Hexcel Corp 10-Q for FY2023 Q1
Hexcel Corp (HXL)
About this 10-Q
Hexcel Corp filed this 10-Q on April 24, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $457.7M
- up 17.2% from $390.6M a year earlier
- Net income
- $42.7M
- up 139.9% from net income of $17.8M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
or
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Outstanding at April 20, 2023 |
COMMON STOCK |
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HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
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PART I. |
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ITEM 1. |
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Condensed Consolidated Balance Sheets — March 31, 2023 and December 31, 2022 |
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Condensed Consolidated Statements of Operations — The quarters ended March 31, 2023 and 2022 |
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Condensed Consolidated Statements of Comprehensive Income — The quarters ended March 31, 2023 and 2022 |
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Condensed Consolidated Statements of Cash Flows — The quarters ended March 31, 2023 and 2022 |
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ITEM 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 6. |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
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(Unaudited) |
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March 31, |
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December 31, |
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(In millions) |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Contract assets |
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Prepaid expenses and other current assets |
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Assets held for sale |
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Total current assets |
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Property, plant and equipment |
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Less accumulated depreciation |
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Net property, plant and equipment |
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Goodwill and other intangible assets, net |
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Investments in affiliated companies |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Short-term borrowings |
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$ |
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$ |
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Accounts payable |
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Accrued compensation and benefits |
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Financial instruments |
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Accrued liabilities |
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Total current liabilities |
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Long-term debt |
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Retirement obligations |
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Deferred income taxes |
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Other non-current liabilities |
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Total liabilities |
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Stockholders' equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Less – Treasury stock, at cost, |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Hexcel Corporation and Subsidiaries |
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Condensed Consolidated Statements of Operations |
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(Unaudited) |
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Quarter Ended March 31, |
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(In millions, except per share data) |
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2023 |
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2022 |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross margin |
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Selling, general and administrative expenses |
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Research and technology expenses |
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Other operating expense |
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Operating income |
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Interest expense, net |
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Income before income taxes, and equity in earnings from affiliated companies |
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Income tax expense |
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Income before equity in earnings from affiliated companies |
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Equity in earnings from affiliated companies |
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Net income |
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$ |
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$ |
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Basic net income per common share |
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$ |
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$ |
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Diluted net income per common share |
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$ |
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$ |
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Weighted-average common shares: |
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Basic |
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Diluted |
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Hexcel Corporation and Subsidiaries |
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Condensed Consolidated Statements of Comprehensive Income |
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(Unaudited) |
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Quarter Ended March 31, |
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(In millions) |
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2023 |
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2022 |
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Net income |
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$ |
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$ |
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Currency translation adjustments |
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Net unrealized pension and other benefit actuarial gains and prior service credits (net of tax) |
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Net unrealized gain (loss) on financial instruments (net of tax) |
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Total other comprehensive income (loss) |
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Comprehensive income |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
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(Unaudited) |
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Three Months Ended March 31, |
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(In millions) |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Reconciliation to net cash used for operating activities: |
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Depreciation and amortization |
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Amortization related to financing |
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Deferred income taxes |
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Equity in earnings from affiliated companies |
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Stock-based compensation |
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Restructuring expenses, net of payments |
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Impairment of assets |
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Changes in assets and liabilities: |
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Increase in accounts receivable |
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Increase in inventories |
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Decrease (increase) in prepaid expenses and other current assets |
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(Decrease) increase in accounts payable/accrued liabilities |
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Other – net |
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Net cash used for operating activities |
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Cash flows from investing activities |
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Capital expenditures |
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Net cash used for investing activities |
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Cash flows from financing activities |
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Borrowing from senior unsecured credit facility - 2024 |
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Repayment of senior unsecured credit facility - 2024 |
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Repayment of finance lease obligation and other debt, net |
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Dividends paid |
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Activity under stock plans |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental data: |
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Accrual basis additions to plant, property and equipment |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the Quarters ended March 31, 2023, and March 31, 2022
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Accumulated |
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Additional |
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Other |
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Total |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders’ |
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(In millions) |
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Par |
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Capital |
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Earnings |
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Loss |
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Stock |
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Equity |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Dividends on common stock ($ |
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— |
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— |
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( |
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— |
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— |
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( |
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Change in other comprehensive income (loss)– net of tax |
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— |
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— |
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— |
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— |
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Stock-based activity |
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— |
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— |
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— |
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Balance, March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Accumulated |
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Additional |
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Other |
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Total |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders’ |
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(In millions) |
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Par |
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Capital |
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Earnings |
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Loss |
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Stock |
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Equity |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Dividends on common stock ($ |
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— |
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— |
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( |
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— |
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— |
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Change in other comprehensive income (loss)– net of tax |
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— |
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— |
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— |
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— |
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Stock-based activity |
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— |
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— |
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— |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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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, 2022 for a discussion of our significant accounting policies.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared from the unaudited accounting records of Hexcel pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the SEC. In the opinion of management, the condensed consolidated financial statements include all normal recurring adjustments as well as any non-recurring adjustments necessary to present fairly the statement of financial position, results of operations, cash flows and statement of stockholders’ equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2022 was derived from the audited 2022 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 2022 Annual Report on Form 10-K.
Investments in Affiliated Companies
Assets Held for Sale
In November 2020, we closed our wind energy prepreg production facility in Windsor, Colorado and in 2022 we further reduced the carrying value of the Windsor facility by approximately $
Note 2 — Net Income Per Common Share
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Quarter Ended March 31, |
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(In millions, except per share data) |
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2023 |
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2022 |
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Basic net income per common share: |
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Net income |
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$ |
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$ |
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Weighted average common shares outstanding |
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Basic net income per common share |
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$ |
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$ |
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Diluted net income per common share: |
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Net income |
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$ |
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$ |
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Weighted average common shares outstanding — Basic |
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Plus incremental shares from assumed conversions: |
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Restricted stock units |
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Stock options |
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Weighted average common shares outstanding — Dilutive |
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Diluted net income per common share |
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$ |
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$ |
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Total common stock equivalents of
7
Note 3 — Inventories
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(In millions) |
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March 31, 2023 |
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December 31, 2022 |
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Raw materials |
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$ |
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$ |
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Work in progress |
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Finished goods |
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Total Inventory |
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$ |
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$ |
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||
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, 2023 and 2022 were as follows:
|
|
Quarter Ended March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
U.S. Nonqualified Defined Benefit Retirement Plans |
|
|
|
|
|
|
||
Service cost |
|
$ |
|
|
$ |
|
||
Interest cost |
|
|
|
|
|
|
||
Net amortization |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
(In millions) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans: |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
|
|
Quarter Ended March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
European Defined Benefit Retirement Plans |
|
|
|
|
|
|
||
Service cost |
|
$ |
|
|
$ |
|
||
Interest cost |
|
|
|
|
|
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Net amortization and deferral |
|
|
|
|
|
|
||
Net periodic benefit cost |
|
$ |
|
|
$ |
|
||
(In millions) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Amounts recognized on the balance sheet for European defined benefit retirement plans: |
|
|
|
|
|
|
||
Other assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
Total accrued benefit |
|
$ |
|
|
$ |
|
||
8
All costs related to our pensions are included as a component of operating income in our Condensed Consolidated Statements of Operations. For both the three months ended March 31, 2023 and 2022, amounts unrelated to service costs were a charge of $
Contributions
We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred. We contributed approximately $
Contributions to our European defined benefit retirement plans during the three months ended March 31, 2023 and 2022 were not material. We plan to contribute approximately $
Postretirement Health Care and Life Insurance Benefit Plans
We recorded $
(In millions) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Amounts recognized on the balance sheet: |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
Total accrued benefit |
|
$ |
|
|
$ |
|
||
Amounts contributed in connection with our postretirement plans were immaterial for both the three months ended March 31, 2023 and 2022. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute approximately $
Note 5 –– Debt
(In millions) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Current portion of finance lease |
|
$ |
|
|
$ |
|
||
Current portion of debt |
|
|
|
|
|
|
||
Senior unsecured credit facility |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Senior notes --- original issue discount |
|
|
( |
) |
|
|
( |
) |
Senior notes --- deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Non-current portion of finance lease and other debt |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Total debt |
|
$ |
|
|
$ |
|
||
In June 2019, the Company refinanced its senior unsecured credit facility (the “Facility”), increasing borrowing capacity from $
In September 2020, we amended the Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period.
9
As of March 31, 2023, total borrowings under the Facility were $
In 2017, the Company issued $
In 2015, the Company issued $
Note 6 — Derivative Financial Instruments
Interest Rate Swap and Interest Lock Agreements
At March 31, 2023 and December 31, 2022, we had
The Company had treasury lock agreements, designated as cash flow hedges, to protect against unfavorable movements in the benchmark treasury rate related to the issuance of our senior unsecured notes. As part of the issuance of our senior notes, we net settled these derivatives for $
Cross Currency and Interest Rate Swap Agreements
In November 2020, we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a €
Foreign Currency Forward Exchange Contracts
A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British pound sterling. We have entered into contracts to exchange U.S. dollars for Euros and British pound sterling through November 2025. The aggregate notional amount of these contracts was $
10
assets ($
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
The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive loss for the quarters ended March 31, 2023 and March 31, 2022 was as follows:
|
|
Quarter Ended March 31, |
|
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
||
Unrealized losses at beginning of period, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
Losses reclassified to net sales |
|
|
|
|
|
|
|
||
Increase (decrease) in fair value |
|
|
|
|
|
( |
) |
|
|
Unrealized losses at end of period, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
Unrealized losses of $
Commodity Swap Agreements
Note 7 — Fair Value Measurements
The authoritative guidance for fair value measurements establishes a hierarchy for observable and unobservable inputs used to measure fair value, into three broad levels, which are described below:
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk in our assessment of fair value.
We have
For derivative assets and liabilities that utilize Level 2 inputs, we prepare estimates of future cash flows of our derivatives, which are discounted to a net present value. The estimated cash flows and the discount factors used in the valuation model are based on observable inputs, and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset
11
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 $
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,
Note 8 — Revenue
Our revenue is primarily derived from the sale of inventory under long-term contracts with our customers. We have determined that individual purchase orders (“PO”), the terms and conditions of which are taken with a master agreement, create the ASC 606 contracts, which are generally short-term in nature. For those sales that are not tied to a long-term agreement, we generate a PO that is subject to our standard terms and conditions. In instances where our customers acquire our goods related to government contracts, the contracts are typically subject to terms similar, or equal to, the Federal Acquisition Regulation Part 52.249-2. This regulation contains a termination for convenience clause (“T for C”), which requires that the customer pay for the cost of both the finished and unfinished goods at the time of cancellation plus a reasonable profit.
We recognize revenue over time for those agreements that have T for C, and where the products being produced have no alternative use.
We disaggregate our revenue based on market for analytical purposes.
|
|
Quarter Ended March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Consolidated Net Sales |
|
$ |
|
|
$ |
|
||
Commercial Aerospace |
|
|
|
|
|
|
||
Space & Defense |
|
|
|
|
|
|
||
Industrial |
|
|
|
|
|
|
||
Revenue recognized over time gives rise to contract assets, which represent revenue recognized but unbilled. Contract assets are included in our Condensed Consolidated Balance Sheets as a component of current assets.
(In millions) |
|
Composite Material |
|
|
Engineered Products |
|
|
Total |
|
|||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net revenue billed |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
12
Note 9 — Segment Information
The financial results for our operating segments are prepared using a management approach, which is consistent with the basis and manner in which we internally segregate financial information for the purpose of assisting in making internal operating decisions. We evaluate the performance of our operating segments based on operating income, and generally account for intersegment sales based on arm’s length prices. Corporate and certain other expenses are not allocated to the operating segments, except to the extent that the expense can be directly attributable to the business segment.
Financial information for our operating segments for the three months ended March 31, 2023 and 2022 were as follows:
|
|
(Unaudited) |
|
|||||||||||||
|
|
Composite |
|
|
Engineered |
|
|
Corporate & |
|
|
|
|
||||
(In millions) |
|
Materials |
|
|
Products |
|
|
Other (a) |
|
|
Total |
|
||||
Quarter Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intersegment sales |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
457.7 |
|
||
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrual basis additions to capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Quarter Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intersegment sales |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
390.6 |
|
||
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrual basis additions to capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill and Intangible Assets |
|
Composite |
|
|
Engineered |
|
|
|
|
|||
(In millions) |
|
Materials |
|
|
Products |
|
|
Total |
|
|||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Amortization expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|||
Balance at March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
13
Note 10 — Accumulated Other Comprehensive Loss
Comprehensive loss represents net loss and other gains and losses affecting stockholders’ equity that are not reflected in the Condensed Consolidated Statements of Operations.
(In millions) |
|
Unrecognized |
|
|
Change in Fair |
|
|
Foreign |
|
|
Total |
|
||||
Balance at December 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Amounts reclassified from accumulated other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at March 31, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
The amount of net (gains) losses reclassified to earnings from the unrecognized net defined benefit and postretirement plan costs and derivative products components of accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022 were as follows:
|
|
Quarter Ended March 31, 2023 |
|
|
Quarter Ended March 31, 2022 |
|
||||||||||
(In millions) |
|
Pre-tax (gain) loss |
|
|
Net of tax (gain) loss |
|
|
Pre-tax (gain) loss |
|
|
Net of tax (gain) loss |
|
||||
Defined Benefit and Postretirement Plan Costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative Products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity swaps |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Interest rate swaps |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total Derivative Products |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Note 11 — Commitments and Contingencies
We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. While it is impossible to predict the ultimate resolution of litigation, investigations and claims asserted against us, we believe, based upon our examination of currently available information, our experience to date, and advice from legal counsel, that, after taking into account our existing insurance coverage and amounts already provided for, the currently pending legal proceedings against us will not have a material adverse impact on our consolidated results of operations, financial position or cash flows.
Environmental Matters
We have been named as a potentially responsible party (“PRP”) with respect to the below and other hazardous waste disposal sites that we do not own or possess, which are included on, or proposed to be included on, the Superfund National Priority List of the U.S. Environmental Protection Agency (“EPA”) or on equivalent lists of various state governments. Because the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) allows for joint and several liability in certain circumstances, we could be responsible for all remediation costs at such sites, even if we are one of many PRPs. We believe, based on the amount and nature of the hazardous waste at issue, and the number of other financially viable PRPs at each site, that our liability in connection with such environmental matters will not be material.
Lower Passaic River Study Area
Hexcel, together with approximately
14
Investigation/Feasibility Study of environmental conditions of a
In March 2016, the EPA issued a Record of Decision (“ROD”) setting forth the EPA’s selected remedy for the lower
In October 2016, pursuant to a settlement agreement with the EPA, Occidental Chemical Corporation (“OCC”), one of the PRPs, commenced performance of the remedial design required by the ROD for the lower
On December 16, 2022, the EPA lodged a Consent Decree with the U.S. District Court for the District of New Jersey requesting court approval of a $
In March 2023, the EPA issued a Unilateral Administrative Order (“UAO”) to OCC ordering OCC to commence remedial design work for the interim remedy for the cleanup of the upper nine miles of the Lower Passaic River. On March 24, 2023, OCC filed suit against Hexcel and approximately
Summary of Environmental Reserves
Our estimate of liability as a PRP and our remaining costs associated with our responsibility to remediate the Lower Passaic River and other sites are accrued in the Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, our aggregate were $
These accruals can change significantly from period to period due to such factors as additional information on the nature or extent of contamination, the methods of remediation required, changes in the apportionment of costs among responsible parties and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.
Product Warranty
We provide standard assurance-type warranties for our products, which cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Warranty expense for the three months ended March 31, 2023, and accrued warranty cost, included in “accrued liabilities” in the Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022, were as follows:
|
|
Product |
|
|
(In millions) |
|
Warranties |
|
|
Balance as of December 31, 2022 |
|
$ |
|
|
Warranty expense |
|
|
|
|
Deductions and other |
|
|
( |
) |
Balance as of March 31, 2023 |
|
$ |
|
|
15
Note 12 — Restructuring
We recognized restructuring charges of $
|
|
|
|
Activity for the Quarter Ended March 31, 2023 |
|
|
|
|
|||||||||||||||
|
December 31, |
|
|
Restructuring |
|
|
|
|
|
Cash |
|
|
|
|
|
March 31, |
|
||||||
(In Millions) |
2022 |
|
|
Charge |
|
|
FX Impact |
|
|
Paid |
|
|
Non-Cash |
|
|
2023 |
|
||||||
Employee termination |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
16
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
We develop, manufacture, and market lightweight, high-performance structural materials, including carbon fiber, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, resins, engineered core and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. We propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are lighter, stronger and tougher, helping to create a better world for us all.
We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Europe, Asia Pacific, India, and Africa. We also have a presence in Malaysia where we are a partner in a joint venture which manufactures composite structures for Commercial Aerospace applications.
We are a manufacturer of products within a single industry: Advanced Composites. We have two reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product lines and pultruded profiles. The Engineered Products segment is comprised of lightweight high strength composite structures, radio frequency/electromagnetic interference (“RF/EMI”) and microwave absorbing materials, engineered core and specialty machined honeycomb products with added functionality and thermoplastic additive manufacturing.
The Commercial Aerospace market is now recovering strongly following the severe negative economic impacts on this industry resulting from the COVID-19 pandemic that began in 2020, and our business is continuing to recover robustly driven by growth in air travel and an increase in aircraft build rates. The recovery has created many challenges across industrial markets, including those that Hexcel operates in, related to global logistics, supply chains, labor constraints, and inflationary pressures. Geopolitical issues also remain a challenge, notably the Russian/Ukraine conflict, which has little direct material impact on our business, but is indirectly creating further challenges for energy supply, global logistics and certain raw material availability, all of which have and may continue to compress our financial results.
Financial Overview
Results of Operations
|
|
Quarter Ended March 31, |
|
|||||||||
(In millions, except per share data) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Net sales |
|
$ |
457.7 |
|
|
$ |
390.6 |
|
|
|
17.2 |
% |
Net sales change in constant currency |
|
|
|
|
|
|
|
|
18.0 |
% |
||
Operating income |
|
$ |
62.8 |
|
|
$ |
30.1 |
|
|
|
108.6 |
% |
As a percentage of net sales |
|
|
13.7 |
% |
|
|
7.7 |
% |
|
|
|
|
Net income |
|
$ |
42.7 |
|
|
$ |
17.8 |
|
|
|
139.9 |
% |
Diluted net income per common share |
|
$ |
0.50 |
|
|
$ |
0.21 |
|
|
|
138.1 |
% |
17
Net Sales
The following table summarizes net sales to third-party customers by segment and end market for the quarters ended March 31, 2023 and 2022:
|
|
Quarter Ended March 31, |
|
|||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Consolidated Net Sales |
|
$ |
457.7 |
|
|
$ |
390.6 |
|
|
|
17.2 |
% |
Commercial Aerospace |
|
|
284.5 |
|
|
|
218.9 |
|
|
|
30.0 |
% |
Space & Defense |
|
|
126.2 |
|
|
|
118.2 |
|
|
|
6.8 |
% |
Industrial |
|
|
47.0 |
|
|
|
53.5 |
|
|
|
(12.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|||
Composite Materials |
|
$ |
378.2 |
|
|
$ |
313.8 |
|
|
|
20.5 |
% |
Commercial Aerospace |
|
|
243.2 |
|
|
|
184.8 |
|
|
|
31.6 |
% |
Space & Defense |
|
|
88.8 |
|
|
|
76.6 |
|
|
|
15.9 |
% |
Industrial |
|
|
46.2 |
|
|
|
52.4 |
|
|
|
(11.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|||
Engineered Products |
|
$ |
79.5 |
|
|
$ |
76.8 |
|
|
|
3.5 |
% |
Commercial Aerospace |
|
|
41.3 |
|
|
|
34.1 |
|
|
|
21.1 |
% |
Space & Defense |
|
|
37.4 |
|
|
|
41.6 |
|
|
|
(10.1 |
)% |
Industrial |
|
|
0.8 |
|
|
|
1.1 |
|
|
|
(27.3 |
)% |
Sales by Segment
Composite Materials: Net sales of $378.2 million in the first quarter of 2023 increased by $64.4 million or 20.5% from the prior year quarter. Commercial Aerospace sales increased $58.4 million or 31.6% in the first quarter of 2023 as compared to the prior year quarter primarily due to growth in the Airbus A350 and A320neo programs as well as expanding business jet demand.
Engineered Products: For the first quarter of 2023, net sales of $79.5 million increased $2.7 million or 3.5% as compared to the prior year quarter. The increase was driven by higher Commercial Aerospace sales which were up $7.2 million or 21.1% in the first quarter of 2023 as compared to the same period in 2022, partially offset by lower Space & Defense sales.
Sales by Market
Commercial Aerospace sales of $284.5 million increased $65.6 million or 30.0% (30.0% in constant currency) for the first quarter of 2023 compared to the first quarter of 2022 from growth in the Airbus A350 and A320neo programs. Other Commercial Aerospace increased 23.5% for the first quarter of 2023 compared to the first quarter of 2022 on expanding business jet demand.
Space & Defense sales of $126.2 million increased 6.8% (7.6% in constant currency) for the first quarter of 2023 compared to the first quarter of 2022 with growth across a number of platforms globally, including fixed-wing aircraft and both military and civilian rotorcraft.
Total Industrial sales in the first quarter of 2023 of $47.0 million decreased 12.1% (9.1% in constant currency) compared to the first quarter of 2022, due to lower wind energy sales that were partially offset by sales growth in recreation, automotive and other industrial markets.
Gross Margin
|
|
Quarter Ended March 31, |
|
|
|||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
|||
Gross margin |
|
$ |
127.7 |
|
|
$ |
86.7 |
|
|
|
47.3 |
% |
|
Percentage of sales |
|
|
27.9 |
% |
|
|
22.2 |
% |
|
|
|
|
|
Gross margin for the first quarter of 2023 and 2022 was 27.9% and 22.2%, respectively. The improvement in the first quarter of 2023 compared to the same period last year was primarily due to favorable absorption and product mix.
18
Operating Expenses
|
|
Quarter Ended March 31, |
|
|
|||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
|||
SG&A expense |
|
$ |
50.8 |
|
|
$ |
44.7 |
|
|
|
13.6 |
% |
|
Percentage of sales |
|
|
11.1 |
% |
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
R&T expense |
|
$ |
13.9 |
|
|
$ |
10.9 |
|
|
|
27.5 |
% |
|
Percentage of sales |
|
|
3.0 |
% |
|
|
2.8 |
% |
|
|
|
|
|
Selling, general and administrative expenses were higher for the three months ended March 31, 2023 compared to the same period in 2022, although the current quarter expenses were lower as a percentage of sales. The increase in selling, general and administrative expenses for the current quarter was primarily driven by higher employee-related expenses. Research and technology expenses were higher than the prior year period primarily due to higher employee-related and materials and supplies expenses in the current year period.
Operating Income
|
|
Quarter Ended March 31, |
|
|||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Consolidated operating income |
|
$ |
62.8 |
|
|
$ |
30.1 |
|
|
|
108.6 |
% |
Operating margin |
|
|
13.7 |
% |
|
|
7.7 |
% |
|
|
|
|
Composite Materials |
|
|
73.2 |
|
|
|
42.6 |
|
|
|
71.8 |
% |
Operating margin |
|
|
18.4 |
% |
|
|
12.9 |
% |
|
|
|
|
Engineered Products |
|
|
12.0 |
|
|
|
10.6 |
|
|
|
13.2 |
% |
Operating margin |
|
|
14.9 |
% |
|
|
13.7 |
% |
|
|
|
|
Corporate & Other |
|
|
(22.4 |
) |
|
|
(23.1 |
) |
|
N/M |
|
|
Operating income for the first quarter of 2023 and 2022 was $62.8 million and $30.1 million, respectively. The increase in operating income for the first quarter of 2023 over the same period last year was primarily driven by higher sales in all markets and strong gross margins.
Interest Expense, Net
|
|
Quarter Ended March 31, |
|
|||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Interest expense, net |
|
$ |
9.4 |
|
|
$ |
9.1 |
|
|
|
3.3 |
% |
Interest expense for the first quarter ended March 31, 2023 was higher compared to the first quarter of 2022 due to higher interest rates.
Provision for Income Taxes
|
|
Quarter Ended March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Income tax expense |
|
$ |
11.7 |
|
|
$ |
4.7 |
|
Effective tax rate |
|
|
21.9 |
% |
|
|
22.5 |
% |
The tax expense for the three months ended March 31, 2023 was $11.7 million compared to a tax expense of $4.7 million for the quarter ended March 31, 2022.
Financial Condition
Liquidity: Cash on hand at March 31, 2023 was $105.7 million as compared to $112.0 million at December 31, 2022. As of March 31, 2023, total debt was $768.7 million as compared to $723.5 million at December 31, 2022.
Under the senior unsecured credit facility (the "Facility"), total borrowings at March 31, 2023 were $70 million, which approximated fair value. The Facility agreement permits us to issue letters of credit up to an aggregate amount of $50 million. As of March 31, 2023, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $680 million. The weighted average interest rate for the Facility was 6.1% for the three months ended March 31, 2023. The remaining
19
authorization under the share repurchase program at March 31, 2023 was $217 million. For further information regarding our Facility, see Note 5, Debt, to the accompanying condensed consolidated financial statements of this Form 10-Q.
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 March 31, 2023, long-term liquidity requirements consisted 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.
On April 24, 2023, our Board of Directors declared a quarterly dividend of $0.125 per share payable to stockholders of record as of May 5, 2023, with a payment date of May 12, 2023.
Operating Activities: Net cash used for operating activities for the first three months of 2023 was $23.4 million compared to $19.0 million for the same period last year. Working capital was a cash use of $104.0 million for the first three months of 2023, which supported sales growth, compared to a use of $74.3 million in the same period in 2022. The increase in the current year was primarily driven by higher payments of payables and higher inventory.
Investing Activities: Net cash used for investing activities was $18.1 million and $20.9 million in the first three months of 2023 and 2022, respectively, reflecting a slight decline in capital expenditures.
Financing Activities: Net cash provided by financing activities was $34.8 million for first three months of 2023 compared to $25.9 million in the same period in 2022. Borrowings under the Facility during the first quarter of 2023 were $65.0 million and repayments were $20.0 million compared to $35.0 million in borrowings and no repayments for the same period in the prior year. Quarterly dividend payments to shareholders were $10.5 million during the first quarter of 2023 compared to $8.5 million in the first quarter of 2022.
Financial Obligations and Commitments: The next significant scheduled debt maturity will not occur until 2024, when the Facility matures. Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases.
20
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews accounting policies, assumptions, estimates and judgments to ensure our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our assumptions and estimates, and such differences could be material.
We describe our significant accounting policies and critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Commitments and Contingencies
We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors, including the stage of the proceeding; potential settlement value; assessments by internal and external counsel; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and circumstances may change, such as new developments, or a change in approach, including a change in settlement strategy or in an environmental remediation plan, or in our existing insurance coverage, that could cause the actual liability to exceed the estimates, or may require adjustments to the recorded liability balances in the future. For further discussion, see Note 11, Commitments and Contingencies, to the accompanying Condensed Consolidated Financial Statements of this Form 10-Q.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures, including sales and expenses measured in constant dollars (prior year sales and expenses measured at current year exchange rates); operating income, net income and earnings per share adjusted for items included in operating expense and non-operating expenses; and free cash flow. Management believes these non-GAAP measures are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results and comparisons to prior periods. These adjustments can represent significant charges or credits that we believe are important to an understanding of Hexcel’s overall operating results in the periods presented. Such non-GAAP measures are not determined in accordance with generally accepted accounting principles and should not be viewed in isolation or as an alternative to or substitutes for GAAP measures of performance. Our calculation of these measures may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance. Reconciliations to adjusted operating income, adjusted net income, adjusted diluted net income per share and free cash flow are provided below.
|
|
Operating Income |
|
||||||
|
Quarter Ended March 31, |
|
|||||||
(In millions) |
2023 |
|
|
2022 |
|
||||
GAAP operating income |
|
$ |
62.8 |
|
|
|
$ |
30.1 |
|
Other operating expense (a) |
|
|
0.2 |
|
|
|
|
1.0 |
|
Adjusted operating income (non-GAAP) |
|
$ |
63.0 |
|
|
|
$ |
31.1 |
|
|
|
Quarter Ended March 31, |
|
||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|||||||||||||
(In millions, except per diluted share data) |
|
Net Income |
|
|
Diluted Net Income Per Share |
|
|
Net Income |
|
Diluted Net Income Per Share |
|
||||||||
GAAP net income |
|
|
$ |
42.7 |
|
|
|
$ |
0.50 |
|
|
$ |
17.8 |
|
|
|
$ |
0.21 |
|
Other operating expense, net of tax (a) |
|
|
|
0.2 |
|
|
|
|
- |
|
|
|
0.8 |
|
|
|
|
0.01 |
|
Adjusted net income (non-GAAP) |
|
|
$ |
42.9 |
|
|
|
$ |
0.50 |
|
|
$ |
18.6 |
|
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
21
|
|
Quarter Ended March 31, |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
Net cash used for operating activities |
|
$ |
(23.4 |
) |
|
$ |
(19.0 |
) |
Less: Capital expenditures |
|
|
(18.1 |
) |
|
|
(20.9 |
) |
Free cash flow (non-GAAP) |
|
$ |
(41.5 |
) |
|
$ |
(39.9 |
) |
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “seek,” “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 provided by Airbus, Boeing and others; (b) the revenues we may generate from an aircraft model or program; (c) the impact of the 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 impact of regulatory activity related to, or the build rate of, the Boeing 737 MAX or Boeing 787 and the related impact on our revenues; (e) expectations with regard to raw material cost and availability; (f) expectations of composite content on new commercial aircraft programs and our share of those requirements; (g) expectations regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; (h) expectations regarding sales for wind energy, recreation, automotive and other industrial applications; (i) expectations regarding working capital trends and expenditures and inventory levels; (j) expectations as to the level of capital expenditures and timing of completion of capacity expansions and qualification of new products; (k) expectations regarding our ability to improve or maintain margins; (l) expectations regarding our ability to attract, motivate, and retain the workforce necessary to execute our business strategy; (m) projections regarding our tax rate; (n) expectations with regard to the continued impact of macroeconomic factors and the conflict between Russia and Ukraine; (o) expectations regarding our strategic initiatives and other goals, including, but not limited to, our sustainability goals; (p) expectations regarding the sale of certain of our assets; (q) expectations with regard to cybersecurity measures taken to protect confidential and proprietary information; (r) expectations regarding the outcome of legal matters or the impact of changes in laws or regulations or government policies; and (s) the anticipated impact of the above factors and various market risks on our expectations of financial results for 2023 and beyond.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, that may cause actual results to be materially different. Such factors include, but are not limited to, the following: the extent of the impact of the conflict between Russia and Ukraine and the ongoing market recovery following the COVID-19 pandemic, including continued disruption in global financial markets and supply chains, and labor shortages; reductions in sales to any significant customers, particularly Airbus or Boeing, including related to regulatory activity impacting the Boeing 737 MAX or the Boeing 787 or other geopolitical events or conditions, including the Russia/Ukraine conflict; our ability to effectively adjust production and inventory levels to align with customer demand; our ability to effectively motivate, retain and hire the necessary workforce; availability and cost of raw materials, including the impact of supply shortages and inflation; supply chain disruptions, which have been exacerbated by the conflict between Russia and Ukraine; our ability to successfully implement or realize our business strategies, plans, goals and objectives of management, including our sustainability goals and any restructuring or alignment activities in which we may engage; changes in sales mix; changes in current pricing and cost levels, including cost inflation, as well as increasing energy prices resulting from the conflict between Russia and Ukraine; 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; our ability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; cybersecurity-related risks, including the potential impact of breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic conditions, including, but not limited to, the effect of change in global trade policies, such as sanctions imposed as a result of the conflict between Russia and Ukraine; work stoppages or other labor disruptions; our ability to successfully complete any strategic acquisitions, investments or dispositions; compliance with environmental, health, safety and other related laws and regulations, including those related to climate change; the effects of natural disasters or other severe weather events, which may be worsened by the impact of climate change, and other severe catastrophic events, including any public health crisis; the potential impact of environmental, social and governance matters; and the unexpected outcome of legal matters or impact of changes in laws or regulations.
22
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, 2022. We do not undertake any obligation to update our forward-looking statements or risk factors to reflect future events or circumstances, except as otherwise required by law.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risk from the information provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of March 31, 2023, and with the participation of the Company's management have concluded that these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer have concluded that there have not been any changes in our internal control over financial reporting during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The information required by Item 1 is contained within Note 11 on pages 14 through 15 of this Form 10-Q and is incorporated herein by reference.
ITEM 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition or future results. There have been no material changes in the Company's risk factors from the aforementioned Form 10-K.
ITEMS 2, 3, 4 and 5 are not applicable, and therefore have been omitted.
23
ITEM 6. Exhibits
EXHIBIT INDEX
Exhibit No. |
|
Description |
10.1* 31.1 |
|
Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32 |
|
|
101
|
|
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements.
|
104 |
|
Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and are contained within Exhibit 101. |
* Indicates management contract or compensatory plan or arrangement
24
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Hexcel Corporation |
|
|
|
April 24, 2023 |
|
/s/ Amy S. Evans |
(Date) |
|
Amy S. Evans |
|
|
Senior Vice President, |
|
|
Chief Accounting Officer |
25
Exhibit 10.1
HEXCEL CORPORATION
Nonqualified Deferred Compensation Plan
Effective as of January 1, 2005
Amended and Restated as of January 1, 2023
Table of Contents
Page
ARTICLE I. |
DEFINITIONS |
1 |
ARTICLE II. |
ELIGIBILITY AND BENEFITS |
6 |
2.1 |
PURPOSES |
6 |
2.2 |
ELIGIBILITY |
6 |
2.3 |
APPLICATION TO PARTICIPATE |
6 |
2.4 |
AMOUNT OF ACCRUAL BASED ON DEFERRAL |
8 |
2.5 |
NONQUALIFIED MATCHING CONTRIBUTIONS |
8 |
2.6 |
NONQUALIFIED PROFIT-SHARING CONTRIBUTIONS |
8 |
2.7 |
DEFERRALS FROM NORMAL PAYROLL |
9 |
2.8 |
VESTING |
9 |
2.9 |
FORMS AND TIMES OF BENEFIT PAYMENTS |
9 |
2.10 |
PLAN TERMINATION |
13 |
2.11 |
DESIGNATION OF BENEFICIARY |
13 |
2.12 |
UNFORESEEABLE EMERGENCY PAYMENTS |
13 |
ARTICLE III. |
ADJUSTMENTS TO ACCOUNT BALANCES |
14 |
3.1 |
CREDITS RELATED TO DEFERRAL AND COMPANY CONTRIBUTION ACCOUNTS |
14 |
3.2 |
DEBITS RELATED TO PAYMENTS |
14 |
3.3 |
ESTABLISHMENT OF TRUST AND ADJUSTMENTS TO ACCOUNTS REFLECTING INVESTMENT RETURNS |
14 |
ARTICLE IV. |
PLAN ADMINISTRATION AND CLAIMS FOR BENEFITS |
16 |
4.1 |
GENERAL |
16 |
4.2 |
PRESENTATION OF CLAIM |
16 |
4.3 |
NOTIFICATION OF DECISION |
16 |
4.4 |
REVIEW OF DENIED CLAIM |
17 |
4.5 |
DECISION OF REVIEW |
17 |
4.6 |
LEGAL ACTION |
17 |
|
|
|
ARTICLE V |
MISCELLANEOUS |
18 |
5.1 |
AMENDMENT AND PLAN TERMINATION |
18 |
5.2 |
NOT AN EMPLOYMENT AGREEMENT |
18 |
5.3 |
ASSIGNMENT OF BENEFITS |
18 |
5.4 |
ADMINISTRATION |
18 |
5.5 |
GOVERNING LAW |
18 |
5.6 |
NUMBER AND GENDER |
18 |
5.7 |
ACTIONS OF AFFILIATED EMPLOYERS |
18 |
|
-i- |
|
DEFINITIONS
Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Qualified Plan. In addition, the following capitalized terms used herein shall have the meanings ascribed to them in this Article I.
- 1 -
(1) any Person is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of either (A) the combined fair market value of the then outstanding stock of the Affected Corporation (the “Total Fair Market Value”) or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Affected Corporation (the “Total Voting Power”); excluding, however, the following: (I) any acquisition by the Company or any of its Affiliates, (II) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Affiliates, (III) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (4) below and (IV) any acquisition of additional stock or securities by a Person who owns more than 50% of the Total Fair Market Value or Total Voting Power immediately prior to such acquisition; or
(2) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Affected Corporation that, together with any securities acquired directly or indirectly by such Person within the immediately preceding twelve-consecutive month period, represent 40% or more of the Total Voting Power of the Affected Corporation; excluding, however, any acquisition described in subclauses (I) through (IV) of subsection (1) above; or
(3) a change in the composition of the Board of Directors of the Company (the “Board”) such that the individuals who, as of the Amended and Restated Effective Date, constitute the Board (such individuals shall be hereinafter referred to as the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company’s stockholders, was made or approved by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered an Incumbent Director; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered an Incumbent Director; provided finally, however, that, as of any time, any member of the Board who has been a director for at least twelve consecutive months immediately prior to such time shall be considered an Incumbent Director for purposes of this definition, other than for the purpose of the first proviso of this definition; or
(4) there is consummated a merger or consolidation of the Affected Corporation or any direct or indirect subsidiary of the Affected Corporation or a sale or other disposition of all or substantially all of the assets of the Affected Corporation (“Corporate Transaction”); excluding, however, such a Corporate Transaction (A) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the outstanding common stock of the Affected Corporation and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a company which as a result of such transaction owns the Affected Corporation or all or substantially all of the Affected Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such
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Corporate Transaction of the outstanding common stock and Total Voting Power, as the case may be, and (B) immediately following which the individuals who comprise the board of directors of the Affected Corporation immediately prior thereto constitute at least a majority of the board of directors of the company resulting from such Corporate Transaction (including, without limitation, a company which as a result of such transaction owns the Affected Corporation or all or substantially all of the Affected Corporation’s assets either directly or through one or more subsidiaries);
provided, however, that notwithstanding anything to the contrary in subsections (1) through (4) above, an event which does not constitute a change in the ownership of the Affected Corporation, a change in the effective control of the Affected Corporation, or a change in the ownership of a substantial portion of the assets of the Affected Corporation, each as defined in Treasury Regulations section 1.409A-3(i)(5) (or any successor provision), shall not be considered a Change in Control for purposes of this Plan.
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ELIGIBILITY AND BENEFITS
The purposes of the Plan are (a) to permit Participants whose benefit accruals under the Qualified Plan would be limited in the ordinary course by the Statutory Limits to defer the receipt of compensation under an arrangement that will credit hypothetical investment results to such deferrals at rates determined by the rate of investment returns based on the Participant's selection from among investment funds available under the Qualified Plan (other than gains or losses attributable to the Hexcel Stock Fund); and (b) to provide a vehicle under which Participating Employers may supplement Deferrals made by Participants with matching or other forms of Company Contributions. The Plan is intended to be an unfunded and nonqualified deferred compensation arrangement providing deferred compensation to “a select group of management or other highly compensated employees of the Employers,” within the meaning of that phrase as used in Sections 201(2), 301(a)(3), and 401(a)(1) of the Act, and to defer until actual receipt the point at which each Participant's Accrued Benefit is includable in gross income under the Code, and the Plan will be construed and operated only in conformity with the foregoing statement of intention.
Each Participant shall be eligible to accrue a benefit under the Plan for a Plan Year only if:
a. General. To be eligible to make Deferrals under the Plan during any Plan Year, an Eligible Employee who has been designated and approved as a Participant under Section 2.2(b) must file a written application with the Committee no later than the last business day before the beginning of such Plan Year, or such earlier time as may be designated by the Committee in its discretion. Any electronic enrollment process will be considered to constitute a “written application” for purposes of this Section 2.3, if under applicable law the process is sufficient to result in a valid and binding waiver of any claim to payment of Compensation thereby deferred. The Committee shall make reasonable efforts to notify Eligible Employees of their prospective eligibility to participate in the Plan at least 60 days prior to the beginning of each Plan Year. The application shall become irrevocable at close of business on the last business day before the beginning of such Plan Year, or such earlier time as may be designated by the Committee in its discretion.
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b. Initial Eligibility. The Committee, in its sole discretion, may permit the filing of an application later than the date specified in Section 2.3(a) above, in the case of a person who will become a Participant for the first time during such Plan Year, provided, however, that no application to participate shall be accepted after the 30th day following the date on which such person first meets all the eligibility requirements to participate in the Plan (including, for this purpose, all other plans of the Employer and all Affiliated Employers which would be required to be aggregated with the Plan under Treasury Regulations section 1.409A-1(c)(2) (or any successor provision)) for such Plan Year (other than the filing of the application itself), and provided further that no such application shall result in the deferral of any Compensation for services performed prior to the date on which the application is submitted. The application shall become irrevocable at close of business on the day in which it is submitted. Notwithstanding anything in this Plan to the contrary, if a Participant first becomes eligible after January 10th of a Plan Year, such Participant shall not be permitted to defer any Performance Compensation earned in that Plan Year.
c. Acceptance of Terms. The application for participation in the Plan shall signify (and shall be deemed to be) the Eligible Employee's acceptance of the terms of the Plan.
d. Restoration Deferrals. The application for participation in the Plan shall signify (and shall be deemed to be) the Eligible Employee's election to defer under this Plan the portion of his or her Compensation, determined by multiplying the Participant's Target Deferral Percentage for such Plan Year by the portion of such Compensation that is in excess of his or her Deferral Starting Amount for such Plan Year. The reduction in the Participant's salary or other compensation authorized by the election made pursuant to this paragraph of Section 2.3 will be made as nearly as practicably possible on the same schedule as continued Pre-Tax Contributions would have been made if the Statutory Limits did not apply and the Participant's Target Deferral Percentage were unchanged throughout the Plan Year.
e. Supplemental Deferrals. If so provided by the Committee, the Participating Employer, and the Participant, the application for participation in the Plan may include an election by the Eligible Employees to defer under this Plan an additional portion of his or her Base Compensation in excess of the amount to be deferred pursuant to Section 2.3(d).
f. Performance Compensation Deferrals. If so provided by the Committee, the Participating Employer, and the Participant, the application for participation in the Plan may include an election by the Eligible Employees to defer under this Plan an additional portion of his or her Performance Compensation in excess of the amount to be deferred pursuant to Section 2.3(d). Any election to defer the receipt of Performance Compensation under this Plan shall be made on or before the date which is six months prior to the last day of the performance period over which the services for which the Performance Compensation is paid are provided (or such earlier date as may be provided by the Committee in its discretion) and shall become irrevocable as of such date; provided, however, that (i) the Participant has performed services continuously for the Employer or an Affiliated Employer from the later of (a) the beginning of such performance period and (b) the date on which the performance criteria with respect to the Performance Compensation were established, through the date on which the election is made, and (ii) the portion of the Performance Compensation with respect to which the election is made is not both calculable and substantially certain to be paid at the time of the election.
g. Agreement to Salary Reduction. The application for participation in the Plan shall signify (and shall be deemed to be) the Eligible Employee's agreement that the Deferrals he or she elects shall reduce the amount of salary and other compensation he or she will receive for the Plan Year in the manner and on the schedule prescribed under this Plan.
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h. Cancellation of Deferrals for Unforeseeable Emergency. In the event a Participant applies for and receives an Unforeseeable Emergency distribution in accordance with Section 2.12 below, the Participant’s deferral elections for the remainder of the Plan Year shall be cancelled.
Each Participant shall accrue a benefit for a Plan Year in the form of a credit to his or her Deferral Account equal to the amount of his or her Compensation for the Plan Year deferred pursuant to the Participant's elections under Section 2.3.
If the amount credited to the account of a Participant under the Qualified Plan for a Plan Year is reduced after the close of such Plan Year as a corrective action deemed necessary by the Administrator of the Qualified Plan to satisfy a Statutory Limit, no corresponding credit shall be made under this Plan.
Each Participant may be eligible to accrue a benefit under the Plan in the form of a Nonqualified Matching Contribution for a Plan Year only in accordance with this Section 2.5.
Each Participant may be eligible to accrue a benefit under the Plan in the form of a Nonqualified Basic Profit-Sharing Contribution and/or a Nonqualified Discretionary Profit-Sharing Contribution, for a Plan Year only in accordance with this Section 2.6.
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(i) A Nonqualified Basic Profit-Sharing Contribution in an amount equal to the Participant's Excess Compensation multiplied by the sum of the percentages used under the Qualified Plan to determine the Participant's Basic Profit-Sharing Contribution and (if applicable) his or her Special Additional Profit-Sharing Contribution;
(ii) A Nonqualified Discretionary Profit-Sharing Contribution in an amount equal to the Participant's Excess Compensation multiplied by the percentage (if any) used under the Qualified Plan to determine the Participant's Discretionary Profit-Sharing Contribution.
The Company shall establish and maintain procedures necessary and appropriate to cause amounts to be withheld from each Participant's normal payroll payments in respect of Deferrals, and shall effect such withholding in a manner, and at such times, consistent with the purposes of the Plan.
The right of a Participant under Section 2.9 to payment of his or her Accrued Benefit shall not be subject to forfeiture. Nothing in this Plan shall be construed to prohibit any amendment or action of the Committee that prospectively affects or could affect the crediting of investment returns on Accounts.
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No additional benefits will accrue under the Plan in the event of the termination of the Qualified Plan or the Plan. The Committee may, in its discretion, authorize payment of Accrued Benefits upon termination of the Plan to the extent permitted under Treasury Regulations section 1.409A-(j)(4)(ix) (or any successor provision).
A Participant may select one or more Beneficiaries by filing with the Committee a written designation of such Beneficiaries on such forms as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no Beneficiary survives the Participant, the Qualified Plan Beneficiary shall be the Beneficiary, or if no Qualified Plan Beneficiary survives, the executor or administrator of the Participant's estate shall be deemed to be the Beneficiary. Notwithstanding the foregoing, a married Participant's initial designation and/or any subsequent change in Beneficiary designation to someone other than or in addition to his or her Eligible Spouse shall not be effective unless the Eligible Spouse consents in writing to such designation. The Committee shall have the authority to establish from time to time additional rules and procedures with respect to the designation of Beneficiaries hereunder.
Upon application to the Committee, providing such information and provided in such form and manner as the Committee shall require, a Participant may receive a distribution of such portion of the Participant’s Accrued Benefit in the event of an “Unforeseeable Emergency” (as such term is defined below) as is provided in this Section 2.12, at such
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time or times as the Committee may determine in the exercise of its sole and absolute discretion. The term “Unforeseeable Emergency” means a severe financial hardship of the Participant resulting from an illness or accident of the Participant, the Participant's spouse, the Participant's dependent (as defined in Section 152 of the Code, without regard to sections 152(b)(1), (b)(2) or (d)(1)(B) thereof), or the Participant’s Beneficiary; loss of the Participant's property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. By way of illustration and not by way of limitation, an “Unforeseeable Emergency” may include, among other things, the imminent foreclosure of or eviction from the Participant's primary residence; the need to pay for medical expenses, including non-refundable deductibles, as well as for the costs of prescription drug medication; and the need to pay for the funeral expenses of a spouse, beneficiary or dependent (as defined in Section 152 of the Code, without regard to sections 152(b)(1), (b)(2) and (d)(1)(B) thereof). Whether a Participant is faced with an Unforeseeable Emergency is to be determined by the Committee based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of Unforeseeable Emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant's assets, to the extent the liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under this Plan.
ADJUSTMENTS TO ACCOUNT BALANCES
A credit equal to the dollar amount of a Deferral shall be made to the Account of the Participant making the Deferral as soon as administratively practicable after the date of the reduction of the Participant's salary to which such Deferral corresponds.
A credit equal to the dollar amount of a Nonqualified Matching Contribution shall be made to the Account of the Participant with respect to whom the Nonqualified Matching Contribution is made, as of the date a corresponding Matching Contribution would have been allocated to the Company Matching Account of the Participant had the Nonqualified Matching Contribution been a Matching Contribution of a like kind (i.e.,, Matching Fixed Contribution, Matching Discretionary Contribution, or Rule of 45 Matching Contribution) under the Qualified Plan.
A credit equal to the dollar amount of a Nonqualified Profit-Sharing Contribution shall be made to the Account of the Participant with respect to whom the Nonqualified Profit-Sharing Contribution is made, as of the date a corresponding Profit-Sharing Contribution would have been allocated to the Profit-Sharing Account of the Participant had the Nonqualified Profit-Sharing Contribution been a Profit-Sharing Contribution of a like kind (i.e.,, Employer Basic Contribution, the Discretionary Profit-Sharing Contribution, or the Special Additional Employer Contribution) under the Qualified Plan.
The Accounts of a Participant shall be debited in the amount of each payment made pursuant to Section 2.9 to such Participant or to any Beneficiary of such Participant, as of the close of business on the day as of which such payment is made.
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The Company shall establish a trust and make contributions to such trust, in such amounts and at such times as the Company, in its discretion, deems appropriate in order to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan. Such trust will be intended to constitute a grantor trust, of which the Company is the grantor, within the meaning of Section 671 of the Code. The income tax imposed on the Company with respect to any income earned by the trust shall be paid by the Company and shall not be a charge against the Participants' Accounts. The trustee of such trust shall make payments to Participants and their beneficiaries in such manner and at such time as specified in the Plan and the agreement governing such trust. The trust assets shall be subject to the claims of the Company's general creditors in the event of the Company's insolvency or bankruptcy, pursuant to the terms of such trust agreement. The Company intends that such trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Company.
The Committee shall administer the Participants' Accounts and any of the Company's funds invested in the trust in connection therewith. Payment of benefits from the trust shall, to that extent, discharge the Company's obligations under the Plan.
Each Participant shall elect that amounts credited to his or her Accounts be adjusted for gains or losses (realized or unrealized) and for dividend and other income, as such gains, losses, dividends, and income are reported to the trustee, as if invested in one or more investment funds which shall be designated for such purpose from time to time, in accordance with such rules and procedures as may be prescribed by the Committee or the trustee. Anything to the contrary in this Plan notwithstanding, the Company shall be under no obligation to direct the trustee of the trust to follow investment elections of any Participant.
Notwithstanding the existence of any such trust or other vehicle, it is expressly understood that neither the Participant nor his or her Beneficiaries shall have any present or future interest in the assets of the trust, which, together with the dividend and interest income thereon and any capital gains realized with respect thereto, shall constitute assets of the Company. It is further understood that the Plan does not create any fund or trust for the benefit of the Participants or their Beneficiaries, that the Company's obligation hereunder is limited to the contractual obligation to make payments to the Participant or to his or her Beneficiaries as provided herein, and that with respect to such payments the rights of the Participant or his or her Beneficiaries shall be no greater than those of an unsecured creditor of the Company.
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PLAN ADMINISTRATION AND CLAIMS FOR BENEFITS
The interpretation and construction of any provision of the Plan and the adoption of rules and regulations for administration of the Plan shall be made by the Committee. Decisions of the Committee shall be final and binding on all parties who have an interest in the Plan, including (without limitation) all decisions relating to an individual’s eligibility for participation in the Plan, his or her entitlement to benefits hereunder and the amount of any such benefit entitlement. Prior to paying a benefit under the Plan, the Committee may require the Participant, former Participant or Beneficiary to provide such information or material as the Committee, in its sole discretion, shall deem necessary to make any determination it may be required to make under the Plan. The Committee may withhold payment of a benefit under the Plan until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. Any claim for benefits under the Plan shall be governed by the procedures set forth below.
Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.
The Committee shall consider a Claimant’s claim within a reasonable time, and shall notify the Claimant in writing:
(i) that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or
(ii) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:
(a) the specific reason(s) for the denial of the claim, or any part of it;
(b) specific reference(s) to pertinent provisions of the Plan upon which such denial was based;
(c) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and
(d) an explanation of the claim review procedure set forth in Section 4.4 below.
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Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant’s duly authorized representative):
(i) may review pertinent documents;
(ii) may submit written comments or other documents; and/or
(iii) may request a hearing, which the Committee, in its sole discretion, may grant.
The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee’s decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain:
(i) specific reasons for the decision;
(ii) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and
(iii) such other matters as the Committee deems relevant.
A Claimant’s compliance with the foregoing provisions of this Article IV is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.
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MISCELLANEOUS
The Company may, in its sole discretion, terminate, suspend, or amend the Plan at any time or from time to time, in whole or in part; provided, however, that no amendment, suspension, or termination of the Plan shall, without the consent of a Participant, affect the amounts credited to the Participant's Accounts prior to such termination, suspension, or amendment of the Plan.
Nothing contained herein will confer on any Participant the right to become or to be retained as an employee of the Company or an Affiliated Employer.
A Participant, retired Participant, surviving spouse, or beneficiary may not, either voluntarily or involuntarily, assign, anticipate, alienate, commute, pledge, or encumber any benefits to which he or she is or may become entitled under the Plan, nor may the same be subject to attachment or garnishment by any creditor's claim or to legal process.
The Committee shall have full discretionary authority to determine eligibility and to construe and interpret the terms of the Plan, including the power to remedy possible ambiguities, inconsistencies, or omissions.
The Plan shall be governed by the laws of the State of Delaware, except to the extent superseded by federal law.
The singular, where appearing in the Plan, will be deemed to include the plural, unless the context clearly indicates the contrary, and the masculine, where appearing in the Plan, will be deemed to include the feminine.
If the Company acts in writing to cause Section 2.5 or Section 2.6 to apply with respect to Participants employed by the Company, or to suspend or modify the application of Section 2.5 or Section 2.6 to such Participants, each Affiliated Employer will be deemed to have taken the identical action with respect to Participants employed by it unless, within 10 days of such action by the Company, the Affiliated Employer has delivered a written notice to the contrary to the Committee.
If the Company acts to terminate, suspend, or amend the Plan, each Affiliated Employer will be deemed to have taken the identical action with respect to Participants employed by it unless, within 10 days of such action by the Company, the Affiliated Employer has delivered a written notice to the contrary to the Committee.
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Nick L. Stanage, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hexcel Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
April 24, 2023 |
|
/s/ Nick L. Stanage |
(Date) |
|
Nick L. Stanage |
|
|
Chairman of the Board of Directors, |
|
|
Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Patrick Winterlich, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hexcel Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
April 24, 2023 |
|
/s/ Patrick Winterlich |
(Date) |
|
Patrick Winterlich |
|
|
Executive Vice President and |
|
|
Chief Financial Officer |
Exhibit 32
CERTIFICATIONS 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
In connection with the Quarterly Report of Hexcel Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nick L. Stanage, Chairman of the Board of Directors, Chief Executive Officer and President of the Company, and Patrick Winterlich, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
April 24, 2023 |
|
/s/ Nick L. Stanage |
(Date) |
|
Nick L. Stanage |
|
|
Chairman of the Board of Directors, |
|
|
Chief Executive Officer and President |
April 24, 2023 |
|
/s/ Patrick Winterlich |
(Date) |
|
Patrick Winterlich |
|
|
Executive Vice President and |
|
|
Chief Financial Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Hexcel Corporation and will be retained by Hexcel Corporation and furnished to the Securities and Exchange Commission or its staff upon request.