UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
by Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any Amendment to this
Form 10-K. [ X ]
The registrant is a privately held corporation. As such, there is no practicable
method to determine the aggregate market value of the voting stock held by
non-affiliates of the registrant.
The number of shares of Common Stock, $.01 par value, of Haynes International,
Inc. outstanding as of December 22, 2000 was 100.
Documents Incorporated by Reference: None
The Index to Exhibits begins on page 65.
<PAGE>
TABLE OF CONTENTS
Part I ....................................................................... 3
Item 1. Business ............................................................ 3
Item 2. Properties ..........................................................12
Item 3. Legal Proceedings ...................................................13
Item 4. Submission of Matters to a Vote of Security Holders .................13
Part II ......................................................................13
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters .........................................13
Item 6. Selected Consolidated Financial Data ................................14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................17
Item 7a. Quantitative and Qualitative Disclosures About Market Risk ..........27
Item 8. Financial Statements and Supplementary Data .........................29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................................51
Part III .....................................................................51
Item 10. Directors & Executive Officers of the Registrant ....................51
Item 11. Executive Compensation ..............................................54
Item 12. Security Ownership of Certain Beneficial Owners and Management ......60
Item 13. Certain Relationships and Related Transactions ......................61
Part IV ......................................................................62
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .....62
- 2 -
<PAGE>
Part I
Item 1. Business
General
The Company develops, manufactures and markets technologically advanced,
high performance alloys primarily for use in the aerospace and chemical
processing industries. The Company's products are high temperature alloys
("HTA") and corrosion resistant alloys ("CRA"). The Company's HTA products are
used by manufacturers of equipment that is subjected to extremely high
temperatures, such as jet engines for the aerospace industry, gas turbine
engines used for power generation, and waste incineration and industrial heating
equipment. The Company's CRA products are used in applications that require
resistance to extreme corrosion, such as chemical processing, power plant
emissions control and hazardous waste treatment. The Company produces its high
performance alloy products primarily in sheet, coil and plate forms, which in
the aggregate represented approximately 65% of the Company's net revenues in
fiscal 2000. In addition, the Company produces its alloy products as seamless
and welded tubulars, and in bar, billet and wire forms.
High performance alloys are characterized by highly engineered, often
proprietary, metallurgical formulations primarily of nickel, cobalt and other
metals with complex physical properties. The complexity of the manufacturing
process for high performance alloys is reflected in the Company's relatively
high average selling price per pound, compared to the average selling price of
other metals, such as carbon steel sheet, stainless steel sheet and aluminum.
Demanding end-user specifications, a multi-stage manufacturing process and the
technical sales, marketing and manufacturing expertise required to develop new
applications combine to create significant barriers to entry in the high
performance alloy industry. The Company derived approximately 33% of its fiscal
2000 net revenues from products that are protected by United States patents and
approximately 19% of its net revenues from sales of products that are not
patented, but for which the Company has limited or no competition.
Products
The alloy market consists of four primary segments: stainless steel, super
stainless steel, nickel alloys and high performance alloys. The Company competes
exclusively in the high performance alloy segment, which includes HTA and CRA
products. The Company believes that the high performance alloy segment
represents less than 10% of the total alloy market. The percentages of the
Company's total product revenue and volume presented in this section are based
on data which include revenue and volume associated with sales by the Company to
its foreign subsidiaries, but exclude revenue and volume associated with sales
by such foreign subsidiaries to their customers. Management believes, however,
that the effect of including revenue and volume data associated with sales by
its foreign subsidiaries would not materially change the percentages presented
in this section. In fiscal 2000, HTA and CRA products accounted for
approximately 69% and 31%, respectively, of the Company's net revenues.
HTA products are used primarily in manufacturing components for the hot
sections of jet engines. Stringent safety and performance standards in the
aerospace industry result in development lead times typically as long as eight
to ten years in the introduction of new aerospace-related market applications
for HTA products. However, once a particular new alloy is shown to possess the
properties required for a specific application in the aerospace industry, it
tends to remain in use for extended periods. HTA products are also used in gas
turbine engines produced for use in applications such as naval and commercial
vessels, electric power generators, power sources for offshore drilling
platforms, gas pipeline booster stations and emergency standby power stations.
- 3 -
<PAGE>
CRA products are used in a variety of applications, such as chemical
processing, power plant emissions control, hazardous waste treatment and sour
gas production. Historically, the chemical processing industry has represented
the largest end-user segment for CRA products. Due to maintenance, safety and
environmental considerations, the Company believes this industry continues to
represent an area of potential long-term growth for the Company. Unlike
aerospace applications within the HTA product market, the development of new
market applications for CRA products generally does not require long lead times.
High Temperature Alloys The following table sets forth information with
respect to certain of the Company's significant high temperature alloys:
<TABLE>
<CAPTION>
Alloy and Year Introduced End Markets and Applications (1) Features
------------------------- -------------------------------- --------
<S> <C> <C>
HAYNES HR-160 (1990) (2) Waste incineration/CPI-boiler Good resistance to sulfidation at
tube shields high temperatures
HAYNES 242 (1990) (2) Aero-seal rings High strength, low expansion and
good fabricability
HAYNES HR-120 (1990) (2) LBGT -cooling shrouds Good strength-to-cost ratio as
compared to competing alloys
HAYNES 230 (1984) (2) Aero/LBGT-ducting, combustors Good combination of strength,
stability, oxidation resistance
and fabricability
HAYNES 214 (1981) (2) Aero-honeycomb seals Good combination of oxidation
resistance and fabricability
among nickel-based alloys
HAYNES 188 (1968) (2) Aero-burner cans, after-burner High strength, oxidation resistant
components cobalt-based alloys
HAYNES 625 (1964) Aero/CPI-ducting, tanks, Good fabricability and general
vessels, weld overlays corrosion resistance
HAYNES 263 (1960) Aero/LBGT-components for gas Good ductility and high strength
turbine hot gas exhaust pan at temperatures up to 1600 F
HAYNES 718 (1955) Aero-ducting, vanes, nozzles Weldable high strength alloy with
good fabricability
HASTELLOY X (1954) Aero/LBGT-burner cans, transition Good high temperature strength at
ducts relatively low cost
HAYNES Ti 3-2.5 (1950) Aero-aircraft hydraulic and fuel Light weight, high strength
systems components titanium-based alloy
HAYNES 25 (1925) (2) Aero-gas turbine parts, bearings, Excellent strength good oxidation
and various industrial applications resistance to 1800 F
----------------
<FN>
(1) "Aero" refers to aerospace; "LBGT" refers to land-based gas turbines; "CPI" refers to the chemical
processing industry.
(2) Represents a patented product or a product with respect to which the Company believes it has limited
or no competition.
</FN>
</TABLE>
The higher volume HTA products, including HAYNES 625, HAYNES 718 and
HASTELLOY X, are generally considered industry standards, especially in the
manufacture of jet aircraft engines and LBGT. These products have been used in
such applications since the 1950's and because of their widespread use have been
most subject to competitive pricing pressures. In fiscal 2000, sales of these
HTA products accounted for approximately 25% of the Company's net revenues.
The Company also produces and sells cobalt-based alloys introduced over the
last three decades, which are more highly specialized and less price competitive
than nickel-based alloys. HAYNES 188 and HAYNES 25 are the most widely used of
the Company's cobalt-based products and accounted for approximately 14% of the
Company's net revenues in fiscal 2000. Three of the more recently introduced HTA
products, HAYNES 242, HAYNES 230 and HAYNES 214, initially developed for the
aerospace and LBGT markets, are still patent-protected and together accounted
for approximately 7% of the Company's net revenues in fiscal 2000. These newer
alloys are continuing to gain acceptance for applications in industrial heating
and waste incineration.
- 4 -
<PAGE>
HAYNES HR-160 and HAYNES HR-120 were introduced in fiscal 1990 and targeted
for sale in waste incineration and industrial heat treating applications,
respectively. HAYNES HR-160 is a higher priced cobalt-containing alloy designed
for use when the need for long-term performance outweighs initial cost
considerations. Potential applications for HAYNES HR-160 include use in key
components in waste incinerators, chemical processing equipment, mineral
processing kilns and fossil fuel energy plants. HAYNES HR-120 is a lower priced,
iron-based alloy and is designed to replace competitive alloys not manufactured
by the Company that may be slightly lower in price, but are also less effective.
Recently, HAYNES HR-120 has been specified for a significant ring application
for a major land-based gas turbine manufacturer. In fiscal 2000, these two
alloys accounted for approximately 5% of the Company's net revenues.
The Company also produces seamless titanium tubing for use as hydraulic
lines in airframes and as bicycle frames. During fiscal 2000, sales of these
products accounted for approximately 3% of the Company's net revenues.
Corrosion Resistant Alloys The following table sets forth information with
respect to certain of the Company's significant corrosion resistant alloys:
<TABLE>
<CAPTION>
Alloy and Year Introduced End Markets and Applications (1) Features
------------------------- -------------------------------- --------
<S> <C> <C>
HASTELLOY C-2000 (1995) (2) CPI-tanks, mixers, piping Versatile alloy with good resistance
to uniform corrosion
HASTELLOY B-3 (1994) (2) CPI-acetic acid plants Better fabrication characteristics
compared to other nickel-molybdenum
alloys
HASTELLOY D-205 (1993) (2) CPI-plate heat exchangers. Corrosion resistance to hot sulfuric
acid
ULTIMET (1990) (2) CPI-pumps, valves Wear and corrosion resistant
nickel-based alloy
HASTELLOY G-50 (1989) Oil and gas-sour gas tubulars Good resistance to down hole
corrosive environments
HASTELLOY C-22 (1985) (2) CPI/FGD-tanks, mixers, piping Resistance to localized corrosion
and pitting
HASTELLOY G-30 (1985) (2) CPI-tanks, mixers, piping Lower cost alloy with good corrosion
resistance in phosphoric acid
HASTELLOY B-2 (1974) CPI-acetic acid Resistance to hydrochloric acid and
other reducing acids
HASTELLOY C-4 (1973) CPI-tanks, mixers, piping Good thermal stability
HASTELLOY C-276 (1968) CPI/FGD/oil and gas-tanks, mixers, Broad resistance to many environments
piping
----------------
<FN>
(1) "CPI" refers to the chemical processing industry; "FGD" refers to flue gas
desulfurization industry.
(2) Represents a patented product or a product with respect to which the Company
believes it has limited or no competition.
</FN>
</TABLE>
During fiscal 2000, sales of the CRA alloys HASTELLOY C-276, HASTELLOY C-22
and HASTELLOY C-4 accounted for approximately 19% of the Company's net revenues.
HASTELLOY C-276, introduced by the Company in 1968, is recognized as a standard
for corrosion protection in the chemical processing industry and is also used
extensively for FGD and oil and gas exploration and production applications.
HASTELLOY C-22, a proprietary alloy of the Company, was introduced in 1985 as an
improvement on HASTELLOY C-276 and is currently sold to the chemical processing
and FGD markets for essentially the same applications as HASTELLOY C-276.
HASTELLOY C-22 offers greater and more versatile corrosion resistance and
therefore has gained market share at the expense of the non-proprietary
HASTELLOY C-276. HASTELLOY C-4 is specified in many chemical processing
applications in Germany and is sold almost exclusively to that market.
The Company also produces alloys for more specialized applications in the
chemical processing industry and other industries. For example, HASTELLOY B-2
was introduced in 1970 for use in the manufacture of equipment utilized in the
production of acetic acid and ethyl benzine and is still sold almost exclusively
for those purposes. HASTELLOY B-3 was developed for the same applications and
has greater ease in fabrication. The Company expects HASTELLOY B-3 to eventually
replace HASTELLOY B-2. HASTELLOY G-30 is used primarily in the production of
super phosphoric acid and fluorinated aromatics. HASTELLOY G-50 has gained
acceptance as a lower priced alternative to HASTELLOY C-276 for production of
tubing for use in sour gas wells. These more specialized products accounted for
approximately 7% of the Company's net revenues in fiscal 2000.
- 5 -
<PAGE>
The Company's patented alloy, ULTIMET, is used in a variety of industrial
applications that result in material degradation by "corrosion-wear". ULTIMET is
designed for applications where conditions require resistance to corrosion and
wear and is currently being tested in spray nozzles, fan blades, filters, bolts,
rolls, pump and valve parts where these properties are critical. HASTELLOY
D-205, introduced in 1993, is designed for use in handling hot concentrated
sulfuric acid and other highly corrosive substances.
The Company's latest Ni-Cr-Mo alloy, HASTELLOY C-2000, combines many of the
corrosion resistant properties of existing Ni-Cr-Mo alloys, such as HASTELLOY
C-22 and HASTELLOY C-276, making it the most versatile of those alloys. It can
be used in both oxidizing and reducing environments and is used in the chemical
processing industry and the flue gas desulfurization (FGD) markets.
End Markets
Aerospace. The Company has manufactured HTA products for the aerospace
market since it entered the market in the late 1930s, and has developed numerous
proprietary alloys for this market. Customers in the aerospace market tend to be
the most demanding with respect to meeting specifications within very low
tolerances and achieving new product performance standards. Stringent safety
standards and continuous efforts to reduce equipment weight require close
coordination between the Company and its customers in the selection and
development of HTA products. As a result, sales to aerospace customers tend to
be made through the Company's direct sales force. Unlike the FGD and oil and gas
production industries, where large, competitively bid projects can have a
significant impact on demand and prices, demand for the Company's products in
the aerospace industry is based on the new and replacement market for jet
engines and the maintenance needs of operators of commercial and military
aircraft. The hot sections of jet engines are subjected to substantial wear and
tear and accordingly require periodic maintenance and replacement. This
maintenance-based demand, while potentially volatile, is generally less subject
to wide fluctuations than demand in the FGD and sour gas production industries.
Chemical Processing. The chemical processing industry segment represents a
large base of customers with diverse CRA applications driven by demand for key
end use industries such as automobiles, housing, health care, agriculture, and
metals production. CRA products supplied by the Company have been used in the
chemical processing industry since the early 1930s.
Demand for the Company's products in this industry is based on the level of
maintenance, repair and expansion of existing chemical processing facilities as
well as the construction of new facilities. The Company believes the extensive
worldwide network of Company-owned service centers and independent distributors
is a competitive advantage in marketing its CRA products to this market. Sales
of the Company's products in the chemical processing industry tend to be more
stable than the aerospace, FGD and oil and gas markets. Increased concerns
regarding the reliability of chemical processing facilities, their potential
environmental impact and safety hazards to their personnel have led to an
increased demand for more sophisticated alloys, such as the Company's CRA
products.
Land-Based Gas Turbines. The LBGT industry continues to be a growing
market, with demand for the Company's products driven by the construction of
cogeneration facilities and electric utilities operating electric generating
facilities. Demand for the Company's alloys in the LBGT industry has also been
driven by concerns regarding lowering emissions from generating facilities
powered by fossil fuels. LBGT generating facilities are gaining acceptance as
clean, low-cost alternatives to fossil fuel-fired electric generating
facilities. The demand for land-based gas turbines is also growing rapidly for
use in power barges with mobility and as temporary base-load-generating units
for countries that have numerous islands and a large coast line. Further demand
growth is generated by natural gas pipeline construction which requires gas
turbines to drive the compressor stations.
- 6 -
<PAGE>
Flue Gas Desulfurization. The FGD industry has been driven by both
legislated and self-imposed standards for lowering emissions from fossil
fuel-fired electric generating facilities. In the United States, the Clean Air
Act of 1990, as amended (the "Clean Air Act"), mandates a two-phase program
aimed at significantly reducing sulfur dioxide (SO2) emissions from electric
generating facilities powered by fossil fuels by 2000. Canada and its provinces
have also set goals to reduce emissions of SO2 over the next several years.
Phase I of the Clean Air Act program affected approximately 100 steam-generating
plants representing 261 operating units fueled by fossil fuels, primarily coal.
Of these 261 units, 25 units were retrofitted with FGD systems while the balance
opted mostly for switching to low sulfur coal to achieve compliance. The market
for FGD systems peaked in 1992 at approximately $1.1 billion, and then dropped
sharply in 1993 to a level of approximately $174.0 million due to a curtailment
of activity associated with Phase I. Phase II compliance began in 2000 and
affects 785 generating plants with more than 2,100 operating units. Options
available under the Clean Air Act to bring the targeted facilities into
compliance with Phase II SO2 emissions requirements include fuel switching,
clean coal technologies, purchase of SO2 allowances, closure of facilities and
off-gas scrubbing utilizing FGD technology.
Oil and Gas. The Company also sells its products for use in the oil and gas
industry, primarily in connection with sour gas production. Sour gas contains
extremely corrosive materials and is produced under high pressure, necessitating
the use of corrosion resistant materials. The demand for sour gas tubulars is
driven by the rate of development of sour gas fields. The factors influencing
the development of sour gas fields include the price of natural gas and the need
to commence drilling in order to protect leases that have been purchased from
either the federal or state governments. As a result, competing oil companies
often place orders for the Company's products at approximately the same time,
adding volatility to the market. This market was very active in 1991, especially
in the offshore sour gas fields in the Gulf of Mexico, but demand for the
Company's products declined significantly thereafter. More recently there has
been less drilling activity and more use of lower performing alloys, which
together have resulted in intense price competition. Demand for the Company's
products in the oil and gas industry is tied to the global demand for natural
gas.
Other Markets. In addition to the industries described above, the Company
also targets a variety of other markets. Other industries to which the Company
sells its HTA products include waste incineration, industrial heat treating,
automotive and instrumentation. Demand in these markets for many of the
Company's lower volume proprietary alloys has grown in recent periods. For
example, incineration of municipal, biological, industrial and hazardous waste
products typically produces very corrosive conditions that demand high
performance alloys. Markets capable of providing growth are being driven by
increasing performance, reliability and service life requirements for products
used in these markets which could provide further applications for the Company's
products.
Sales and Marketing
Providing technical assistance to customers is an important part of the
Company's marketing strategy. The Company provides analyses of its products and
those of its competitors for its customers. These analyses enable the Company to
evaluate the performance of its products and to make recommendations as to the
substitution of Company products for other products in appropriate applications,
enabling the Company's products to be specified for use in the production of
customers' products. Market development professionals are assisted by the
research and development staff in directing the sales force to new
opportunities. The Company believes its combination of direct sales, technical
marketing and research and development customer support provides an advantage
over other manufacturers in the high performance industry. This activity allows
the Company to obtain direct insight into customers' alloy needs and allows the
Company to develop proprietary alloys that provide solutions to customers'
problems.
The Company sells its products primarily through its direct sales
organization, which includes four domestic Company-owned service centers, with
direct sales coverage in the United States and Canada, three wholly-owned
European subsidiaries and sales agents serving the Pacific Rim. Effective
January, 1999, the Company transferred its Kokomo, Indiana service center to a
leased site in Lebanon, Indiana. This new facility has water jet cutting
capability and specialized cutting equipment to service the Company's customers
more efficiently. Effective December, 1999, the Company organized a wholly-owned
subsidiary in Singapore to enhance the sale of its products in the Pacific Rim.
Approximately 82% of the Company's net revenues in fiscal 2000 was generated by
the Company's direct sales organization. The remaining 18% of the Company's
fiscal 2000 net revenues was generated by independent distributors and licensees
in the United States, Europe and Japan, some of whom have been associated with
the Company for over 30 years.
- 7 -
<PAGE>
The following table sets forth the approximate percentage of the Company's
fiscal 2000 net revenues generated through each of the Company's distribution
channels.
<TABLE>
<CAPTION>
DOMESTIC FOREIGN TOTAL
-------- ------- -----
<S> <C> <C> <C>
Company sales office/service centers ..............51% 31% 82%
Independent distributors/sales agents .............11% 7% 18%
--- --- ----
Total ........................................62% 38% 100%
=== === ====
</TABLE>
The top twenty customers not affiliated with the Company accounted for
approximately 42% of the Company's net revenues in fiscal 2000. No customer or
group of affiliated customers of the Company accounted for more than 10% of the
Company's net revenues in fiscal 2000.
The Company's foreign and export sales were approximately $100.4 million,
$83.1 million, and $86.7 million for fiscal 1998, 1999 and 2000, respectively.
Additional information concerning foreign operations and export sales is set
forth in Note 14 of the Notes to Consolidated Financial Statements appearing
elsewhere herein.
Manufacturing Process
High performance alloys require a lengthier, more complex melting process
and are more difficult to manufacture than lower performance alloys, such as
stainless steels. The alloying elements in high performance alloys must be
highly refined, and the manufacturing process must be tightly controlled to
produce precise chemical properties. The resulting alloyed material is more
difficult to process because, by design, it is more resistant to deformation.
Consequently, high performance alloys require that greater force be applied when
hot or cold working and are less susceptible to reduction or thinning when
rolling or forging. This results in more cycles of rolling, annealing and
pickling compared to a lower performance alloy to achieve proper dimensions.
Certain alloys may undergo as many as 40 distinct stages of melting, remelting,
annealing, forging, rolling and pickling before they achieve the specifications
required by a customer. The Company manufactures products in sheet, plate,
tubular, billet, bar and wire forms, which represented 46%, 24%, 11%, 15%, 2%
and 2%, respectively, of total volume sold in fiscal 2000 (after giving effect
to the conversion of billet to bar by the Company's U.K. subsidiary).
The manufacturing process begins with raw materials being combined, melted
and refined in a precise manner to produce the chemical composition specified
for each alloy. For most alloys, this molten material is cast into electrodes
and additionally refined through electroslag remelting. The resulting ingots are
then forged or rolled to an intermediate shape and size depending upon the
intended final product. Intermediate shapes destined for flat products are then
sent through a series of hot and cold rolling, annealing and pickling operations
before being cut to final size.
The Argon Oxygen Decarburization ("AOD") gas controls in the Company's
primary melt facility remove carbon and other undesirable elements, thereby
allowing more tightly-controlled chemistries, which in turn produce more
consistent properties in the alloys. The AOD gas control system also allows for
statistical process control monitoring in real time to improve product quality.
The Company has a four-high Steckel mill for use in hot rolling material.
The four-high mill was installed in 1982 at a cost of approximately $60.0
million and is one of only two such mills in the high performance alloy
industry. The mill is capable of generating approximately 12.0 million pounds of
separating force and rolling plate up to 72 inches wide. The mill includes
integrated computer controls (with automatic gauge control and programmed
rolling schedules), two coiling Steckel furnaces and five heating furnaces.
Computer-controlled rolling schedules for each of the hundreds of combinations
of alloy shapes and sizes the Company produces allow the mill to roll numerous
widths and gauges to exact specifications without stoppages or changeovers.
- 8 -
<PAGE>
The Company also operates a three-high rolling mill and a two-high rolling
mill, each of which is capable of custom processing much smaller quantities of
material than the four-high mill. These mills provide the Company with
significant flexibility in running smaller batches of varied products in
response to customer requirements. The Company believes the flexibility provided
by the three-high and two-high mills provides the Company an advantage over its
major competitors in obtaining smaller specialty orders.
Backlog
As of September 30, 2000, the Company's backlog orders aggregated
approximately $63.2 million, compared to approximately $41.8 million at
September 30, 1999, and approximately $40.2 million at September 30, 1998.
Substantially all orders in the backlog at September 30, 2000 are expected to be
shipped within the twelve months beginning October 1, 2000. Due to the cyclical
nature of order entry experienced by the Company, there can be no assurance that
order entry will continue at current levels. The historical and current backlog
amounts shown in the following table are also indicative of relative demand over
the past few years.
<TABLE>
<CAPTION>
THE COMPANY'S BACKLOG
AT FISCAL QUARTER END
(IN MILLIONS)
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st $61.2 $63.8 $60.8 $45.7 $48.6
2nd $61.9 $65.4 $56.2 $46.8 $69.6
3rd $57.5 $55.5 $51.0 $44.5 $68.0
4th $53.7 $60.6 $40.2 $41.8 $63.2
</TABLE>
Raw Materials
Nickel is the primary material used in the Company's alloys. Each pound of
alloy contains, on average, 0.48 of a pound of nickel. Other raw materials
include cobalt, chromium, molybdenum and tungsten. Melt materials consist of
virgin raw material, purchased scrap and internally produced scrap. The
significant sources of cobalt are the countries of Zambia, Zaire and Russia; all
other raw materials used by the Company are available from a number of
alternative sources.
Since most of the Company's products are produced to specific orders, the
Company purchases materials against known production schedules. Materials are
purchased from several different suppliers, through consignment arrangements,
annual contracts and spot purchases. These arrangements involve a variety of
pricing mechanisms, but the Company generally can establish selling prices with
reference to known costs of materials, thereby reducing the risk associated with
changes in the cost of raw materials. The Company maintains a policy of pricing
its products at the time of order placement. As a result, rapidly escalating raw
material costs during the period between the time the Company receives an order
and the time the Company purchases the raw materials used to fill such order,
which averages approximately 30 days, can negatively affect profitability even
though the high performance alloy industry has generally been able to pass raw
material price increases through to its customers.
Raw material costs account for a significant portion of the Company's cost
of sales. The prices of the Company's products are based in part on the cost of
raw materials, a significant portion of which is nickel. Effective October 1,
1998, the Company ceased its hedging activities for nickel due to the low
sustained levels of nickel prices at that time. The following table sets forth
the average per pound price for nickel as reported by the London Metals Exchange
for the fiscal years indicated.
Year Ended
September 30, Average Price
------------- -------------
1989.................................... $5.77
1990.................................... 4.29
1991.................................... 4.21
1992.................................... 3.48
1993.................................... 2.53
1994.................................... 2.54
1995.................................... 3.66
1996.................................... 3.56
1997.................................... 3.22
1998.................................... 2.40
1999.................................... 2.29
2000.................................... 3.98
- 9 -
<PAGE>
Research and Technical Development
The Company's research facilities are located at the Company's Kokomo
facility and consist of 90,000 square feet of offices and laboratories, as well
as an additional 90,000 square feet of paved storage area. The Company has ten
fully equipped laboratories, including a mechanical test lab, a metallographic
lab, an electron microscopy lab, a corrosion lab and a high temperature lab,
among others. These facilities also contain a reduced scale, fully equipped melt
shop and process lab. As of September 30, 2000, the research and technical
development staff consisted of 44 persons, 16 of whom have engineering or
science degrees, including six with doctoral degrees, with the majority of
degrees in the field of metallurgical engineering.
Research and technical development costs relate mainly to efforts to
develop new proprietary alloys, to improve current or develop new manufacturing
methods, to provide technical service to customers, to provide technical support
to the commercial and manufacturing groups and to provide metallurgical training
to engineer and non-engineer employees. The Company spent approximately $3.7
million, $3.9 million and $3.9 million for research and technical development
activities for fiscal 2000, 1999 and 1998, respectively.
During fiscal 2000, exploratory alloy development projects were focused on
new high temperature alloy products for gas turbine, chemical process industry,
and industrial heating service. Engineering projects include new manufacturing
process development, specialized test data development and application support
for large volume projects involving power generation and radioactive waste
containment. The Company is continuing to develop an extensive database storage
and retrieval system to better manage its corrosion, high temperature and
mechanical property data.
Over the last ten years, the Company's technical programs have yielded nine
new proprietary alloys and 14 United States patents, with an additional two
United States patent applications pending. The Company currently maintains a
total of about 31 United States patents and approximately 200 foreign
counterpart patents and applications targeted at countries with significant or
potential markets for the patented products. In fiscal 2000, approximately 33%
of the Company's net revenues was derived from the sale of patented products and
an additional approximately 38% was derived from the sale of products for which
patents formerly held by the Company had expired. While the Company believes its
patents are important to its competitive position, significant barriers to entry
continue to exist beyond the expiration of any patent period. Six of the alloys
considered by management to be of future commercial significance, HASTELLOY
G-30, HAYNES 230, HASTELLOY C-22, HAYNES HR-120, HAYNES 242 and ULTIMET, are
protected by United States patents that continue until the years 2001, 2002,
2002, 2008, 2008 and 2009, respectively.
Competition
The high performance alloy market is a highly competitive market in which
eight to ten producers participate in various product forms. The Company faces
strong competition from domestic and foreign manufacturers of both the Company's
high performance alloys and other competing metals. The Company's primary
competitors include Special Metals Corporation, Allegheny Teledyne, Inc. and
Krupp VDM GmbH, a subsidiary of Thyssen Krupp Stainless. The Company may face
additional competition in the future to the extent new materials are developed,
such as plastics or ceramics, that may be substituted for the Company's
products.
Employees
As of September 30, 2000, the Company had approximately 1,079 employees.
All eligible hourly employees at the Kokomo plant and Lebanon Service Center are
covered by a collective bargaining agreement with the United Steelworkers of
America ("USWA") which was ratified on June 11, 1999, and which expires on June
11, 2002. As of September 30, 2000, 530 employees of the Kokomo and Lebanon
facilities were covered by the collective bargaining agreement. The Company has
not experienced a strike at the Kokomo plant since 1967. None of the employees
of the Company's Arcadia, Louisiana or Openshaw, England plants are represented
by a labor union. Management considers its employee relations in each of the
facilities to be satisfactory.
- 10 -
<PAGE>
Environmental Matters
The Company's facilities and operations are subject to certain foreign,
federal, state and local laws and regulations relating to the protection of
human health and the environment, including those governing the discharge of
pollutants into the environment and the storage, handling, use, treatment and
disposal of hazardous substances and wastes. Violations of these laws and
regulations can result in the imposition of substantial penalties and can
require facilities improvements. In addition, the Company may be required in the
future to comply with certain regulations pertaining to the emission of
hazardous air pollutants under the Clean Air Act. However, since these
regulations have not been proposed or promulgated, the Company cannot predict
the cost, if any, associated with compliance with such regulations. Expenses
related to environmental compliance were approximately $1.2 million for fiscal
2000 and are expected to be approximately $1.2 million for fiscal year 2001.
Although there can be no assurance, based upon current information available to
the Company, the Company does not expect that costs of environmental
contingencies, individually or in the aggregate, will have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
The Company's facilities are subject to periodic inspection by various
regulatory authorities, who from time to time have issued findings of violations
of governing laws, regulations and permits. In the past five years, the Company
has paid administrative fines, none of which has exceeded $50,000, for alleged
violations relating to environmental matters, including the handling and storage
of hazardous wastes, record keeping requirements relating to, and handling of,
polychlorinated biphenyls and violations of record keeping and notification
requirements relating to industrial waste water discharge. Additions and
improvements may be required at the Kokomo, Indiana Wastewater Treatment
Facility based on proposed restrictions of the local sewer use ordinance.
Although the Company does not believe that similar regulatory or enforcement
actions would have a material impact on its operations, there can be no
assurance that violations will not be alleged or will not result in the
assessment of additional penalties in the future. As of September 30, 2000,
capital expenditures of approximately $2.7 million were budgeted for air
pollution control improvements.
The Company has received permits from the Indiana Department of
Environmental Management ("IDEM") and the U.S. Environmental Protection Agency
("EPA") to close and to provide post-closure monitoring and care for certain
areas at the Kokomo facility used for the storage and disposal of wastes, some
of which are classified as hazardous under applicable regulations. Construction
was completed in May 1994 and closure certification was received in fiscal 1999.
The Company is required to monitor groundwater and to continue post-closure
maintenance of the former disposal areas. The Company is aware of elevated
levels of certain contaminants in the groundwater. The Company believes that
some or all of these contaminants may have migrated from a nearby superfund
site. If it is determined that the disposal areas have impacted the groundwater
underlying the Kokomo facility, additional corrective action by the Company
could be required. The Company is unable to estimate the costs of such action,
if any. There can be no assurance, however, that the costs of future corrective
action would not have a material effect on the Company's financial condition,
results of operations or liquidity. Additionally, it is possible that the
Company could be required to obtain permits and undertake other closure projects
and post-closure commitments for any other waste management unit determined to
exist at the facility.
As a condition of the post-closure permits, the Company must provide and
maintain assurances to IDEM and EPA of the Company's capability to satisfy
closure and post-closure ground water monitoring requirements, including
possible future corrective action as necessary.
The Company has completed an investigation, pursuant to a work plan
approved by the EPA, of eight specifically identified solid waste management
units at the Kokomo facility. Results of this investigation have been filed with
the EPA. Based on the results of this investigation compared to Indiana's Tier
II clean-up goals, the Company believes that no further actions will be
necessary. Until the EPA reviews the results, the Company is unable to determine
whether further corrective action will be required or, if required, whether it
will have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
- 11 -
<PAGE>
The Company may also incur liability for alleged environmental damages
associated with the off-site transportation and disposal of its wastes. The
Company's operations generate hazardous wastes, and, while a large percentage of
these wastes are reclaimed or recycled, the Company also accumulates hazardous
wastes at each of its facilities for subsequent transportation and disposal
off-site by third parties. Generators of hazardous waste transported to disposal
sites where environmental problems are alleged to exist are subject to claims
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), and state counterparts. CERCLA imposes strict, joint and
several liability for investigatory and cleanup costs upon waste generators,
site owners and operators and other potentially responsible parties ("PRPs").
Based on its prior shipment of certain hydraulic fluid, the Company is one of
approximately 300 PRPs in connection with the proposed cleanup of the
Fisher-Calo site in Indiana. The PRPs have negotiated a Consent Decree
implementing a remedial design/remedial action plan ("RD/RA") for the site with
the EPA. The Company has paid approximately $138,000 as its share of the total
estimated cost of the RD/RA under the Consent Decree. Based on information
available to the Company concerning the status of the cleanup efforts at the
site, the large number of PRPs and the prior payments made by the Company,
management does not expect the Company's involvement in this site to have a
material adverse effect on the financial condition, results of operations or
liquidity of the Company. The Company may have generated hazardous wastes
disposed of at other sites potentially subject to CERCLA or equivalent state law
remedial action. Thus, there can be no assurance that the Company will not be
named as a PRP at additional sites in the future or that the costs associated
with those sites would not have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
In November 1988, the EPA approved start-up of a new waste water treatment
plant at the Arcadia, Louisiana facility, which discharges treated industrial
waste water to the municipal sewage system. After the Company exceeded certain
EPA effluent limitations in 1989, the EPA issued an administrative order in 1992
which set new effluent limitations for the facility. The waste water plant is
currently operating under this order and the Company believes it is meeting such
effluent limitations. However, the Company anticipates that in the future
Louisiana will take over waste water permitting authority from the EPA and may
issue a waste water permit, the conditions of which could require modification
to the plant. Reasonably anticipated modifications are not expected to have a
substantial impact on operations.
Item 2. Properties
The Company's owned facilities, and the products provided at each facility,
are as follows:
Kokomo, Indiana--manufactures all product forms, other than tubular
goods.
Arcadia, Louisiana--manufactures welded and seamless tubular goods.
Openshaw, England--manufactures bar and billet for the European
market. Zurich, Switzerland - sells all product forms.
The Kokomo plant, the primary production facility, is located on
approximately 230 acres of industrial property and includes over one million
square feet of building space. There are three sites consisting of (1) a
headquarters and research laboratory; (2) primary and secondary melting,
annealing furnaces, forge press and several smaller hot mills; and (3) the
four-high breakdown mill and sheet product cold working equipment, including two
cold strip mills. All alloys and product forms other than tubular goods are
produced in Kokomo.
The Arcadia plant consists of approximately 42 acres of land and over
135,000 square feet of buildings on a single site. Arcadia uses feedstock
produced in Kokomo to fabricate welded and seamless super alloy pipe and tubing
and purchases extruded tube hollows to produce seamless titanium tubing.
Manufacturing processes at Arcadia require cold pilger mills, weld mills,
drawbenches, annealing furnaces and pickling facilities.
The United States facilities are subject to a mortgage which secures the
Company's obligations under the Company's Revolving Credit Facility. See Note 6
of the Notes to Consolidated Financial Statements.
- 12 -
<PAGE>
The Openshaw plant, located near Manchester, England, consists of
approximately 15 acres of land and over 200,000 square feet of buildings on a
single site. The plant produces bar and billet using billets produced in Kokomo
as feedstock. Additionally, products not competitive with the Company's products
are processed for third parties. The processes conducted at the facility require
hot rotary forges, bar mills and miscellaneous straightening, turning and
cutting equipment.
The Zurich warehouse consists of over 50,000 square feet of building on a
single site.
Although capacity can be limited from time to time by certain production
processes, the Company believes that its existing facilities will provide
sufficient capacity for current demand.
Item 3. Legal Proceedings
A Federal Grand Jury investigated possible violations of federal antitrust
laws in the nickel alloy industry. The Federal Grand Jury concluded its work in
June 2000, without taking any action against any person or company. For the
years ended September 30, 2000 and 1999, the Company incurred costs of $748,000
and $3.5 million, respectively, related to the investigation. These costs have
been accounted for as selling and administrative expenses and charged to income
in the period.
The Company is regularly involved in routine litigation, both as a
plaintiff and as a defendant, and federal and/or state EEOC administrative
actions. In addition, the Company is subject to extensive federal, state and
local laws and regulations. While the Company's policies and practices are
designed to ensure compliance with all laws and regulations, future developments
and increasingly stringent regulation could require the Company to make
additional unforeseen expenditures for these matters.
Although the level of future expenditures for legal matters cannot be
determined with any degree of certainty, based on the facts presently known,
management does not believe that such costs will have a material effect on the
Company's financial position, results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
In June 2000, the one shareholder of the Company, Haynes Holdings, Inc.,
("Holdings") and its shareholders holding more than 75% of the voting power of
all its outstanding stock, consented in writing to authorize the Company to
enter into new severance agreements with all its officers.
In August 2000, the shareholders holding more than 75% of the voting power
of all the outstanding stock of Haynes Holdings, Inc., consented in writing to
authorize Holdings to amend its Employee Stock Option Plan to increase the
number of option shares by 500,000 and authorized the Company to grant options
to certain of its key employees.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for the common stock of the Company.
As of September 30, 2000, there was one holder of the common stock of the
Company.
There have been no cash dividends declared on the common stock for the
three fiscal years ended September 30, 2000, 1999 and 1998.
The payment of dividends is limited by terms of certain debt agreements to
which the Company is a party. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and Note 6 of the Notes to Consolidated Financial Statements of the Company
included in this Annual Report in response to Item 8.
- 13 -
<PAGE>
Item 6. Selected Consolidated Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except ratio data)
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data as of and for the years ended
September 30, 1996, 1997, 1998, 1999 and 2000 are derived from the audited
consolidated financial statements of the Company.
These selected financial data are not covered by the auditors' report and
are qualified in their entirety by reference to, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and the Consolidated Financial Statements of the
Company and the related notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $226,402 $235,760 $246,944 $208,986 $229,528
Cost of sales 181,173 180,504 191,849 164,349 186,574
Selling and administrative expenses 19,966(1) 18,311 18,166 25,201(2) 23,244(2)
Recapitalization expense -- 8,694(3) -- -- --
Research and technical expenses 3,411 3,814 3,939 3,883 3,752
Operating income 21,852 24,437 32,990 15,553 15,958
Other cost, net 590 276 952 707 478
Terminated acquisition costs -- -- 6,199(4) 388(4) --
Interest expense, net 21,102(1) 20,456 21,066 20,213 22,457
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle (1,780) 36,315(5) 2,456 564 (4,809)
Extraordinary item, net of tax benefit (7,256)(1) -- -- -- --
Cumulative effect of change in accounting
principle (net of tax benefit) -- -- (450)(6) -- 640(7)
-------- -------- -------- -------- --------
Net income (loss) (9,036) 36,315 2,006 564 (4,169)
======== ======== ======== ======== ========
September 30,
-------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital (8) $ 57,307 $ 57,063 $ 66,974 $ 56,622 $ 41,229
Property, plant and equipment, net 31,157 32,551 29,627 32,572 42,299
Total assets 161,489 216,319 207,263 221,237 243,365
Total debt 169,097 184,213 175,877 183,879 209,438
Accrued post-retirement benefits 95,813 96,201 96,483 97,662 99,281
Stockholder's equity (Capital deficiency) (130,341) (94,435) (90,938) (90,052) (98,167)
September 30,
-------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Other Financial Data:
Depreciation and amortization (9) $ 9,042 $ 8,197 $ 8,148 $ 5,388 $ 3,822
Capital expenditures 2,092 8,863 5,919 8,102 9,087
EBITDA (10) 32,141 41,302 40,186 25,446 22,192
Ratio of EBITDA to interest expense 1.52x 2.02x 1.91x 1.26x .99x
Ratio of earnings before fixed charges to fixed 1.01x 1.17x 1.22x -- --
charges (11)
Net cash provided by (used in) operating activities $ (5,343) $ (6,596) $ 14,584 $ (509) $(12,462)
Net cash used in investment (2,025) (8,830) (5,750) (7,951) (8,688)
activities
Net cash provided by (used in) financing 7,116 14,185 (8,562) 8,570 19,412
activities
</TABLE>
- 14 -
<PAGE>
(1) During fiscal 1996, the Company successfully refinanced its debt with the
issuance of $140,000 Senior Notes due 2004 and an amendment to its
Revolving Credit Facility with Congress Financial Corporation ("Congress").
As a result of this refinancing effort, certain non-recurring charges were
recorded as follows: (a) $7,256 was recorded as the aggregate of
extraordinary items which represents the extraordinary loss on the
redemption of the Company's 11 1/4% Senior Secured Notes due 1998, and 13
1/2% Senior Subordinated Notes due 1999 (collectively, the "Old Notes") and
is comprised of $3,911 of prepayment penalties incurred in connection with
the redemption of the Old Notes and $3,345 of deferred debt issuance costs
which were written off upon consummation of the redemption of the Old
Notes; (b) $1,837 of Selling and Administrative Expense which represents
costs incurred with a terminated initial public offering of the Company's
common stock; and (c) $924 of Interest Expense which represents the net
interest expense (approximately $1,500 interest expense, less approximately
$600 interest income) incurred during the period between the issuance of
the Senior Notes and the redemption of the Old Notes.
(2) During fiscal 1999 and 2000, the Company recorded approximately $3,462 and
$748, respectively, in connection with a Federal Grand Jury investigation
of the nickel alloy industry. These costs have been accounted for as
Selling and administrative expenses and charged against income during the
period. Also during 1999, the Company recorded approximately $1,750 in
connection with the resignation of the Company's former Chief Executive
Officer, and the appointment of the Company's new Chief Executive Officer.
Those costs were accounted for as Selling and administrative expenses and
charged against income in the period.
(3) On January 29, 1997, the Company announced that Haynes Holdings, Inc.
("Holdings"), its parent corporation, had effected the recapitalization of
the Company and Holdings pursuant to which Blackstone Capital Partners II
Merchant Banking Fund L.P. and two of its affiliates ("Blackstone")
acquired 79.9% of Holdings' outstanding shares (the "Recapitalization").
Certain fees, totaling $6,237, paid by the Company in connection with the
Recapitalization were accounted for as recapitalization expenses and
charged against income in the period. Also in connection with the
recapitalization, the Company recorded $2,457 of non-cash stock
compensation expense, also included as recapitalization expenses,
pertaining to certain modifications to management stock option agreements
which eliminated put and call rights associated with the options.
(4) Terminated acquisition costs of approximately $6,199 and $388 were recorded
in fiscal 1998 and 1999, respectively, in connection with the abandoned
attempt to acquire Inco Alloys International by Holdings. Also, during
fiscal 2000 an additional $161 of terminated acquisition costs were
accounted for as Selling and administrative expenses. These costs
previously had been deferred.
(5) The Company recorded profit before tax of $3,705 and net income of $36,315.
During the third quarter of fiscal 1997, the Company reversed its deferred
income tax valuation allowance of approximately $36,431. See Note 5 of the
Notes to Consolidated Financial Statements of the Company included in this
Annual Report in response to Item 8.
(6) 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, resulting from a pre-tax
write-off of $750 related to reengineering charges involved in the
implementation of an information technology project.
(7) On January 1, 2000, the Company changed its method of amortizing
unrecognized actuarial gains and losses with respect to its pension
benefits to amortize them over the lesser of five years or the average
remaining service period of active participants. The $640 cumulative effect
of the change on prior years (after a reduction of $426 for income taxes)
is included in income in fiscal 2000.
(8) Reflects the excess of current assets over current liabilities as set forth
in the Consolidated Financial Statements.
(9) Reflects (a) depreciation and amortization as presented in the Company's
Consolidated Statement of Cash Flows and set forth in Note (10) below, plus
or minus (b) other non-cash charges, including the amortization of prepaid
pension costs (which is included in the change in other asset category) and
the amortization of postretirement benefit costs, minus amortization of
debt issuance costs, all as set forth in Note (10) below.
- 15 -
<PAGE>
(10) Represents for the relevant period net income plus expenses recognized for
interest, taxes, depreciation, amortization and other non-cash charges, (i)
plus the refinancing costs set forth in Note (1), part (a) and (b) for
fiscal 1996, (ii) plus recapitalization costs outlined in Note (3), and
$250 of failed acquisition costs for fiscal 1997, (iii) plus terminated
acquisition costs outlined in Note (4), and $450 of business process
reengineering costs outlined in Note (6) for fiscal 1998, (iv) plus the
Grand Jury investigation costs and executive transition costs discussed in
Note (2) for fiscal 1999 and 2000, and terminated acquisition costs
outlined in Note (4) for fiscal 1999, (v) plus $640 of actuarial gains and
losses outlined in Note 7 for fiscal 2000 and (vi) plus other non-recurring
charges of $701 accounted for as cost of sales. In addition to net interest
expense as listed in the table, the following charges are added to net
income (loss) to calculate EBITDA:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Provision for (benefit from)
income taxes $ 1,940 $(32,610) $ 2,317 $(6,319) $(2,168)
Depreciation 7,751 7,477 8,029 5,145 3,860
Amortization:
Debt issuance costs 4,698 1,144 1,247 1,246 1,152
Prepaid pension costs (benefit) 308 333 (163) (938) (5,443)
------- -------- ------- ------- -------
5,006 (23,656) 11,430 (866) (2,599)
SFAS 106 postretirement benefits 983 387 282 1,181 5,405
Amortization of debt issuance costs (4,698) (1,144) (1,247) (1,246) (1,152)
------- -------- ------- ------- -------
Total $10,982 $(24,413) $10,465 $ (931) $ 1,654
======= ======== ======= ======= =======
</TABLE>
EBITDA should not be construed as a substitute for income from operations,
net earnings (loss) or cash flows from operating activities determined in
accordance with accounting principles generally accepted in the United
States of America ("GAAP"). The Company has included EBITDA because it
believes it is commonly used by certain investors and analysts to analyze
and compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt. Because
EBITDA is not calculated in the same manner by all entities, EBITDA as
calculated by the Company may not necessarily be comparable to that of the
Company's competitors or of other entities.
(11) For purposes of these computations, earnings before fixed charges consist
of income (loss) before provision for (benefit from) income taxes,
extraordinary item and cumulative effect of a change in accounting
principle, plus fixed charges. Fixed charges consist of interest on debt,
amortization of debt issuance costs and estimated interest portion of
rental expense. Earnings were insufficient to cover fixed charges by $5,850
and $6,977 for fiscal 1999 and 2000, respectively.
(Remainder of page intentionally left blank.)
- 16 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains statements that constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places in this Report and 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 and other
matters, and (iii) industry trends affecting the Company's financial condition
or results of operations. Readers 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, many of which are
beyond the control of the Company.
Company Background
The Company sells high temperature alloys and corrosion resistant alloys,
which accounted for 69% and 31%, respectively, of the Company's net revenues in
Fiscal 2000. Based on available industry data, the Company believes that it is
one of three principal producers of high performance alloys in flat product
form, which includes sheet, coil and plate forms, and also produces its alloys
in round and tubular forms. In Fiscal 2000, flat products accounted for 64% of
shipments and 65% of net revenues.
The Company sells its products primarily through its direct sales
organization, which includes four domestic Company-owned service centers, three
wholly-owned European subsidiaries, a wholly-owned subsidiary in Singapore, and
sales agents who supplement the Company's direct sales efforts in the Pacific
Rim. Approximately 82% of the Company's net revenues in fiscal 2000 was
generated by the Company's direct sales organization. The remaining 18% of the
Company's fiscal 2000 net revenues was generated by independent distributors and
licensees in the United States, Europe and Japan, some of whom have been
associated with the Company for over 30 years.
The proximity of production facilities to export customers is not a
significant competitive factor, since freight and duty costs per pound are minor
in comparison to the selling price per pound of high performance alloy products.
In fiscal 2000, sales to customers outside the United States accounted for
approximately 38% of the Company's net revenues.
The high performance alloy industry is characterized by high capital
investment and high fixed costs, and profitability is therefore very sensitive
to changes in volume. The cost of raw materials is the primary variable cost in
the high performance alloy manufacturing process and represents approximately
one-half of the total manufacturing costs. Other manufacturing costs, such as
labor, energy, maintenance and supplies, often thought of as variable, have a
significant fixed element. Accordingly, relatively small changes in volume can
result in significant variations in earnings.
In fiscal 2000, proprietary products represented approximately 33% of the
Company's net revenues. In addition to these patent-protected alloys, several
other alloys manufactured by the Company have little or no direct competition
because they are difficult to produce and require relatively small production
runs to satisfy demand. In fiscal 2000, these other alloys represented
approximately 19% of the Company's net revenues.
Order to shipment lead times can be a competitive factor as well as an
indication of the strength of the demand for high temperature alloys. The
Company's current average lead times from order to shipment are approximately 20
to 24 weeks.
- 17 -
<PAGE>
Overview of Markets
A breakdown of sales, shipments and average selling prices to the markets
served by the Company for the last five fiscal years is shown in the following
table: (Note: Markets prior to 1997 have been reclassified due to improved
identification techniques implemented in 1997 by the Company.)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
--------------- --------------- --------------- --------------- ---------------
% OF % OF % OF % OF % OF
SALES (DOLLARS AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
IN MILLIONS) ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace $ 95.3 42.1% $111.2 47.2% $111.9 45.3% $87.3 41.8% $94.3 41.1%
Chemical processing 77.9 34.4 69.3 29.4 79.7 32.3 71.0 34.0 62.3 27.1
Land-based gas turbines 17.4 7.7 17.2 7.4 17.5 7.1 24.1 11.5 35.1 15.3
Flue gas desulfurization 8.3 3.7 6.7 2.7 8.4 3.4 4.1 2.0 5.3 2.3
Oil and gas 4.3 1.9 7.8 3.3 5.9 2.4 1.2 .6 7.4 3.2
Other markets 19.6 8.6 20.1 8.5 19.8 8.0 16.4 7.8 22.7 9.9
---- --- ---- --- ---- --- ---- --- ---- ---
Total product 222.8 98.4 232.3 98.5 243.2 98.5 204.1 97.7 227.1 98.9
Other revenue (1) 3.6 1.6 3.5 1.5 3.7 1.5 4.9 2.3 2.4 1.1
-- --- --- --- --- --- --- --- --- --- ---
Net revenues $226.4 100.0% $235.8 100.0% $246.9 100.0% $209.0 100.0% $229.5 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
U.S. $142.0 $154.3 $146.5 $125.9 $142.8
Foreign $ 84.4 $81.5 $100.4 $83.1 $86.7
SHIPMENTS BY MARKET
(MILLIONS OF POUNDS)
Aerospace 6.6 40.2% 8.3 45.9% 7.6 41.1% 6.2 36.7% 7.6 38.0
Chemical processing 6.0 36.6 5.7 31.9 6.7 36.2 6.8 40.2 5.8 29.0
Land-based gas turbines 1.5 9.2 1.4 8.1 1.6 8.7 2.3 13.6 3.7 18.5
Flue gas desulfurization 1.0 6.1 0.7 3.8 1.1 5.9 .5 3.0 .6 3.0
Oil and gas 0.3 1.8 0.7 3.8 0.5 2.7 .1 .6 .8 4.0
Other markets 1.0 6.1 1.2 6.5 1.0 5.4 1.0 5.9 1.5 7.5
--- --- --- --- --- --- --- --- --- ---
Total Shipments 16.4 100.0% 18.0 100.0% 18.5 100.0% 16.9 100.0% 20.0 100.0%
AVERAGE SELLING PRICE
PER POUND
Aerospace $ 14.44 $13.40 $14.72 $14.08 $12.41
Chemical processing 12.98 12.16 11.90 10.44 10.74
Land-based gas turbines 11.60 12.29 10.94 10.48 9.49
Flue gas desulfurization 8.30 9.57 7.64 8.20 8.83
Oil and gas 14.33 11.14 11.80 12.00 9.25
Other markets 19.60 16.75 19.80 16.40 15.13
All markets $ 13.59 $12.91 $13.15 $12.08 $11.36
--------------------
<FN>
(1) Includes toll conversion and royalty income.
</FN>
</TABLE>
Fluctuations in net revenues and volume from fiscal 1996 through fiscal
2000 are a direct result of significant changes in each of the Company's major
markets.
Aerospace. Demand for the Company's products in the aerospace industry is
driven by orders for new jet engines as well as requirements for spare parts and
replacement parts for jet engines. Demand for the Company's aerospace products
declined significantly from fiscal 1991 to fiscal 1992, as order rates for
commercial aircraft fell below delivery rates due to cancellations and deferrals
of previously placed orders. The Company believes that, as a result of these
cancellations and deferrals, engine manufacturers and their fabricators and
suppliers were caught with excess inventories. The draw down of these
inventories, and the implementation of just-in-time delivery requirements by
many jet engine manufacturers, exacerbated the decline experienced by suppliers
to these manufacturers, including the Company. Demand for products used in
manufacturing military aircraft and engines also dropped during this period as
domestic defense spending declined following the Persian Gulf War. These
conditions persisted through fiscal 1994.
- 18 -
<PAGE>
The Company experienced growth beginning in fiscal 1995 due to the
aerospace recovery providing the stimulus for demand improvement. As a result of
increased new aircraft production and maintenance requirements, the Company's
net revenues from sales to the aerospace supply chain peaked in fiscal 1998
having grown 64.1% from the fiscal 1995 base period.
Sales to the aerospace market in fiscal 1999 declined as the commercial
aircraft production by the major manufacturers reached its peak while projecting
fewer deliveries in the future. This condition reduced direct demand and caused
the supply chain to consume excess inventory. However, the Company experienced a
much stronger than expected fiscal 2000 due to a significant change in aerospace
demand caused by a change in the commercial aircraft forecast.
A consistent stream of Haynes product requirements from the maintenance and
repair of installed engines adds to the OEM demand.
Chemical Processing. Growth in the chemical processing industry tends to
track overall economic activity. Demand for the Company's products is driven by
maintenance requirements of chemical processing facilities and the expansion of
existing chemical processing facilities or the construction of new facilities in
niche markets within the overall industry. In fiscal 2000, shipments of the
Company's products to the chemical processing industry declined from those in
fiscal 1999. A basic lack of capital projects during fiscal 2000 limited the
available opportunities and intensified the competition. The basic elements are
still present that drive the increased use of the Company's products, but the
high level of mergers, spin-offs, and divestment of facilities combined to push
out many major projects. Concerns regarding the reliability of chemical
processing facilities, their potential impact on the environment and the safety
of their personnel, as well as the need for higher throughput should support
demand for more sophisticated alloys, such as the Company's CRA products.
Current indicators are forecasting an upturn in project business for the
chemical processing industry in fiscal 2001. The Company expects demand for its
products in the chemical processing industry will improve in fiscal 2001. In
addition, the Company's key proprietary CRA products, including HASTELLOY(R)
C-2000(R), which the Company believes provides better overall corrosion
resistance and versatility than any other readily available CRA product, and
HASTELLOY C-22(R), are expected to contribute to the Company's activity in this
market, although there can be no assurance that this will be the case.
Land-Based Gas Turbines. The Company has leveraged its metallurgical
expertise to develop LBGT applications for alloys it had historically sold to
the aerospace industry. Land based gas turbines are favored in electric
generating facilities due to low capital cost at installation, low cycle
installation time, flexibility in use of alternative fuels, and fewer SO2
emissions than traditional fossil fuel-fired facilities. In addition to power
generation, land-based gas turbines are required as mechanical drivers primarily
for production and transportation of oil and gas, as well as emerging
applications in commercial marine propulsion and micro turbines for
standby/emergency power systems. The Company believes these factors are
primarily responsible for creating demand for its products in the LBGT industry.
Prior to the enactment of the Clean Air Act, land-based gas turbines were
used primarily to satisfy peak power requirements. The Company believes that
land-based gas turbines are the clean, low-cost alternative to fossil fuel-fired
electric generating facilities. In the early 1990's when Phase I of the Clean
Air Act was being implemented, selection of land-based gas turbines to satisfy
electric utilities demand firmly established this power source. The Company
believes that the mandated Phase II of the Clean Air Act will further contribute
to demand for its products.
The Company's revenue from sales to the land-based gas turbine industry
have more than doubled in the past five years. The Company believes the demand
for Haynes products based on industry projections should continue to increase
over the next several years, although there can be no assurance that this will
be the case.
Flue Gas Desulfurization. The Clean Air Act is the primary factor
determining the demand for high performance alloys in the FGD industry. FGD
projects have been undertaken by electric utilities and cogeneration facilities
powered by fossil fuels in the United States, Europe and the Pacific Rim in
response to concerns over emissions. FGD projects are generally highly visible
and as a result are highly price competitive, especially when demand for high
performance alloys in other major markets is weak. The Company anticipates
improved sales opportunities in the FGD market as deadlines for Phase II of the
Clean Air Act approach, although there can be no assurance that this will be the
case.
- 19 -
<PAGE>
For Phase II, more than 2,000 operating units will be affected. While many
utilities are still finalizing their plans to comply with the more stringent
Phase II requirements, this market sector is now showing signs of expansion. The
Company in fiscal 2000 was successful in securing an improved share of small
project business in North America.
While the North American sector continues moderate growth in the next 3 to
5 years, there are also substantial opportunities in Asia and East Europe.
Oil and Gas. The Company's participation in the oil and gas industry
consists primarily of providing tubular goods for sour gas production. Demand
for the Company's products in this industry is driven by the rate of development
of sour gas fields, which in turn is driven by the price of natural gas and the
need to commence production in order to protect leases.
Other Markets. In addition to the industries described above, the Company
also targets a variety of other markets. Representative industries served in
fiscal 2000 include waste incineration, industrial heat treating, automotive,
medical and instrumentation. The automotive and industrial heat treating markets
are highly cyclical and very competitive. However, continual growth
opportunities exist in the automotive market due to new safety, engine controls,
and emission systems technologies. Also, increasing requirements for improved
materials performance in industrial heating are expected to increase demand for
the Company's products. Waste incineration presents opportunities for the
Company's alloys as landfill space is diminishing and government concerns over
pollution, chemical weapon stockpiles, and chemical and nuclear waste handling
are increasing. Many of the Company's lower volume proprietary alloys are
experiencing growing demand in these other markets. Markets capable of providing
growth are being driven by increasing performance, reliability and service life
requirements for products used in these markets, which could provide further
applications for the Company's products.
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- 20 -
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, consolidated
statements of operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of sales 77.7 78.6 81.3
Selling and administrative expenses 7.4 12.1 10.1
Research and technical expenses 1.6 1.9 1.6
Operating income 13.3 7.4 7.0
Other cost, net 0.4 0.3 0.2
Terminated acquisition costs 2.5(1) 0.2(1) --
Interest expense 8.6 9.7 9.9
Interest income (0.1) (0.1) (0.1)
Income (loss) before provision for (benefit from) 1.9 (2.7) (3.0)
income taxes and cumulative effect of a change
in accounting principle
Provision for (benefit from) income taxes 0.9 (3.0) (0.9)
Cumulative effect of a change in accounting (0.2)(2) -- 0.3(3)
principle, net of tax benefit
Net income (loss) .8% .3% (1.8)%
------------------------
<FN>
(1) Terminated acquisition costs of approximately $6.2 million and $388,000
were recorded in fiscal 1998 and 1999, respectively, in connection with the
abandoned attempt to acquire Inco Alloys International by Holdings. These
costs previously had been deferred.
(2) 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 expenses 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.
(3) On January 1, 2000, the Company changed its method of amortizing
unrecognized actuarial gains and losses with respect to its pension
benefits to amortize them over the lesser of five years or the average
remaining service period of active participants. The $640,000 cumulative
effect of the change on prior years (after a reduction of $426,000 for
income taxes) is included in income in fiscal 2000.
</FN>
</TABLE>
- 21 -
<PAGE>
Year Ended September 30, 2000 Compared to Year Ended September 30, 1999
Net Revenues. Net revenues increased approximately $20.5 million, or 9.8%,
to approximately $229.5 million in fiscal 2000 from approximately $209.0 million
in fiscal 1999, primarily as a result of an 18.3% increase in shipments from
approximately 16.9 million pounds in fiscal 1999 to approximately 20.0 million
pounds in fiscal 2000, which offset a 6.0% decrease in average selling prices,
from approximately $12.08 per pound in fiscal 1999 to approximately $11.36 per
pound in fiscal 2000.
Sales to the aerospace industry for fiscal 2000 increased 8.0% to
approximately $94.3 million from approximately $87.3 million for fiscal 1999.
The increase in revenue can be attributed to a 22.6% increase in volume to
approximately 7.6 million pounds in fiscal 2000 from approximately 6.2 million
pounds in fiscal 1999, which offset an 11.9% decrease in the average selling
price per pound. The higher volume is a result of strong demand for all product
forms in the domestic and export geographic sectors by the airframe component
fabricators and the gas turbine manufacturers. The commercial aviation industry
aircraft build schedules were adjusted significantly in the past year to reflect
a surge in demand for new equipment for the next few years. The lower average
selling prices of aerospace products is the result of a greater proportion of
lower priced nickel-base alloys and product forms as compared to the higher
volume, higher priced specialty and proprietary Haynes alloys.
Sales to the chemical processing industry declined 12.3% to approximately
$62.3 million in fiscal 2000 from approximately $71.0 million in fiscal 1999 due
primarily to decreased volume to approximately 5.8 million pounds in fiscal 2000
from approximately 6.8 million pounds for the same period a year earlier. The
decreased volume was partially offset by an increase in the average selling
price per pound from $10.44 per pound in fiscal 1999 to $10.74 per pound in
fiscal 2000. The decrease in volume can be attributed to a reduction in major
project activity in the domestic and European markets, as well as limited, but
improving, demand in the Asian marketplace. The improved average selling price
is the result of a greater proportion of higher priced sheet and tubular product
forms as compared to lower priced plate product forms used primarily for support
in large project applications. Heightened global marketplace competition limited
the ability to further improve the product transaction prices.
Sales to the LBGT industry increased 45.6% in fiscal 2000 to approximately
$35.1 million from approximately $24.1 million in fiscal 1999. The sales
increase was the result of a 60.9% increase in volume to approximately 3.7
million pounds in fiscal 2000 compared to approximately 2.3 million pounds in
fiscal 1999, which more than offset a 9.4% decrease in the average selling price
per pound. The significant increase in volume can be attributed to improved
global shipments of nickel-base alloy and specialty alloy flat products, as well
as HAYNES(R) HR-120(R) alloy ring applications for major gas turbine
manufacturers. The reduced average selling price is mainly due to the greater
proportion of lower value product forms of HAYNES HR-120 alloy and nickel-base
alloy flat products.
Sales to FGD industry increased 29.3% to approximately $5.3 million in
fiscal 2000 from approximately $4.1 million in fiscal 1999 due primarily to a
20.0% gain in volume. The improvement in volume was combined with a 7.7%
increase in the average selling price per pound reflecting a strong domestic
environment with respect to major project business.
Sales to the oil and gas industry during fiscal 2000 increased
substantially to approximately $7.4 million from approximately $1.2 million for
the same period a year earlier. The revenue increase is due to an increase in
volume which was partially offset by a decline in the average selling price per
pound. These are typically large projects and may vary in number significantly
from year to year.
Sales to other industries increased 38.4% to approximately $22.7 million in
fiscal 2000 from approximately $16.4 million in fiscal 1999. Volume increased to
approximately 1.5 million pounds in fiscal 2000 compared to approximately 1.0
million pounds for the same period a year earlier, partially offset by a 7.7%
decrease in the average selling price per pound, from $16.40 in fiscal 1999 to
$15.13 in fiscal 2000. The decline in the average selling price can be
attributed to a greater proportion of sales of lower cost, lower priced
nickel-base alloys for industrial markets compared to sales of higher priced
cobalt-base alloys for specialty markets.
Cost of Sales. Cost of sales as a percentage of net revenues increased to
81.3% in fiscal 2000 compared to 78.6% in fiscal 1999. The higher cost of sales
percentage in fiscal 2000 compared to fiscal 1999 resulted from higher raw
material costs and higher distribution costs.
- 22 -
<PAGE>
Selling and Administrative Expenses. Selling and administrative expenses
decreased approximately $2.0 million to approximately $23.2 million for fiscal
2000 from approximately $25.2 million in fiscal 1999 primarily as a result of
higher administrative costs and data processing costs during 2000, which
partially offset the reduction of expenses associated with the DOJ investigation
and the change in executive management of the Company.
Research and Technical Expenses. Research and technical expenses decreased
approximately $100,000 from approximately $3.9 million in fiscal 1999 to
approximately $3.8 million in fiscal 2000 as a result of reduced operating costs
and outside research donations.
Operating Income. As a result of the above factors, the Company recognized
operating income for fiscal 2000 of approximately $16.0 million, approximately
$5.6 million of which was contributed by the Company's foreign subsidiaries. For
fiscal 1999, operating income was approximately $15.6 million, of which
approximately $4.1 million was contributed by the Company's foreign
subsidiaries.
Other. Other cost, net, decreased approximately $229,000, from
approximately $707,000 in fiscal 1999, to approximately $478,000 for fiscal
2000, primarily as a result of increased foreign exchange gains and the
dissolution of a joint venture, which had resulted in losses in the prior year.
Interest Expense. Interest expense increased approximately $2.3 million to
approximately $22.6 million for fiscal 2000 from approximately $20.3 million for
fiscal 1999. Higher revolving credit balances and higher interest rates during
2000 contributed to the increase.
Income Taxes. The benefit from income taxes of approximately $2.2 million
for fiscal 2000 decreased by approximately $4.1 million from approximately $6.3
million for fiscal 1999 due to an adjustment during fiscal 1999 of deferred
income taxes for certain foreign earnings that will not be remitted to the
United States.
Net Income. As a result of the above factors, the Company recognized a net
loss of approximately $4.2 million for fiscal 2000 compared to net income for
fiscal 1999 of approximately $564,000.
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- 23 -
<PAGE>
Year Ended September 30, 1999 Compared to Year Ended September 30, 1998
Net Revenues. Net revenues decreased approximately $37.9 million, or 15.4%,
to approximately $209.0 million in fiscal 1999 from approximately $246.9 million
in fiscal 1998, primarily as a result of an 8.6% decrease in shipments, from
approximately 18.5 million pounds in fiscal 1998 to approximately 16.9 million
pounds in fiscal 1999, and an 8.1% decrease in average selling prices, from
approximately $13.15 per pound in fiscal 1998 to approximately $12.08 per pound
in fiscal 1999.
Sales to the aerospace industry for fiscal 1999 decreased to approximately
$87.3 million from approximately $111.9 million for fiscal 1998. The significant
decrease can be attributed to a 17.1% decline in volume to approximately 6.3
million pounds in fiscal 1999 from approximately 7.6 million pounds in fiscal
1998. The lower volume is due to the reduced demand for all product forms in all
geographic sectors by the airframe component fabricators and the gas turbine
manufacturers as the commercial aviation industry adjusts to declining aircraft
build schedules. Also contributing to the decline in sales are lower average
selling prices per pound, falling to approximately $14.08 in fiscal 1999 from
approximately $14.72 in fiscal 1998. This decrease is the result of a reduced
volume of high value cobalt-containing alloys and titanium tubulars.
Sales to the chemical processing industry during fiscal 1999 decreased by
10.9% to approximately $71.0 million from approximately $79.7 million for fiscal
1998. Volume shipped to the chemical processing industry during fiscal 1999
increased by 1.5% to approximately 6.8 million pounds, compared to 6.7 million
pounds in fiscal 1998. The increase in volume can be attributed to increased
project activity in the domestic and European markets which has partially offset
the lower demand in the Asian market. The increase in volume was not sufficient
to offset a 12.0% decline in the average selling price from $11.90 per pound in
fiscal 1998 to $10.44 per pound in fiscal 1999. The decline in the average
selling price per pound is attributable to a higher proportion of lower priced
plate products, compared to sales of higher priced sheet and tubular products.
Sales to the LBGT Industry during fiscal 1999 increased 37.1% to
approximately $24.1 million from approximately $17.5 million in fiscal 1998.
Volume increased by 43.8% to approximately 2.3 million pounds, compared to 1.6
million pounds in fiscal 1998, while average selling prices decreased 4.2%. The
volume increase is primarily attributable to improved sales of one of the
Company's proprietary alloys, HAYNES HR-120(R) alloy, for a major gas turbine
manufacturer. The decrease in average selling price is a result of higher sales
of lower cost, lower priced product forms for the export market.
Sales to the FGD industry decreased 51.2% to approximately $4.1 million in
fiscal 1999 from approximately $8.4 million in fiscal 1998. Volume decreased
57.5% while average selling price per pound increased 7.3% reflecting the highly
cyclical and competitive nature of this market.
Sales to the oil and gas industry decreased 79.7% to approximately $1.2
million for fiscal 1999 from approximately $5.9 million in fiscal 1998 as a
result of lower activity in production of deep sour gas. These are typically
large projects and may vary in number significantly from year to year.
Sales to other industries decreased 17.2% in fiscal 1999 to approximately
$16.4 million from approximately $19.8 million for the same period a year ago.
Volume remained relatively flat compared to fiscal 1998, while the average
selling price per pound decreased to $16.40 in fiscal 1999 from $19.80 per pound
in fiscal 1998, a decline of 17.2%. The decline in the average selling price can
be attributed to proportionately higher sales of lower cost, lower priced
nickel-based alloys relative to sales of higher cost, higher priced cobalt-based
alloys.
Cost of Sales. Cost of sales as a percentage of net revenues increased to
78.6% in fiscal 1999 compared to 77.7% in fiscal 1998. The higher cost of sales
percentage in fiscal 1999 compared to fiscal 1998 resulted from higher
distribution costs associated with the new Midwest Service Center and lower
volumes of higher value added sheet and seamless product forms which were
partially offset by lower raw material costs.
Selling and Administrative Expenses. Selling and administrative expenses
increased approximately $7.0 million to approximately $25.2 million for fiscal
1999 from approximately $18.2 million in fiscal 1998 primarily as a result of
expenses related to the Company's response to the Department of Justice's grand
jury investigation into the nickel industry, the transition costs associated
with the change in the Company's executive management and increased domestic and
export selling costs.
- 24 -
<PAGE>
Research and Technical Expenses. Research and technical expenses remained
relatively flat at approximately $3.9 million in fiscal 1999 and 1998.
Operating Income. As a result of the above factors, the Company recognized
operating income for fiscal 1999 of approximately $15.6 million, approximately
$4.1 million of which was contributed by the Company's foreign subsidiaries. For
fiscal 1998, operating income was approximately $33.0 million, of which
approximately $5.9 million was contributed by the Company's foreign
subsidiaries.
Other. Other cost, net, decreased approximately $245,000, from
approximately $952,000 in fiscal 1998, to approximately $707,000 for fiscal
1999, primarily as a result of foreign exchange gains realized in fiscal 1999,
as compared to foreign exchange losses experienced during fiscal 1998.
Terminated Acquisition Costs. Terminated acquisition costs of approximately
$388,000 were recorded in fiscal 1999, compared with $6.2 million for fiscal
1998, in connection with the abandoned attempt by Holdings to acquire Inco
Alloys International.
Interest Expense. Interest expense decreased approximately $900,000, to
approximately $20.3 million for fiscal 1999 from approximately $21.2 million for
fiscal 1998. Lower revolving credit balances and lower interest rates during
fiscal 1999 contributed to the decrease.
Income Taxes. The benefit from income taxes of approximately $6.3 million
for fiscal 1999 decreased by approximately $8.6 million from tax expense of
approximately $2.3 million for fiscal 1998 due to an adjustment of deferred
income taxes for certain foreign earnings that will not be remitted to the
United States.
Net Income. As a result of the above factors, the Company recognized net
income for fiscal 1999 of approximately $564,000, compared to net income of
approximately $2.0 million for fiscal 1998.
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- 25 -
<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 $9.1 million in fiscal 2000. The Company also purchased
approximately $4.5 million of equipment accounted for as capital leases. Capital
expenditures were approximately $5.9 million and $8.1 million for fiscal 1998
and 1999, respectively. The largest capital item for fiscal 2000 was $3.0
million for the Company's flat product production areas, including the four-high
mill and cold finishing areas. Planned fiscal 2001 capital spending is targeted
for the Company's flat product production areas, annealing capabilities for the
Arcadia tubular facility, and environmental projects. The Company does not
expect such capital expenditures will 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. The Company believes these
sources of capital will be sufficient to fund planned capital expenditures and
working capital requirements over the next 12 months and on a long-term basis,
although there can be no assurance that this will be the case.
Net cash used in operating activities in fiscal 2000 was approximately
$12.5 million, as compared to approximately $509,000 for fiscal 1999. The cash
used in operating activities for fiscal 2000 was primarily the result of an
increase of approximately $7.3 million in inventories, an increase of
approximately $6.8 million in accounts and notes receivable, an increase of
approximately $2.5 million in prepayments and deferred charges, an increase in
accounts payable and accrued expenses of approximately $3.8 million, net loss of
approximately $4.2 million, non-cash depreciation and amortization expenses of
approximately $5.0 million and other adjustments. Cash used for investing
activities increased from approximately $8.0 million in fiscal 1999 to
approximately $8.7 million in fiscal 2000, almost entirely due to increased
capital expenditures. Cash provided from financing activities for fiscal 2000
was approximately $19.4 million due primarily to increased borrowings under the
Revolving Credit Facility. Cash for fiscal 2000 decreased approximately $2.3
million, resulting in a September 30, 2000, cash balance of approximately $1.3
million. Cash in fiscal 1999 decreased approximately $144,000 from fiscal 1998,
resulting in a cash balance of approximately $3.6 million at September 30, 1999.
On November 22, 1999, the Company refinanced the Revolving Credit Facility
with Fleet Capital Corporation ("Fleet Revolving Credit Facility"). The Fleet
Revolving Credit Facility's term is three years and the maximum amount available
under the Revolving Line of Credit is $72.0 million. The terms and conditions of
the Fleet Revolving Credit Facility are similar to the prior facility. The
Company also has $140.0 million of 11 5/8% Senior Notes due 2004 ("Senior
Notes"). See Note 6 of the Notes to Consolidated Financial Statements for a
description of the terms of the Senior Notes and the Revolving Credit Facility
in place at September 30, 2000.
The Senior Notes and the revolving credit facilities contain a number of
covenants limiting the Company's access to capital, including covenants that
restrict the ability of the Company and its subsidiaries to (i) incur additional
indebtedness, (ii) make certain restricted payments, (iii) engage in
transactions with affiliates, (iv) create liens on assets, (v) sell assets, (vi)
issue and sell preferred stock of subsidiaries, and (vii) engage in
consolidations, mergers and transfers.
The Company is currently conducting groundwater monitoring and post-closure
monitoring in connection with certain disposal areas, and has completed an
investigation of eight specifically identified solid waste management units at
the Kokomo facility. The results of the investigation have been filed with the
EPA. If the EPA were to require corrective action in connection with such
disposal areas or solid waste management units, there can be no assurance that
the costs of such corrective action will not have a material adverse effect on
the Company's financial condition, results of operations or liquidity. In
addition, the Company has been named as a PRP at one waste disposal site. Based
on current information, the Company believes that its involvement at this site
will not have a material adverse effect on the Company's financial condition,
results of operations or liquidity although there can be no assurance with
respect thereto. Expenses related to environmental compliance were $1.2 million
for fiscal 2000 and are expected to be approximately $1.2 million for fiscal
2001. See "Business-- Environmental Matters." Based on information currently
available to the Company, the Company is not aware of any information which
would indicate that litigation pending against the Company is reasonably likely
to have a material adverse effect on the Company's operations or liquidity. See
"Business--Environmental Matters."
Inflation
The Company believes that inflation has not had a material impact on its
operations.
- 26 -
<PAGE>
Income Tax Considerations
For financial reporting purposes the Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. Statement
of Financial Accounting Standards ("SFAS") No. 109 requires the recording of a
valuation allowance when it is more likely than not that some portion or all of
a deferred tax asset will not be realized. This statement further states that
forming a conclusion that a valuation allowance is not needed may be difficult,
especially when there is negative evidence such as cumulative losses in recent
years. The ultimate realization of all or part of the Company's deferred tax
assets depends upon the Company's ability to generate sufficient taxable income
in the future. During the second quarter of 1999, the Company recorded a
deferred income tax benefit associated with the undistributed earnings of two
foreign affiliates. The Company has concluded that the earnings of these two
affiliates will be permanently invested overseas for the foreseeable future.
Year 2000
The Company did not realize any detrimental effect relating to Year 2000.
All manufacturing and business systems are functioning in the manner they were
intended to operate. Furthermore, the Company has not experienced any problems
with its customers or suppliers regarding Year 2000. The Company is not aware of
any uncertainties, but in the event one should arise, the Company's Year 2000
Committee will remain active to respond to such an occurrence.
Terminated Acquisition by Holdings
In June 1997 Inco Limited ("Inco") and Blackstone jointly announced the
execution of a definitive agreement for the sale by Inco of 100% of its Inco
Alloy International ("IAI") business unit to Holdings. 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 fiscal 1998 and 1999.
Accounting Pronouncements
On November 20, 1997, the Financial Accounting Standards Board's ("FASB")
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. 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.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", effective October 1, 1998. SFAS No.
130 requires that changes in the Company's foreign currency translation
adjustment be shown in the financial statements. All prior year financial
statements have been reclassified for comparative purposes.
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which will be effective for fiscal year 2001. SFAS No. 133
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. Management anticipates that, due to its limited
use of derivative instruments, the adoption of SFAS No. 133 will not have a
significant effect on the Company's results of operations or financial position.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Prior to September 30, 1998, the Company had commodity price risk with
respect to nickel forward contracts, but closed out all existing contracts at
September 30, 1998, due to the low sustained levels of nickel prices at that
time. The nickel contracts closed were settled in fiscal 1999 at a loss of
approximately $68,000. If the Company decides to hedge its nickel price exposure
in the future, Board of Director approval will be obtained prior to entering
into any contracts.
- 27 -
<PAGE>
The foreign currency exchange risk exists primarily because the two foreign
subsidiaries need U.S. dollars in order to pay for their intercompany purchases
of high performance alloys from the Company's U.S. locations. The foreign
subsidiaries manage their own foreign currency exchange risk. Any U.S. dollar
exposure aggregating more than $500,000 requires approval from the Company's
Vice President of Finance. Most of the currency contracts to buy U.S. dollars
are with maturity dates less than six months.
At September 30, 2000, the Company had no foreign currency exchange
contracts outstanding. At September 30, 1999, the unrealized gain (loss) on
these foreign currency exchange contracts was not material to the future results
of the Company (see Note 1 of Item 8. Financial Statements and Supplementary
Data).
[Remainder of page intentionally left blank.]
- 28 -
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
Board of Directors
Haynes International, Inc.
Kokomo, Indiana
We have audited the accompanying consolidated balance sheets of Haynes
International, Inc., a wholly owned subsidiary of Haynes Holdings, Inc., as of
September 30, 2000 and 1999, and the related consolidated statements of
operations, comprehensive income and cash flows for each of the three years in
the period ended September 30, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September 30,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic 2000 and 1999 consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth herein.
As discussed in Note 1 to the financial statements, the Company changed
its method of accounting for certain business process reengineering costs
effective October 1, 1997. The Company also changed its method of amortizing
unrecognized actuarial gains and losses with respect to its pension benefits
effective January 1, 2000.
Indianapolis, Indiana
November 6, 2000
DELOITTE & TOUHE LLP
- 29 -
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,576 $ 1,285
Accounts and notes receivable, less
allowance for doubtful accounts of
$876 and $638, respectively 40,241 46,131
Inventories 91,012 97,307
------ ------
Total current assets 134,829 144,723
------- -------
Property, plant and equipment, net 32,572 42,299
Deferred income taxes 44,137 44,424
Prepayments and deferred charges, net 9,699 11,919
----- ------
Total assets $ 221,237 $ 243,365
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 27,966 $ 31,408
Accrued postretirement benefits 4,200 4,400
Revolving credit facility 44,051 63,974
Notes payable 208 2,307
Income taxes payable 263 1,096
Deferred income taxes 1,519 309
----- ---
Total current liabilities 78,207 103,494
------ -------
Long-term debt, net of unamortized
discount 139,620 143,157
Accrued postretirement benefits 93,462 94,881
------ ------
Total liabilities 311,289 341,532
------- -------
Capital deficiency:
Common stock, $.01 par value (100
shares authorized, issued and
outstanding)
Additional paid-in capital 51,175 51,275
Accumulated deficit (142,436) (146,605)
Accumulated other comprehensive
income (loss) 1,209 (2,837)
----- ------
Total capital deficiency (90,052) (98,167)
------- -------
Total liabilities and capital deficiency $ 221,237 $ 243,365
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 30 -
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $246,944 $208,986 $229,528
Cost of sales 191,849 164,349 186,574
Selling and administrative 18,166 25,201 23,244
Research and technical 3,939 3,883 3,752
----- ----- -----
Operating income 32,990 15,553 15,958
Other costs, net 952 707 478
Terminated acquisition costs 6,199 388
Interest expense 21,171 20,348 22,646
Interest income (105) (135) (189)
---- ---- ----
Income (loss) before provision for
(benefit from) income taxes and
cumulative effect of a change in
accounting principle 4,773 (5,755) (6,977)
Provision for (benefit from) income taxes 2,317 (6,319) (2,168)
----- ------ ------
Income (loss) before cumulative effect
of a change in accounting principle 2,456 564 (4,809)
Cumulative effect of a change in
accounting principle, net of tax (450) --- 640
---- ---
Net income (loss) $ 2,006 $ 564 $ (4,169)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 31 -
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) $ 2,006 $ 564 $ (4,169)
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustment 1,474 (1,766) (4,046)
----- ------ ------
Other comprehensive income (loss) 1,474 (1,766) (4,046)
----- ------ ------
Comprehensive income (loss) $ 3,480 $ (1,202) $ (8,215)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 32 -
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,006 $ 564 $ (4,169)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Cumulative effect of a change in accounting
principle 750 (1,066)
Depreciation 8,029 5,145 3,860
Amortization 1,247 1,246 1,152
Deferred income taxes 19 (7,217) (1,390)
Gain on disposition of property and equipment (105) (138) (383)
Change in assets and liabilities:
Accounts and notes receivable (7,086) 5,348 (6,830)
Inventories 12,856 (9,676) (7,299)
Prepayments and deferred charges 327 (1,206) (2,489)
Accounts payable and accrued expenses (3,915) 5,744 3,832
Income taxes payable 174 (1,553) 701
Accrued postretirement benefits 282 1,234 1,619
--- ----- -----
Net cash provided by (used in) operating
activities 14,584 (509) (12,462)
------ ---- -------
Cash flows from investing activities:
Additions to property, plant and equipment (5,919) (8,102) (9,087)
Proceeds from disposals of property, plant,
and equipment 169 151 399
--- --- ---
Net cash used in investing activities (5,750) (7,951) (8,688)
------ ------ ------
Cash flows from financing activities:
Net additions (reductions) of revolving credit (10,392) 8,778 19,923
Borrowings of long-term debt 1,813
Payment of long-term debt (208) (611)
Capital contribution from parent company of 17 100
-- ---
proceeds from exercise of stock options
Net cash provided by (used in) financing (8,562) 8,570 19,412
------ ----- ------
activities
Effect of exchange rates on cash 167 (254) (553)
--- ---- ----
Increase (decrease) in cash and cash equivalents 439 (144) (2,291)
Cash and cash equivalents:
Beginning of year 3,281 3,720 3,576
----- ----- -----
End of year $ 3,720 $ 3,576 $ 1,285
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during
period for:
Interest $ 19,924 $ 19,102 $ 20,292
======== ======== ========
Income taxes $ 1,832 $ 2,336 $ (1,124)
======== ======== ========
Supplemental disclosures of non-cash investing activities:
During 2000, the Company financed capital expenditures totaling $4,515 through capital leases.
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 33 -
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE YEARS IN THE PERIOD ENDED SEPTEMBER 30, 2000
(dollars in thousands)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Haynes
International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances are
eliminated. The Company develops, manufactures and markets technologically
advanced, high performance alloys primarily for use in the aerospace and
chemical processing industries worldwide. The Company has manufacturing
facilities in Kokomo, Indiana; Arcadia, Louisiana; Somerset, New Jersey and
Openshaw, England; with distribution service centers in Lebanon, Indiana;
Anaheim, California; Houston, Texas; Windsor, Connecticut; Paris, France;
and Zurich, Switzerland; and a sales office in Singapore.
B. Cash and Cash Equivalents
The Company considers all highly liquid investment instruments, including
investments with original maturities of three months or less at
acquisition, to be cash equivalents, the carrying value of which
approximates fair value due to the short maturity of these investments.
C. Inventories
Inventories are stated at the lower of cost or market. The cost of domestic
inventories is determined using the last-in, first-out method (LIFO). The
cost of foreign inventories is determined using the first-in, first-out
(FIFO) method and average cost method.
D. Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost with
depreciation calculated primarily by using the straight-line method based
on estimated economic useful lives. Buildings are generally depreciated
over 40 years and machinery and equipment are depreciated over periods
ranging from 5 to 14 years.
Expenditures for maintenance and repairs and minor renewals are charged to
expense; major renewals are capitalized. Upon retirement or sale of assets,
the cost of the disposed assets and the related accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to operations.
E. Long-Lived Assets
The Company regularly evaluates whether events and circumstances have
occurred which may indicate that the carrying amount of intangible or other
long-lived assets warrant revision or may not be recoverable. When factors
indicate that an asset or assets should be evaluated for possible
impairment, an evaluation would be performed whereby the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value is
required. As of September 30, 1999 and 2000, management considered the
Company's intangible and other long-lived assets to be fully recoverable.
F. Foreign Currency Exchange
The Company's foreign operating entities' financial statements are stated
in the functional currencies of each respective country, which are the
local currencies. Substantially all assets and liabilities are translated
to U.S. dollars using exchange rates in effect at the end of the year, and
revenues and expenses are translated at the weighted average rate for the
year. Translation gains or losses are recorded as a separate component of
comprehensive income (loss) and transaction gains and losses are reflected
in the consolidated statement of operations.
- 34 -
<PAGE>
G. Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in years in which those
temporary differences are expected to be recovered or settled. If it is
more likely than not that some portion or all of a deferred tax asset will
not be realized, a valuation allowance is recognized.
H. Deferred Charges
Deferred charges consist primarily of debt issuance costs which are
amortized over the terms of the related debt using the effective interest
method. Accumulated amortization at September 30, 1999 and 2000 was $2,968
and $2,799, respectively.
I. Financial Instruments and Concentrations of Risk
The Company may periodically enter into forward currency exchange contracts
and nickel future contracts to minimize the variability in the Company's
operating results arising from foreign exchange rate and nickel price
movements. The Company does not engage in foreign currency or nickel
futures speculation. Gains and losses on these contracts have been
reflected in the statement of operations in the month the contracts are
settled. At September 30, 2000, the Company had no foreign currency
exchange contracts outstanding. At September 30, 1999, the Company had
$1,400 of foreign currency exchange contracts outstanding, with a combined
net unrealized loss of $5.
The FASB issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
will be effective for fiscal year 2001. SFAS No. 133 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 and measure those instruments at fair value. Changes
in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative
is considered part of a hedge transaction and, if it is, the type of hedge
transaction. Management anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a
significant effect on the Company's results of operations or financial
position.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and
accounts receivable. At September 30, 2000, and periodically throughout the
year, the Company has maintained cash balances in excess of federally
insured limits.
During 1998 and 1999, sales to one group of affiliated customers
approximated $23,517 and $19,839, respectively, or 10% and 10% of net
revenues, respectively. During 2000, sales to the group of affiliated
customers were less than 10% of net revenues. The Company generally does
not require collateral and credit losses have been within management's
expectations. The Company does not believe it is significantly vulnerable
to the risk of a near-term severe impact from business concentrations with
respect to customers, suppliers, products, markets or geographic areas.
J. Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The Company does not believe
that it has assets, liabilities or contingencies that are particularly
sensitive to changes in estimates in the near term.
- 35 -
<PAGE>
K. Changes in Accounting Principle
On November 20, 1997, the Financial Accounting Standards Board's ("FASB")
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. Accordingly, the Company recorded the cumulative effect of this
accounting change, net of tax, of $450, resulting from a pre-tax write-off
of $750 related to reengineering charges involved in the implementation of
an information technology project.
Effective October 1, 1999, the Company changed its method of amortizing
unrecognized actuarial gains and losses with respect to its pension
benefits to amortize them over the lesser of five years or the average
remaining service period of active participants. The method previously used
was to amortize any unrecognized gain or loss over the average remaining
service period of active participants (approximately 12 years). The $640
cumulative effect of the change on prior years (after reduction for income
taxes of $426) is included in income for the year ended September 30, 2000.
L. Reclassifications
Certain amounts in prior year consolidated financial statements have been
reclassified to conform with current year presentation.
- 36 -
<PAGE>
Note 2: INVENTORIES
The following is a summary of the major classes of inventories:
<TABLE>
<CAPTION>
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
Raw materials $ 4,883 $ 9,745
Work-in-process 38,876 46,505
Finished goods 41,243 33,584
Other 952 914
Amount necessary to increase certain net inventories 5,058 6,559
----- -----
to the LIFO method $ 91,012 $ 97,307
======== ========
</TABLE>
Inventories valued using the LIFO method comprise 77% and 84% of consolidated
inventories at September 30, 1999 and 2000, respectively.
Note 3: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the major classes of property, plant, and
equipment:
<TABLE>
<CAPTION>
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
Land and land improvements $ 3,050 $ 2,877
Buildings 8,466 8,619
Machinery and equipment 92,784 106,075
Construction in process 3,224 947
107,524 118,518
Less accumulated depreciation (74,952) (76,219)
------- -------
$ 32,572 $ 42,299
======== ========
</TABLE>
During fiscal 2000, the Company purchased $4,515 of assets under capital leases,
which is included as machinery and equipment above. The corresponding
accumulated depreciation on assets purchased under capital leases is $59.
- 37 -
<PAGE>
Note 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following is a summary of the major classes of accounts payable and accrued
expenses:
<TABLE>
<CAPTION>
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
Accounts payable, trade $ 16,662 $ 21,114
Employee compensation 2,521 2,366
Taxes, other than income taxes 2,235 2,403
Interest 1,356 1,858
Other 5,192 3,667
----- -----
$ 27,966 $ 31,408
======== ========
</TABLE>
[Remainder of page intentionally left blank.]
- 38 -
<PAGE>
Note 5: INCOME TAXES
The components of income (loss) before provision for (benefit from) income
taxes and cumulative effect of a change in accounting principle consist of the
following:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Income (loss) before provision for
(benefit from) income taxes and
cumulative effect of a change in
accounting principle
U.S. $ (1,110) $ (9,880) $(12,901)
Foreign 5,883 4,125 5,924
----- ----- -----
Total $ 4,773 $ (5,755) $ (6,977)
======== ======== ========
Income tax provision (benefit):
Current:
U.S. Federal $ 793 19 $ (2,200)
Foreign 1,599 869 1,760
State (94) 10 (338)
--- -- ----
Current total 2,298 898 (778)
----- --- ----
Deferred:
U. S. Federal (42) (6,384) (1,428)
Foreign 104 199 (117)
State (43) (1,032) 155
--- ------ ---
Deferred total 19 (7,217) (1,390)
-- ------ ------
Total provision for (benefit from) income taxes $ 2,317 $ (6,319) $ (2,168)
======== ======== ========
</TABLE>
- 39 -
<PAGE>
The provision for (benefit from) income taxes applicable to results of
operations before cumulative effect of a change in accounting principle differed
from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal tax rate 34% 34% 34%
Tax provision at the statutory rate $ 1,623 $ (1,957) $ (2,372)
Foreign tax rate differentials (606) (334) (373)
Withholding tax on undistributed earnings of 225 113 93
foreign subsidiary
Provision for state taxes, net of federal taxes (49) (335)
U.S. tax on distributed and undistributed earnings 1,443 895 733
of foreign subsidiary
Reversal of U.S. tax on undistributed earnings of (5,025)
foreign subsidiaries
Other (319) (11) 86
---- --- --
Provision (benefit) at effective tax rate $ 2,317 $ (6,319) $ (2,168)
======== ======== ========
</TABLE>
- 40 -
<PAGE>
Deferred income tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
Current deferred income tax assets (liabilities):
Inventories $ 1,715 $ 1,253
Postretirement benefits other than pensions 1,659 1,659
Subsidiary loan 804
Accrued expenses 1,029 1,768
----- -----
Other 39
Gross current deferred tax asset 4,403 5,523
----- -----
Inventory purchase accounting adjustment (5,744) (5,744)
Mark to market reserve (178) (88)
---- ---
Gross current deferred tax liability (5,922) (5,832)
------ ------
Total net current deferred tax liability (1,519) (309)
------ ----
Noncurrent deferred income tax assets (liabilities):
Property, plant and equipment, net (2,488) (2,217)
Prepaid pension costs (2,328) (4,477)
Other foreign related (938) (851)
Undistributed earnings of foreign subsidiaries (2,506) (2,344)
------ ------
Gross noncurrent deferred tax liability (8,260) (9,889)
------ ------
Postretirement benefits other than pensions 36,286 38,421
Executive compensation 825 930
Net operating loss carryforwards 14,711 14,120
Alternative minimum tax credit carryforwards 534 534
Other 41 308
-- ---
Gross noncurrent deferred tax asset 52,397 54,313
------ ------
Total net noncurrent deferred tax asset 44,137 44,424
------ ------
Total $ 42,618 $ 44,115
======== ========
</TABLE>
As of September 30, 2000, the Company had net operating loss carryforwards
for regular tax purposes of approximately $38,278 (expiring in fiscal years 2007
to 2020), of which approximately $31,294 are available for alternative minimum
tax.
During fiscal 1999, the Company reversed approximately $4,460 of its
deferred tax liability associated with the undistributed earnings of two foreign
affiliates. The Company has concluded that the cumulative earnings from these
two affiliates, $12,222, will be permanently invested overseas for the
foreseeable future.
- 41 -
<PAGE>
Note 6: DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, September 30,
1999 2000
------------- -------------
<S> <C> <C>
Revolving Credit Facility, due November 22, 2002 $ 44,051 $ 63,974
======== ========
Senior Notes, 11.625%, due in 2004, net of $1,918 and $1,611, $138,082 $138,389
respectively, unamortized discount (effective rate of 12.0%)
5 Year Mortgage Note, 4.50%, due in 2003 (Swiss Subsidiary) 1,605 1,159
Capital Leases 4,349
Other 141 1,567
--- -----
139,828 145,464
Less amounts due within one year 208 2,307
--- -----
$139,620 $143,157
======== ========
</TABLE>
Bank Financing
On November 22, 1999, the Company refinanced its working capital facility
(the "Revolving Credit Facility") with Fleet Capital Corporation ("Fleet"),
increasing the maximum credit from $60,000 to $72,000. The amount available for
revolving credit loans equals the difference between the $72,000 total facility
amount, less any letter of credit reimbursement obligations incurred by the
Company, which are subject to a sub limit of $10,000 and an accrued interest
reserve calculated on a pro rata basis in connection with the semi-annual
interest payments for the Senior Notes. The total availability may not exceed
the sum of 85% of eligible accounts receivable (generally, accounts receivable
of the Company from domestic and export customers that are less than 60 days
outstanding), plus 60% of eligible inventories consisting of finished goods and
raw materials, plus 45% of eligible inventories consisting of work-in-process
and semi-finished goods calculated at the lower of cost or current market value,
minus any availability reserves established by Fleet. Unused line of credit fees
during the revolving credit loan period are .50% of the amount by which the
total revolving line, $72,000, exceeds the average daily principal balance of
the outstanding revolving loans and the average daily letter of credit
accommodations.
The Revolving Credit Facility bears interest at a fluctuating per annum
rate equal to a combination of prime rate plus 0.50% and London Interbank
Offered Rates ("LIBOR") plus 2.50%. At September 30, 2000, the effective
interest rates for revolving credit loans were 9.125% for $60,000 of the
Revolving Credit Facility, and 10.00% for the remaining $3,974. At September 30,
1999, the effective interest rates for revolving credit loans were 7.88% for
$33,000 of the Revolving Credit Facility, and 8.75% for the remaining $11,051.
As of September 30, 2000, $535 in letter of credit reimbursement obligations
have been incurred by the Company. The availability for revolving credit loans
at September 30, 2000 was $6,135.
The Revolving Credit Facility contains covenants common to such agreements
including the maintenance of certain net worth levels and limitations on capital
expenditures, investments, incurrence of debt, impositions of liens,
dispositions of assets and payments of dividends and distributions. The
Revolving Credit Facility is collateralized by first priority security interests
on all accounts receivable and inventories (excluding all accounts receivable
and inventories of the Company's foreign subsidiaries) and fixed assets of the
Company and the proceeds therefrom.
The carrying value of the Company's Revolving Credit Facility approximates
fair value.
- 42 -
<PAGE>
Senior Notes Due 2004
The Senior Notes are uncollateralized obligations of the Company and are
effectively subordinated in right of payment to obligations under the Revolving
Credit Facility. Interest is payable semi-annually on March 1 and September 1.
The notes are redeemable, in whole or in part, at the Company's option at
any time on or after September 1, 2000, at redemption prices ranging from
105.813% to 100% plus accrued interest to the date of redemption. The Senior
Notes limit the incurrence of additional indebtedness, restricted payments,
mergers, consolidations and asset sales.
The estimated fair value, based upon an independent market quotation, of
the Company's Senior Notes was approximately $119,000 and $105,000 at September
30, 1999 and 2000, respectively.
Other
In addition to the aforementioned debt, the Company's UK affiliate (Haynes
International, Ltd.) has an overdraft banking facility with Midland Bank that
provides for availability of 100 Pounds Sterling ($147) collateralized by the
assets of the affiliate. This overdraft banking facility was available in its
entirety on September 30, 2000, as a means of financing the activities of the
affiliate including payments to the Company for intercompany purchases. The
Company's French affiliate (Haynes International, SARL) has an overdraft banking
facility of 15,000 French Francs ($2,016) and utilized 11,662 French Francs
($1,567) of the facility as of September 30, 2000. The Company's Swiss affiliate
(Nickel-Contor AG) has an overdraft banking facility of 3,500 Swiss Francs
($2,028) all of which was available on September 30, 2000.
[Remainder of page intentionally left blank.]
- 43 -
<PAGE>
Note 7: CAPITAL DEFICIENCY
The following is a summary of changes in stockholder's equity (capital
deficiency):
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
No. of At Paid in (Accumulated Comprehensive Capital
Shares Par Capital Deficit) Income (Loss) Deficiency
------ --- ------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at 100 0 $49,070 $(145,006) $ 1,501 $(94,435)
October 1, 1997
Year ended
September 30, 1998:
Net income 2,006 2,006
Capital contribution from parent
company on exercise of stock option 17 17
Other comprehensive income 1,474 1,474
--- - ------- --------- ------- --------
Balance at 100 0 49,087 (143,000) 2,975 (90,938)
September 30, 1998
Year ended
September 30, 1999:
Net income 564 564
Reclassification of redeemable
common stock 2,088 2,088
Other comprehensive (loss) (1,766) (1,766)
--- - ------- --------- ------- --------
Balance at 100 0 51,175 (142,436) 1,209 (90,052)
September 30, 1999
Year ended
September 30, 2000:
Net loss (4,169) (4,169)
Capital contribution from
parent company on exercise
of stock option 100 100
Other comprehensive (loss) (4,046) (4,046)
--- - ------- --------- ------- --------
Balance at
September 30, 2000 100 0 $51,275 $(146,605) $(2,837) $(98,167)
=== = ======= ========= ======= ========
</TABLE>
- 44 -
<PAGE>
Note 8: PENSION PLAN AND RETIREMENT BENEFITS
The Company has non-contributory defined benefit pension plans which cover
most employees in the United States and certain foreign subsidiaries.
Benefits provided under the Company's domestic defined benefit pension plan
are based on years of service and the employee's final compensation. The
Company's funding policy is to contribute annually an amount deductible for
federal income tax purposes based upon an actuarial cost method using actuarial
and economic assumptions designed to achieve adequate funding of benefit
obligations.
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially all
domestic employees become eligible for these benefits if they reach normal
retirement age while working for the Company. Prior to 1994, the cost of retiree
health care and life insurance benefits was recognized as expense upon payment
of claims or insurance premiums.
During fiscal 2000, the Company established a 401(h) account in the pension
plan to pay medical benefits for retirees and beneficiaries who are participants
in Haynes International, Inc.'s Postretirement Medical Plan.
The status of employee pension benefit plans and other postretirement
benefit plans at September 30 are summarized below:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Projected benefit obligation at beginning of year $123,481 $105,158 $74,207 $67,578
Service cost 2,579 2,087 1,861 1,729
Interest cost 7,115 7,698 4,738 5,729
Plan changes 4,247 --- 1,169 ---
(Gains)/losses (24,795) (1,867) (10,430) 8,508
Benefits paid (7,469) (7,397) (3,967) (4,406)
------ ------ ------ ------
Projected benefit obligation at end of year $105,158 $105,679 $67,578 $79,138
======== ======== ======= =======
Change in Plan Assets:
Fair value of plan assets at beginning of year $141,061 $148,582 --- ---
Actual return on assets 14,990 11,640 --- 20
Transfer of assets to 401(h) account --- (4,000) --- ---
Employer contributions --- --- 3,967 4,386
Benefits paid (7,469) (7,397) (3,967) (4,406)
------ ------ ------ ------
Fair value of plan assets at end of year $148,582 $148,825 --- ---
======== ======== ======= =======
Funded Status of Plan:
Funded status $ 43,424 $ 43,146 $(67,578) $(79,138)
Unrecognized actuarial gain (44,223) (41,946) (19,082) (10,314)
Unrecognized prior service cost 6,692 6,135 (11,002) (9,616)
----- ----- ------- ------
Net amount recognized $ 5,893 $ 7,335 $(97,662) $(99,068)
======== ======== ======== ========
</TABLE>
- 45 -
<PAGE>
The Company follows SFAS No. 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions," which requires the cost of post retirement
benefits to be accrued over the years employees provide service to the date of
their full eligibility for such benefits. The Company's policy is to fund the
cost of claims on an annual basis. Operations were charged approximately $4,479,
$5,147 and $5,792 for these benefits during fiscal 1998, 1999 and 2000,
respectively.
Net periodic pension cost (benefit) on a consolidated basis was $252,
$(265) and $(5,045) for the years ended September 30, 1998, 1999 and 2000,
respectively.
The components of net periodic pension cost (income) and other
postretirement benefit cost for the years ended September 30, were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1999 2000 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2,355 $ 2,579 $ 2,087 $ 1,265 $ 1,861 $ 1,729
Interest cost 7,256 7,116 7,698 4,785 4,738 5,729
Expected return on assets (9,605) (10,892) (11,572) --- --- ---
Amortization of unrecognized net gain (390) --- (3,147) (480) --- (280)
Amortization of unrecognized prior
service cost 221 259 557 (1,091) (1,452) (1,386)
--- --- --- ------ ------ ------
Net periodic cost (income) prior to $ (163) $ (938) $ (4,377) $ 4,479 $ 5,147 $ 5,792
======= ======= ======== ======= ======= =======
cumulative effect adjustment
Cumulative effect adjustment (1,066)
------
Net periodic cost (income) after
cumulative effect adjustment $ (5,443)
========
</TABLE>
An 8.2% annual rate of increase for ages under 65 and an 8.0% annual rate
of increase for ages over 65 in the costs of covered health care benefits was
assumed for 2000, gradually decreasing for both age groups to 5.30% by the year
2009. Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percentage-point change in
assumed health care cost trend rates would have the following effects in fiscal
2000:
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest
cost components $ 1,281 $(1,004)
Effect on accumulated postretirement
benefit obligation $10,831 $(8,710)
Assumptions used to develop the net periodic pension cost (income) and
other postretirement benefit cost and to value pension obligations as of
September 30 were as follows:
1998 1999 2000
---- ---- ----
Discount rate 6.25% 7.75% 7.75%
Expected return on plan assets 7.50% 9.00% 9.00%
Weighted average rate of increase
in future compensation levels 5.25% 4.50% 4.50%
- 46 -
<PAGE>
The Company sponsors certain profit sharing plans for the benefit of
employees meeting certain eligibility requirements. There were no contributions
for these plans for the three years in the period ended September 30, 2000. The
Company sponsors a defined contribution plan for substantially all U.S.
employees. The Company contributes an amount equal to 50% of an employees
contribution to the Plan up to a maximum contribution of 3% of the employees'
salary. Expenses associated with this plan for the year ended September 30, 2000
totaled $526.
Note 9: COMMITMENTS
The Company leases certain transportation vehicles, warehouse facilities,
office space and machinery and equipment under cancelable and non-cancelable
leases, most of which expire within 10 years and may be renewed by the Company.
Rent expense under such arrangements totaled $1,691, $2,107, and $2,356 for the
years ended September 30, 1998, 1999, and 2000, respectively. Rent expense
includes income from sub-lease rentals totaling $44, $106, and $141 for the
years ended September 30, 1998, 1999, and 2000, respectively. The Company also
leases certain machinery and equipment under capital leases, which expire in
five years. Future minimum rental commitments under non-cancelable operating
leases and future minimum lease payments under capital leases in effect at
September 30, 2000, are as follows:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
<S> <C> <C>
2001 $2,215 $1,142
2002 2,042 1,142
2003 1,676 1,142
2004 478 1,142
2005 and thereafter 902 932
---- --- ---
7,313 5,500
Imputed interest necessary to reduce
the net minimum lease payment to
present value 1,151
------ -----
$7,313 $4,349
====== ======
</TABLE>
Future minimum rental commitments under non-cancelable operating leases
have not been reduced by minimum sub-lease rentals of $565 due in the future.
Note 10: OTHER
Other costs, net, consists of net foreign currency transaction (gains) and
losses in the amounts of $84, $(310), and $(353) for the years ended September
30, 1998, 1999 and 2000, respectively, and miscellaneous costs.
A Federal Grand Jury has concluded its investigation into possible
violations of federal anti-trust laws in the nickel alloy industry. The Company,
along with other companies in this industry, responded to the Government's
request and has been cleared of further investigation, with no liability being
incurred by the Company. The Company engaged outside legal counsel to represent
its interest in the investigation. Certain costs incurred by the Company in
connection with the investigation have been accounted for as selling and
administrative and charged against income in the period. For the years ended
September 30, 1999 and 2000, these costs were approximately $3,462 and $748.
The Company is also involved as the defendant in other various legal
actions and is subject to extensive federal, state and local environmental laws
and regulations. Although Company environmental policies and practices are
designed to ensure compliance with these laws and regulations, future
developments and increasingly stringent regulation could require the Company to
make additional unforeseen environmental expenditures.
- 47 -
<PAGE>
Although the level of future expenditures for environmental and other legal
matters cannot be determined with any degree of certainty, based on the facts
presently known, management does not believe that such costs will have a
material effect on the Company's financial position, results of operations or
liquidity.
Note 11: RELATED PARTY
On January 29, 1997, the Company announced that Haynes Holdings, Inc.
("Holdings"), its parent corporation, had effected a recapitalization of the
Company and Holdings pursuant to which Blackstone Capital Partners II Merchant
Banking Fund L.P. and two of its affiliates ("Blackstone") acquired 79.9% of
Holdings' outstanding shares (the "Recapitalization"). As part of the
Recapitalization, Blackstone agreed to provide financial support and assistance
to the Company. The Company has agreed to pay Blackstone an annual monitoring
fee of $500, plus any applicable out-of-pocket expenses, not to exceed $2,500 in
the aggregate, which is included in selling and administrative expenses, of
which $1,449 is included in other accrued expenses at September 30, 2000. Due to
this change in ownership, the Company's ability to utilize its U.S. federal net
operating loss carryforwards will be limited in the future.
Note 12: TERMINATED ACQUISITION COSTS
On March 3, 1998, the Company announced that Holdings and Blackstone had
abandoned their attempt to acquire Inco Alloys International, a 100% owned
business unit of Inco Limited. Approximately $6,199 and $388 of deferred
acquisition costs were charged to operations for the years ended September 30,
1998 and 1999, respectively.
Note 13: STOCK-BASED COMPENSATION
Holdings has a stock option plan ("Plan") which allows for the granting of
options to certain key employees and directors of the Company. Under the Plan,
options to purchase up to 1,415,880 shares of common stock may be granted at a
price not less than the lower of book value or 50% of fair market value, as
defined in the Plan. The options must be exercised within ten years from the
date of grant and become exercisable on a pro rata basis over a five year period
from the date of grant, subject to approval by the Board of Directors.
- 48 -
<PAGE>
Due to modifications to management's stock option agreements, redeemable
common stock of $2,088 was converted to additional paid in capital during 1999.
Pertinent information covering the Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Number Fiscal Average
of Option Price Year of Shares Exercise
Shares Per Share Expiration Exercisable Prices
------ ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Outstanding at October 1, 1997 581,000 $ 2.50 - 8.00 1999-2007 581,000 $ 3.76
Granted 24,632 10.15 10.15
Exercised (7,000) 2.50 2.50
Canceled (4,000) 8.00 8.00
------
Outstanding at September 30, 1998 594,632 2.50 -10.15 1999-2008 574,926 4.01
Granted ---
Exercised (40,000) 2.50 2.50
Canceled (44,000) 2.50 - 8.00 3.00
------
Outstanding at September 30, 1999 510,632 2.50 -10.15 2000-2008 495,853 4.22
Granted ---
Exercised ---
Canceled (2,000) 8.00 8.00
------
Outstanding at September 30, 2000 508,632 2.50 - 10.15 2001-2008 498,779 4.20
=======
Options Outstanding at 23,000 8.00 123,000
September 30, 2000 consist of:
361,000 2.50 361,000
24,632 10.15 14,779
------ ------
508,632 498,779
======= =======
</TABLE>
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the existing stock option plan under the provisions of this
pronouncement as the Company accounts for stock options under the provisions of
Accounting Principles Board Opinion ("APB") No. 25. Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant date for awards in accordance with the provisions of SFAS No. 123, the
effect on net income would have been immaterial in fiscal 1998. The pro forma
adjustment was calculated using the minimum value method to value all stock
options granted since October 1, 1995, using the following assumptions:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.53% 5.88% 5.92%
Expected life of options 5 years 5 years 5 years
</TABLE>
- 49 -
<PAGE>
Note 14: SEGMENT REPORTING
The Company operates in one business segment: the design, manufacture and
distribution of technologically advanced, high performance metal alloys for use
in the aerospace and chemical processing industries. The Company has operations
in the United States and Europe, which are summarized below. Sales between
geographic areas are made at negotiated selling prices.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Sales
United States $146,574 $129,494 $143,892
Europe 87,633 69,727 72,820
Other 12,737 9,765 12,816
------ ----- ------
Net revenues $246,944 $208,986 $229,528
======== ======== ========
Long-lived assets
United States $ 26,212 $ 29,057 $ 38,157
Europe 3,415 3,515 4,142
----- ----- -----
Total long-lived assets $ 29,627 $ 32,572 $ 42,299
======== ======== ========
</TABLE>
- 50 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors & Executive Officers of the Registrant
The following table sets forth certain information concerning the persons
who served as the directors and executive officers of the Company as of
September 30, 2000. Except as indicated in the following paragraphs, the
principal occupations of these persons have not changed during the past five
years.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Francis J. Petro............ 61 President and Chief Executive Officer;
Director
John H. Tundermann.......... 60 Executive Vice President; Director
Joseph F. Barker............ 53 Executive Vice President, Finance;
Chief Financial Officer & Treasurer;
Director
F. Galen Hodge.............. 62 Vice President, Corporate Technical Support
Michael F. Rothman.......... 54 Vice President, Engineering & Technology
Charles J. Sponaugle........ 52 Vice President, Business Planning
August A. Cijan............. 45 Vice President, Operations
Stanton D. Kirk............. 46 Vice President, International
Theodore T. Brown........... 42 Controller; Chief Accounting Officer
Robert I. Hanson............ 57 General Manager, Arcadia Tubular Products
R. Steven Linne............. 57 General Counsel and Secretary
James A. Laird.............. 48 Vice President, Marketing
Jean C. Neel................ 41 Vice President, Corporate Affairs
Gregory M. Spalding......... 44 Vice President, Sales
Richard C. Lappin........... 54 Director, Chairman of the Board,
Member Compensation Committee
Chinh E. Chu................ 34 Director, Member Audit Committee
Marshall A. Cohen........... 65 Director, Member Compensation Committee
Eric Ruttenberg............. 44 Director, Member Audit Committee
Mr. Petro was elected President, Chief Executive Officer and a director of
the Company in January 1999. From 1995 to the time he joined Haynes, Mr. Petro
was President and CEO of Inco Alloys International, a nickel alloy products
manufacturer owned by The International Nickel Company Of Canada.
Mr. Tundermann was elected Executive Vice President of the Company in March
1999 and a Director in February 2000. From 1995 to the time he joined Haynes,
Mr. Tundermann was Vice President, Research and Technology of Inco Alloys
International, a nickel alloy products manufacturer owned by The International
Nickel Company of Canada.
Mr. Barker was elected Executive Vice President, Finance, Chief Financial
Officer, Treasurer and a Director of the Company in May 2000. He previously
served as Vice President, Finance of the Company since 1992 and Treasurer and
Secretary in September 1993. Mr. Barker was also elected Chief Financial Officer
in May 1996. He had served as Controller of the Company and its predecessors
since November 1986.
Dr. Hodge was elected Vice President, Corporate Technical Support in May
2000, after having served as Vice President, International since June 1994 and
previously served as Vice President of Technology since September 1989. He was
Marketing and Technical Manager for the European Sales and Distribution
operations from 1985 to 1987 and Director of Technology from 1987 to 1989.
Mr. Rothman was elected Vice President, Engineering and Technology in
October 1995 after having served as Marketing Manager since 1994. He previously
served in various marketing and technical positions since joining the Company in
1975.
- 51 -
<PAGE>
Mr. Sponaugle was elected Vice President, Business Planning in 2000, after
having served as Vice President, Sales since June 1998 and Vice President, Sales
and Marketing since October 1994. He had served in various quality control and
marketing positions with the Company since 1985.
Mr. Cijan was elected Vice President, Operations in April 1996. He joined
the Company in 1993 as Manufacturing Manager and was Manager, Maintenance and
Engineering of Tuscaloosa Steel Corporation, a mini hot strip mill owned by
British Steel PLC, from 1987 until he joined the Company in 1993.
Mr. Kirk was elected Vice President, International, in July 2000 after
having served as Vice President and General Manager, Haynes Specialty Steels
Division since June 1999. From March 1999 until June 1999, Mr. Kirk was Director
of Flat Products management at Special Metals Corp. From June 1998 until March
1999, Mr. Kirk was Director of Sales at Inco Alloys International.
Mr. Brown was elected Controller and Chief Accounting Officer of the
Company in May, 1996 after having served as General Accounting Manager since
1992. From 1988 to 1992 he served in various financial capacities with the
Company. Mr. Brown resigned his position effective December 1, 2000.
Mr. Hanson was named General Manager, Arcadia Tubular Products Facility in
November 1994. He previously served the Company and its predecessors in various
technical, production and engineering capacities since October 1987.
Mr. Linne was elected General Counsel and Secretary of the Company in
October 1996 after having served as a patent and trademark attorney in private
practice and for the Company and its predecessors since 1984.
Mr. Laird was elected Vice President, Marketing of the Company in July 2000
after having served in various sales and marketing positions since 1983.
Ms. Neel was elected Vice President, Corporate Affairs for the Company in
April 2000, after having served as Director, Human Resources since joining
Haynes in July 1999.
Mr. Spalding was elected Vice President, Sales when he joined Haynes in
July 1999. He previously held various sales and marketing positions over 23
years at Castle Metals.
Mr. Lappin is currently a Senior Managing Director of The Blackstone Group
L.P., which he joined in 1990. Prior to joining Blackstone, Mr. Lappin served as
President of Farley Industries. Mr. Lappin was elected as a Director of Haynes
International, Inc. in March 1999.
Mr. Chu is currently a Managing Director of The Blackstone Group L.P.,
which he joined in 1990. Prior to joining The Blackstone Group L.P., Mr. Chu was
a member of the Mergers and Acquisitions Group of Salomon Brothers, Inc. from
1988 to 1990. He currently serves on the Boards of Directors of Haynes
International, Inc., Prime Succession and Rose Hills Company.
Mr. Cohen was elected as a director of Haynes International, Inc. in June
1998. He has served as counsel to Cassels, Brock & Blackwell in Toronto, Canada
since October 1996. From November 1988 to September 1996, Mr. Cohen was
President and Chief Executive Officer of The Molson Companies Limited. He
currently serves on the Boards of Directors of American International Group,
Inc., Lafarge Corporation, Speedy Muffler King Inc., The Goldfarb Corporation,
and The Toronto-Dominion Bank.
Mr. Ruttenberg was elected as a director of Haynes International, Inc. in
June 1998. He is a General Partner of Tinicum, a Ruttenberg family investment
company. He is also a Director of SPS Technologies and Environmental Strategies
Corporation and a Trustee of Mount Sinai Medical Center.
- 52 -
<PAGE>
The Amended Stockholder's Agreement by and among Holdings and certain
investors, including Blackstone, adopted on January 31, 1997 (the "Agreement"),
imposes certain transfer restrictions on Holdings' common stock, including
provisions that (i) Holdings common stock may be transferred only to those
persons agreeing to be bound by the Agreement except if such transfer is
pursuant to a public offering or made following a public offering, or made in
compliance with the Securities Act of 1933, as amended (the "Securities Act");
(ii) the investors may not grant any proxy or enter into or agree to be bound by
any voting trust with respect to the Holdings common stock; (iii) if the
Blackstone Investors (as defined) or their permitted transferees propose to sell
any of their Holdings common stock, the other investors shall in most instances
have the right to participate ratably in the proposed sale or, under certain
circumstances, to sell all of their Holdings common stock in the proposed sale;
and (iv) a majority in interest of the Blackstone Investors may compel all other
such investors to sell their shares under certain circumstances. The Agreement
also contains a commitment on the part of Holdings to register the shares under
the Securities Act upon request by the Blackstone Investors, subject to certain
conditions and limitations. The Stockholder Agreement terminates on the tenth
anniversary of its effective date.
The By-Laws of Haynes International, Inc. ("By-Laws") authorize the board
of directors to designate the number of directors to be not less than three nor
more than eleven. The board currently has seven directors. Directors of the
Company serve until their successors are duly elected and qualified or until
their earlier resignation or removal. Officers of the Company serve at the
discretion of the board of directors, subject, in the case of Mr. Petro, to the
terms of his employment contract. See "Executive Compensation--Petro Employment
Agreement."
The board has established an Audit Committee and a Compensation Committee.
The Audit Committee is responsible for recommending independent auditors,
reviewing, in connection with the independent auditors, the audit plan, the
adequacy of internal controls, the audit report and management letter and
undertaking such other incidental functions as the board may authorize. The
Compensation Committee is responsible for administering the Stock Option Plans,
determining executive compensation policies and administering compensation plans
and salary programs, including performing an annual review of the total
compensation and recommended adjustments for all executive officers. See Item
11.
(Remainder of page intentionally left blank.)
- 53 -
<PAGE>
Item 11. Executive Compensation
The following table sets forth certain information concerning the
compensation paid by the Company to all individuals serving as its Chief
Executive Officer during the last completed fiscal year and each of the
Company's four other most highly compensated Executive Officers, who served as
executive officers as of September 30, 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Fiscal All Other
Principal Position Year Salary $ Bonus $ Compensation $(2)
------------------ ---- -------- ------- -----------------
<S> <C> <C> <C> <C>
Francis J. Petro 2000 389,997 --- 36,938
President and Chief 1999 257,144 180,000 22,439
Executive Officer
Joseph F. Barker 2000 195,000 --- 1,466
Exec. Vice President 1999 178,200 30,000 2,440
Finance; Treasurer 1998 176,275 18,189 2,713
John H. Tundermann 2000 181,250 --- 49,158
Exec. Vice President 1999 93,007 80,000 8,711
August A. Cijan 2000 157,200 --- 591
Vice President, Operations 1999 157,200 12,600 776
1998 154,700 16,045 840
F. Galen Hodge 2000 154,300 --- 3,287
Vice President, Corp 1999 154,300 12,000 5,827
Technical Support 1998 149,875 15,749 5,116
--------------------------
<FN>
(1) Additional compensation in the form of perquisites was paid to certain of
the named officers in the periods presented; however, the amount of such
compensation was less than the level required for reporting.
(2) Premium payments to the group term life insurance plan, gainsharing
payments and relocation reimbursements which were made by the Company.
</FN>
</TABLE>
Stock Option Plans
In 1986, the Company adopted a stock incentive plan, which was amended and
restated in 1987, for certain key management employees (the "Prior Option
Plan"). The Prior Option Plan allowed participants to acquire restricted common
stock from the Company by exercising stock options (the "Prior Options") granted
pursuant to the terms and conditions of the Prior Option Plan. In connection
with the 1989 Acquisition, Holdings established the Haynes Holdings, Inc.
Employee Stock Option Plan (the "Existing Stock Option Plan'). The Existing
Stock Option Plan (as amended) authorizes the granting of options to certain key
employees and directors of Holdings and its subsidiaries (including the Company)
for the purchase of a maximum of 1,415,880 shares of Holdings' Common Stock. As
of September 30, 2000, options to purchase 508,632 shares were outstanding under
the Existing Stock Option Plan. Five hundred fifty-seven thousand two hundred
three (557,203) options are available to grant.
- 54 -
<PAGE>
Upon consummation of the 1989 Acquisition, the holders of the Prior Options
exchanged all of their remaining Prior Options for options pursuant to the Stock
Option Plan (the "Rollover Options"). Except for the Rollover Options, the
Compensation Committee, which administers the Existing Stock Option Plan, is
authorized to determine which eligible employees will receive options and the
amount of such options. Pursuant to the Existing Stock Option Plan, the
Compensation Committee is authorized to grant options to purchase Common Stock
at any price in excess of the lower of Book Value (as defined in the Existing
Stock Option Plan) or 50% of the Fair Market Value (as defined in the Existing
Stock Option Plan) per share of Common Stock on the date of the award. However,
actual options outstanding under the Existing Stock Option Plan have been
granted at the estimated fair market value per share at the date of grant,
resulting in no compensation being charged to operations.
Subject to earlier exercise upon death, disability or normal retirement,
upon a change of control (as defined in the Existing Stock Option Plan) of
Holdings, upon the determination of the Compensation Committee in its
discretion, or upon the sale of all or substantially all of the assets of the
Company, options granted under the Existing Stock Option Plan (other than the
Rollover Options and options granted to existing Management Holders (as defined
in the Existing Stock Option Plan) that are immediately exercisable) become
exercisable on the third anniversary thereof unless otherwise provided by the
Compensation Committee and terminate on the earlier of (i)three months after the
optionee ceases to be employed by the Company or any of its subsidiaries or
(ii)ten years and two days after the date of grant; or (iii) at a longer time as
may be determined by the Board of Directors. Options granted pursuant to the
Existing Stock Option Plan may not be assigned or transferred by an optionee
other than by last will and testament or by the laws of descent and
distribution, and any attempted transfer of such options may result in
termination thereof.
No options were granted in fiscal 2000. On October 22, 1996, 133,000
options were granted to certain key management personnel with exercise prices of
$8.00 per share. On June 1, 1998, a total of 24,632 options were granted to
Marshall A. Cohen, Director, at an exercise price of $10.15 per share. On
October 1, 2000, a total of 515,500 options were granted to certain key
management personnel with an exercise price of $2.00 per share.
The following table sets forth certain information with respect to stock
options held by the persons named in the Summary Compensation Table. No persons
named in the Summary Compensation Table were granted or exercised options during
fiscal 2000.
<TABLE>
<CAPTION>
Stock Option Exercises and Fiscal Year End Holdings
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year End at Fiscal Year End(1)
-------------------------- ---------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph F. Barker 40,000 None $0 $0
August A. Cijan 40,000 None 0 0
F. Galen Hodge 40,000 None 0 0
-----------------------
<FN>
(1) Because there is no market for Holdings common stock, the value of
unexercised "in the money" options is based on the most recent value of
Holdings common stock as determined by the Holdings Board of Directors,
which is $2.00 per share.
</FN>
</TABLE>
- 55 -
<PAGE>
Severance Agreements
In connection with the events leading up to the acquisition of the Company
by Morgan Lewis Githens & Ahn and management of the Company in August 1989, the
Company entered into Severance Agreements with certain key employees (the "Prior
Severance Agreements"). In 1995, and again in June 2000, the Company determined
that the provisions of the Prior Severance Agreements were no longer appropriate
for the key employees who were parties thereto and that several other key
employees who were employed after 1989, and after 1995, should be entitled to
severance benefits. Consequently, the Company entered into new Severance
Agreements (the "Severance Agreements") with Mr. Petro and all the other
officers of the Company (the "Eligible Employees"). The new Severance Agreements
superseded in all respects all the Prior Severance Agreements that were then in
effect.
The Severance Agreements now provide for an initial term expiring June 30,
2001, subject to one-year automatic extensions (unless terminated by the Company
or the Eligible Employee 60 days prior to July 1 of any year). The Severance
Agreements automatically terminate upon termination of the Eligible Employee's
Employment prior to a Change in Control of the Company, as defined in the
Severance Agreements (a "Severance Change in Control"), unless the termination
of employment occurs as a result of action of the Company other than for Cause
(as defined in the Severance Agreements) within 90 days of a Severance Change in
Control. A Severance Change in Control occurs upon a change in ownership of
50.0% or more of the combined voting power of the outstanding securities of the
Company or upon the merger, consolidation, sale of all on substantially all of
the assets or liquidation of the Company
The Severance Agreements provide that if an Eligible Employee's employment
with the Company is terminated within twelve months following a Severance Change
in Control by reason of such Eligible Employee's disability, retirement or
death, the Company will pay the Eligible Employee (or his estate) his Base
Salary (as defined in the Severance Agreement) plus any bonuses or incentive
compensation earned or payable as of the date of termination. In the event that
the Eligible Employee's employment is terminated by the Company for Cause (as
defined in the Severance Agreements) within the twelve month period, the Company
is obligated only to pay the Eligible Employee his Base Salary through the date
of termination. In addition, if within the twelve month period the Eligible
Employee's employment is terminated by the Eligible Employee or the Company
(other than for cause or due to disability, retirement or death), the Company
must (among other things) (i) pay to the Eligible Employee such Eligible
Employee's full Base Salary and any bonuses or incentive compensation earned or
payable as of the date of termination; (ii) continue to provide life insurance
and medical and hospital benefits to the Eligible Employee for up to 12 months
following the date of termination (24 months for Mr. Petro and 18 months for
Messrs. Tundermann and Barker); (iii) pay to the Eligible Employee $12,000 for
outplacement costs to be incurred; (iv) pay to the Eligible Employee a lump sum
cash payment equal to either (a) 200% of the Eligible Employee's Base Salary in
the case of Mr. Petro; (b) 150% of the Eligible Employee's Base Salary in the
case of Messrs. Tundermann and Barker, or (c) 100% of the Eligible Employee's
Base Salary in the case of the other Eligible Employees, provided that the
Company may elect to make such payments in installments over a 24 month period
in the case of Mr. Petro, or an 18 month period in the case of Messrs.
Tundermann or Barker or a 12 month period in the case of the other Eligible
Employees. As a condition to receipt of severance payments and benefits, the
Severance Agreements require that Eligible Employees execute a release of all
claims.
Pursuant to the Severance Agreements, each Eligible Employee agrees that
during his employment with the Company and for an additional one year following
the termination of the Eligible Employee's employment with the Company by reason
of disability or retirement, by the Eligible Employee within six months
following a Severance Change in Control or by the Company for Cause, the
Eligible Employee will not, directly or indirectly, engage in any business in
competition with the business of the Company.
- 56 -
<PAGE>
Employment Agreements
On January 13, 1999, Michael D. Austin resigned from the Company and
Holdings. Mr. Austin was replaced as President and Chief Executive Officer by
Francis J. Petro. In addition, John H. Tundermann was hired as Executive Vice
President. The Company has agreements with Mr. Petro and Mr. Tundermann pursuant
to which they will be paid an annual base salary of $400,000 and $185,000,
respectively, for calendar year 2000 with certain increases for the next year.
The Company intends to provide certain standard benefits and other perquisites
to Mr. Petro and Mr. Tundermann.
U.S. Pension Plan
The Company maintains for the benefit of eligible domestic employees a
defined benefit pension plan, designated as the Haynes International, Inc.
Pension Plan (the "U.S. Pension Plan"). Under the U.S. Pension Plan, all Company
employees completing at least 1,000 hours of employment in a 12-month period,
except those employed pursuant to a written agreement which provides that the
employee shall not be eligible for any retirement plan benefits, become eligible
to participate in the plan. Employees are eligible to receive an unreduced
pension annuity on reaching age 65, reaching age 62 and completing 10 years of
service, or completing 30 years of service. The final option is available only
for union employees hired before June 11, 1999 or for salaried employees who
were plan participants on March 31, 1987.
For salaried employees employed on or after July 3, 1988, the normal
monthly pension benefit provided under the U.S. Pension Plan is the greater of
(i) 1.31% of the employee's average monthly earnings multiplied by years of
credited service, plus an additional 0.5% of the employee's average monthly
earnings, if any, in excess of Social Security covered compensation multiplied
by years of credited service up to 35 years, or (ii) the employee's accrued
benefit as of March 31, 1987.
There are provisions for delayed retirement benefits, early retirement
benefits, disability and death benefits, optional methods of benefit payments,
payments to an employee who leaves after five or more years of service and
payments to an employee's surviving spouse. Employees are vested and eligible to
receive pension benefits after completing five years of service, however, all
participants became 100% vested in their benefits effective October 1, 2000.
Vested benefits are generally paid beginning at or after age 55; however,
benefits may be paid earlier in the event of disability, death, or completion of
30 years of service prior to age 55.
The following table sets forth the range of estimated annual benefits
payable upon retirement for graduated levels of average annual earnings and
years of service for employees under the plan, based on retirement at age 65 in
2000. The maximum annual salary permitted for 2000 under Section 401(a)17 of the
Code is $160,000. The maximum annual benefit permitted for 2000 under Section
415(b) of the Code is $130,000.
<TABLE>
<CAPTION>
Years of Service
--------------------------------------------------------
Average Annual
Remuneration 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$100,000.............. $23,080 $30,774 $38,467 $46,161 $53,854
$150,000.............. 36,655 48,874 61,092 73,311 85,529
$200,000.............. 39,370 52,494 65,617 78,741 91,864
$250,000.............. 39,370 52,494 65,617 78,741 91,864
$300,000.............. 39,370 52,494 65,617 78,741 91,864
$350,000.............. 39,370 52,494 65,617 78,741 91,864
$400,000.............. 39,370 52,494 65,617 78,741 91,864
$450,000.............. 39,370 52,494 65,617 78,741 91,864
</TABLE>
- 57 -
<PAGE>
The estimated credited years of service of each of the individuals named in
the Summary Compensation Table as of September 30, 2000 are as follows:
CREDITED
SERVICE
--------
Francis J. Petro .................... 1
Joseph F. Barker .................... 20
John H. Tundermann .................. 1
August A. Cijan ..................... 7
F. Galen Hodge ...................... 31
U.K. Pension Plan
The Company maintains a pension plan for its employees in the United
Kingdom (the "U.K. Pension Plan"). The U.K. Pension Plan is a contributory plan
under which eligible employees contribute 3% or 6% of their annual earnings.
Normal retirement age under the U.K. Pension Plan is age 65 for males and age 60
for females. The annual pension benefit provided at normal retirement age under
the U.K. Pension Plan ranges from 1% to 1 2/3% of the employee's final average
annual earnings for each year of credited service, depending on the level of
employee contributions made each year during the employee's period of service
with the Company. The maximum annual pension benefit for employees with at least
10 years of service is two-thirds of the individual's final average annual
earnings. Similar to the U.S. Pension Plan, the U.K. Pension Plan also includes
provisions for delayed retirement benefits, early retirement benefits,
disability and death benefits, optional methods of benefit payments, payments to
employees who leave after a certain number of years of service, and payments to
an employee's surviving spouse. The U.K. Pension Plan also provides for payments
to an employee's surviving children.
Profit Sharing and Savings Plan
The Company maintains the Haynes International, Inc. Combined Profit
Sharing and Savings Plan ("Profit Sharing Plan") to provide retirement,
tax-deferred savings for eligible employees and their beneficiaries.
The board of directors has sole discretion to determine the amount, if any,
to be contributed by the Company as discretionary Profit Sharing. No Company
contributions were made to the Profit Sharing Plan for the fiscal years ended
September 30, 1998, 1999 and 2000. The Profit Sharing Plan is qualified under
Section 401 of the Code, permitting the Company to deduct for federal income tax
purposes all amounts contributed by it to the Profit Sharing Plan.
In general, all salaried employees completing at least 1,000 hours of
employment in a 12-month period are eligible to participate after completion of
one full year of employment. Each participant's share in the Company's annual
allocation, if any, to the Profit Sharing Plan is represented by the percentage
which his or her plan compensation (up to $260,000) bears to the total plan
compensation of all participants in the plan. Employees may also elect to make
elective salary reduction contributions to the Profit Sharing Plan, in amounts
up to 20% of their plan compensation. Effective June 14, 1999, the Company
agreed to match 50% of an employee's contribution to the Plan up to a maximum
contribution of 3% of the employees' salary. Elective salary reduction
contributions may be withdrawn subject to the terms of the Profit Sharing Plan.
Vested individual account balances attributable to Company contributions
may be withdrawn only after the amount to be distributed has been held by the
plan trustee in the profit sharing account for at least 24 consecutive calendar
months. Participants vest in their individual account balances attributable to
Company contributions at age 65, death, disability or on completing five years
of service.
Incentive Plan
In fiscal 1997, the Company adopted a management incentive plan pursuant to
which senior managers and managers in the level below senior managers will be
paid a bonus based on actual EBITDA compared to budgeted EBITDA. Based on
results for fiscal 1999, the Company paid approximately $326,500 to all eligible
domestic employees meeting certain service requirements in November, 1997.
- 58 -
<PAGE>
For fiscal 1998, the Board again approved an incentive plan similar to the
1997 plan subject to higher targets. Based on results for fiscal 1998 the
Company accrued $315,000 for fiscal 1998, which was paid to certain domestic
salaried employees meeting specific service requirements on November 18, 1998.
Haynes International, Ltd. Plan
In fiscal 1995, the Company's affiliate Haynes International, Ltd.
instituted a gainsharing plan. For fiscal 1995 and 1996, the Company made
gainsharing payments pursuant to this plan of approximately $269,000 and
$266,000, respectively. In fiscal 1997 and 1998, Haynes International, Ltd. made
incentive payments similar to the domestic incentive plan of approximately
$115,000 and $98,000, respectively.
Director Compensation
The directors of the Company receive no compensation for their services as
such. The non-management members of the board of directors are reimbursed by the
Company for their out-of-pocket expenses incurred in attending meetings of the
board of directors. Mr. Cohen has a consulting agreement with Holdings under
which he has received 24,632 shares of Holdings common stock.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee are now serving or
previously have served as employees or officers of the Company or any
subsidiary, and none of the Company's executive officers serve as directors of,
or in any compensation related capacity for, companies with which members of the
Compensation Committee are affiliated.
Report of the Compensation Committee
The Compensation Committee of the Board of Directors is responsible for
administering the Existing Stock Option Plan, determining executive compensation
policies and administering compensation plans and salary programs. The Committee
is currently comprised solely of non-employee directors. The following report is
submitted by the members of the Compensation Committee.
* * *
The Company's executive compensation program is designed to align executive
compensation with the financial performance, business strategies and objectives
of the Company. The Company's compensation philosophy is to ensure that the
delivery of compensation, both in the short- and long-term, is consistent with
the sustained progress, growth and profitability of the Company and acts as an
inducement to attract and retain qualified individuals. Under the guidance of
the Company's Compensation Committee, the Company has developed and implemented
an executive compensation program to achieve these objectives while providing
executives with compensation opportunities that are competitive with companies
of comparable size in related industries.
The Company's executive compensation program has been designed to implement
the objectives described above and is comprised of the following fundamental
three elements:
- a base salary that is determined by individual contributions and
sustained performance within an established competitive salary range.
Pay for performance recognizes the achievement of financial goals and
accomplishment of corporate and functional objectives of the Company.
- an annual cash bonus, based upon corporate and individual performance
during the fiscal year.
- grants of stock options, also based upon corporate and individual
performance during the fiscal year, which focus executives on managing
the Company from the perspective of an owner with an equity position
in the business.
- 59 -
<PAGE>
Base Salary. The salary, and any periodic increase thereof, of the
President and Chief Executive Officer was and is determined by the Board of
Directors of the Company based on recommendations made by the Compensation
Committee. The salaries, and any periodic increases thereof, of the Executive
Vice President, the Executive Vice President, Finance, and Treasurer, the Vice
President, Engineering and Technology, the Vice President, Sales, the Vice
President, Operations, the Vice President, International , and the Vice
President, Marketing, were and are determined by the Board of Directors based on
recommendations made by the President and Chief Executive Officer and approved
by the Committee.
The Company, in establishing base salaries, levels of incidental and/or
supplemental compensation, and incentive compensation programs for its officers
and key executives, assesses periodic compensation surveys and published data
covering the industry in which the Company operates and other industries. The
level of base salary compensation for officers and key executives is determined
by both their scope and responsibility and the established salary ranges for
officers and key executives of the Company. Periodic increases in base salary
are dependent on the executive's proficiency of performance in the individual's
position for a given period, and on the executive's competency, skill and
experience.
Compensation levels for fiscal 2000 for the President and Chief Executive
Officer, and for the other executive officers of the Company, reflected the
accomplishment of corporate and functional objectives in fiscal 2000.
Bonus Payments. Bonus awards are determined by the Board of Directors of
the Company based on recommendations made by the Compensation Committee. Bonus
awards paid in fiscal 2000 reflected the accomplishment of corporate and
functional objectives in fiscal 1999.
Stock Option Grants. Stock options under the Existing Option Plan are
granted to key executives and officers based upon individual and corporate
performance and are determined by the Board of Directors of the Company based on
recommendations made by the Compensation Committee. On October 22, 1996, 133,000
options were granted to certain key management personnel with exercise prices of
$8.00 per share. On June 1, 1998, a total of 24,632 options were granted to
Marshall A. Cohen, Director, at an exercise price of $10.15 per share. On
October 1, 2000, a total of 515,500 options were granted to key management
personnel with an exercise price of $2.00 per share.
SUBMITTED BY THE COMPENSATION COMMITTEE
Item 12. Security Ownership of Certain Beneficial Owners and Management
All of the outstanding capital stock of the Company is owned by Haynes
Holdings, Inc. The only stockholders of record at September 30, 2000, known to
be owning more than five percent of Holding's outstanding Common Stock were:
Blackstone Capital Partners II Merchant Banking Fund L.P.; Blackstone Offshore
Capital Partners II L.P.; and Blackstone Family Investment Partnership II L.P.
(Collectively, "The Blackstone Partnerships"), all of which are limited
partnerships duly organized and existing in good standing under the laws of the
State of Delaware, the Cayman Islands and the State of Delaware, respectively.
The following table sets forth the number and percentage of shares of
Common Stock of Holdings owned by (i) The Blackstone Partnerships, (ii) each of
the executive officers named in the Summary Compensation Table, and (iii) all
directors and executive officers of the Company as a group, as of September 30,
2000. The address of The Blackstone Partnerships is 345 Park Avenue, 31st Floor,
New York, NY 10154. The address of Messrs. Barker, Cijan and Hodge is 1020 Park
Avenue, P.O. Box 9013, Kokomo, Indiana 46904-9013.
- 60 -
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
----------------------------
Name Number Percent
---- ------ -------
<S> <C> <C>
The Blackstone Partnerships 5,323,799 73.0
Joseph F. Barker 40,000(1) (2)
August A. Cijan 40,000(1) (2)
F. Galen Hodge 40,000(1) (2)
All directors and executive officers
of the Company as a group 290,264(1) 4.0
----------------------------
<FN>
(1) Represents shares of Common Stock underlying options exercisable at any
time which are deemed to be beneficially owned by the holders of such
options. See Item 11 - "Executive Compensation - Stock Option Plans."
(2) Less than 1%.
</FN>
</TABLE>
Agreements Among Stockholders
An Amended Stockholder's Agreement dated January 29, 1997, which was again
amended as of January 31, 1997, imposes certain transfer restrictions on the
Holdings common stock, including provisions that (i) Holdings common stock may
be transferred only to those persons agreeing to be bound by the Stockholder
Agreement except if such transfer is pursuant to a public offering or made
following a public offering, or made in compliance with the Securities Act; (ii)
the investors may not grant any proxy or enter into or agree to be bound by any
voting trust with respect to the Holdings common stock; (iii) if the Blackstone
Investors, or their permitted transferees, propose to sell any of their Holdings
common stock, the other investors shall in most instances have the right to
participate ratably in the proposed sale or, under certain circumstances, to
sell all of their Holdings common stock in the proposed sale; and (iv) a
majority in interest of the Blackstone Investors may compel all other such
investors to sell their shares under certain circumstances. The Stockholders'
Agreement also contains a commitment on the part of Holdings to register the
shares under the Securities Act upon request by the Blackstone Investors,
subject to certain conditions and limitations. The Stockholder Agreement
terminates on the tenth anniversary of its effective date.
Item 13. Certain Relationships and Related Transactions
The Company is required to pay a monitoring fee to Blackstone Management
Partners L.P. in the amount of $500,000 annually on each anniversary of the
recapitalization date with the aggregate amount not to exceed $2.5 million. On
June 1, 1998, a total of 24,632 shares of Holdings shares were issued to
Marshall A. Cohen, Director, for consulting services and 24,632 options were
granted at an exercise price of $10.15 per share, which vest in five equal
annual installments.
- 61 -
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report.
1. Financial Statements:
Included as outlined in Item 8 of Part II of this report.
Report of Independent Auditors.
Consolidated Balance Sheet as of September 30, 1999 and September
30, 2000.
Consolidated Statements of Operations for the Years Ended
September 30, 1998, 1999 and 2000.
Consolidated Statements of Comprehensive Income for the Years
Ended September 30, 1998, 1999 and 2000.
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998, 1999 and 2000.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
Included as outlined in Item 8 of Part II of this report.
Schedule II - Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above are omitted as they are
not required, are not applicable, or the information is shown in
the Notes to the Consolidated Financial Statements.
(b) Reports on Form 8-K. None.
(c) Exhibits. See Index to Exhibits.
- 62 -
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Year Ended Year Ended Year Ended
Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 2000
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of period $657 $662 $876
Provisions 221 235 126
Write-Offs (287) (136) (413)
Recoveries 71 115 49
Balance at end of period $662 $876 $638
</TABLE>
[Remainder of page intentionally left blank.]
- 63 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /s/ Francis J. Petro
-----------------------------------
Francis J. Petro, President
Date: December 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Francis J. Petro President and Director December 22, 2000
-----------------------------------------
Francis J. Petro (Principal Executive Officer)
/s/ Joseph F. Barker Executive Vice President, December 22, 2000
----------------------------------------- Finance; Treasurer
Joseph F. Barker (Principal Financial Officer)
/s/ Richard C. Lappin Director December 22, 2000
-----------------------------------------
Richard C. Lappin
/s/ Chinh E. Chu Director December 22, 2000
-----------------------------------------
Chinh E. Chu
/s/ Marshall A. Cohen Director December 22, 2000
-----------------------------------------
Marshall A. Cohen
/s/ Eric Ruttenberg Director December 22, 2000
-----------------------------------------
Eric Ruttenberg
</TABLE>
- 64 -
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Sequential
Number Numbering
Assigned In System Page
Regulation S-K Number of
Item 601 Description of Exhibit Exhibit
-------- ---------------------- -------
<S> <C> <C> <C>
(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 Bylaws 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.)
(9) No Exhibit.
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.)
- 65 -
<PAGE>
10.02 Stock Subscription Agreement, dated as of August 31, 1989, among
Haynes Holdings, Inc., Haynes International, Inc. and the
persons listed on the signature pages thereto (Investors).
(Incorporated by reference to Exhibit 4.07 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.03 Amendment to the Stock Subscription Agreement To Add a Party,
dated August 14, 1992, among Haynes Holdings, Inc., Haynes
International, Inc., MLGA Fund II, L.P., and the persons listed
on the signature pages thereto. (Incorporated by reference to
Exhibit 10.17 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.04 Second Amendment to Stock Subscription Agreement, dated March
16, 1993, among Haynes Holdings, Inc., Haynes International,
Inc., MLGA Fund II, L.P., MLGAL Partners, Limited Partnership,
and the persons listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.21 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.05 Fifth Amendment to Stock Subscription Agreement, dated as of
January 29, 1997, among Haynes Holdings, Inc., Haynes
International, Inc. and the persons on the signature pages
thereof. (Incorporated by reference to Exhibit 4.02 to
Registrant's Form 8-K Report, filed February 13, 1997, File No.
333-5411.)
10.06 Termination of Stock Subscription Agreement, dated March 31,
1997. (Incorporated by reference to Exhibit 10.06 to
Registrant's Form 10-Q Report, filed May 15, 1997, File No.
333-5411.)
10.07 Stockholders Agreement, dated as of August 31, 1989, among
Haynes Holdings, Inc. and the persons listed on the signature
pages thereto (Investors). (Incorporated by reference to Exhibit
4.08 to Registration Statement on Form S-1, Registration No.
33-32617.)
10.08 Amendment to the Stockholders Agreement To Add a Party, dated
August 14, 1992, among Haynes Holdings, Inc., MLGA Fund II,
L.P., and the persons listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.18 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.09 Amended Stockholders Agreement, dated as of January 29, 1997,
among Haynes Holdings, Inc. and the investors listed therein.
(Incorporated by reference to Exhibit 4.01 to Registrant's Form
8-K Report, filed February 13, 1997, File No. 333-5411.)
10.10 First Amendment to the Amended Stockholders' Agreement, dated
March 31, 1997. (Incorporated by reference to Exhibit 10.10 to
Registrant's Form 10-Q Report, filed may 15, 1997, File No.
33-5411.)
10.11 Investment Agreement, dated August 10, 1992, between MLGA Fund
II, L.P., and Haynes Holdings, Inc. (Incorporated by reference
to Exhibit 10.22 to Registration Statement on Form S-4,
Registration No. 33-66346.)
- 66 -
<PAGE>
10.12 Investment Agreement, dated August 10, 1992, between MLGAL
Partners, Limited Partnership and Haynes Holdings, Inc.
(Incorporated by reference to Exhibit 10.23 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.13 Investment Agreement, dated August 10, 1992, between Thomas F.
Githens and Haynes Holdings, Inc. (Incorporated by reference to
Exhibit 10.24 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.14 Consent and Waiver Agreement, dated August 14, 1992, among
Haynes Holdings, Inc., Haynes International, Inc., MLGA Fund II,
L.P., and the persons listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.19 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.15 Executive Employment Agreement, dated as of September 1, 1993,
by and among Haynes International, Inc., Haynes Holdings, Inc.
and Michael D. Austin. (Incorporated by reference to Exhibit
10.26 to the Registration Statement on Form S-4, Registration
No. 33-66346.)
10.16 Amendment to Employment Agreement, dated as of July 15, 1996 by
and among Haynes International, Inc., Haynes Holdings, Inc. and
Michael D. Austin (Incorporated by reference to Exhibit 10.15 to
Registration Statement on S-1, Registration No. 333-05411).
10.17 Haynes Holdings, Inc. Employee Stock Option Plan. (Incorporated
by reference to Exhibit 10.08 to Registration Statement on Form
S-1, Registration No. 33-32617.)
10.18 First Amendment to the Haynes Holdings, Inc. Employee Stock
Option Plan, dated March 31, 1997. (Incorporated by reference to
Exhibit 10.18 to Registrant's Form 10-Q Report, filed May 15,
1997, File no. 333-5411.)
10.19 Form of "New Option" Agreements between Haynes Holdings, Inc.
and the executive officers of Haynes International, Inc. named
in the schedule to the Exhibit. (Incorporated by reference to
Exhibit 10.09 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.20 Form of "September Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc.
named in the schedule to the Exhibit. (Incorporated by reference
to Exhibit 10.10 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.21 Form of "January 1992 Option" Agreements between Haynes
Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.08 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.22 Form of "Amendment to Holdings Option Agreements" between Haynes
Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.09 to Registration
Statement on Form S-4, Registration No. 33-66346.)
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<PAGE>
10.23 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).
10.24 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.)
10.25 Amended and Restated Loan and Security Agreement by and among
CoreStates Bank, N.A. and Congress Financial Corporation
(Central), as Lenders, Congress Financial Corporation (Central),
as Agent for Lenders, and Haynes International, Inc., as
Borrower. (Incorporated by reference to Exhibit 10.19 to the
Registrant's Form 10-K Report for the year ended September 30,
1996, File No. 333-5411).
10.26 Amendment No. 1 to Amended and Restated Loan and Security
Agreement by and among CoreStates Bank, N.A. and Congress
Financial Corporation (Central), as Lenders, Congress Financial
Corporation (Central) as Agent for Lenders, and Haynes
International, Inc., as Borrower. (Incorporated by reference to
Exhibit 10.01 to Registrant's Form 8-K Report, filed January 22,
1997, File No. 333-5411.)
10.27 Amendment No. 2 to Amended and Restated Loan and Security
Agreement, dated January 29, 1997, among CoreStates Bank, N.A.
and Congress Financial Corporation (Central), as Lenders,
Congress Financial Corporation (Central), as Agent for Lenders,
and Haynes International, Inc. (Incorporated by reference to
Exhibit 10.01 to Registrant's Form 8-K Report, filed February
13, 1997, File No. 333-5411.)
10.28 Facility Management Agreement by and between Republic Engineered
Steels, Inc. and Haynes International, Inc., dated April 15,
1999. (Incorporated by reference to Exhibit 10.18 to
Registrant's Form 10-Q Report filed May 14, 1999, File No.
333-5411)
10.29 Amendment No. 3 to Amended and Restated Loan and Security
Agreement, dated August 23, 1999, 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 10.29 to Registrant's Form 10-K Report
filed December 28, 1999, File No. 333-5411.)
10.30 Credit Agreement by and among Institutions from time to time
party hereto, as Lenders, Fleet Capital Corporation, as Agent
for Lenders, and Haynes International, Inc., as Borrower.
(Incorporated by reference to Exhibit 10.30 to Registrant's Form
10-K Report filed December 28, 1999, File No. 333-5411.)
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<PAGE>
10.31 Amendment No. 1 to Credit Agreement, dated December 30, 1999, by
and among institutions from time to time party hereto, as
Lenders, Fleet Capital Corporation, as Agent for Lenders and
Haynes International, Inc., as Borrower. (Incorporated by
reference to Exhibit 10.21 to Registrant's Form 10-Q Report
filed February 14, 2000, File No. 333-5411.)
(11) No Exhibit.
(12) 12.01 Statement re: computation of ratio of earnings to fixed charges.
(13) No Exhibit.
(16) No Exhibit.
(18) 18.01 Preferability Letter dated May 15, 2000, by Deloitte & Touche
LLP. (Incorporated by reference to Exhibit 18.01 to Registrant's
Form 10-Q Report filed May 15, 2000, File No. 333-5411.)
(21) 21.01 Subsidiaries of the Registrant. (Incorporated by Reference to
Exhibit 21.01 to Registration Statement on Form S-1,
Registration No. 333-5411.)
(22) No Exhibit.
(23) No Exhibit.
(24) No Exhibit.
(27) 27.01 Financial Data Schedule.
(28) No Exhibit.
(99) No Exhibit.
</TABLE>
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