# Hexcel Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Hexcel Corp](/companies/hxl.md) (CIK 717605)
- Form: 10-Q
- Filed: 2023-10-23
- Accepted by EDGAR: Oct 23, 2023, 16:35 ET
- Period: 2023-09-30
- Accession: 0000950170-23-054643
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/717605/000095017023054643/hxl-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/717605/000095017023054643/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $419.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.33bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $327.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.00bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $91.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $330.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $13.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $40.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $35.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $121.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $43.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $167.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $7.8m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $26.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$700.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $22.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $38.7m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $123.9m | us-gaap:ProfitLoss |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 85,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 85,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $98.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $94.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $31.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $30.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $97.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $765.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $2.85bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $252.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.20bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $754.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $100.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $1.65bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,264 characters.

### 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 and our business began to see signs of recovery from the economic impacts of the COVID-19 pandemic in the second half of 2021, which has continued through 2023, with further growth in air travel and an increase in aircraft build rates. Despite this recovery, global logistics, supply chains, inflationary pressures and the effects of geopolitical issues still remain a challenge. These challenges have had and may continue to have further negative impacts on our operations, supply chain, transportation networks and customers, all of which have and may continue to compress our financial results.

We also continue to monitor developments in ongoing geopolitical issues and conflicts. Although we are not experiencing direct material adverse effects upon our business, the implications of global conflicts which include increased inflation, elevated energy costs, constrained raw material availability and transportation, and thus increasing costs continue to impact the world's economy and the aerospace industry in particular.

### Financial Overview

### Results of Operations

*(In millions, except per share data)*

|  | Quarter Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | **$419.5** | $364.7 | 15.0% | **$1,331.5** | $1,148.3 | 16.0% |
| Net sales change in constant currency |  |  | 13.2% |  |  | 15.3% |
| Operating income | **$43.6** | $40.8 | 6.9% | **$167.7** | $134.7 | 24.5% |
| As a percentage of net sales | **10.4%** | 11.2% |  | **12.6%** | 11.7% |  |
| Net income | **$38.7** | $26.8 | 44.4% | **$123.9** | $89.3 | 38.7% |
| Diluted net income per common share | **$0.45** | $0.31 | 45.2% | **$1.45** | $1.05 | 38.0% |

18

#### Net Sales

The following table summarizes net sales to third-party customers by segment and end market for the quarters and nine months ended September 30, 2023 and 2022:

*(In millions)*

|  | Quarter Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Consolidated Net Sales** | **$419.5** | **$364.7** | **15.0%** | **$1,331.5** | **$1,148.3** | **16.0%** |
| Commercial Aerospace | 251.9 | 209.1 | 20.5% | 800.7 | 655.6 | 22.1% |
| Space & Defense | 128.8 | 108.6 | 18.6% | 392.5 | 338.7 | 15.9% |
| Industrial | 38.8 | 47.0 | (17.4)% | 138.3 | 154.0 | (10.2)% |
| **Composite Materials** | **$340.5** | **$293.5** | **16.0%** | **$1,097.2** | **$925.4** | **18.6%** |
| Commercial Aerospace | 212.7 | 177.2 | 20.0% | 684.8 | 554.0 | 23.6% |
| Space & Defense | 90.0 | 70.2 | 28.2% | 276.7 | 220.7 | 25.4% |
| Industrial | 37.8 | 46.1 | (18.0)% | 135.7 | 150.7 | (10.0)% |
| **Engineered Products** | **$79.0** | **$71.2** | **11.0%** | **$234.3** | **$222.9** | **5.1%** |
| Commercial Aerospace | 39.2 | 31.9 | 22.9% | 115.9 | 101.6 | 14.1% |
| Space & Defense | 38.8 | 38.4 | 1.0% | 115.8 | 118.0 | (1.9)% |
| Industrial | 1.0 | 0.9 | 11.1% | 2.6 | 3.3 | (21.2)% |

### Sales by Segment

***Composite Materials:*** Net sales of $340.5 million in the third quarter of 2023 increased by $47.0 million or 16.0% from the prior year quarter. Commercial Aerospace sales increased $35.5 million or 20.0% in the third quarter of 2023 as compared to the prior year quarter primarily due to growth in the Airbus A350 and Boeing 787 programs as well as business jet growth. Space & Defense sales increased $19.8 million or 28.2% led by growth in military aircraft. Net sales of $1,097.2 million for the first nine months of 2023 increased 18.6% compared to the same period last year driven by strong sales in the Commercial Aerospace and Space & Defense markets.

***Engineered Products:*** For the third quarter of 2023, net sales of $79.0 million increased $7.8 million or 11.0% as compared to the prior year quarter. The increase was driven by Commercial Aerospace sales. Net sales of $234.3 million for the first nine months of 2023 increased 5.1% compared to the same period last year.

### Sales by Market

For the third quarter of 2023, Commercial Aerospace sales of $251.9 million increased 20.5% (19.2% in constant currency) compared to the third quarter of 2022. Sales growth was driven by the Airbus A350 and Boeing 787 programs while quarterly narrowbody sales in aggregate were unchanged from the comparable prior year period. Other Commercial Aerospace sales for the third quarter of 2023 increased 20% compared to the third quarter of 2022 with growth led by business jets. Sales of $800.7 million increased 22.1% (21.5% in constant currency) for the first nine months of 2023 compared to the first nine months of 2022, with growth driven by the Airbus A350 and A320neo programs and the Boeing 787 program. Other Commercial Aerospace increased 18.9% for the first nine months of 2023 compared to the same period in 2022, led by growth in business jets.

Space & Defense sales of $128.8 million increased 18.6% (17.1% in constant currency) for the third quarter of 2023 as compared to the third quarter of 2022. The sales growth continued to be across a broad number of U.S. and international programs. For the first nine months of 2023, Space & Defense sales of $392.5 million increased 15.9% (15.5% in constant currency) as compared to the first nine months of 2022. Broad-based growth drove the sales increase including U.S. and international military helicopters and international fixed-wing aircraft.

Total Industrial sales of $38.8 million in the third quarter of 2023 decreased 17.4% (21.3% in constant currency) as compared to the third quarter of 2022. While automotive sales continued to be strong, wind energy declined further, reflecting the challenges facing the global wind industry. Total Industrial sales of $138.3 million in the first nine months of 2023 decreased 10.2% (10.9% in constant currency) as compared to the first nine months of 2022 as lower wind energy sales were only partially offset by growth in automotive sales.

#### Gross Margin

*(In millions)*

|  | Quarter Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross margin | **$91.6** | $81.8 | 12.0% | **$330.1** | $258.0 | 27.9% |
| Percentage of sales | **21.8%** | 22.4% |  | **24.8%** | 22.5% |  |

Gross margin for the third quarter of 2023 was 21.8% compared to 22.4% in the third quarter of 2022 and 24.8% and 22.5% for the first nine months of 2023 and 2022, respectively. The decline in the gross margin for the third quarter of 2023 compared to the third quarter of 2022 was primarily due to lower absorption of infrastructure costs that will support higher future aircraft production rates. The improvement in the gross margin for the first nine months of 2023 compared to the same period last year was primarily due to higher sales and favorable product mix.

#### Operating Expenses

*(In millions)*

|  | Quarter Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| SG&A expense | **$35.4** | $29.0 | 22.1% | **$121.9** | $107.2 | 13.7% |
| Percentage of sales | **8.4%** | 8.0% |  | **9.2%** | 9.3% |  |
| R&T expense | **$13.4** | $11.6 | 15.5% | **$40.6** | $33.8 | 20.1% |
| Percentage of sales | **3.2%** | 3.2% |  | **3.0%** | 2.9% |  |

Selling, general and administrative expenses were higher for the third quarter of 2023, although relatively flat as a percentage of sales, as compared to the same period in 2022. The increase in selling, general and administrative expenses for the third quarter of 2023 was primarily driven by higher employee-related expenses. Research and technology expenses for the third quarter of 2023 increased $1.8 million over the same period last year due primarily to higher employee-related and materials and supplies expense. Selling, general and administrative expenses were higher for the first nine months of 2023 compared to the same period in 2022 due to higher employee-related expenses. Research and technology expenses for the first nine months of 2023 were higher compared to the prior year period due to higher employee-related and materials and supplies expenses resulting from an increase in the number of development projects.

#### Operating Income

*(In millions)*

|  | Quarter Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Consolidated operating income | **$43.6** | $40.8 | 6.9% | **$167.7** | $134.7 | 24.5% |
| Operating margin | **10.4%** | 11.2% |  | **12.6%** | 11.7% |  |
| Composite Materials | **43.7** | 41.4 | 5.6% | **181.1** | 131.2 | 38.0% |
| Operating margin | **12.3%** | 13.4% |  | **15.7%** | 13.4% |  |
| Engineered Products | **6.2** | 6.0 | 3.3% | **25.0** | 25.7 | (2.7)% |
| Operating margin | **7.8%** | 8.3% |  | **10.6%** | 11.4% |  |
| Corporate & Other | **(6.3)** | (6.6) | 4.5% | **(38.4)** | (22.2) | (73.0)% |

Operating income for the third quarters of 2023 and 2022 was $43.6 million and $40.8 million, respectively. Operating income for the first nine months of 2023 was $167.7 million compared to $134.7 million for the same period last year. The nine months of 2022 included the gain on the sale of the Dublin, California facility of $19.4 million. Overall, operating income for both the third quarter and nine months of 2023 benefited from higher sales, as compared to the prior year periods.

#### Interest Expense, Net

*(In millions)*

|  | Quarter Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense, net | **$7.8** | $9.0 | (13.3)% | **$26.4** | $27.0 | (2.2)% |

Interest expense for both the quarter and nine months ended September 30, 2023 was lower compared to the prior year periods due to lower average debt levels, partially offset by higher average interest rates.

#### Provision for Income Taxes

*(In millions)*

|  | Quarter Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Income tax (benefit) expense | **$(0.7)** | $6.8 | **$22.5** | $24.2 |
| Effective tax rate | **(2.0)%** | 21.4% | **15.9%** | **22.4%** |

Tax benefit for the quarter ended September 30, 2023 was $0.7 million as compared to income tax expense of $6.8 million for the quarter ended September 30, 2022. Tax expense for the nine months ended September 30, 2023 was $22.5 million compared to $24.2 million for the comparative period in 2022. The quarter and nine months ended September 30, 2023 included a discrete tax benefit of $5.6 million, primarily related to adjustments to our provision based on the finalization of prior year tax returns. The quarter and nine months ended September 30, 2022 included a discrete tax charge of $1.3 million resulting from the true up of a deferred tax item.

### Financial Condition

***Liquidity:*** Cash on hand at September 30, 2023 was $97.7 million as compared to $112.0 million at December 31, 2022. As of September 30, 2023, total debt was $754.2 million as compared to $723.5 million at December 31, 2022.

On April 25, 2023, we entered into a new credit agreement (the “Credit Agreement”) to refinance our unsecured revolving credit facility (the “Facility”). Under the terms of the Credit Agreement the borrowing capacity is $750 million. The Facility matures in April 2028. For further discussion, see Note 5, Debt, to the accompanying condensed consolidated financial statements.

As of September 30, 2023, total borrowings under the Facility were $55 million, which approximated fair value. The Credit Agreement permits us to issue letters of credit up to an aggregate amount of $50 million. As of September 30, 2023, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $695 million. The weighted average interest rate for the Facility was 6.2% for the nine months ended September 30, 2023.

We expect to meet our short-term liquidity requirements (including capital expenditures) through net cash from operating activities, cash on hand and the Facility. As of September 30, 2023, long-term liquidity requirements consist primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until August 2025 when our 4.7% Senior Unsecured Notes are due. The remaining authorization under the share repurchase program at September, 2023 was $187 million.

On October 23, 2023, our Board of Directors declared a quarterly dividend of $0.125 per share payable to stockholders of record as of November 3, 2023, with a payment date of November 13, 2023.

***Operating Activities:*** Net cash provided by operating activities for the first nine months of 2023 was $98.1 million compared to $56.4 million for the same period last year. Working capital was a cash use of $112.1 million for the first nine months of 2023 as compared to a use of $115.0 million in the same period in 2022. The difference was primarily driven by the higher net income in the current year period.

***Investing Activities:*** Net cash used for investing activities was $81.6 million and $36.6 million in the first nine months of 2023 and 2022, respectively. Capital expenditures for the first nine months of 2023 were $94.4 million and included $38.0 million for the acquisition of the land and building at our Amesbury, Massachusetts facility to support future growth. Capital expenditures for the first nine months of 2022 were $58.3 million. The first nine months of 2023 included net proceeds of $10.3 million from the sale of the Windsor facility and the first nine months of 2022 included net proceeds of $21.2 million from the sale of the Dublin, California facility.

***Financing Activities:*** Net cash used for financing activities was $29.7 million for first nine months of 2023 compared to a net cash use of $48.6 million in the same period in 2022. Borrowings under the credit facilities during the first nine months of 2023 was $163.0 million compared to $35.0 million in the prior year period. Repayments were $133.0 million during the first nine months of 2023 compared to $61.0 million in the prior year period. Quarterly dividend payments to shareholders were $31.7 million during the first nine months of 2023 compared to $25.3 million in the prior year period. During the nine months ended September 30, 2023, repurchases of common stock totaled $30.1 million.

***Financial Obligations and Commitments:*** The next significant scheduled debt maturity will not occur until 2025 when our 4.7% Senior Unsecured Notes are due. Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases.

### 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 diluted 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.

*(In millions)*

|  | Operating Income Quarter Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| GAAP operating income | **$43.6** | $40.8 | **$167.7** | $134.7 |
| Other operating (income) expense (a) | **(0.8)** | 0.4 | **(0.1)** | (17.7) |
| Adjusted operating income (non-GAAP) | **$42.8** | $41.2 | **$167.6** | $117.0 |

22

*(In millions, except per diluted share data)*

|  | Quarter Ended September 30, 2023 Net Income | Diluted Net Income Per Share | 2022 Net income | Diluted Net Income Per Share | Nine Months Ended September 30, 2023 Net Income | Diluted Net Income Per Share | 2022 Net income | Diluted Net Income Per Share |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| GAAP net income | **$38.7** | **$0.45** | $26.8 | $0.31 | **$123.9** | **$1.45** | $89.3 | $1.05 |
| Other operating (income) expense, net of tax (a) | **(0.6)** | **(0.01)** | 0.3 | - | **(0.1)** | - | (15.2) | (0.19) |
| Other income | **-** |  | - | - | **-** | - | (0.3) | - |
| Tax (benefit) charge (b) | **(5.6)** | **(0.06)** | 1.3 | 0.02 | **(5.6)** | **(0.07)** | 1.3 | 0.02 |
| Adjusted net income (non-GAAP) | **$32.5** | **$0.38** | $28.4 | $0.33 | **$118.2** | **$1.38** | $75.1 | $0.88 |

(a) The quarter and nine months ended September 30, 2023 included the net gain of $0.8 million from the sale of the Windsor facility and restructuring costs and the nine months ended September 30, 2022 included the net gain of $19.4 million from the sale of the Dublin, California facility. Both the quarter and nine months ended September 30, 2022 included restructuring costs.

(b) The quarter and nine months ended September 30, 2023 included a discrete tax benefit of $5.6 million, primarily related to adjustments to our provision based on the finalization of prior year tax returns. The quarter and nine months ended September 30, 2022 included a discrete tax charge of $1.3 million resulting from the true up of a deferred tax item.

*(In millions)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | **$98.1** | **$56.4** |
| Less: Capital expenditures | **(94.4)** | **(58.3)** |
| Free cash flow (non-GAAP) | **$3.7** | **$(1.9)** |

### 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, capacity, including the 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 or geopolitical issues or conflicts; (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 geopolitical issues or conflicts 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; 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 certain geopolitical conflicts; 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, which has been exacerbated by certain geopolitical conflicts; 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 geopolitical issues or conflicts; 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.

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.

## Market risk

As filed, 166 characters.

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.

## Controls and procedures

As filed, 1,344 characters.

### Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of September 30, 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 quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 405 characters.

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.

Filed Oct 23, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-054643. Last ingested by Listed: Oct 29, 2026, 04:32 ET. No prices; not investment advice.