Hexcel Corporation and its subsidiaries, is a leading advanced composites company. We develop, manufacture, and market lightweight, high-performance composites, including carbon fibers, reinforcements, prepregs, honeycomb, matrix systems, adhesives and composite structures, for use in commercial aerospace, space and defense and industrial applications. 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 and a wide variety of recreational equipment.

We serve international markets through manufacturing facilities and sales offices located in the United States, Europe and Asia, and through sales representation offices located in Asia, Australia and South America. We also hold a 33.33% interest in Asian Composites Manufacturing Sdn. Bhd., located in Malaysia, which manufactures composite structures for commercial aerospace.

Hexcel has two segments, Composite Materials and Engineered Products. The Composite Materials segment manufactures and markets carbon fibers, fabrics and specialty reinforcements, prepregs, structural adhesives, honeycomb, composite panels, molding compounds, polyurethane systems and laminates that are incorporated into many applications, including military and commercial aircraft, rotorcraft, wind turbine blades and recreational products. The Engineered Products segment manufactures and markets composite structures and precision machined honeycomb parts for use primarily in the aerospace industry. Composite structures are manufactured from a variety of composite and other materials, including prepregs, honeycomb, structural adhesives and advanced molding materials, using such manufacturing processes as autoclave processing, multi-axis numerically controlled machining, heat forming, compression molding and other composite manufacturing techniques.

The global economic downturn and availability of credit for end customers has affected demand from commercial aircraft customers and for wind energy programs. Though there are short term uncertainties, the focus on increasing alternative energy sources continues to promise a bright future for wind energy. More importantly, the compelling economics of new, lightweight, wide body aircraft that have become critical to end user demand remain intact. Although this translates into a favorable demand mix that includes a higher percentage of composite rich models, current economic conditions and new program delays lead us to be cautious in the near term regarding projected build-rates and wind energy project funding.

Net sales for the quarter were $277.3 million, 22.9% lower (18.7% lower in constant currency) than the $359.5 million reported for the second quarter of 2008. Year to date, net sales are 12.3% lower than last year in constant currency. The drop in sales is related to significant supply chain inventory adjustments, the rapid decline in the regional and business aircraft market and new program delays. The wind energy market is also now experiencing lower levels of demand as financing issues facing wind generator customers have begun to delay previously announced projects.

Our previous planning assumption of reducing our cost structure to handle a 5% year over year volume decline is no longer appropriate. We expect the third quarter to be the low point of the year as reduced commercial aerospace and wind demand combine with the normal summer seasonal slowdown. Therefore, we are aggressively reducing plant schedules to better match near term demand and improve cash flows. While we expect further weakness in regional and business aircraft sales, we are hopeful that thawing in credit markets, renewable energy policy and new aircraft program progress may begin to offset market softness in 2010.

We have also prudently moderated the pace of our capital spending plans to maintain alignment with changes to prior growth assumptions for us and our customers. We expect to spend less than $100 million on capital expenditures in 2009, and currently expect to spend less than $125 million in 2010. As anticipated, we had cash usage in the first quarter, but after generating $47 million of free cash flow (cash provided by operating activities less capital expenditures) in the second quarter, we achieved $22 million of positive free cash flow for the first six months of 2009, as compared to negative free cash flow of $92 million for the first half of 2008. There were significant working capital changes as the lower sales volumes combined with concerted efforts to reduce accounts receivable and inventories resulted in $37.4 million of cash from lower receivables and inventories in 2009 as compared to a $63.8 million use of cash in the first half of 2008. These sources of cash were partially offset by additional usage of cash for accounts payable and accruals of $26.9 million in the first half of 2009 as compared to the first half of 2008. We are now targeting over $40 million of free cash flow for the full year period. Capital expenditures were $47.9 million in the first six months of 2009, as compared to $86.2 million during the first six months of 2008.

Commercial aerospace sales declined, in constant currency, 28.1% for the quarter and 22.4% for the six month period and were down across all sectors as our customers tightened inventory management as we enter a more cautious period. After a three year period of record orders from 2005 to 2007, followed by a robust year of orders in 2008, Airbus and Boeing combined only had 69 net orders and a number of deferrals for the first half of 2009. This however, still leaves nearly 7,000 planes in backlog, and their combined total deliveries for the first half of 2009 was 500. Based on estimates from Airbus and Boeing, they expect to deliver about

960 aircraft in 2009, and if this happens it would exceed the previous highest number of deliveries of 914 in 1999. Nonetheless, there is uncertainty surrounding 2010 build rates, which would affect Hexcel's 2009 second half sales as the company generally ships six months in advance of the airplanes' delivery. The current poor global credit environment leads to significant concerns about the demand, timing and financial ability of airline operators to acquire new aircraft in backlog. As a result, there remains significant uncertainty and a wide range of views regarding new aircraft build schedules in 2010 and beyond. Offsetting this negative outlook to some extent, new aircraft such as the Boeing 787 and 747-8 as well as Airbus A380 and A350 will add incremental sales as they come into production and ramp-up to full production rates because of significant increased Hexcel content per plane.

In 2008, other commercial aerospace sales, which include regional and business aircraft, comprised about 28% of our commercial aerospace sales. These markets, particularly the business jet market, have been hit hard this year by rapidly falling demand and tighter inventory management. This quarter our sales declined over 40% from the second quarter of 2008, and this sub-segment continues to be vulnerable to further declines.

Space and Defense sales, in constant currency, were up 2.8% for the quarter and 5.3% for the six month period. We continue to benefit from our extensive qualifications to supply composite materials and, in some cases, composite structures to a broad range of rotorcraft, transport, and fixed wing attack and satellite programs around the world. No one program represents more than 10% of our revenue in this market, but the C17 and F22 are among our important programs and could be curtailed in the near future. On the other hand, sales from rotorcraft, including the V22 tilt rotor program, have seen strong growth and now represent more than half of our sales in this market.

Industrial sales, in constant currency, were down 15.6% for the second quarter and 3.7% for the six months over last year. Wind energy comprises over half of the industrial market and these sales are now flat for the first half of 2009 as compared to the first half of 2008. The growth for the wind energy market will be, in part, dependent upon public policy, including establishing and achieving renewable energy targets, and availability of project financing for the developers of wind farms. Our wind energy business had been a European business, but with the start of sales from our China facility in the fourth quarter of 2008 and the scheduled qualified production of our Colorado facility in the fourth quarter of this year, we will serve a much wider market. The American Recovery and Reinvestment Act of 2009 ("Act") extends the production tax credit through 2012 and provides a 30% investment tax credit for qualified new wind equipment. In July, the availability of cash grants under the Act was clarified, which should also help restart the order flow in the U.S. Recreation, automotive and other industrial applications comprise the rest of industrial sales. For the most part, these sales reflect both weak markets and selective portfolio pruning in recent years. Demand for our products in these markets is driven by both the success of particular applications as well as the general overall economy. Our general industrial sub-segment also includes our sales to the American Centrifuge Project which began in December 2008, and partly offset declines in the other industrial markets.

Despite the much lower sales volume, we improved our operating margins for the quarter and six months ended June 30, 2009 over the prior year primarily reflecting good product mix, factory productivity initiatives, incremental improvements at our new European facilities, lower commodity and freight costs, overall good cost control and the benefits from a stronger Dollar. The strengthening of the Dollar against the Euro and the British pound over the last year creates mixed effects on our results. The Dollar movement against the two currencies resulted in a decrease in sales of $18.3 million in the quarter and $37.6 million in the six month period on a year over year basis. However, the operating income line was slightly favorably impacted by these same currency movements for the first half of 2009 as compared to same period in 2008 as many European commercial aerospace sales are generally in US Dollars with related costs in Euros and British pound.

Second Quarter and Six-Months Results



                              Quarter Ended June 30,                    Six-Months Ended June 30,
(In millions, except per
share data)                    2009            2008       % Change        2009             2008        % Change
Net sales                  $      277.3    $      359.5      (22.9 )% $       584.6    $       704.0      (17.0 )%
Operating income                   29.7            29.3        1.4 %           69.6             65.7        5.9 %
Net income                         16.8            26.7      (37.1 )%          40.2             49.9      (19.4 )%
Diluted net income per
common share               $       0.17    $       0.27               $        0.41    $        0.51

Non-GAAP measures:
Adjusted operating
income                     $       31.4    $       38.1      (17.6 )% $        71.3    $        77.8       (8.4 )%
As a percentage of net
sales                              11.3 %          10.6 %                      12.2 %           11.1 %
Adjusted net income        $       17.9    $       20.3      (11.8 )% $        41.3    $        42.7       (3.3 )%
Adjusted diluted
earnings per share         $       0.18    $       0.21               $        0.42    $        0.44

The Company's performance measurements include operating income adjusted for non-recurring operating expenses and business consolidation and restructuring expenses, and net income adjusted for non-recurring expenses, both of which are non-GAAP

measures. Management believes these non-GAAP measurements are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results and comparisons to prior periods. Non-recurring items represent significant charges or credits that are important to an understanding of Hexcel's overall operating results in the periods presented. Such non-GAAP measurements are not recognized in accordance with generally accepted accounting principles and should not be viewed as an alternative to GAAP measures of performance. The following is a reconciliation from GAAP to non-GAAP amounts.

                                      Quarter Ended June 30,          Six-Months Ended June 30,
(In millions, except per share
data)                                  2009           2008             2009               2008
Operating income                    $      29.7    $      29.3    $         69.6     $         65.7
Environmental Expense (a)                   1.7            7.6               1.7                7.6
Business consolidation &
restructuring expense                         -            1.2                 -                1.8
Pension Settlement Expense                    -              -                 -                2.7
Adjusted operating income           $      31.4    $      38.1    $         71.3     $         77.8

Net income                          $      16.8    $      26.7    $         40.2     $         49.9
Environmental Expense (net of
tax) (a)                                    1.1            4.7               1.1                4.7
Pension Settlement Expense (net
of tax)                                       -              -                 -                1.7
Tax adjustments (b)                           -          (11.1 )               -              (13.6 )
Adjusted net income                 $      17.9    $      20.3    $         41.3     $         42.7

(b) The second quarter of 2008 tax adjustments include $11.1 million in net benefit primarily related to the reinstatement of U.S. deferred tax assets which had been previously written off. The six months ended June 30, 2008 includes a total of $13.6 million.

Net sales decreased for the quarter and six months ended June 30, 2009 over the same periods in 2008, reflecting lower sales volume in Commercial Aerospace and Industrial markets. On a constant currency basis, sales for the quarter ended June 30, 2009 were 18.7% lower than the same quarter in 2008 (22.9% decrease at actual rates) and sales for the six months ended June 30, 2009 were 12.3% lower than the six months ended June 30, 2008 (17.0% decrease at actual rates).

The following table summarizes net sales to third-party customers by segment and end market for the quarters and six months ended June 30, 2009 and 2008:

                              Quarter Ended June 30,                    Six-Months Ended June 30,
(In millions)                  2009            2008       % Change        2009             2008        % Change
Consolidated Net Sales     $      277.3    $      359.5      (22.9 )% $       584.6    $       704.0      (17.0 )%
Commercial Aerospace              137.8           198.7      (30.6 )%         291.6            390.6      (25.3 )%
Space & Defense                    74.7            75.0       (0.4 )%         152.0            149.3        1.8 %
Industrial                         64.8            85.8      (24.5 )%         141.0            164.1      (14.1 )%

Composite Materials        $      213.8    $      292.5      (26.9 )% $       458.2    $       570.4      (19.7 )%
Commercial Aerospace               94.1           148.1      (36.5 )%         203.4            291.7      (30.3 )%
Space & Defense                    55.3            59.7       (7.4 )%         114.7            117.0       (2.0 )%
Industrial                         64.4            84.7      (24.0 )%         140.1            161.7      (13.4 )%

Engineered Products        $       63.5    $       67.0       (5.2 )% $       126.4    $       133.6       (5.4 )%
Commercial Aerospace               43.7            50.6      (13.6 )%          88.2             98.9      (10.8 )%
Space & Defense                    19.4            15.3       26.8 %           37.3             32.3       15.5 %
Industrial                          0.4             1.1      (63.6 )%           0.9              2.4      (62.5 )%

Commercial Aerospace: Net sales decreased $60.9 million, or 30.6% (28.1% on a constant currency basis), to $137.8 million for the second quarter of 2009. Net sales for the six months ended June 30, 2009 decreased $99.0 million or 25.3% (22.4% on a constant

currency basis) to $291.6 million over the six months ended June 30, 2008. The sales decline for both periods was broad based. As previously planned large aircraft line rate increases give way to rate reductions, tighter management of inventory levels by our customers resulted in sales declines to both Airbus and Boeing and their subcontractors. The decline at Boeing was not as pronounced as it was at Airbus, as inventory corrections were not as significant following last year's strike. Revenues attributed to new aircraft programs (A380, A350, B787, B747-8) were just above those in the first quarter of 2009, but lower than last year due principally to 787 delays.

Sales to other aerospace sectors, which include regional and business aircraft customers, were down over 40% as compared to the second quarter 2008 as the impact of announced production cut-backs in this segment is now being felt. As compared to the first quarter of 2009, sales were down over 30%, and for the first half of the year sales were down over 25% compared to last year. This sub-segment, which represented 28% of commercial aerospace sales in 2008, continues to be vulnerable to further declines.

Space & Defense: Net sales decreased $0.3 million, or 0.4% (increased 2.8% on a constant currency basis), to $74.7 million for the first quarter of 2009. Net sales for the six months ended June 30, 2009 increased $2.7 million, or 1.8% (5.3% on a constant currency basis) to $152.0 million. This market performed well reflecting continued growth in global rotorcraft sales, which accounted for over half of Space & Defense sales again this quarter. The impact of foreign exchange rates reduced Space and Defense sales by $2.3 million and $4.9 million in the three and six months ended June 30, 2009, respectively.

Industrial: Net sales decreased $21.0 million, or 24.5% (a decrease of 15.6% on a constant currency basis), to $64.8 million for the second quarter of 2009. Net sales for the six months ended June 30, 2009 decreased $23.1 million or 14.1% (a decrease of 3.7% on constant currency basis) to $141.0 million. Wind energy remains over half the industrial market, with recreation, auto and other industrial sub-markets comprising the rest of this market. The decrease for the quarter reflects lower wind energy and automotive sub-markets partly offset by sales to the American Centrifuge Project. Wind energy sales for the six month period are now flat in constant currency as compared to the first half of 2008. Also contributing to the decline in the six month period were the expected year over year constant dollar declines in automotive, recreation and certain other industrial markets. The declines were partly offset by the sales to the American Centrifuge Project. The impact of foreign exchange rates reduced Industrial sales by $9.0 million and $17.8 million in the three and six months ended June 30, 2009, respectively.

                                  Gross Margin



                           Quarter Ended June 30,                    Six-Months Ended June 30,
(In millions)               2009           2008       % Change         2009             2008        % Change
Gross margin             $      63.1    $      76.1       (17.1 )% $       140.1    $       156.2       (10.3 )%
Percentage of sales             22.8 %         21.2 %                       24.0 %           22.2 %

The decrease in gross margin of $13.0 million for the second quarter of 2009 and $16.1 million for the first six months of 2009 resulted primarily from lower sales volume, partially offset by improved performance. The gross margin percentage improvement for both periods was the result of favorable product mix, factory productivity and cost reduction initiatives, incremental improvements at our new European facilities, lower commodity and freight costs and good cost control. The stronger dollar also provides a benefit against the Euro and British pound cost base at our European plants. Foreign exchange rates contributed about 50 basis points to the quarter's improved gross margin percentage over last year and 60 basis points on a year-to-date basis

Depreciation and amortization expense, included in cost of sales during the quarter increased $0.2 million to $10.4 million, though on a constant currency basis the expense increased by $1.0 million. For the first half of 2009, depreciation and amortization expense increased $0.2 million to $20.3 million, though on a constant currency basis the expense increased $1.7 million.

Selling, General and Administrative Expenses ("SG&A")

                           Quarter Ended June 30,                      Six-Months Ended June 30,
(In millions)               2009           2008       % Change          2009               2008        % Change
SG&A expense             $      25.3    $      30.0       (15.7 )% $         54.6     $         62.0       (11.9 )%
Percentage of sales              9.1 %          8.3 %                         9.3 %              8.8 %

On a constant currency basis, SG&A expenses for the second quarter and six-month period decreased about 10% and 5%, respectively, from last year, reflecting headcount reductions and overall tight cost control which more than offset inflationary increases.

                           Quarter Ended June 30,                       Six-Months Ended June 30,
(In millions)               2009             2008       % Change         2009               2008        % Change
R&T expense             $        6.4     $        8.0      (20.0 )% $         14.2     $         16.5      (13.9 )%
Percentage of sales              2.3 %            2.2 %                        2.4 %              2.3 %

On a constant currency basis, R&T expenses for the quarter and six months ended June 30, 2009 decreased about 10% and 3% respectively, from last year, reflecting effective cost controls and lower qualification costs for new airplane programs in the current year.