SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from to
.
Commission File Number: 333-5411
<TABLE>
<CAPTION>
<S> <C>
HAYNES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1185400
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1020 West Park Avenue, Kokomo, Indiana 46904-9013
(Address of principal executive offices) (Zip Code)
(765) 456-6000
(Registrant's telephone number,
including area code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the
past 90 days. Yes X No
As of July 31, 1997 the registrant had 100 shares of Common Stock, $.01 par
value, outstanding.
The Index to Exhibits begins on page 16 in the sequential numbering system.
Total pages: 20
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
TABLE OF CONTENTS
<S> <C> <C>
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet as of
September 30, 1996 and June 30, 1997 3
Consolidated Condensed Statement of Operations for the Three Months
and Nine Months ended June 30, 1996 and 1997 4
Consolidated Condensed Statement of Cash Flows for the Nine Months
ended June 30, 1996 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Signatures 15
Index to Exhibits 16
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C>
September 30, June 30,
1996 1997
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 4,688 $ 2,373
Accounts and notes receivable, less allowance for
doubtful accounts of $900 and $896, respectively 39,624 47,412
Inventories 74,755 86,183
Total current assets 119,067 135,968
Property, plant and equipment (at cost) 85,777 91,656
Accumulated depreciation (54,620) (60,350)
Net property, plant and equipment 31,157 31,306
Deferred income taxes 35,580
Prepayments and deferred charges, net 11,265 10,947
Total assets $ 161,489 $ 213,801
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 24,814 $ 25,324
Accrued postretirement benefits 4,000 4,000
Revolving credit 30,888 44,342
Note payable 859 1,938
Income taxes payable 1,199 2,917
Deferred income taxes 1,615
Total current liabilities 61,760 80,136
Long-term debt, net of unamortized discount 137,350 137,510
Accrued postretirement benefits 91,813 92,178
Deferred income taxes 485
Total liabilities 291,408 309,824
Redeemable common stock of parent company 422 2,088
Capital deficiency:
Common stock, $.01 par value (100 shares authorized,
issued and outstanding)
Additional paid-in capital 47,985 49,070
Accumulated deficit (181,321) (148,981)
Foreign currency translation adjustment 2,995 1,800
Total capital deficiency (130,341) (98,111)
Total liabilities and capital deficiency $ 161,489 $ 213,801
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Three Months Nine Months
Ended Ended
June 30, June 30,
1996 1997 1996 1997
Net revenues $ 60,401 $ 62,944 $ 170,386 $179,848
Cost of sales 48,305 49,590 136,711 138,060
Selling and administrative 4,536 4,551 12,966 13,989
Recapitalization expense 8,735
Research and technical 854 888 2,529 2,869
Operating income 6,706 7,915 18,180 16,195
Other cost (income), net 36 (2) 413 (58)
Interest expense 5,129 5,343 15,395 15,334
Interest income (74) (75) (257) (131)
Income before provision for (benefit from) income taxes
1,615 2,649 2,629 1,050
Provision for (benefit from) 271 (33,116) 1,029 (31,290)
income taxes
Net income $ 1,344 $ 35,765 $ 1,600 $ 32,340
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nine Months Ended
June 30,
1996 1997
Cash flows from operating activities:
Net income $ 1,600 $ 32,340
Depreciation 5,844 5,572
Amortization 1,035 837
Deferred income taxes (429) (34,368)
Non-cash stock option expense 2,457
Change in:
Inventories (14,541) (12,038)
Accounts receivable (5,995) (8,204)
Accounts payable and accruals 9,465 1,850
Other, net 38 1,044
Net cash used in operating activities (2,983) (10,510)
Cash flows from investing activities:
Additions to property, plant and equipment (801) (5,715)
Other investing activities 57 29
Net cash used in investing activities (744) (5,686)
Cash flows from financing activities:
Net increase in revolving credit 3,654 13,613
Capital contribution of proceeds from
exercise of stock options 294
Net cash provided by financing activities 3,654 13,907
Effect of exchange rates on cash (173) (26)
Decrease in cash and cash equivalents (246) (2,315)
Cash and cash equivalents, beginning of period 5,035 4,688
Cash and cash equivalents, end of period $ 4,789 $ 2,373
Supplemental disclosures of cash flow
information:
Cash paid during period for: Interest $ 12,729 $ 10,781
Income taxes $ 1,535 $ 1,359
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
NOTE 1. BASIS OF PRESENTATION
The interim financial statements are unaudited and reflect all adjustments
(consisting solely of normal recurring adjustments) that, in the opinion of
management, are necessary for a fair statement of results of the interim
periods presented. This report includes information in a condensed form and
should be read in conjunction with the audited consolidated financial
statements included in Form 10-K for the fiscal year ending September 30,
1996, filed by the Company with the Securities and Exchange Commission on
December 30, 1996. The results of operations for the nine months ended June
30, 1997 are not necessarily indicative of the results to be expected for the
full year or any other interim period.
NOTE 2. INVENTORIES
<TABLE>
<CAPTION>
The following is a summary of the major classes of inventories:
<S> <C> <C>
September 30, 1996 June 30, 1997
(Unaudited)
Raw Materials $ 4,296 $ 6,885
Work-in-process 37,643 45,597
Finished Goods 32,046 34,799
Other, net 770 (1,098)
Net inventories $ 74,755 $ 86,183
</TABLE>
NOTE 3. INCOME TAXES
During the third quarter of fiscal 1997, the Company reversed its deferred
income tax valuation allowance of approximately $36.4 million and recorded
approximately a $34.5 million deferred income tax benefit. This reversal was
due to the Company s assessment of past earnings history and trends (exclusive
of non-recurring charges), sales backlog, budgeted sales and earnings,
stabilization of financial condition, and the periods available to realize the
future tax benefits. Excluding this reversal, the provision for income taxes
for the nine months ended June 30, 1996 and 1997 differed from the U.S.
federal statutory rate of 34% primarily due to (a) the partial utilization of
available U.S. federal net operating loss carryforwards, and (b) taxes on
foreign earnings against which the Company was unable to utilize its U.S.
federal net operating loss carryforwards.
NOTE 4. RECAPITALIZATION
On January 29, 1997, the Company announced that Haynes Holdings, Inc. ("
Holdings"), its parent corporation, had effected the recapitalization of the
Company and Holdings pursuant to which Blackstone Capital Partners II Merchant
Banking Fund L.P. and two of its affiliates ("Blackstone") acquired 79.9% of
Holdings outstanding shares ("the Recapitalization"). As part of the
Recapitalization, the maximum amount available under the Company's Revolving
Credit Facility was increased from $50 to $60 million and Blackstone agreed to
provide financial support and assistance to the Company. Certain fees paid by
the Company in connection with the Recapitalization have been accounted for as
recapitalization expenses and charged against income in the period. Also in
connection with these transactions, the Company recorded $2.5 million of
non-cash stock compensation expense, also included as recapitalization
expenses, pertaining to certain modifications to management stock option
agreements which eliminated put and call rights associated with the options.
Due to this change in ownership, the Company's ability to utilize its U.S.
federal net operating loss carryforwards will be limited in the future. See
Management s Discussion and Analysis of Financial Condition and Results of
Operations for additional information with respect to the Recapitalization.
[Remainder of page intentionally left blank.]
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
References to years or portions of years in Management's Discussion and
Analysis of Financial Condition and Results of Operations refer to the
Company's fiscal years ended September 30, unless otherwise indicated. This
discussion contains statements that constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements may include statements regarding the intent, belief or current
expectations of the Company or its officers with respect to (i) the Company's
strategic plans, (ii) the policies of the Company regarding capital
expenditures, financing or other matters, and (iii) industry trends affecting
the Company's financial condition or results of operations. Readers of this
discussion are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those in the forward looking
statements as a result of various factors.
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Net revenues increased approximately $2.5 million, or 4.1%, to
approximately $62.9 million in the third quarter of 1997 from approximately
$60.4 million in the third quarter of 1996, primarily as a result of an 8.9%
increase in volume, from approximately 4.5 million pounds in the third quarter
of 1996 to approximately 4.9 million pounds in the third quarter of 1997.
Average selling price per pound decreased by 4.0% from $13.21 to $12.68 for
the third quarter of 1997, compared to the same period in 1996.
Sales to the aerospace market for the third quarter of 1997 increased
29.6% to approximately $29.8 million from approximately $23.0 million for the
same period in 1996. The increase in revenue can be attributed to a 43.8%
increase in volume to approximately 2.3 million pounds in the third quarter of
1997 from approximately 1.6 million pounds in the third quarter of 1996. The
increase in volume was offset by a decline in the average selling price per
pound. This decrease was the result of a proportionately higher increase in
volume of lower priced nickel-based alloys and forms, relative to the increase
in volume of higher priced, cobalt-containing alloys and forms. The overall
increase in sales to the aerospace sector reflects the strong build schedules
of commercial aircraft and jet engine manufacturers.
Revenue from sales to the chemical processing industry in the third
quarter of 1997 declined by 6.0% to approximately $18.8 million from
approximately $20.0 million for the same period of 1996. Sales to the export
market increased, while domestic sales declined. Volume shipped to the
chemical processing industry during the third quarter of 1997 remained flat at
approximately 1.6 million pounds compared to the third quarter of 1996. The
average selling price declined 4.9% due to the combination of higher sales of
lower cost, lower priced product forms, and lower sales of higher cost, higher
priced product forms. In particular, sales of higher cost, higher priced
tubular products were lower compared to the comparable period in fiscal 1996.
Sales to the land-based gas turbine market increased by 32.5% in the
third quarter of 1997 to approximately $5.3 million from approximately $4.0
million for the comparable period in 1996. The sales increase was the result
of a 13.3% increase in volume to approximately 425,000 pounds in the third
quarter of 1997, compared to approximately 375,000 pounds in the third quarter
of 1996. In addition, the average selling price per pound increased to $12.19
in the third quarter of 1997, a 15.0% increase over the $10.60 experienced in
the third quarter of 1996. The increase is attributable to a large volume
increase of the higher cost, higher priced cobalt- containing alloy flat
products.
Sales to the flue gas desulfurization ("FGD") market decreased to
approximately $475,000 in the third quarter of 1997, as compared to
approximately $2.7 million for the same period in 1996. The declining sales
results can be attributed to a decrease in volume from approximately 300,000
pounds in the third quarter of 1996 to approximately 50,000 pounds in the
third quarter of 1997. FGD business typically involves large project
requirements which vary significantly from quarter to quarter.
Sales to the oil and gas market decreased by 19.5% in the third quarter
of 1997 to approximately $3.3 million from approximately $4.1 million a year
ago. The decline in sales is the result of a decrease of 10.1% in volume
shipped, and a 9.6% decrease in average selling price per pound. Sales to
this sector are typically linked to sour gas project requirements. These
requirements vary substantially from quarter to quarter.
Sales to other markets decreased 21.1% in the third quarter of 1997 to
approximately $4.5 million from approximately $5.7 million for the same period
a year ago. The decline in revenue can largely be attributed to
reclassification of sales to key distributors to specific market categories.
Cost of sales as a percent of net revenues decreased to 78.8% in the
third quarter of 1997 from 80.0% in the same period last year, as a result of
higher capacity utilization, partially offset by higher raw material prices.
Selling and administrative expenses remained flat at approximately $4.5
million for the third quarter of 1997 and 1996. Salary and headcount
increases were offset by final adjustments to reserves established in
connection with the postponement of the Company's initial public offering.
Research and technical expenses increased approximately $50,000 to
approximately $900,000 in the third quarter of 1997 from approximately
$850,000 in the third quarter of 1996, primarily as a result of salary
increases and headcount additions as compared to the same period in the prior
year.
As a result of the above factors, the Company recognized operating income
for the third quarter of 1997 of approximately $7.9 million, approximately
$1.0 million of which was contributed by the Company's foreign subsidiaries.
For the third quarter of 1996, operating income was approximately $6.7
million, of which approximately $2.1 million was contributed by the Company's
foreign subsidiaries.
Other cost (income), net, decreased approximately $50,000 from
approximately $50,000 in the third quarter of 1996, primarily as a result of
lower bank charges in the third quarter of 1997.
Interest expense increased approximately $200,000 to approximately $5.3
million for the third quarter of 1997 from approximately $5.1 million for the
same period in 1996. Higher revolving credit balances during the third
quarter of fiscal 1997 contributed to the increase. This increase was
partially offset by lower interest rates during the third quarter of fiscal
1997 compared to the same period a year ago.
The provision for (benefit from) income taxes decreased by approximately
$34.1 million during the third quarter of fiscal 1997. During the third
quarter of fiscal 1997, the Company reversed its deferred income tax valuation
allowance and recorded a $34.5 million deferred income tax benefit. This
reversal was due to the Company's assessment of past earnings history and
trends (exclusive of non-recurring charges), sales backlog, budgeted sales and
earnings, stabilization of financial condition, and the periods available to
realize the future tax benefits.
As a result of the above factors, the Company recognized net income for
the third quarter of 1997 of approximately $35.8 million, compared to
approximately $1.3 million for the third quarter of 1996.
Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996
Net revenues increased approximately $9.4 million, or 5.5%, to
approximately $179.8 million in the first nine months of 1997 from
approximately $170.4 million in the first nine months of 1996, primarily as a
result of a 12.2% increase in shipments, from approximately 12.3 million
pounds in the first nine months of 1996 to approximately 13.8 million pounds
in the first nine months of 1997.
Sales to the aerospace market for the first nine months of 1997 increased
23.3% to approximately $78.9 million from approximately $64.0 million for the
same period in 1996. The increase in revenue can be attributed to a 34.9%
increase in volume to approximately 5.8 million pounds in the first nine
months of 1997 from approximately 4.3 million pounds in the first nine months
of 1996. This volume increase offset a decline in average selling price per
pound, caused by a proportionately higher increase in the volume of the lower
priced, nickel- based alloys and forms, compared to the higher priced
cobalt-containing alloys and forms.
Sales to the chemical processing industry in the first nine months of
1997 declined by 3.1% to approximately $59.7 million from approximately $61.6
million for the same period of 1996. Volume shipped to the chemical
processing industry during the first nine months of 1997 increased by 4.3% to
approximately 4.9 million pounds, compared to 4.7 million pounds in the first
nine months of 1996. The increase in volume, however, was not sufficient to
offset a decrease in the average selling price per pound. The drop in the
average selling price per pound reflects lower sales of higher cost, higher
priced product forms, and higher sales of lower cost, lower priced product
forms. In particular, sales of tubular products declined, while sales of
forged billet and forged bar products increased during the first nine months
of fiscal 1997 compared to the same period a year ago.
Sales to the land-based gas turbine market declined by 3.7% in the first
nine months of 1997 to approximately $12.9 million from approximately $13.4
million for the comparable period in 1996. The sales decrease was the result
of an 8.3% decrease in volume to approximately 1.1 million pounds in the first
nine months of 1997 compared to approximately 1.2 million pounds in the first
nine months of 1996. The decline can be attributable to a major European
project in fiscal 1996 that did not repeat during the first nine months of
1997.
Sales to the flue gas desulfurization market decreased to approximately
$5.5 million in the first nine months of 1997 compared to approximately $6.1
million for the same period in 1996. The declining sales results can be
attributed to a decrease in volume from approximately 700,000 pounds in the
first nine months of 1996 to approximately 600,000 pounds in the first nine
months of 1997. This was partially offset by a 5.2% increase in the average
selling price per pound compared to the same period a year ago.
Sales to the oil and gas industry were insignificant for the first nine
months of both 1997 and 1996. Sales to this sector are typically linked to
sour gas project requirements. These requirements vary substantially from
quarter to quarter and year to year.
Sales to other markets declined 8.7% in the first nine months of 1997 to
approximately $16.8 million from approximately $18.4 million for the same
period a year ago, as a result of a decline in the average selling price per
pound and volume. The drop in volume can be attributed to lower sales to
distributors as reported within this market, and the absence of any project
activity in the waste incineration market. The decline in the average selling
price per pound stems from lower sales of higher cost, higher priced products
during the first nine months of 1997 compared to the same period in 1996.
Cost of sales as a percent of net revenues decreased to 76.8% in 1997
compared to 80.2% in 1996, as a result of lower raw material costs and higher
capacity utilization. Volume in the higher priced, higher value added, sheet,
coil, and seamless forms increased in the first nine months of 1997, compared
to the first nine months of 1996. Increased capacity utilization in these
operations led to efficiencies that lowered average per-unit cost.
Selling and administrative expenses increased approximately $1.0 million
to approximately $14.0 million for the first nine months of 1997 from
approximately $13.0 million in the first nine months of 1996. The increase
was primarily the result of a net increase of approximately $300,000 for
incentive compensation in 1997, compared to the same period in 1996.
Headcount and salary increases contributed to the remaining increase in
selling and administrative expenses.
Recapitalization expense of approximately $8.7 million recorded in the
first nine months of 1997 includes approximately $6.2 million of expenses paid
by the Company in connection with the Recapitalization (discussed below) and
approximately $2.5 million in non-cash compensation expense pertaining to
certain modifications to management stock option agreements which eliminated
put and call rights provided therein.
Research and technical expenses increased approximately $400,000 to
approximately $2.9 million in the first nine months of 1997 from approximately
$2.5 million in the first nine months of 1996, primarily as a result of salary
increases combined with headcount additions which occurred in the latter part
of 1996. Also, research efforts sponsored by the Company at various
universities were increased during the first nine months of 1997, as compared
to the same period a year ago.
As a result of the above factors, the Company recognized operating income
for the first nine months of 1997 of approximately $16.2 million,
approximately $3.5 million of which was contributed by the Company's foreign
subsidiaries. For the first nine months of 1996, operating income was
approximately $18.2 million, of which approximately $4.1 million was
contributed by the Company's foreign subsidiaries.
Other cost (income), net, decreased approximately $450,000 from
approximately $400,000 in the first nine months of 1996 to approximately
($50,000) for the first nine months of 1997, primarily as a result of foreign
exchange gains realized and lower domestic bank charges in the first nine
months of 1997, as compared to foreign exchange losses experienced during the
first nine months of 1996.
Interest expense decreased approximately $100,000 to approximately $15.3
million for the first nine months of 1997 from approximately $15.4 million for
the same period in 1996, due primarily to lower interest rates and reduced
debt issue cost amortization, achieved as a result of the refinancing of the
Company's long-term debt in 1996. This decrease was partially offset by
higher revolving credit balances during the first nine months of 1997,
compared to the same period in 1996.
The provision for (benefit from) income taxes decreased by approximately
$32.3 million during the first nine months of 1997. During the third quarter
of fiscal 1997, the Company reversed its deferred income tax valuation
allowance and recorded a $34.5 million deferred income tax benefit. This
reversal was due to the Company's assessment of past earnings history and
trends (exclusive of non-recurring charges), sales backlog, budgeted sales and
earnings, stabilization of financial condition, and the periods available to
realize the future tax benefits.
As a result of the above factors, the Company recognized net income for
the first nine months of 1997 of approximately $32.3 million, compared to net
income of approximately $1.6 million for the first nine months of 1996.
Liquidity and Capital Resources
The Company's near-term future cash needs will be driven by working
capital requirements, which are likely to increase, and planned capital
expenditures. Capital expenditures were approximately $5.7 million in the
first nine months of 1997, compared to capital expenditures of approximately
$800,000 for the first nine months of 1996. The expected increased capital
investments for 1997 and 1998 are designated for significant new equipment and
integrated information systems. The Company does not expect such capital
expenditures to have a material adverse effect on its long-term liquidity.
Moreover, the Company does not currently have any other significant capital
expenditure commitments. The Company expects to fund its working capital
needs and capital expenditures with cash provided from operations,
supplemented by borrowings under its Revolving Credit Facility with CoreStates
Bank, N.A. and Congress Financial Corporation (Central) (the "Facility"). The
Company believes these sources of capital will be sufficient to fund these
capital expenditures and working capital requirements over the next 12 months,
although there can be no assurance of this.
Net cash used in operating activities in the first nine months of 1997
was approximately $10.5 million, as compared to approximately $3.0 million in
the first nine months of 1996. The negative cash flow from operations for 1997
was primarily a result of a decrease of approximately $34.4 million in
deferred taxes, and increases of approximately $12.0 million in inventories,
and approximately $8.2 million in accounts receivable, which were offset by
net income of approximately $32.3 million, non-cash depreciation and
amortization expense of approximately $6.4 million, non-cash stock option
expense of approximately $2.5 million, an increase in accounts payable and
accrued expenses of approximately $1.9 million, and other net adjustments of
approximately $1.0 million. Net cash used in investing activities increased
from approximately $700,000 in the first nine months of 1996 to approximately
$5.7 million in the first nine months of 1997, primarily as a result of higher
capital expenditures. Net cash provided by financing activities for the first
nine months of 1997 was approximately $13.9 million due to net increased
borrowings of approximately $13.6 million under the Facility, and
approximately $300,000 received by the Company in the form of a capital
contribution of proceeds from the exercise of certain management stock
options. Cash for the first nine months of 1997 decreased approximately $2.4
million, resulting in a June 30, 1997 cash balance of approximately $2.4
million. Cash in the first nine months of 1996 decreased approximately
$250,000, resulting in a cash balance of approximately $4.8 million at June
30, 1996.
Total debt at June 30, 1997, was approximately $181.9 million compared to
approximately $168.2 million at September 30, 1996, reflecting increased
borrowing under the Facility.
At June 30, 1997, approximately $44.3 million had been borrowed pursuant
to the Facility compared to approximately $30.9 million at September 30, 1996.
In addition, as of June 30, 1997, approximately $3.1 million in letter of
credit reimbursement obligations had been incurred by the Company. The
Company had available additional borrowing capacity of approximately $10.5
million on the Facility at June 30, 1997. In January, 1997, the aggregate
amount available under the Facility was increased from $50 to $60 million (see
"Recapitalization").
Recapitalization
The Company announced on January 29, 1997 that the Recapitalization had
been effected, and that in connection therewith Holdings had completed a stock
purchase transaction with Blackstone Capital Partners II Merchant Banking Fund
L.P. and two of its affiliates ("Blackstone") and a stock redemption
transaction with MLGA Fund II, L.P. and MLGAL Partners L.P., the principal
investors in Holdings prior to the Recapitalization. As part of the
Recapitalization, Holdings redeemed approximately 79.9% of its outstanding
shares of common stock at $10.15 per share in cash and Blackstone purchased a
like number of shares at the same price. Due to this change in ownership, the
Company's ability to utilize its U.S. net operating loss carryforwards will be
limited in the future. In conjunction with the above mentioned transactions,
the maximum amount available under the Company's Facility was increased from
$50 to $60 million.
Acquisition by Holdings
On June 11, 1997 Inco Limited ("Inco") and Blackstone jointly announced
the execution of a definitive agreement for the sale by Inco of 100% of its
Inco Alloy International ("IAI") business unit to Holdings, an affiliate of
Blackstone. Upon consummation of the transaction, Blackstone plans to combine
the operations of IAI and the Company. Completion of the sale will be subject
to a number of conditions and the receipt of regulatory and other approvals,
including anti-trust clearance. Closing of the sale is currently expected to
take place in the fall of 1997.
Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be
Disposed Of" is effective for the year ending September 30, 1997. This
statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. In the opinion of management, this statement is not
expected to materially impact the Company's financial position or results of
operations.
SFAS No. 123 "Accounting for Stock-Based Compensation", is effective for
the year ending September 30, 1997. This statement encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments based on a fair value method of
accounting. Companies that choose not to adopt the new expense recognition
rules of SFAS No. 123 will continue to apply the existing accounting rules of
Accounting Principles Board Opinion (APB) No. 25, but will be required to
provide pro forma disclosure of the compensation expense determined under the
fair value provisions of SFAS No. 123, if material. APB No. 25 requires that
there be no recognition of compensation expense for the stock-based
compensation arrangements provided by the Company, where the exercise price is
equal to or greater than the market price at the data of grant. The Company
expects to continue to follow the accounting provisions of APB No. 25 for
stock-based compensation and to furnish the pro forma disclosures required
under SFAS No. 123, if material.
SFAS No. 129, "Disclosure of Information about Capital Structure", is
effective for the year ending September 30, 1998. SFAS No. 130, "Reporting
Comprehensive Income", and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", are effective for the year ending
September 30, 1999. In the opinion of management, SFAS No. 129, SFAS No.
130, and SFAS No. 131 will not have a material impact on the Company's
financial position or results of operations, as these three statements are
disclosure oriented.
American Institute of Certified Public Accountants Statement of Position
No. 96-1, "Environmental Remediation Liabilities", is effective for the year
ending September 30, 1998. Management has not yet determined the impact that
adoption of this statement will have on the Company's financial position or
results of operations, but does not anticipate that material liabilities will
need to be recorded in addition to those already provided for under the
provisions of generally accepted accounting principles as prescribed by SFAS
No. 5, "Accounting for Contingencies".
[Remainder of page intentionally left blank.]
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
In connection with the recapitalization of the Company and the
Company's parent, Haynes Holdings, Inc. ("Holdings"), Holdings as the sole
stockholder of the Company approved (a) the resignation of Ira Starr as a
member of the Board of Directors of the Company effective June 25, 1997, and
(b) the reconstitution of the Board of Directors, such that the Board of
Directors of the Company is now composed of the following individuals: Michael
D. Austin, David A. Stockman, Chinh Chu, David Blitzer and Glenn Hutchins.
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K. No report on Form 8-K was filed during
the quarter for which this report is filed.
[Remainder of page intentionally left blank.]
<PAGE>
SIGNATURES
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.
HAYNES INTERNATIONAL, INC.
/s/ Michael D. Austin
M. D. Austin
President and Chief Executive Officer
/s/ Joseph F. Barker
J. F. Barker
Vice President, Finance
Chief Financial Officer
Date: August 14, 1997
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C> <C> <C>
Sequential
Number Numbering
Assigned In System Page
Regulation S-K Number of
Item 601 Description of Exhibit Exhibit
(2) 2.01 Stock Purchase Agreement, dated as of January 24, 1997, among
Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners II Merchant Banking Fund L.P., Blackstone
Family Investment Partnership L.P., Haynes Holdings, Inc. and Haynes
International, Inc. (Incorporated by reference to Exhibit 2.01 to
Registrant s Form 8-K Report, filed February 13, 1997, File No. 333-
5411.)
2.02 Stock Redemption Agreement, dated as of January 24, 1997, among
MLGA Fund II, L.P., MLGAL Partners, L.P. and Haynes Holdings, Inc.
(Incorporated by reference to Exhibit 2.02 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
2.03 Exercise and Repurchase Agreement, dated as of January 24, 1997,
among Haynes Holdings, Inc. and the holders as listed therein.
(Incorporated by reference to Exhibit 2.03 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
2.04 Consent Solicitation and Offer to Redeem, dated January 30, 1997.
(Incorporated by reference to Exhibit 2.04 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
2.05 Letter of Transmittal, dated January 30, 1997. (Incorporated by
reference to Exhibit 2.05 to Registrant s Form 8-K Report, filed
February 13, 1997, File No. 333-5411.)
(3) 3.01 Restated Certificate of Incorporation of Registrant. (Incorporated by
reference to Exhibit 3.01 to Registration Statement on Form S-1,
Registration No. 33-32617.)
3.02 By-laws of Registrant. (Incorporated by reference to Exhibit 3.02 to
Registration Statement on Form S-1, Registration No. 33-32617).
(4) 4.01 Indenture, dated as of August 23, 1996, between Haynes International,
Inc. and National City Bank, as Trustee, relating to the 11 5/8% Senior
Notes Due 2004, table of contents and cross-reference sheet.
(Incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-
K Report for the year ended September 30, 1996, File No. 333-5411.)
4.02 Form of 11 5/8% Senior Note Due 2004. (Incorporated by reference to
Exhibit 4.02 to the Registrant's Form 10-K Report for the year ended
September 30, 1996, File No. 333-5411.)
(10) 10.01 Form of Severance Agreements, dated as of March 10, 1989, between
Haynes International, Inc. and the employees of Haynes International,
Inc. named in the schedule to the Exhibit. (Incorporated by reference
to Exhibit 10.03 to Registration Statement on Form S-1, Registration
No. 33-32617.)
10.02 Stock Subscription Agreement, dated as of August 31, 1989, among
Haynes Holdings, Inc., Haynes International, Inc. and the persons
listed on the signature pages thereto (Investors). (Incorporated by
reference to Exhibit 4.07 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.03 Amendment to the Stock Subscription Agreement To Add a Party,
dated August 14, 1992, among Haynes Holdings, Inc., Haynes
International, Inc., MLGA Fund II, L.P., and the persons listed on the
signature pages thereto. (Incorporated by reference to Exhibit 10.17 to
Registration Statement on Form S-4, Registration No. 33-66346.)
10.04 Second Amendment to Stock Subscription Agreement, dated
March 16, 1993, among Haynes Holdings, Inc., Haynes International,
Inc., MLGA Fund II, L.P., MLGAL Partners, Limited Partnership, and
the persons listed on the signature pages thereto. (Incorporated by
reference to Exhibit 10.21 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.05 Fifth Amendment to Stock Subscription Agreement, dated as of
January 29, 1997, among Haynes Holdings, Inc., Haynes International,
Inc. and the persons on the signature pages thereof. (Incorporated by
reference to Exhibit 4.02 to Registrant s Form 8-K Report, filed
February 13, 1997, File No. 333-5411.)
10.06 Termination of Stock Subscription Agreement, dated March 31, 1997.
10.07 Stockholders Agreement, dated as of August 31, 1989, among Haynes
Holdings, Inc. and the persons listed on the signature pages thereto
(Investors). (Incorporated by reference to Exhibit 4.08 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.08 Amendment to the Stockholders Agreement To Add a Party, dated
August 14, 1992, among Haynes Holdings, Inc., MLGA Fund II, L.P.,
and the persons listed on the signature pages thereto. (Incorporated
by reference to Exhibit 10.18 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.09 Amended Stockholders Agreement, dated as of January 29, 1997,
among Haynes Holdings, Inc. and the investors listed therein.
(Incorporated by reference to Exhibit 4.01 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
10.10 First Amendment to the Amended Stockholders Agreement, dated
March 31, 1997.
10.11 Investment Agreement, dated August 10, 1992, between MLGA Fund
II, L.P., and Haynes Holdings, Inc. (Incorporated by reference to
Exhibit 10.22 to Registration Statement on Form S-4, Registration
No. 33-66346.)
10.12 Investment Agreement, dated August 10, 1992, between MLGAL
Partners, Limited Partnership and Haynes Holdings, Inc. (Incorporated
by reference to Exhibit 10.23 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.13 Investment Agreement, dated August 10, 1992, between Thomas F.
Githens and Haynes Holdings, Inc. (Incorporated by reference to
Exhibit 10.24 to Registration Statement on Form S-4, Registration
No. 33-66346.)
10.14 Consent and Waiver Agreement, dated August 14, 1992, among
Haynes Holdings, Inc., Haynes International, Inc., MLGA Fund II, L.P.,
and the persons listed on the signature pages thereto. (Incorporated
by reference to Exhibit 10.19 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.15 Executive Employment Agreement, dated as of September 1, 1993, by
and among Haynes International, Inc., Haynes Holdings, Inc. and
Michael D. Austin. (Incorporated by reference to Exhibit 10.26 to the
Registration Statement on Form S-4, Registration No. 33-66346.)
10.16 Amendment to Employment Agreement, dated as of July 15, 1996 by
and among Haynes International, Inc., Haynes Holdings, Inc. and
Michael D. Austin (Incorporated by reference to Exhibit 10.15 to
Registration Statement on S-1, Registration No. 333-05411).
10.17 Haynes Holdings, Inc. Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.08 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.18 First Amendment to the Haynes Holdings, Inc. Employee Stock Option
Plan, dated March 31, 1997.
10.19 Form of "New Option" Agreements between Haynes Holdings, Inc. and
the executive officers of Haynes International, Inc. named in the
schedule to the Exhibit. (Incorporated by reference to Exhibit 10.09 to
Registration Statement on Form S-1, Registration No. 33-32617.)
10.20 Form of "September Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc. named in
the schedule to the Exhibit. (Incorporated by reference to Exhibit 10.10
to Registration Statement on Form S-1, Registration No. 33-32617.)
10.21 Form of "January 1992 Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc. named in
the schedule to the Exhibit. (Incorporated by reference to Exhibit 10.08
to Registration Statement on Form S-4, Registration No. 33-66346.)
10.22 Form of "Amendment to Holdings Option Agreements" between
Haynes Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit. (Incorporated
by reference to Exhibit 10.09 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.23 Form of March 1997 Amendment to Holdings Option Agreements.
10.24 March 1997 Amendment to Amended and Restated Holdings Option
Agreement, dated March 31, 1997.
10.25 Amended and Restated Loan and Security Agreement by and among
CoreStates Bank, N.A. and Congress Financial Corporation (Central),
as Lenders, Congress Financial Corporation (Central), as Agent for
Lenders, and Haynes International, Inc., as Borrower. (Incorporated by
reference to Exhibit 10.19 to the Registrant's Form 10-K Report for the
year ended September 30, 1996, File No. 333-5411).
10.26 Amendment No. 1 to Amended and Restated Loan and Security
Agreement by and among CoreStates Bank, N.A. and Congress
Financial Corporation (Central), as Lenders, Congress Financial
Corporation (Central) as Agent for Lenders, and Haynes International,
Inc., as Borrower. (Incorporated by reference to Exhibit 10.01 to
Registrant's Form 8-K Report, filed January 22, 1997, File No. 333-
5411.)
10.27 Amendment No. 2 to Amended and Restated Loan and Security
Agreement, dated January 29, 1997, among CoreStates Bank, N.A.
and Congress Financial Corporation (Central), as Lenders, Congress
Financial Corporation (Central), as agent for Lenders, and Haynes
International, Inc. (Incorporated by reference to Exhibit 10.01 to
Registrant s Form 8-K Report, filed February 13, 1997, File No. 333-
5411.)
(11) No Exhibit.
(15) No Exhibit.
(18) No Exhibit.
(19) No Exhibit.
(22) No Exhibit.
(23) No Exhibit.
(24) No Exhibit.
(27) 27.01 Financial Data Schedule.
(99) No Exhibit.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
HAYNES INTERNATIONAL, INC.
FINANCIAL DATA SCHEDULE
(dollars in thousands, except per share data)
The schedule contains summary financial information extracted from
the consolidated financial statements of Haynes International, Inc.
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1997
<PERIOD-END> SEP-30-1996 JUN-30-1997
<CASH> 4688 2373
<SECURITIES> 0 0
<RECEIVABLES> 40524 48308
<ALLOWANCES> (900) (896)
<INVENTORY> 74755 86183
<CURRENT-ASSETS> 119067 135968
<PP&E> 85777 91656
<DEPRECIATION> (54620) (60350)
<TOTAL-ASSETS> 161489 213801
<CURRENT-LIABILITIES> 61760 80136
<BONDS> 137350 137510
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (130341) (98111)
<TOTAL-LIABILITY-AND-EQUITY> 161489 213801
<SALES> 226402 179848
<TOTAL-REVENUES> 226402 179848
<CGS> 181173 138060
<TOTAL-COSTS> 226242 178798
<OTHER-EXPENSES> 590 (58)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21991 15334
<INCOME-PRETAX> 160 1050
<INCOME-TAX> 1940 (31290)
<INCOME-CONTINUING> (1780) 32340
<DISCONTINUED> 0 0
<EXTRAORDINARY> (7256) 0
<CHANGES> 0 0
<NET-INCOME> (9036) 32340
<EPS-PRIMARY> (90360) 323400
<EPS-DILUTED> (90360) 323400
</TABLE>
