the Facility Agreement) of at least $250 million. Additionally, during such period, the Company will be subject to limitations on share repurchases, cash dividends, and its ability to incur secured debt, in each case subject to certain exceptions; the applicable margin and commitment fees are increased; the incremental facility will not be available; and if the Company’s public debt rating is downgraded to (i) BB or lower by Standard & Poor’s and (ii) Ba2 or lower by Moody’s, we will be required to grant liens on certain of our assets, which liens will be released upon the Company’s public debt rating being upgraded to BB+ or higher by Standard & Poor’s or Ba1 or higher by Moody’s.  The Company’s public debt rating as of March 31, 2021 is BB+/Baa3. In addition, the Second Amendment provides that the Company will not be subject to an interest coverage ratio covenant until the test period ending December 31, 2021 and revolving commitments under the Facility were reduced to $750 million.  In connection with the Second Amendment, we accelerated a portion of the deferred financing costs and recognized $0.9 million in interest expense during the first quarter of 2021. As of March 31, 2021, we were in compliance with all debt covenants.   

 

As of March 31, 2021, total borrowings under the Facility were $214 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 March 31, 2021, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $536 million. The weighted average interest rate for the Facility was 3.99% for the three months ended March 31, 2021.

    

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 three months ended March 31, 2021 was 4.00% 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 $418.3 million at March 31, 2021.

 

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 three months ended March 31, 2021 was 4.95%. Based on quoted prices, the fair value of the senior unsecured notes due in 2025 was $326.6 million at March 31, 2021.

 

 

10


 

 

Note 6 Derivative Financial Instruments

 

Interest Rate Swap and Interest Lock Agreements     

Prior to January 2020, we had interest rate swaps that swap the EURIBOR on our European term loan for a fixed rate. We terminated these swaps in January 2020 when we repaid the European term loan. These interest rate swaps were designated as cash flow hedges to floating rate bank loans. The Euro swaps had final maturities dates between June 2023 and June 2024, in annual installments. The fair value of interest rate swap agreements was recorded in other assets or as a liability with a corresponding amount to other comprehensive (loss) income. At March 31, 2021, we had no interest rate swap agreements outstanding.

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 for hedge accounting purposes thus any change in fair value was recorded as a component of other comprehensive (loss) income. As part of the issuance of our 3.95% Senior Unsecured Notes, we net settled these derivatives for $10 million in cash. As a result of settling these derivatives the previously deferred gains recorded in other comprehensive (loss) income will be released to interest expense over the life of the 3.95% Senior Unsecured Notes. The effect of these treasury locks reduced the effective interest rate on these notes by approximately 0.25%.      

Cross Currency and Interest Rate Swap Agreements

In November 2020 we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a €270 million, 5-year amortizing, intercompany loan between one of our European subsidiaries and the US parent company. Changes in the spot exchange are recorded to the general ledger and offset the fair value re-measurement of the hedged item. The net difference in the interest rates coupons is recorded as a credit to interest expense. The derivative swaps €270 million bearing interest at a fixed rate of 0.30% for $319.9 million plus fixed rate interest of 1.115%.  The interest coupons settle semi-annually. The principal will amortize each year on November 15, as follows: for years 1 through 4, beginning November 15, 2021, €50 million versus $59.2 million, and a final settlement on November 15, 2025 of €70 million versus $82.9 million. The carrying value of the derivative at March 31, 2021 is a current asset of $2.9 million and a long-term liability of $1.2 million.             

 

Foreign Currency Forward Exchange Contracts

 

A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British pound sterling. We entered into contracts to exchange U.S. dollars for Euros and British pound sterling through September 2023. The aggregate notional amount of these contracts was $232.1 million and $250.3 million at March 31, 2021 and December 31, 2020, 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 $5.5 million were recorded in other comprehensive (loss) income for the three months ended March 31, 2021 and losses of $17.3 million for the three months ended March 31, 2020.  We classified $9.5 million of the carrying amount of these contracts as assets ($7.4 million of which was recorded in prepaid expenses and other current assets) and $2.7 million as liabilities ($0.5 million of which is recorded in non-current liabilities), on the Condensed Consolidated Balance Sheets at March 31, 2021, and $16.0 million of the carrying amount of these contracts was classified in assets ($10.7 million of which was recorded in prepaid expenses and other current assets) and $2.5 million as liabilities (less than $0.1 million of which is in other non-current liabilities) at December 31, 2020.  We recognized net gains of $1.4 million in gross margin during the three months ended March 31, 2021 and net losses of $4.4 million for the three months ended March 31, 2020.  

 

In addition, we enter into foreign exchange forward contracts which are not designated as hedges. These are used to provide an offset to transactional gains or losses arising from the remeasurement of non-functional monetary assets and liabilities such as accounts receivable. The change in the fair value of the derivatives is recorded in the statement of operations. There are no credit contingency features in these derivatives. During the quarters ended March 31, 2021 and 2020, we recognized net foreign exchange losses of $1.6 million and $1.0 million, respectively, in the Condensed Consolidated Statements of 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 $0.4 million classified in current liabilities at March 31, 2021, and $0.1 million classified in current liabilities on our Condensed Consolidated Balance Sheet at December 31, 2020.

 

11


 

 

 The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive (loss) income for the quarters ended March 31, 2021 and March 31, 2020 was as follows:

 

 

 

Quarter Ended March 31,

 

(In millions)

 

2021

 

 

2020

 

Unrealized gains (losses) at beginning of period, net of tax

 

$

10.6

 

 

$

(8.4

)

Losses reclassified to net sales

 

 

(1.1

)

 

 

3.3

 

Decrease in fair value

 

 

(3.9

)

 

 

(13.6

)

Unrealized gains (losses) at end of period, net of tax

 

$

5.6

 

 

$

(18.7