UNITED STATES
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, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
.
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Commission File Number: 333-5411
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)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of August 13, 1998 the registrant had 100 shares of Common Stock, $.01 par
value, outstanding.
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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 June 30, 1998 3
Consolidated Condensed Statement of Operations
for the Three Months and Nine Months ended
June 30, 1997 and 1998 4
Consolidated Condensed Statement of Cash Flows
for the Nine Months ended June 30, 1997 and 1998 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Quantitative and Qualitative Disclosures About
Item 3. Market Risk 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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SEPTEMBER 30, JUNE 30,
1997 1998
-------------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,281 $ 2,210
Accounts and notes receivable, less allowance for
doubtful accounts of $657 and $890, respectively 38,500 44,895
Inventories 94,081 85,085
-------------- -----------
Total current assets 135,862 132,190
-------------- -----------
Property, plant and equipment (at cost) 94,527 98,173
Accumulated depreciation (61,976) (67,925)
-------------- -----------
Net property, plant and equipment 32,551 30,248
Deferred income taxes 37,057 36,206
Prepayments and deferred charges, net 10,849 9,589
-------------- -----------
Total assets $ 216,319 $ 208,233
=============== ==========
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 24,938 $ 26,415
Accrued postretirement benefits 3,900 3,900
Revolving credit 45,239 35,735
Note payable 1,408 1,379
Income taxes payable 1,566 270
Deferred income taxes 1,748 1,222
-------------- -----------
Total current liabilities 78,799 68,921
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Long-term debt, net of unamortized discount 137,566 139,061
Accrued postretirement benefits 92,301 92,593
Total liabilities 308,666 300,575
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 49,087
Accumulated deficit (145,006) (144,853)
Foreign currency translation adjustment 1,501 1,336
-------------- -----------
Total capital deficiency (94,435) (94,430)
-------------- -----------
Total liabilities and capital deficiency $ 216,319 $ 208,233
=============== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
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HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(dollars in thousands)
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THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1998 1997 1998
---------- ----------- --------- ---------
Net revenues $ 62,944 $ 60,867 $ 179,848 $ 187,146
Cost of sales 49,590 47,665 138,060 144,833
Selling and administrative 4,551 4,336 13,989 13,520
Recapitalization expense 8,735
Research and technical 888 891 2,869 2,780
---------- ------------ ---------- ---------
Operating income 7,915 7,975 16,195 26,013
Other cost (income), net (2) 359 (58) 722
Terminated acquisition costs 7,500
Interest expense 5,343 5,244 15,334 15,966
Interest income (75) (14) (131) (84)
---------- ------------ ---------- ---------
Income (loss) before provision for
(benefit from) income taxes and
cumulative effect of a change in
accounting principle 2,649 2,386 (1,050) 1,909
Provision for (benefit from) income taxes (33,116) 1,046 (31,290) 1,306
---------- ------------ ---------- ---------
Income before cumulative effect of a
change in accounting principle 35,765 1,340 32,340 603
Cumulative effect of a change in
accounting principle, net of tax benefit (450)
---------- ------------ ---------- ---------
Net income $ 35,765 $ 1,340 $ 32,340 $ 153
========== =========== ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
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HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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NINE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1998
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Cash flows from operating activities:
Net income $ 32,340 $ 153
Depreciation 5,572 5,950
Amortization 837 933
Non-cash stock option expense 2,457
Deferred income taxes (34,368) 354
Change in:
Inventories (12,038) 8,901
Accounts receivable (8,204) (6,462)
Accounts payable and accruals 1,850 96
Other, net 1,044 221
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Net cash provided by (used in) operating activities (10,510) 10,146
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Cash flows from investing activities:
Additions to property, plant and equipment (5,715) (3,850)
Other investing activities 29 307
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Net cash used in investing activities (5,686) (3,543)
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Cash flows from financing activities:
Net increase (decrease) in revolving credit and long-
term debt 13,613 (7,681)
Capital contribution of proceeds from
exercise of stock options 294 18
-------------- -------------
Net cash provided by (used in) financing activities 13,907 (7,663)
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Effect of exchange rates on cash (26) (11)
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Decrease in cash and cash equivalents (2,315) (1,071)
Cash and cash equivalents, beginning of period 4,688 3,281
-------------- -------------
Cash and cash equivalents, end of period $ 2,373 $ 2,210
============= =============
Supplemental disclosures of cash flow
information:
Cash paid during period for:
Interest $ 10,781 $ 10,964
============ =============
Income taxes $ 1,359 $ 1,948
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
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HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
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 for the interim
periods presented. This reportincludes 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 ("SEC")on December 22, 1997.
The results of operations for the nine months ended June 30, 1998 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:
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September 30, 1997 June 30, 1998
(Unaudited)
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Raw Materials $ 5,012 $ 3,926
Work-in-process 50,240 42,009
Finished Goods 33,641 35,286
Other, net 5,188 3,864
------------------- ---------------
Net inventories $ 94,081 $ 85,085
=================== ===============
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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, 1997 and 1998 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. BUSINESS PROCESS REENGINEERING COSTS
On November 20, 1997, the Financial Accounting Standards Board's Emerging
Issues Task Force ("EITF") issued a consensus ruling which requires that certain
business process reengineering and information technology transformation costs
be expensed as incurred. The EITF 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 the first quarter of fiscal 1998.
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.
NOTE 5. TERMINATED ACQUISITION COSTS
On March 3, 1998, the Company announced that Haynes Holdings, Inc.
("Holdings" ), its parent corporation, and Blackstone Capital Partners II
Merchant Banking Fund L.P. and two of its affiliates ("Blackstone") had
abandoned their attempt to acquire Inco Alloys International ("IAI"), a 100%
owned business unit of Inco Limited ("Inco"). Approximately $7.5 million
of deferred acquisition costs were charged to operations in the quarter
ended March 31, 1998.
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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.
This report should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net Revenues. Net revenues decreased approximately $2.0 million to
approximately $60.9 million in the third quarter of 1998 from approximately
$62.9 million in the third quarter of 1997, primarily as a result of an 8.2%
decrease in volume, to approximately 4.5 million pounds in the third quarter of
1998 from approximately 4.9 million pounds in the third quarter of 1997. This
decrease was partially offset by an increase in the average selling price per
pound to $13.35 from $12.68 for the third quarter of 1998 compared to the same
period in 1997.
Sales to the aerospace market in the third quarter of 1998 declined
approximately $2.0 million to $27.9 million compared to approximately $29.9
million for the same period in 1997. Domestic and export volume declined due to
lower manufacturers requirements. Sales to the aerospace sector reflect some
uncertainty in demand, which appears to be a result of inventory correction by
commercial aircraft manufacturers and component suppliers. The decrease in
volume was partially offset by an increase in the average selling price per
pound in the third quarter of 1998 compared to 1997 primarily as a result of
volume increases in the higher priced, cobalt-containing alloys.
Sales to the chemical processing industry in the third quarter of 1998 were
relatively flat at approximately $18.2 million compared to approximately $18.3
million for the same period of 1997. Volume shipped to the chemical processing
industry during the third quarter of 1998 decreased due to lower domestic sales.
While volume decreased, average selling prices per pound increased as a result
of improved pricing for the Company's products through its foreign subsidiaries.
Sales to the land-based gas turbine market in the third quarter of 1998
decreased 26.4% to approximately $3.9 million from approximately $5.3 million
for the same period in 1997. The reduced volume is due to adjustments of
manufacturers schedules and lower demand for spare parts which is due to timing
of maintenance requirements. Average selling prices per pound decreased as a
result of relatively higher sales of lower cost, lower priced iron-base alloys.
Sales to the flue gas desulfurization ("FGD") market in the third quarter
of 1998 increased to approximately $2.1 million from approximately $500,000 for
the same period in 1997. Increases in shipments through the Company's foreign
subsidiaries offset lower average selling prices per pound. FGD business
typically involves large project requirements which may vary significantly from
quarter to quarter.
Sales to the oil and gas market in the third quarter of 1998 were
relatively flat at $3.0 million compared to approximately $3.3 million in the
third quarter of 1997. Sales to this sector are typically linked to sour gas
project requirements, which may vary significantly from quarter to quarter and
year to year.
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Sales to other markets in the third quarter of 1998 increased 8.3% to
approximately $5.2 million from approximately $4.8 million for the same period
in 1997. Volume decreases for automotive applications were offset by the higher
average selling prices achieved with smaller volume maintenance orders.
Cost of Sales. Cost of sales as a percentage of net revenues was
relatively flat at 78.3% in the third quarter of 1998 compared to 78.8% in the
same period last year. Volume in the higher priced, higher value added sheet
and coil forms decreased in the third quarter of 1998 in part due to unplanned
outages in the sheet and coil production equipment, compared to the third
quarter of 1997. This decrease was partially offset by reduced material costs
in the third quarter of 1998 compared to the same period a year ago.
Selling and Administrative Expenses. Selling and administrative expenses
decreased approximately $300,000 to approximately $4.3 million in the third
quarter of 1998 from approximately $4.6 million in the same period a year ago,
primarily as a result of lower benefit related costs.
Research and Technical Expenses. Research and technical expenses remained
flat at approximately $900,000 in the third quarter of 1998 compared to the
third quarter of 1997.
Operating Income. As a result of the above factors, the Company recognized
operating income for the third quarter of 1998 of approximately $8.0 million,
approximately $2.1 million of which was contributed by the Company's foreign
subsidiaries. For the third quarter of 1997, operating income was approximately
$7.9 million, of which approximately $1.0 million was contributed by the
Company's foreign subsidiaries.
Other. Other cost increased by approximately $400,000, due in part to
lower foreign exchange gains and higher bad debt provisions in the third quarter
of 1998 compared to the same period in 1997.
Interest Expense. Interest expense decreased approximately $100,000 to
approximately $5.2 million for the third quarter of 1998 from approximately $5.3
million for the same period in 1997. Lower revolving credit balances during the
third quarter of fiscal 1998 contributed to this decrease.
Income Taxes. An income tax provision of approximately $1.0 million was
recorded for the third quarter of 1998 compared to a benefit of approximately
$33.1 million in fiscal 1997. The benefit recorded in 1997 was due to the
Company's reversal of its deferred tax valuation allowance. The provision
recorded in 1998 was primarily due to higher foreign subsidiary earnings.
Net Income. As a result of the above factors, the Company recognized net
income for the third quarter of 1998 of approximately $1.3 million, compared to
net income of approximately $35.8 million for the third quarter of 1997.
[Remainder of page intentionally left blank.]
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NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
Net Revenues. Net revenues increased approximately $7.3 million, or 4.1%,
to approximately $187.1 million in the first nine months of 1998 from
approximately $179.8 million in the first nine months of 1997, primarily as a
result of a 1.4% increase in shipments, to approximately 14.0 million pounds in
the first nine months of 1998, from approximately 13.8 million pounds in the
first nine months of 1997. Volume increases occurred in essentially all markets
except the aerospace and other markets. Average selling prices per pound
increased to $13.17 from $12.90 for the first nine months of 1998, compared to
the same period in 1997. Increases in the average selling price per pound
occurred in the aerospace and other market segments as a result of changes in
product mix.
Sales to the aerospace market for the first nine months of 1998 decreased
1.0% to approximately $85.5 million from approximately $86.3 million for the
same period in 1997. Average selling prices increased resulting from a larger
volume of higher value added cobalt-containing alloys. While revenues improved
in the domestic airframe market segment resulting from slight volume increases,
revenues declined for the domestic and export gas turbine market segment.
Sales to the chemical processing industry during the first nine months of
1998 increased 11.5% to approximately $59.9 million, from approximately $53.7
million in the first nine months of 1997. The sales increase was the result of
an increase in volume in project activity from export markets for the first nine
months of 1998 compared to the first nine months of 1997. This increase in
volume was partially offset by a reduction in average selling prices due to
proportionately higher sales of lower cost, lower priced product forms, although
the Company experienced improved pricing in the third quarter due to higher
prices for products sold through the Company's foreign subsidiaries.
Sales to the land-based gas turbine market in the first nine months of 1998
decreased 2.3% to approximately $13.0 million from approximately $13.3 million
for the comparable period in 1997. Slower activity in the domestic market
during the last two quarters has been caused by industry inventory adjustments
and revised build schedules resulting in the slight decline in revenue for the
period.
Sales to the flue gas desulfurization ("FGD") market increased in the first
nine months of 1998 to approximately $6.4 million from approximately $5.5
million for the same period in 1997. The increase in sales can be attributed to
an increase in volume due to export project shipments during the third quarter
of 1998. FGD business typically involves large project requirements which may
vary significantly from quarter to quarter.
Sales to the oil and gas industry in the first nine months of 1998
increased to approximately $4.5 million from $3.5 million for the same period a
year ago. Those requirements vary substantially from quarter to quarter and
year to year. As of June 30, 1998, the backlog for remaining shipments this
year is approximately $1.2 million.
Sales to other markets in the first nine months of 1998 remained relatively
flat at approximately $14.9 million from approximately $15.1 million for the
same period a year ago. An increase in average selling prices due to higher
sales of higher cost, higher priced specialty alloy products in the first nine
months of 1998 helped to reduce the impact of decreased volume.
Cost of Sales. Cost of sales as a percentage of net revenues increased to
77.4% for the first nine months of 1998 from 76.8% in the same period last year.
Volume in the higher priced, high value added product sheet coil and seamless
forms decreased in the first nine months of 1998, compared to the first nine
months of 1997. Part of this volume decline was due to unplanned equipment
outages particularly during the third quarter of 1998. This decrease was
partially offset by reduced material costs in the first nine months of 1998
compared to the same period a year ago.
Selling and Administrative Expenses. Selling and administrative expenses
decreased approximately $500,000 to approximately $13.5 million in the first
nine months of 1998 from approximately $14.0 million in the same period a year
ago, primarily as a result of lower benefit related costs.
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Recapitalization Expense. 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
of the Company and Holdings, pursuant to which Blackstone acquired 79.9% of
Holdings outstanding shares. In addition, approximately $2.5 million in
non-cash compensation expense was recorded pertaining to certain modifications
to management stock option agreements which eliminated put and call rights
provided therein.
Research and Technical Expenses. Research and technical expenses decreased
approximately $100,000 to approximately $2.8 million in the first nine months of
1998 from approximately $2.9 million in the first nine months of 1997, primarily
as a result of a decrease in research efforts sponsored by the Company which
vary from year to year.
Operating Income. As a result of the above factors, the Company recognized
operating income for the first nine months of 1998 of approximately $26.0
million, approximately $5.4 million of which was contributed by the Company's
foreign subsidiaries. For the first nine months of 1997, operating income was
approximately $16.2 million, of which approximately $3.5 million was contributed
by the Company's foreign subsidiaries.
Other. Other cost (income), net, increased approximately $800,000 from
income of approximately $60,000 in the first nine months of 1997 to an expense
of approximately $722,000 for the first nine months of 1998, primarily as a
result of lower foreign exchange gains realized in the first nine months of
1998, as compared to foreign exchange gains experienced during the first nine
months of 1997.
Terminated Acquisition Costs. Terminated acquisition costs of approximately
$7.5 million were recorded in the first nine months of 1998 in connection with
the abandoned attempt to acquire IAI by Holdings. These costs previously had
been deferred.
Interest Expense. Interest expense increased approximately $700,000 to
approximately $16.0 million for the first nine months of 1998 from approximately
$15.3 million for the same period in 1997. Higher revolving credit balances and
higher debt issuance cost amortization contributed to this increase.
Income Taxes. The provision for income taxes of approximately $1.3 million
for the first nine months of 1998 was primarily due to taxes on higher foreign
earnings. The benefit from income taxes of approximately $31.3 million for the
first nine months of 1997 was due primarily to the Company's reversal of its
deferred tax valuation allowance.
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 nine months of 1998 of approximately $153,000, compared to
net income of approximately $32.3 million for the first nine months of 1997.
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 $3.9 million in the first nine months of 1998, compared to capital
expenditures of approximately $5.7 million for the first nine months of 1997.
The majority of the first nine months 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. 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.
<PAGE>
Net cash provided by operating activities in the first nine months of 1998
was approximately $10.1 million, as compared to net cash used in operating
activities of approximately $10.5 million in the first nine months of 1997. The
positive cash flow from operations for 1998 was primarily the result of a
decrease in inventories of approximately $8.9 million. The cash flow was also
affected by an increase in accounts payable and accrued expenses of
approximately $100,000, non-cash depreciation and amortization expense of
approximately $6.9 million, net income of approximately $153,000, an increase
in accounts receivable of approximately $6.5 million, and other net adjustments
of approximately $600,000.
Net cash used in investing activities decreased to approximately $3.5
million in the first nine months of 1998 from approximately $5.7 million in the
same period for 1997, primarily as a result of decreased capital spending. Net
cash used in financing activities for the first nine months of 1998 was
approximately $7.7 million, compared to net cash provided by financing
activities of approximately $13.9 million for the first nine months of 1997,
primarily as a result of decreased net borrowings by the Company.
Cash for the first nine months of 1998 decreased approximately $1.1 million
resulting in a cash balance of approximately $2.2 million at June 30, 1998.
Cash in the first nine months of 1997 decreased approximately $2.3 million,
resulting in a cash balance of approximately $2.4 million at June 30, 1997.
Total debt at June 30, 1998, was approximately $176.2 million compared to
approximately $183.8 million at June 30, 1997, reflecting decreased borrowing
under the Facility partially offset by increased borrowing by the Company's
Swiss subsidiary.
At June 30, 1998, approximately $35.7 million had been borrowed pursuant to
the Facility compared to approximately $44.3 million at June 30, 1997. In
addition, as of June 30, 1998, 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 $10.2 million on the
Facility at June 30, 1998.
ACQUISITION BY HOLDINGS
In June 1997, Inco and Blackstone jointly announced the execution of a
definitive agreement ("Acquisition") for the sale by Inco of 100% of their IAI
business unit to Holdings. On March 3, 1998, Blackstone and Holdings abandoned
their attempt to purchase IAI after the Department of Justice announced its
intention to challenge the proposed acquisition. Certain fees paid and accrued
by the Company in connection with the Acquisition have been accounted for as
terminated acquisition costs and charged against income in the period.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 129, Disclosure
of Information about Capital Structure , is effective for the year ending
September 30, 1998. SFAS No. 130, Reporting Comprehensive Income , SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information and
SFAS No. 132, Employers Disclosures About Pension and Other Post-Retirement
Benefits , are effective for the year ending September 30, 1999. In the
opinion of management, SFAS No. 129, SFAS No. 130, SFAS No. 131 and SFAS No. 132
will not have a material impact on the Company's financial position, results of
operations or cash flows, as these statements are principally disclosure
oriented.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. Management has not yet quantified the
effect of the new standard on the financial statements.
<PAGE>
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
$500,000. 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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. A Form 8-K was filed on April 6, 1998, and
amended by the filing of a Form 8-K/A on April 27, 1998 to report a change in
auditors from Coopers & Lybrand L.L.P. to Deloitte & Touche L.L.P.
[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, 1998
<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 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, 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.
333-5411).
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, Inc. dated January 13, 1998 (Incorporated by
reference to Exhibit 10.17 to Registrant's Form 10-Q Report
filed February 13, 1998, 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>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1998
<PERIOD-END> SEP-30-1997 JUN-30-1998
<CASH> 3281 2210
<SECURITIES> 0 0
<RECEIVABLES> 39157 45785
<ALLOWANCES> (657) (890)
<INVENTORY> 94081 85085
<CURRENT-ASSETS> 135862 132190
<PP&E> 94527 98173
<DEPRECIATION> (61976) (67925)
<TOTAL-ASSETS> 216319 208233
<CURRENT-LIABILITIES> 78799 68921
<BONDS> 137566 139061
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (94435) (94430)
<TOTAL-LIABILITY-AND-EQUITY> 216319 208233
<SALES> 235760 187146
<TOTAL-REVENUES> 235760 187146
<CGS> 180504 144833
<TOTAL-COSTS> 232055 168633
<OTHER-EXPENSES> 276 722
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20608 15966
<INCOME-PRETAX> 3705 1909
<INCOME-TAX> (32610) 1306
<INCOME-CONTINUING> 36315 603
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (450)
<NET-INCOME> 36315 153
<EPS-PRIMARY> 363150 1530
<EPS-DILUTED> 363150 1530
</TABLE>
