16
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 December 31, 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>
HAYNES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<S> <C>
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 January 31, 1998 the registrant had 100 shares of Common Stock, $.01 par
value, outstanding.
The Index to Exhibits begins on page 13 in the sequential numbering system.
Total pages: 17
<PAGE>
HAYNES INTERNATIONAL, INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet as of September 30, 1997 and
December 31, 1997 3
Consolidated Condensed Statement of Operations for the Three Months
ended December 31, 1996 and 1997 4
Consolidated Condensed Statement of Cash Flows for the Three Months
ended December 31, 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 7
PART II OTHER INFORMATION
Signatures 12
Index to Exhibits 13
</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, December 31,
1997 1997
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 3,281 $ 3,449
Accounts and notes receivable, less allowance for
doubtful accounts of $657 and $752, respectively . 38,500 47,143
Inventories . . . . . . . . . . . . . . . . . . . . . 94,081 88,894
Total current assets . . . . . . . . . . . . . . 135,862 139,486
Property, plant and equipment (at cost). . . . . . . . . . 94,557 97,280
Accumulated depreciation . . . . . . . . . . . . . . . . . (62,006) (63,940)
Net property, plant and equipment. . . . . . . . 32,551 33,340
Deferred income taxes. . . . . . . . . . . . . . . . . . . 37,057 36,060
Prepayments and deferred charges, net. . . . . . . . . . . 10,849 13,910
Total assets. . . . . . . . . . . . . . . . $ 216,319 $ 222,796
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . $ 24,938 $ 27,571
Accrued postretirement benefits . . . . . . . . . . . 3,900 3,900
Revolving credit. . . . . . . . . . . . . . . . . . . 45,239 45,467
Note payable. . . . . . . . . . . . . . . . . . . . . 1,408 1,881
Income taxes payable. . . . . . . . . . . . . . . . . 1,566 2,780
Deferred income taxes . . . . . . . . . . . . . . . . 1,748 983
Total current liabilities. . . . . . . . . . . . 78,799 82,582
Long-term debt, net of unamortized discount. . . . . . . . 137,566 138,993
Accrued postretirement benefits. . . . . . . . . . . . . . 92,301 92,399
Total liabilities . . . . . . . . . . . . . . . . . . 308,666 313,974
Redeemable common stock of parent company. . . . . . . . . 2,088 2,088
Capital deficiency:
Common stock, $.01 par value (100 shares authorized,
issued and outstanding)
Additional paid-in capital. . . . . . . . . . . . . . 49,070 49,070
Accumulated deficit . . . . . . . . . . . . . . . . . (145,006) (143,910)
Foreign currency translation adjustment . . . . . . . 1,501 1,574
Total capital deficiency. . . . . . . . . . . . . . . (94,435) (93,266)
Total liabilities and capital deficiency. . . . . . . $ 216,319 $ 222,796
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
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<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
THREE MONTHS ENDED
DECEMBER 31,
1996 1997
Net revenues . . . . . . . . . . . . $ 55,415 $64,240
Cost of sales. . . . . . . . . . . . 41,678 49,852
Selling and administrative . . . . . 4,557 4,419
Research and technical . . . . . . . 962 956
Operating income . . . . . . . . . . 8,218 9,013
Other income . . . . . . . . . . . . (123) (26)
Interest expense . . . . . . . . . . 4,923 5,413
Interest income. . . . . . . . . . . (16) (40)
Income before provision
for income taxes and cumulative
effect of a change in accounting
principle . . . . . . . . . . . . 3,434 3,666
Provision for income taxes . . . . . 577 2,120
Income before cumulative effect of a
change in accounting principle. . 2,857 1,546
Cumulative effect of a change in
accounting principle, net of tax
benefit (450)
Net income . . . . . . . . . . . . . $ 2,857 $ 1,096
<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>
THREE MONTHS ENDED
DECEMBER 31,
1996 1997
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . $ 2,857 $ 1,096
Depreciation . . . . . . . . . . . . . . . . 1,908 1,938
Amortization . . . . . . . . . . . . . . . . 242 309
Deferred income taxes . . . . . . . . . . . . 19 235
Change in:
Inventories. . . . . . . . . . . . . . . . . . . . . (6,579) 5,201
Accounts receivable. . . . . . . . . . . . . . . . . (1,640) (8,620)
Accounts payable and accruals. . . . . . . . . . . . 2,235 2,869
Other, net . . . . . . . . . . . . . . . . . . . . . 315 (2,302)
Net cash (used in) provided by operating activities (643) 726
Cash flows from investing activities:
Additions to property, plant and equipment . (1,874) (2,783)
Other investing activities . . . . . . . . . (73) 213
Net cash used in investing activities. . . . (1,947) (2,570)
Cash flows from financing activities:
Net (decrease) increase in revolving credit and
long-term debt . . . . . . . . . . . . . . . . . . . (1,973) 1,997
Net cash (used in) provided by financing activities. (1,973) 1,997
Effect of exchange rates on cash . . . . . . . . . . (26) 15
Increase (decrease) in cash and cash equivalents . . (4,589) 168
Cash and cash equivalents, beginning of period . . . 4,688 3,281
Cash and cash equivalents, end of period . . . . . . $ 99 $ 3,449
Supplemental disclosures of cash flow
information:
Cash paid during period for: Interest. . . . . . . $ 608 $ 1,035
Income taxes. . . . . $ 132 $ 370
<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 THREE MONTHS ENDED DECEMBER 31, 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 ended September 30, 1997,
filed by the Company with the Securities and Exchange Commission on December
22, 1997. The results of operations for the three months ended December 31,
1997 are not necessarily indicative of the results to be expected for the full
year or any other interim period.
NOTE 2. INVENTORIES
The following is a summary of the major classes of inventories:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1997
September 30, 1997 (Unaudited)
Raw Materials . $ 5,012 $ 6,076
Work-in-process 50,240 43,744
Finished Goods. 33,641 36,141
Other, net. . . 5,188 2,933
Net inventories $ 94,081 $ 88,894
</TABLE>
NOTE 3. INCOME TAXES
The provision for income taxes for the three months ended December 31,
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 as a result of the recapitalization in January 1997, and
(b) taxes on foreign earnings against which the Company was unable to utilize
its U.S. federal net operating loss carryforwards.
NOTE 4. BUSINESS PROCESS REENGINEERING COSTS
On November 20, 1997, the Financial Accounting Standards Board's Emerging
Issues Task Force issued a consensus ruling which requires that certain
business process reengineering and information technology transformation costs
be expensed as incurred. The Task Force also consented that if such costs
were previously capitalized, then any remaining unamortized portion of those
identifiable costs should be written off and reported as a cumulative effect
of a change in accounting principle in this quarter. Accordingly, the Company
recorded the cumulative effect of this accounting change, net of tax, of
$450,000, resulting from a pre-tax write-off of $750,000 related to
reengineering charges involved in the implementation of an information
technology project.
<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 DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net Revenues. Net revenues increased approximately $8.8 million, or
15.9%, to approximately $64.2 million in the first quarter of 1998 from
approximately $55.4 million in the first quarter of 1997, primarily as a
result of a 14.3% increase in volume, from approximately 4.2 million pounds in
the first quarter of 1997 to approximately 4.8 million pounds in the first
quarter of 1998. Additionally, the average selling price per pound increased
by 2.0%, from $12.95 to $13.21, for the first quarter of 1998 compared to the
same period in 1997. Volume increases occurred primarily in the chemical
processing, flue gas desulfurization ("FGD") and the "other" market segments.
Average selling price per pound increases occurred in the aerospace and
land-based gas turbine markets as a result of changes in product mix.
Sales to the aerospace market in the first quarter of 1998 increased 5.5%
to approximately $28.8 million from approximately $27.3 million for the same
period in 1997. Volume declined 5.0% to approximately 1.9 million pounds in
the first quarter of 1998 from approximately 2.0 million pounds in the first
quarter of 1997 due to lower domestic sales for aircraft hydraulic systems and
lower sales to aerospace reprocessors and distributors. The decrease in
volume was offset by an increase in average selling prices as a result of
higher sales of higher cost, higher priced cobalt-base alloys relative to
lower cost, lower priced nickel-base alloys.
Sales to the chemical processing industry in the first quarter of 1998
increased 31.4% to approximately $22.2 million from approximately $16.9
million for the same period of 1997. Volume shipped to the chemical
processing industry during the first quarter of 1998 increased to
approximately 1.9 million pounds compared to 1.4 million pounds in the first
quarter of 1997 due to an increase in sales to key domestic and international
distributors and two large project requirements. While volume increased,
average selling prices declined as a result of changes in product mix.
Sales to the land-based gas turbine market in the first quarter of 1998
increased 2.3% to approximately $4.5 million from approximately $4.4 million
for the same period in 1997. Lower domestic shipments were offset by
increased average selling prices as a result of changes in product mix.
Sales to the flue gas desulfurization market in the first quarter of 1998
increased 5.0% to approximately $2.1 million from approximately $2.0 million
for the same period in 1997. Increases in volume due to export project
requirements were offset by a decline in average selling price per pound due
to changes in product mix. FGD business typically involves large project
requirements which vary significantly from quarter to quarter.
Sales to the oil and gas market were not significant for the first
quarter of 1998 or 1997. Sales to this sector are typically linked to sour
gas project requirements, which vary substantially from quarter to quarter.
As of December 31, 1997, the backlog for shipments this year is approximately
$4.0 million.
<PAGE>
Sales to other markets in the first quarter of 1998 increased 39.5% to
approximately $5.3 million from approximately $3.8 million for the same period
in 1997. Volume increases relating to a large waste disposal project and
higher sales of wear-resistant alloys offset a decline in average selling
price resulting from changes in product mix.
Cost of Sales. Cost of sales as a percentage of net revenues increased
to 77.6% in the first quarter of 1998 from 75.2% in the same period last year.
Due to planned outages for major upgrades in machinery which process sheet and
coil product forms, volume in the higher priced, high value added sheet and
coil forms decreased in the first quarter of 1998 compared to the first
quarter of 1997.
Selling and Administrative Expenses. Selling and administrative expenses
decreased approximately $100,000 to approximately $4.4 million in the first
quarter of 1998 from approximately $4.5 million in the same period a year ago,
primarily as a result of lower salary and benefit related costs.
Research and Technical Expenses. Research and technical expenses
remained flat at approximately $950,000 for the first quarter of 1998 and
1997. Salary and headcount increases were offset by reduced operating costs.
Operating Income. As a result of the above factors, the Company
recognized operating income for the first quarter of 1998 of approximately
$9.0 million, approximately $1.7 million of which was contributed by the
Company's foreign subsidiaries. For the first quarter of 1997, operating
income was approximately $8.2 million, of which approximately $1.3 million was
contributed by the Company's foreign subsidiaries.
Other Income. Other income decreased by approximately $100,000,
primarily as a result of foreign exchange losses realized in the first quarter
of 1998, partially offset by gains on the sale of property.
Interest Expense. Interest expense increased approximately $500,000 to
approximately $5.4 million for the first quarter of 1998 from approximately
$4.9 million for the same period in 1997. Higher revolving credit balances
during the first quarter of fiscal 1998 contributed to this increase.
Income Taxes. The provision for income taxes increased by approximately
$1.5 million to approximately $2.1 million for the first quarter of 1998 from
approximately $600,000 for the first quarter of 1997, due to (a) limitations
on utilization of available U.S. federal net operating loss carryforwards as a
result of the recapitalization in January 1997 and (b) taxes on foreign
earnings against which the Company was unable to utilize its U.S. federal net
operating loss carryforwards.
Change in Accounting Principle. The cumulative effect of a change in
accounting principle recorded in 1998 represents the write-off of the
cumulative effect of certain business process reengineering and information
technology transformation costs that were previously capitalized. The
cumulative effect includes $750,000 in costs, reduced by a $300,000 tax
benefit related to business process reengineering charges incurred in the
implementation of an information technology project.
Net Income. As a result of the above factors, the Company recognized net
income for the first quarter of 1998 of approximately $1.1 million, compared
to approximately $2.9 million for the first quarter of 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's near-term future cash needs will be driven by working
capital requirements, and planned capital expenditures. Capital expenditures
were approximately $2.8 million in the first three months of 1998, compared to
capital expenditures of approximately $1.9 million for the first three months
of 1997. The majority of the first quarter 1998 capital spending was for the
purchase of a warehouse formerly leased by the Company's Swiss subsidiary.
The remainder of planned 1998 expenditures will be for improvements in cost,
quality, capacity and reliability of manufacturing operations. 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 (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 provided by operating activities in the first three months of
1998 was approximately $700,000, as compared to net cash used in operating
activities of approximately $600,000 in the first three months of 1997. The
positive cash flow from operations for 1998 was primarily the result of net
income of approximately $1.1 million. The positive cash flow was also
affected by a decrease in inventories of approximately $5.2 million, an
increase in accounts payable and accrued expenses of approximately $2.9
million, a decrease in deferred taxes of approximately $200,000, non-cash
depreciation and amortization expense of approximately $2.2 million, an
increase in accounts receivable of approximately $8.6 million and other net
adjustments of approximately $2.3 million.
Net cash used in investing activities increased to approximately $2.5
million in the first three months of 1998 from approximately $1.9 million in
the same period for 1997, primarily as a result of increased capital spending.
Net cash provided by financing activities for the first three months of 1998
was approximately $2.0 million, compared to net cash used in financing
activities of approximately $2.0 million for the first three months of 1997,
primarily as a result of increased net borrowings by the Company's Swiss
subsidiary.
Cash for the first three months of 1998 increased approximately $200,000,
resulting in a December 31, 1997 cash balance of approximately $3.5 million.
Cash in the first three months of 1997 decreased approximately $4.6 million,
resulting in a cash balance of approximately $100,000 at December 31, 1996.
Total debt at December 31, 1997, was approximately $186.3 million
compared to approximately $184.2 million at September 30, 1997, reflecting
increased borrowing by the Company's Swiss subsidiary.
At December 31, 1997, approximately $45.5 million had been borrowed
pursuant to the Facility compared to approximately $45.2 million at September
30, 1997. In addition, as of December 31, 1997, approximately $3.3 million in
letter of credit reimbursement obligations had been incurred by the Company.
The Company had available additional borrowing capacity of approximately $8.8
million on the Facility at December 31, 1997.
ACQUISITION BY HOLDINGS
In June 1997, Inco Limited ("Inco") and Blackstone Capital Partners II
Merchant Fund L.P. and two of its affiliates ("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 the Company's parent, Haynes
Holdings, Inc. If the transaction is consummated, Blackstone plans to combine
the operations of IAI and the Company. Completion of the sale will be subject
to a number of conditions and receipt of regulatory and other approvals,
including anti-trust clearance. As of December 31, 1997, the Company has
recorded approximately $3.9 million of acquisition costs as deferred charges
which would be immediately charged to operations in the event the approvals
and anti-trust clearance are not obtained.
ACCOUNTING PRONOUNCEMENTS
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, results of
operations or cash flows, 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, results of operations or cash flows, 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".
YEAR 2000 COSTS
The Company is undergoing an information technology project to replace
certain information systems, in addition to addressing Year 2000 compliance
issues. The Company has contracted with a third party to evaluate the
manufacturing systems and document the Year 2000 exposure. The total costs of
this evaluation and taking remedial measures are not expected to exceed
$300,000. The Company feels that the implementation of the information
technology project and the evaluation and subsequent remedies of the
manufacturing systems will adequately address the Year 2000 issue.
[Remainder of page intentionally left blank.]
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds.
Not applicable
ITEM 3. Defaults Upon Senior Securities.
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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.]
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: February 13, 1998
INDEX TO EXHIBITS
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NUMBER SEQUENTIAL
ASSIGNED IN NUMBERING
REGULATION S-K SYSTEM PAGE
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
1998. Registrant's Form 8-K Report, filed February 13,
1999. 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
3.2 to Registration Statement on Form S-1, Registration No.
3.3 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 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.)
10.03 First Amendment to the Amended Stockholders' Agreement,
dated March 31, 1997. (Incorporated by reference to Exhibit
10.10 to Registrant's Form 10-Q Report, filed May 15, 1997,
10.11 File No. 333-5411.)
10.04 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.)
10.05 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).
10.06 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.)
10.07 First Amendment to the Haynes Holdings, Inc. Employee
Stock Option Plan, dated March 31, 1997. (Incorporated by
reference to Exhibit 10.18 to Registrant's Form 10-Q Report,
filed May 15, 1997, File No. 333-5411.)
10.08 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.)
10.09 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.)
10.10 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.)
10.11 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.)
10.12 Form of March 1997 Amendment to Holdings Option
Agreements. (Incorporated by reference to Exhibit 10.23 to
Registrant's Form 10-Q Report, filed May 15, 1997, File No.
333-5411.)
10.13 March 1997 Amendment to Amended and Restated Holdings
Option Agreement, dated March 31, 1997. (Incorporated by
reference to Exhibit 10.24 to Registrant's Form 10-Q Report,
filed May 15, 1997, File No. 333-5411.)
10.14 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).
10.15 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.)
10.16 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.)
10.17 Agreement by and between Galen Hodge and Haynes
International, dated January 13, 1998.
(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>
<PAGE>
AGREEMENT
THIS AGREEMENT is made and entered into as of the 13th day of January,
1998, by and between Haynes International, Inc. ("Company"), a Delaware
corporation, and F. Galen Hodge ("Employee"), an employee of the Company.
WITNESSETH:
WHEREAS, the Employee is an officer and employee of the Company; and
WHEREAS, the Company and the Employee desire to set forth their agreement
as to certain matters in connection with the termination of the Employee's
employment with the Company and the resignation of his position as an officer
of the Company in the event of the purchase of Inco Alloys International, Inc.
by Haynes Holdings, Inc. ("Holdings");
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence as of January 1, 1998
and shall continue in effect until the earlier of (a) five (5) days after the
Closing Date of the transaction between Holdings and Inco Limited, Inco United
States, Inc., Inco Europe Limited, and Societe de la Tiebaghi, S.A.
(collectively "Inco") pursuant to the Stock Purchase Agreement dated as of
June 11, 1997 ("Stock Purchase Agreement"), or (b) the termination of the
Stock Purchase Agreement. Notwithstanding the foregoing provisions or any
other provisions of this Agreement to the contrary, if the Employee becomes
entitled to benefits pursuant to Section 2 of this Agreement, this Agreement
shall remain in effect until all obligations of the Company and the Employee
under this Agreement have been fully discharged.
2. Severance Benefits. In the event that the transaction between Holdings
and Inco pursuant to the Stock Purchase Agreement is closed and the Employee
resigns from the Company within the five (5) day period immediately following
the Closing Date of such transaction (and not at any other time), such
resignation shall be treated as a retirement from the Company and the Company
agrees to pay or provide certain compensation and benefits to the Employee as
follows:
a. Salary through Termination Date. Within five (5) days after the
Release Effective Date, the Company shall pay the Employee his full Base
Salary through the Termination Date. Any bonuses or incentive compensation
which pursuant to the terms of any compensation or benefit plan have been
earned or have become payable as of the Termination Date, but which have not
yet been paid, will be paid to the Employee by the Company at the time such
bonuses or incentive compensation payments are paid to other eligible
recipients. "Base Salary" means the annual base salary of the Employee from
the Company, but determined without regard to any salary reduction agreement
of the Employee under Sections 401(k) and 125 of the Internal Revenue Code of
1986 (the "Code") (or corresponding provisions of subsequent federal income
tax laws) or any salary deferral agreement of the Employee under any
non-qualified deferred compensation program that may be available to the
Employee from time to time, and excludes (i) incentive or additional cash
compensation; (ii) any amounts included in income because of Sections 79 of
the Code; and (iii) any amounts paid to the Employee for reimbursement for
expenses or discharging tax liabilities.
a. Lump Sum Cash Payment. Within five (5) days after the Release
Effective Date, the Company shall pay the Employee a lump sum cash payment
equal to one hundred percent (100%) of the Employee's Base Salary; provided,
however, that the Company may at its election pay such amount to the Employee
in twelve (12) equal monthly installments commencing on the fifth day after
the Release Effective Date and on the same day of the next eleven (11) months
thereafter.
a. Continued Coverage. The Company shall continue to provide for
the Employee and his dependents, for a period of twelve (12) months following
the Termination Date, life insurance, medical and hospitalization benefits
comparable to those provided by the Company to the Employee and his dependents
immediately prior to the Termination Date, provided that any coverage provided
pursuant to this subsection (c) shall terminate to the extent that the
Employee obtains comparable life insurance, medical or hospitalization
benefits coverage from any other employer during such twelve (12) month
period. The benefits provided under this subsection (c) shall not be
materially less favorable to the Employee in terms of amounts, deductibles and
costs to him, if any, than such benefits provided by the Company to the
Employee and his dependents as of the Termination Date. This subsection (c)
shall not be interpreted so as to limit any benefits to which the Employee or
his dependents may be entitled under the Company's life insurance, medical,
hospitalization, dental or disability plans following the Employee's
Termination Date and shall be in addition to any COBRA rights under federal
law.
1. Release.
a. As a condition of receiving from the Company the payments and
benefits provided for hereunder, which payments and benefits the Employee is
not otherwise entitled to receive, the Employee understands and agrees that he
will be required to execute a release of all claims against the Company in the
form attached hereto as Exhibit 1 (the "Release") on the Termination Date.
Employee acknowledges that he has been advised in writing to consult with an
attorney prior to executing the Release. The Employee agrees that he will
consult with his attorney prior to executing the Release. The Employee and
the Company agree that Employee has a period of seven (7) days following the
execution of the Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or enforceable
until the seven (7) day revocation period expires. The date on which this
seven (7) day period expires shall be the effective date of the Release (the
"Release Effective Date").
a. The Employee understands that as used in this Section 3, the
"Company" includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries,
affiliates, distributors, successors, and assigns, and any other persons
related to the Company.
a. Notwithstanding anything in this Agreement to the contrary, this
Agreement (i) shall not affect in any manner the ownership by the Employee of
any shares of stock of Holdings owned by him or the ownership by the Employee
of any options on shares of stock of Holdings owned by him (and his right to
exercise such options after a retirement in accordance with the applicable
plan and option agreement) and (ii) shall not affect the rights or obligations
established pursuant to that certain Amended Stockholder Agreement, dated as
of January 29, 1997, by and among Holdings and the investors who are parties
thereto, as such agreement is amended from time to time, of the Employee,
Holdings or other parties to that certain Amended Shareholders' Agreement.
a. The Employee agrees that execution and delivery to the Company of
any release or disclaimer agreement requested by the Company which is
consistent with the provisions of this Section 3 and the passage of all
necessary waiting periods in connection therewith shall be a condition to the
receipt of any payment or benefits to be provided by the Company following the
termination of the Employee's employment with the Company.
1. Non-Competition. The Employee agrees that for a period of one (1)
year immediately following termination of the Employee's employment with the
Company, the Employee shall not directly or indirectly, as an individual or as
a director, officer, contractor, employee, consultant, partner, investor or in
any other capacity with any corporation, partnership or other person or
entity, other than the Company, engage in the business of developing,
manufacturing, selling or distributing high performance nickel base or cobalt
base alloys in competition with the business of the Company or any of its
subsidiaries as such business are constitutes from time to time during the
Employee's employment with the Company, and thereafter, as such businesses are
constituted at the time of termination of the Employee's employment. The
restrictions of this Section 4 shall not be deemed to prevent the Employee
from owning less than 5% of the issued and outstanding shares of any class of
securities of an issuer whose securities are listed on a national securities
exchange or registered pursuant to Section 12(g) of the Exchange Act. The
restrictions of this Section 4, to the extent applicable following termination
of the Employee's employment with the Company, shall only apply within the
geographical area served either by the Company or its subsidiaries during the
two (2) years prior to termination of the Employee's employment with the
Company. In the event a court of competent jurisdiction determines that the
foregoing restriction is unreasonable in terms of geographic scope or
otherwise then the court is hereby authorized to reduce the scope of said
restriction and enforce this Section 4 as so reduced. If any sentence, word
or provision of this Section 4 shall be determined to be unenforceable, the
same shall be severed herefrom and the remainder shall be enforced as if the
unenforceable sentence work or provision did not exist.
1. Confidentiality.
a. In consideration of the payments and benefits provided hereunder,
the Employee agrees that on or after the date of this Agreement he shall not,
directly or indirectly, disclose to any other individual, corporation or other
entity or use for his own benefit any Confidential Information of the Company
or any corporation or other entity affiliated with the Company. The term
"Confidential Information" includes information not in the public domain and
not previously disclosed to the public or to the trade by the Company with
respect to the products, facilities, methods, inventions (whether patentable
or not), intellectual property, trade secrets, research and development plans
and activities, designs, computer systems, procedures, manuals, reports,
product price lists, customer and supplier information, financial information
(including the revenue, costs or profits associated with any of the Company's
products), business and marketing plans, payroll information, inventory
information, or opportunities of the Company or any corporation or other
entity affiliated with the Company. The Employee's obligations set forth in
this subsection (a) of this Section 5 and the Company's rights and remedies,
whether legal or equitable, with respect thereto, shall extend indefinitely.
The rights of the Company under this subsection (a) of this Section 5 shall be
in addition to (and they shall not affect or impair) the rights of the Company
and Holdings under the Indiana Uniform Trade Secrets Act, IC 24-2-3-1 et.
seq., as amended, or any confidentiality agreement between the Employee and
the Company.
a. During the period of two years commencing with the date on which
the Employee's employment ends, the Employee will not whether by himself, his
servants or agents or otherwise howsoever either directly or indirectly:
i. persuade or attempt to persuade any person who was employed by or
otherwise engaged to perform services for the Company in a managerial position
to resign their employment or terminate their relationship with the Company;
or
i. solicit or attempt to solicit business of the same type as that
carried on by the Company from any person, firm or company who during the 12
months prior to the date on which the Employee's employment ended was a
customer or client of the Company with whom the Employee had personal contact
during such 12 month period.
a. The Employee acknowledges that a breach of any of the covenants or
obligations contained in this Section 5 may result in material and irreparable
injury to the Company for which there is no adequate remedy at law and that
injury and damages resulting from a breach will be immeasurable. Without
limiting the rights or remedies both legal and equitable, available to the
Company in the event of an actual or threatened breach the Employee agrees
that the Company shall be entitled to seek and obtain a temporary restraining
order and/or a preliminary or permanent injunction against the Employee, which
shall prevent the Employee from engaging in any activities prohibited by this
Agreement. The Company shall also be entitled to recover from the Employee
its reasonable attorney's fees and costs of any action that it successfully
brings against the Employee. The Employee hereby agrees and consents that
injunctive relief may be sought ex parte in any state or federal court of
record in the State of Indiana, in the state and county in which the violation
occurs, or in any other court of competent jurisdiction, at the election of
the Company.
a. The Company and the Employee stipulate and agree that the
covenants and other terms contained in this Section 5 are reasonable in all
respects, and that the restrictions contained herein are designed to protect
the Company's Confidential Information and goodwill.
1. Withholding Requirements. The Company shall have the right to
withhold from the amount of any payments to be made to the Employee pursuant
to this Agreement or to require the Employee to remit to the Company, as the
case may be, any and all amounts sufficient to satisfy any applicable tax or
withholding requirements set forth in the Internal Revenue Code of 1986, as
amended, and any other applicable Federal, state or local law.
1. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Employee and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior to subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof may have been made by either party which are not expressly set forth in
this Agreement.
1. Applicable Law and Forum. This Agreement has been entered into in
the State of Indiana and shall be governed by and construed in accordance with
the laws of the State of Indiana. The parties agree that any action in law or
equity brought by either party arising from or in connection with this
Agreement or arising from or in connection with the performance by either
party of its obligations hereunder shall be brought only in the United States
District Court for the Southern District of Indiana, Indianapolis Division or
the Circuit Court of Howard County, Indiana, and the parties hereto consent to
the jurisdiction of such forums.
1. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
1. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes all prior agreements,
understandings and arrangements, oral or written, between the parties hereto,
with respect to the subject matter hereof or any other severance agreement,
including but not limited to that certain Severance Agreement between the
Company and the Employee dated July 7, 1995, and that certain Agreement
between the Company and the Employee dated December 28, 1997 which may have
been in effect prior to the execution and delivery of this Agreement.
1.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Employee has executed this Agreement,
each as of the day and year first above written.
COMPANY:
HAYNES INTERNATIONAL, INC.
By: /s/ Michael D. Austin
Title: President and Chief ExecutiveOfficer
ATTEST:
/s/ R. steven linne
Secretary
EMPLOYEE:
F. GALEN HODGE
/s/ f. galen hodge
WITNESS:
/s/ frank la rosa
EXHIBIT 1
RELEASE OF ALL CLAIMS
In consideration of receiving from Haynes International, Inc. (the
"Company") the payments and benefits provided for in that certain Agreement
dated as of _______________, 199___ (the "Agreement") between the Company and
the undersigned (the "Employee"), which payments and benefits the Employee was
not otherwise entitled to receive, the Employee unconditionally releases and
discharges the Company from any and all claims, causes of action, demands,
lawsuits or other charges whatsoever, known or unknown, directly or indirectly
related to the Employee's employment with the Company, except for (i) a breach
of the Company's obligations under the Agreement, (ii) any rights of the
Employee appurtenant to any shares of stock of, or options for shares of stock
of, Haynes Holdings, Inc. arising after the date of this Release, (iii) the
rights and obligations, as established under the Amended Shareholders'
Agreement dated as of January 29, 1997 by and among Haynes Holdings, Inc. and
the investors who are parties thereto, as amended from time to time, of the
Employee, Haynes Holdings, Inc., or the other parties to that certain Amended
Shareholders' Agreement, and (iv) the right of the Employee to elect
continuation of group medical and dental benefits for the Employee and his
eligible dependents who are qualified beneficiaries under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), at the
Employee's expense, pursuant to COBRA. The claims or actions released herein
include, but are not limited to, those based on allegations of wrongful
discharge, breach of contract, promissory estoppel, defamation, infliction of
emotional distress, and those alleging discrimination on the basis of race,
color, sex, religion, national origin, age, disability, or any other basis,
including, but not limited to, any claim or action under Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967,
the Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990,
the Equal Pay Act of 1963, the Civil Rights Act of 1991, the Employee
Retirement Income Security Act of 1974, or any other federal, state, or local
law, rule, ordinance, or regulation as presently enacted or adopted and as
each may hereafter be amended.
With respect to any claim that the Employee might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Employee does not waive rights or claims that may arise after
the date of this Release;
(ii) The Employee's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(iii) The Employee acknowledges that he has been advised in writing
to consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iv) The Employee acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(v) The Employee and the Company agree that the Employee has a period
of seven (7) days following the execution of this Release within which to
revoke the Release.
The parties also acknowledge and agree that this Release shall not be
effective or enforceable until the seven (7) day revocation period expires.
The date on which this seven (7) day period expires shall be the effective
date of this Release.
EXHIBIT 1
The Employee further agrees, in consideration of receiving the payments
and benefits provided for in the Agreement, not to initiate or instigate any
claims, causes of action or demands against the Company in any way directly or
indirectly related to the Employee's employment with the Company or the
termination of his employment except for a breach of the Company's obligations
under the Agreement or rights of the Employee relating to any shares of stock
of, or options for shares of stock of, Haynes Holdings, Inc. arising after the
date of this Release, and the Employee agrees to reimburse, defend, and hold
harmless the Company against any such claims, causes of action or demands.
The Employee understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries,
affiliates, distributors, successors, and assigns, any and all employee
benefit plans (and any fiduciary of such plans) sponsored by the Company, and
any other persons related to the Company.
EXHIBIT 1
Date
WITNESS:
<PAGE>
<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-30-1997 SEP-30-1998
<PERIOD-END> SEP-30-1997 DEC-30-1997
<CASH> 3281 3449
<SECURITIES> 0 0
<RECEIVABLES> 39157 47895
<ALLOWANCES> (657) (752)
<INVENTORY> 94081 88894
<CURRENT-ASSETS> 135862 139486
<PP&E> 94527 97280
<DEPRECIATION> (61976) (63940)
<TOTAL-ASSETS> 216319 222796
<CURRENT-LIABILITIES> 78799 82582
<BONDS> 137566 138993
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (94435) (91178)
<TOTAL-LIABILITY-AND-EQUITY> 216319 222796
<SALES> 235760 64240
<TOTAL-REVENUES> 235760 64240
<CGS> 180504 49852
<TOTAL-COSTS> 232055 60574
<OTHER-EXPENSES> 276 (26)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20608 5413
<INCOME-PRETAX> 3705 3666
<INCOME-TAX> (32610) 2120
<INCOME-CONTINUING> 36315 1546
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (450)
<NET-INCOME> 36315 1096
<EPS-PRIMARY> 363150 10960
<EPS-DILUTED> 363150 10960
</TABLE>
