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 March 31, 1998 .
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
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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 May 14, 1998 the registrant had 100 shares of Common Stock, $.01 par
value, outstanding.
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<CAPTION>
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 March 31, 1998 3
Consolidated Condensed Statement of Operations for
the Three Months and Six Months ended March 31, 1997
and 1998 4
Consolidated Condensed Statement of Cash Flows for
the Six Months ended March 31, 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Index to Exhibits 14
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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, March 31,
1997 1998
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 3,281
Accounts and notes receivable, less allowance for
doubtful accounts of $657 and $826, respectively. . . 38,500 $ 45,846
Inventories . . . . . . . . . . . . . . . . . . . . . 94,081 91,446
Total current assets . . . . . . . . . . . . . . . . . . . 135,862 137,292
Property, plant and equipment (at cost). . . . . . . . . . 94,527 97,452
Accumulated depreciation . . . . . . . . . . . . . . . . . (61,976) (65,934)
Net property, plant and equipment. . . . . . . . . . . . . 32,551 31,518
Deferred income taxes. . . . . . . . . . . . . . . . . . . 37,057 36,178
Prepayments and deferred charges, net. . . . . . . . . . . 10,849 9,904
Total assets. . . . . . . . . . . . . . . . . . . . . $ 216,319 $ 214,892
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . $ 24,938 $ 29,018
Accrued postretirement benefits . . . . . . . . . . . 3,900 3,900
Revolving credit. . . . . . . . . . . . . . . . . . . 45,239 41,443
Note payable. . . . . . . . . . . . . . . . . . . . . 1,408 1,521
Income taxes payable. . . . . . . . . . . . . . . . . 1,566 379
Deferred income taxes . . . . . . . . . . . . . . . . 1,748 903
Total current liabilities. . . . . . . . . . . . . . . . . 78,799 77,164
Long-term debt, net of unamortized discount. . . . . . . . 137,566 138,997
Accrued postretirement benefits. . . . . . . . . . . . . . 92,301 92,496
Total liabilities . . . . . . . . . . . . . . . . . . 308,666 308,657
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) (146,193)
Foreign currency translation adjustment . . . . . . . 1,501 1,253
Total capital deficiency . . . . . . . . . . . . . . . . . (94,435) (95,853)
Total liabilities and capital deficiency. . . . . . . $ 216,319 $ 214,892
<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 Months Three Months Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1997 1998 1997 1998
Net revenues. . . . . . . . . . . . . . . $ 61,489 $ 62,039 $ 116,904 $ 126,279
Cost of sales . . . . . . . . . . . . . . 46,792 47,316 88,469 97,168
Selling and administrative. . . . . . . . 4,881 4,765 9,438 9,184
Recapitalization expense. . . . . . . . . 8,735 8,735
Research and technical. . . . . . . . . . 1,019 933 1,981 1,889
Operating income. . . . . . . . . . . . . 62 9,025 8,281 18,038
Other cost (income), net. . . . . . . . . 67 389 (56) 363
Terminated acquisition costs 7,500 7,500
Interest expense. . . . . . . . . . . . . 5,068 5,309 9,991 10,722
Interest income . . . . . . . . . . . . . (40) (30) (56) (70)
Loss before provision for (benefit. . . . (5,033) (4,143) (1,598) (477)
from) income taxes and cumulative
effect of a change in accounting
principle
Provision for (benefit from) income taxes 1,249 (1,860) 1,825 260
Loss before cumulative effect of a
change in accounting principle. . . . . . (6,282) (2,283) (3,423) (737)
Cumulative effect of a change in
accounting principle, net of tax benefit (450)
Net loss. . . . . . . . . . . . . . . . . ($6,282) ($2,283) ($3,423) ($1,187)
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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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Six Months Ended Six Months Ended
March 31, March 31,
1997 1998
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . ($3,423) ($1,187)
Depreciation. . . . . . . . . . . . . . . . . . . . 3,726 3,944
Amortization. . . . . . . . . . . . . . . . . . . . 500 620
Non-cash stock option expense . . . . . . . . . . . 2,457
Deferred income taxes . . . . . . . . . . . . . . . 122 63
Change in:
Inventories . . . . . . . . . . . . . . . . . . . . (12,553) 2,585
Accounts receivable . . . . . . . . . . . . . . . . (7,306) (7,486)
Accounts payable and accruals . . . . . . . . . . . 2,649 2,790
Other, net. . . . . . . . . . . . . . . . . . . . . (406) 209
Net cash (used in) provided by operating activities (14,234) 1,538
Cash flows from investing activities:
Additions to property, plant and equipment. . . . . (4,030) (3,115)
Other investing activities. . . . . . . . . . . . . 15 311
Net cash used in investing activities . . . . . . . (4,015) (2,804)
Cash flows from financing activities:
Net (decrease) increase in revolving credit and
long-term debt. . . . . . . . . . . . . . . . . . . 14,060 (2,037)
Capital contribution of proceeds from exercise of
stock options . . . . . . . . . . . . . . . . . . . 284 18
Net cash (used in) provided by financing activities 14,344 (2,019)
Effect of exchange rates on cash. . . . . . . . . . 15 4
Decrease in cash and cash equivalents . . . . . . . (3,890) (3,281)
Cash and cash equivalents, beginning of period. . . 4,688 3,281
Cash and cash equivalents, end of period. . . . . . $ 798 $ 0
Supplemental disclosures of cash flow information:
Cash paid during period for: Interest. . . . . . $ 9,852 $ 10,102
Income Taxes. . . . . . . . . . . . . . . . . . . . $ 264 $ 1,085
<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 SIX MONTHS ENDED MARCH 31, 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 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 ( SEC ) on
December 22, 1997. The results of operations for the six months ended March
31,1998 are not necessarily indicative of the results to be expected for the
full year or any other interim period.
NOTE 2. INVENTORIES
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The following is a summary of the major classes of inventories:
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September 30, 1997 March 31, 1998
(Unaudited)
Raw Materials . $ 5,012 $ 6,036
Work-in-process 50,240 44,207
Finished Goods. 33,641 35,787
Other, net. . . 5,188 5,416
Net inventories $ 94,081 $ 91,446
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NOTE 3. INCOME TAXES
The provision for income taxes for the six months ended March 31, 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 as a result of the recapitalization in January 1997, (b) taxes
on foreign earnings against which the Company was unable to utilize its U.S.
federal net operating loss carryforwards, and (c) the recognition of the full
tax benefit for terminated acquisition charges recorded in the second quarter
of fiscal 1998.
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 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 ). Certain deferred acquisition
costs were charged to operations in the quarter ended March 31, 1998.
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 MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Net Revenues. Net revenues increased approximately $500,000 to
approximately $62.0 million in the second quarter of 1998 from approximately
$61.5 million in the second quarter of 1997, primarily as a result of an 2.2%
increase in volume, to approximately 4.7 million pounds in the second quarter
of 1998, from approximately 4.6 million pounds in the second quarter of 1997.
This increase was partially offset by a decrease in the average selling price
per pound to $12.95 from $13.08, for the second quarter of 1998 compared to
the same period in 1997. Margins were unaffected by the average price
declines due to similar declines in average raw material costs.
Sales to the aerospace market in the second quarter of 1998 were
relatively flat at approximately $28.8 million compared to approximately $29.0
million for the same period in 1997. Volume declined due to lower sales in
the gas turbine market segment. The decrease in volume was partially offset
by an increase in the average selling price per pound in the second 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 second quarter of 1998
increased 6.5% to approximately $19.6 million from approximately $18.4 million
for the same period of 1997. Volume shipped to the chemical processing
industry during the second quarter of 1998 increased due to generally
improving business conditions in export markets. While volume increased,
average selling prices per pound declined as a result of proportionately
higher sales of lower cost, lower priced billet and ingot products.
Sales to the land-based gas turbine market in the second quarter of 1998
increased 30.6% to approximately $4.7 million from approximately $3.6 million
for the same period in 1997. Volume increased due to growth in the European
markets. This increase in volume was partially offset by a decrease in the
average selling price per pound 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 second
quarter of 1998 decreased 26.7% to approximately $2.2 million from
approximately $3.0 million for the same period in 1997. Decreases in volume
and the average selling price per pound both contributed to lower sales due to
lower project activity in the period and higher sales of lower cost, lower
priced slab products. FGD business typically involves large project
requirements which may vary significantly from quarter to quarter.
Sales to the oil and gas market in the second quarter of 1998 increased
to approximately $1.3 million from approximately $200,000 in the second
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.
Sales to other markets in the second quarter of 1998 decreased 29.7% to
approximately $4.5 million from approximately $6.4 million for the same period
in 1997. Volume decreases as a result of lower project requirements were
partially 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 increased
to 76.3% in the second quarter of 1998 from 76.1% in the same period last
year. Volume in the higher priced, higher value added sheet and coil forms
decreased in the second quarter of 1998 compared to the second quarter of
1997. This decrease was partially offset by reduced material costs in the
second quarter of 1998 compared to the same period a year ago.
Selling and Administrative Expenses. Selling and administrative expenses
decreased approximately $100,000 to approximately $4.8 million in the second
quarter of 1998 from approximately $4.9 million in the same period a year ago,
primarily as a result of lower salary and benefit related costs.
Recapitalization Expense. Recapitalization expense of approximately $8.7
million recorded in the second half 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 ( Recapitalization ) and
approximately $2.5 million in non-cash compensation expense pertaining to
certain modifications to management stock option agreements which eliminated
put and call rights provided therein.
Research and Technical Expenses. Research and technical expenses
decreased approximately $100,000 to approximately $900,000 in the second
quarter of 1998 from approximately $1.0 million in the second quarter of 1997,
primarily as a result of a decrease in research efforts sponsored by the
Company during the second quarter of 1998, as compared to the same period a
year ago.
Operating Income. As a result of the above factors, the Company
recognized operating income for the second quarter of 1998 of approximately
$9.0 million, approximately $1.6 million of which was contributed by the
Company's foreign subsidiaries. For the second quarter of 1997, operating
income was approximately $62,000, of which approximately $1.2 million was
contributed by the Company's foreign subsidiaries.
Other. Other cost increased by approximately $300,000, due in part to
losses incurred from the sale of scrap material and higher bad debt provisions
in the second quarter of 1998.
Terminated Acquisition Costs. Terminated acquisition costs of
approximately $7.5 million were recorded in the second quarter of 1998 in
connection with the abandoned attempt to acquire IAI by Holdings. These costs
had been previously deferred.
Interest Expense. Interest expense increased approximately $200,000 to
approximately $5.3 million for the second quarter of 1998 from approximately
$5.1 million for the same period in 1997. Higher revolving credit balances
during the second quarter of fiscal 1998 contributed to this increase.
Income Taxes. An income tax benefit of approximately $1.9 million was
recorded for the second quarter of 1998 compared to approximately $1.2 million
expense in fiscal 1997 due primarily to the terminated acquisition costs
recorded in the second quarter of 1998.
Net Loss. As a result of the above factors, the Company recognized net
loss for the second quarter of 1998 of approximately $2.3 million, compared to
a net loss of approximately $6.3 million for the second quarter of 1997.
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Net Revenues. Net revenues increased approximately $9.4 million, or 8.0%,
to approximately $126.3 million in the first half of 1998 from approximately
$116.9 million in the first half of 1997, primarily as a result of a 6.7%
increase in shipments, to approximately 9.5 million pounds in the first six
months of 1998, from approximately 8.9 million pounds in the first six months
of 1997. Volume increases occurred in essentially all markets except the
aerospace and other markets. Average selling prices per pound increased to
$13.08 from $13.02 for the first six 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 half of 1998 increased 2.3%
to approximately $57.6 million from approximately $56.3 million for the same
period in 1997. Average selling prices increased resulting from a larger
volume of higher value added cobalt containing alloys. The increase in the
average selling prices offset a decrease in volume in the gas turbine market
segment. Sales in the aerospace sector remain strong in all geographical
sectors compared to the same period in 1997.
Sales to the chemical processing industry during the first half of 1998
increased 18.4% to approximately $41.8 million, from approximately $35.3
million in the first half of 1997. The sales increase was the result of an
increase in volume in export markets for the first six months of 1998 compared
to the first six 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.
Sales to the land-based gas turbine market in the first half of 1998
increased 15.0% to approximately $9.2 million from approximately $8.0 million
for the comparable period in 1997. The sales increase was the result of an
increase in volume due to growth in European and export markets.
Sales to the flue gas desulfurization ( FGD ) market decreased in the
first half of 1998 to approximately $4.3 million from approximately $5.1
million for the same period in 1997. The decrease in sales can be attributed
to a decrease in average selling prices due to proportionately higher sales of
lower cost, lower priced slab products. 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 six months of 1998
increased to approximately $1.6 million from $200,000 for the same period a
year ago. Those requirements vary substantially from quarter to quarter and
year to year. As of March 31, 1998, the backlog for remaining shipments this
year is approximately $3.1 million.
Sales to other markets in the first six months of 1998 declined 4.9% to
approximately $9.8 million from approximately $10.3 million for the same
period a year ago. The decrease in sales can be attributed to a decline in
volume as a result of lower project requirements. An increase in average
selling prices due to higher sales of higher cost, higher priced specialty
alloy products in the first half of 1998 helped to reduce the impact of the
decreased volume.
Cost of Sales. Cost of sales as a percentage of net revenues increased
to 76.9% for the first half of 1998 from 75.7% in the same period last year.
Volume in the higher priced, high value added product sheet and coil form
decreased in the first half of 1998, compared to the first half of 1997. This
decrease was partially offset by reduced material costs in the first six
months of 1998 compared to the same period a year ago.
Selling and Administrative Expenses. Selling and administrative expenses
decreased approximately $200,000 to approximately $9.2 million in the first
half of 1998 from approximately $9.4 million in the same period a year ago,
primarily as a result of lower salary and benefit related costs.
Recapitalization Expense. Recapitalization expense of approximately $8.7
million recorded in the first half of 1997 includes approximately $6.2 million
of expenses paid by the Company in connection with the Recapitalization and
approximately $2.5 million in non-cash compensation expense pertaining to
certain modifications to management stock option agreements which eliminated
put and call rights provided therein.
Research and Technical Expenses. Research and technical expenses
decreased approximately $100,000 to approximately $1.9 million in the first
six months of 1998 from approximately $2.0 million in the first six months of
1997, primarily as a result of a decrease in research efforts sponsored by the
Company in the period, as compared to the prior year.
Operating Income. As a result of the above factors, the Company
recognized operating income for the first six months of 1998 of approximately
$18.0 million, approximately $3.3 million of which was contributed by the
Company's foreign subsidiaries. For the first six months of 1997, operating
income was approximately $8.3 million, of which approximately $2.5 million was
contributed by the Company's foreign subsidiaries.
Other. Other cost (income), net, increased approximately $400,000 from
income of approximately $60,000 in the first half of 1997 to an expense of
approximately $360,000 for the first half of 1998, primarily as a result of
foreign exchange losses realized in the first six months of 1998, as compared
to foreign exchange gains experienced during the first six months of 1997.
Terminated Acquisition Costs. Terminated acquisition costs of
approximately $7.5 million were recorded in the first six months of 1998 in
connection with the abandoned attempt to acquire IAI by Holdings. These costs
had been previously deferred.
Interest Expense. Interest expense increased approximately $700,000 to
approximately $10.7 million for the first half of 1998 from approximately
$10.0 million for the same period in 1997. Higher revolving credit balances
and higher debt issue cost amortization contributed to this increase.
Income Taxes. The provision for income taxes of approximately $300,000
for the first half of 1998 decreased by approximately $1.5 million from
approximately $1.8 million due primarily to the terminated acquisition costs
recorded in the first six months of 1998, partially offset by increased taxes
on higher foreign earnings. Due to the change in control of the Company in
January, 1997, the Company's ability to offset taxable income with U.S. net
operating loss carryforwards is now limited.
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 Loss. As a result of the above factors, the Company recognized net
loss for the first half of 1998 of approximately $1.2 million, compared to net
loss of approximately $3.4 million for the first half 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 $3.1 million in the first six months of 1998, compared to
capital expenditures of approximately $4.0 million for the first six months of
1997. The majority of the first half 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.
Net cash provided by operating activities in the first six months of 1998
was approximately $1.5 million, as compared to net cash used in operating
activities of approximately $14.2 million in the first six months of 1997.
The positive cash flow from operations for 1998 was primarily the result of a
decrease in inventories of approximately $2.6 million. The cash flow was also
affected by an increase in accounts payable and accrued expenses of
approximately $2.8 million, non-cash depreciation and amortization expense of
approximately $4.6 million, net loss of approximately $1.2 million, an
increase in accounts receivable of approximately $7.5 million, and other net
adjustments of approximately $200,000.
Net cash used in investing activities decreased to approximately $2.8
million in the first six months of 1998 from approximately $4.0 million in the
same period for 1997, primarily as a result of decreased capital spending.
Net cash used in financing activities for the first six months of 1998 was
approximately $2.0 million, compared to net cash provided by financing
activities of approximately $14.3 million for the first six months of 1997,
primarily as a result of decreased net borrowings by the Company.
Cash for the first six months of 1998 decreased approximately $3.3
million. Cash in the first six months of 1997 decreased approximately $3.9
million, resulting in a cash balance of approximately $800,000 at March 31,
1997.
Total debt at March 31, 1998, was approximately $182.0 million compared
to approximately $182.3 million at March 31, 1997, reflecting decreased
borrowing under the Facility partially offset by increased borrowing by the
Company's Swiss subsidiary.
At March 31, 1998, approximately $41.4 million had been borrowed pursuant
to the Facility compared to approximately $44.8 million at March 31, 1997. In
addition, as of March 31, 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 $8.8 million on the
Facility at March 31, 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
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.
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.
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. 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: May 15, 1998
<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. 333-05411).
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>
<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 6-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1998
<PERIOD-END> SEP-30-1997 MAR-31-1998
<CASH> 3,281 0
<SECURITIES> 0 0
<RECEIVABLES> 39,157 46,672
<ALLOWANCES> (657) (826)
<INVENTORY> 94,081 91,446
<CURRENT-ASSETS> 135,862 137,292
<PP&E> 94,527 97,452
<DEPRECIATION> (61,976) (65,934)
<TOTAL-ASSETS> 216,319 214,892
<CURRENT-LIABILITIES> 78,799 77,164
<BONDS> 137,566 138,997
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (94,435) (95,853)
<TOTAL-LIABILITY-AND-EQUITY> 216,319 214,892
<SALES> 235,760 126,279
<TOTAL-REVENUES> 235,760 126,279
<CGS> 180,504 97,168
<TOTAL-COSTS> 232,055 115,741
<OTHER-EXPENSES> 276 363
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20,608 10,722
<INCOME-PRETAX> 3,705 (477)
<INCOME-TAX> (32,610) 260
<INCOME-CONTINUING> 36,315 (737)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (450)
<NET-INCOME> 36,315 (1,187)
<EPS-PRIMARY> 363,150 (11,187)
<EPS-DILUTED> 363,150 (11,187)
</TABLE>
