SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 31, 1997.
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or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from to.
Commission File Number: 333-5411
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HAYNES INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1185400
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(State or other jurisdiction of (IRS Employer Identification No.)
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Incorporation or organization)
1020 West Park Avenue, Kokomo, Indiana 46904-9013
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(Address of principal executive offices) (Zip Code)
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(765) 456-6000
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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As of April 30, 1997 the registrant had 100 shares of Common Stock, $.01 par
value, outstanding.
The Index to Exhibits begins on page 15 in the sequential numbering system.
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Total pages: 19
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HAYNES INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
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Item 1. Financial Statements:
Consolidated Condensed Balance Sheet as of
September 30, 1996 and March 31, 1997 3
Consolidated Condensed Statement of Operations for the Three Months and Six Months ended March 31, 1996 and 1997
4
Consolidated Condensed Statement of Cash Flows for the Six Months ended March 31, 1996 and 1997
5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Signatures 14
PART I FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
September 30, March 31,
1996 1997
--------------- ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 4,688 $ 798
Accounts and notes receivable, less allowance for
doubtful accounts of $900 and $886, respectively 39,624 46,545
Inventories 74,755 86,647
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Total current assets 119,067 133,990
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Property, plant and equipment (at cost) 85,777 89,978
Accumulated depreciation (54,620) (58,513)
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Net property, plant and equipment 31,157 31,465
Prepayments and deferred charges, net 11,265 11,131
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Total assets $ 161,489 $ 176,586
=============== ============
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 24,814 $ 25,548
Accrued postretirement benefits 4,000 4,000
Revolving credit 30,888 44,843
Note payable 859 1,174
Income taxes payable 1,199 2,639
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Total current liabilities 61,760 78,204
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Long-term debt, net of unamortized discount 137,350 137,455
Accrued postretirement benefits 91,813 92,130
Deferred income taxes 485 529
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Total liabilities 291,408 308,318
Redeemable common stock of parent company 422 2,088
Capital deficiency:
Common stock, $.01 par value (100 shares authorized,
issued and outstanding)
Additional paid-in capital 47,985 49,060
Accumulated deficit (181,321) (184,744)
Foreign currency translation adjustment 2,995 1,864
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Total capital deficiency (130,341) (133,820)
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Total liabilities and capital deficiency $ 161,489 $ 176,586
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<FN>
The accompanying notes are an integral part of these financial statements.
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended Six Months Ended
March 31 March 31,
-------------------- ------------------
1996 1997 1996 1997
-------------------- -------- ------------------ ---------
Net revenues $ 58,809 $61,489 $ 109,985 $116,904
Cost of sales 47,545 46,792 88,406 88,469
Selling and administrative 4,541 4,881 8,430 9,438
Recapitalization expense --- 8,735 --- 8,735
Research and technical 924 1,019 1,675 1,981
-------------------- -------- ------------------ ---------
Operating income 5,799 62 11,474 8,281
Other cost (income), net 220 67 377 (56)
Interest expense 5,139 5,068 10,266 9,991
Interest income (110) (40) (183) (56)
-------------------- -------- ------------------ ---------
Income (loss) before 550 (5,033) 1,014 (1,598)
provision for income taxes
Provision for income taxes 361 1,249 758 1,825
-------------------- -------- ------------------ ---------
Net income (loss) $ 189 $(6,282) $ 256 $ (3,423)
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<FN>
The accompanying notes are an integral part of these financial statements.
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months Ended
March 31,
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1996 1997
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Cash flows from operating activities:
Net income (loss) $ 256 ($3,423)
Depreciation 3,924 3,726
Amortization 715 500
Non-cash stock option expense --- 2,457
Change in:
Inventories (4,522) (12,553)
Accounts receivable (5,414) (7,306)
Other, net 1,481 2,365
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Net cash used in operating activities (3,560) (14,234)
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Cash flows from investing activities:
Additions to property, plant and equipment (374) (4,030)
Other investing activities 60 15
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Net cash used in investing activities (314) (4,015)
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Cash flows from financing activities:
Net increase in revolving credit 2,452 14,060
Capital contribution of proceeds from exercise --- 284
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of stock options
Net cash provided by financing activities 2,452 14,344
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Effect of exchange rates on cash (63) 15
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Decrease in cash and cash equivalents (1,485) (3,890)
Cash and cash equivalents, beginning of period 5,035 4,688
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Cash and cash equivalents, end of period $ 3,550 $ 798
================== =========
Supplemental disclosures of cash flow
information:
Cash paid during period for: Interest $ 9,551 $ 9,852
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Income taxes $ 729 $ 264
=============================================== ================== =========
<FN>
The accompanying notes are an integral part of these financial statements.
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997
NOTE 1. BASIS OF PRESENTATION
The interim financial statements are unaudited and reflect all adjustments
(consisting solely of normal recurring adjustments) that, in the opinion of
management, are necessary for a fair statement of results of the interim
periods presented. This report includes information in a condensed form and
should be read in conjunction with the audited consolidated financial
statements included in Form 10-K for the fiscal year ending September 30,
1996, filed by the Company with the Securities and Exchange Commission on
December 30, 1996. The results of operations for the six months ended March
31, 1997 are not necessarily indicative of the results to be expected for the
full year or any other interim period.
NOTE 2. INVENTORIES
The following is a summary of the major classes of inventories:
September 30, 1996 March 31, 1997
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(Unaudited)
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Raw Materials $ 4,296 $ 9,080
Work-in-process 37,643 46,202
Finished Goods 32,046 33,221
Other, net 770 (1,857)
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Net inventories $ 74,755 $ 86,646
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NOTE 3. INCOME TAXES
The provision for income taxes for the six months ended March 31, 1996 and
1997 differed from the U.S. federal statutory rate of 34% primarily due to (a)
the partial utilization of available U.S. federal net operating loss
carryforwards, and (b) taxes on foreign earnings against which the Company was
unable to utilize its U.S. federal net operating loss carryforwards.
NOTE 4. RECAPITALIZATION
On January 29, 1997, the Company announced that Haynes Holdings, Inc. (
"Holdings" ), its parent corporation, had effected the recapitalization of the
Company and Holdings pursuant to which Blackstone Capital Partners II Merchant
Banking Fund L.P. and two of its affiliates ("Blackstone") acquired 79.9% of
Holdings outstanding shares (the " Recapitalization" ). As part of the
Recapitalization, the maximum amount available under the Company's Revolving
Credit Facility was increased from $50 to $60 million and Blackstone agreed to
provide financial support and assistance to the Company. Certain fees paid by
the Company in connection with the Recapitalization have been accounted for as
recapitalization expenses and charged against income in the period. Also in
connection with these transactions, the Company recorded $2.5 million of
non-cash stock compensation expense, also included as recapitalization
expenses, pertaining to certain modifications to management stock option
agreements which eliminated put and call rights associated with the options.
Due to this change in ownership, the Company's ability to utilize its U.S.
federal net operating loss carryforwards will be limited in the future. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for additional information with respect to the Recapitalization.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
References to years or portions of years in Management's Discussion and
Analysis of Financial Condition and Results of Operations refer to the
Company's fiscal years ended September 30, unless otherwise indicated. This
discussion contains statements that constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements may include statements regarding the intent, belief or current
expectations of the Company or its officers with respect to (i) the Company's
strategic plans, (ii) the policies of the Company regarding capital
expenditures, financing or other matters, and (iii) industry trends affecting
the Company's financial condition or results of operations. Readers of this
discussion are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those in the forward looking
statements as a result of various factors.
RESULTS OF OPERATIONS
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THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Net revenues increased approximately $2.7 million, or 4.6%, to
approximately $61.5 million in the second quarter of 1997 from approximately
$58.8 million in the second quarter of 1996, primarily as a result of a 7.0%
increase in shipments, from approximately 4.3 million pounds in the second
quarter of 1996 to approximately 4.6 million pounds in the second quarter of
1997. Average selling prices per pound decreased by 3.1% from $13.50 to
$13.08 for the second quarter of 1997, compared to the same period in 1996.
Decreases in the average selling price per pound occurred as a result of
changes in product mix within the aerospace, chemical processing and other
market segments.
Sales to the aerospace market for the second quarter of 1997 increased
17.1% to approximately $26.0 million from approximately $22.2 million for the
same period in 1996. The increase in revenue can be attributed to a 26.7%
increase in volume to approximately 1.9 million pounds in the second quarter
of 1997 from approximately 1.5 million pounds in the second quarter of 1996.
The increase in volume offset a decline in the average selling price per
pound. This decrease was the result of a proportionately higher increase in
volume of nickel-based alloys and forms, relative to the increase in volume of
higher-priced, cobalt-containing alloys and forms. The overall increase in
sales to the aerospace sector is reflected in the strong order backlog of
commercial aircraft and jet engines.
Volume shipped to the chemical processing industry during the second
quarter of 1997 increased by 2.5% to approximately 1.64 million pounds,
compared to 1.60 million pounds in the second quarter of 1996. The increase
in volume, however, was not sufficient to offset a modest decrease in the
average selling price per pound, and revenue from sales to the chemical
processing industry in the second quarter of 1997 declined by 1.0% to
approximately $20.4 million from approximately $20.6 million for the same
period of 1996. The average selling price declined 2.8% due to
proportionately higher sales of lower-priced alloy and form combinations. The
Company realized increases in sales in the domestic market and through its
European affiliates, while sales to export customers declined. The decrease
in export sales reflects lower requirements from key export distributors and
the absence of any significant project activity.
Sales to the land-based gas turbine market decreased by 39.7% in the
second quarter of 1997 to approximately $3.5 million from approximately $5.8
million for the comparable period in 1996. The sales decrease was the result
of a 46.6% decrease in volume to approximately 275,000 pounds in the second
quarter of 1997, compared to approximately 515,000 pounds in the second
quarter of 1996. This change in volume is due to a major pipeline project
experienced in the second quarter of 1996 which did not repeat in 1997, and
the reduced requirements in the European gas turbine manufacturers program.
Sales to customers other than these have declined slightly, but remain stable.
Sales to the flue gas desulfurization ( FGD ) market increased to
approximately $3.0 million in the second quarter of 1997, as compared to
approximately $2.8 million for the same period in 1996. The improved sales
results can be attributed to an increase in volume from approximately 320,000
pounds in the second quarter of 1996 to approximately 340,000 pounds in the
second quarter of 1997.
Sales to the oil and gas industry were insignificant for the second
quarter for both 1997 and 1996. Sales to this sector are typically linked to
sour gas project requirements. These requirements vary substantially from
quarter-to-quarter and year-to-year.
Sales to other markets increased 17.2% in the second quarter of 1997 to
approximately $7.5 million from approximately $6.4 million for the same period
a year ago as a result of two major projects in the United States in the
current period. The increase in volume was more than sufficient to offset a
8.1% decline in average selling price. The decline in the average selling
price can largely be attributed to a drop in sales of higher-priced,
cobalt-based alloy products.
Cost of sales as a percent of net revenues decreased to 76.1% from 80.8%
in the respective periods as a result of lower raw material costs and higher
capacity utilization.
Selling and administrative expenses increased approximately $300,000 to
approximately $4.9 million for the second quarter of 1997 from approximately
$4.6 million in the second quarter of 1996. The increase was primarily
attributable to salary increases.
Recapitalization expense of approximately $8.7 million recorded in the
second quarter of 1997 includes approximately $6.2 million of expenses paid by
the Company in connection with the Recapitalization and approximately $2.5
million in non-cash compensation expense pertaining to certain modifications
to management stock option agreements which eliminated put and call rights
provided therein.
Research and technical expenses increased approximately $100,000 to
approximately $1.0 million in the second quarter of 1997 from approximately
$900,000 in the second quarter of 1996, primarily as a result of salary
increases and headcount additions as compared to the same period in the prior
year. Also, research efforts sponsored by the Company at various universities
were increased during the second quarter of 1997, as compared to the same
period a year ago.
As a result of the above factors, the Company recognized operating income
for the second quarter of 1997 of approximately $62,000, approximately $1.2
million of which was contributed by the Company's foreign subsidiaries. For
the second quarter of 1996, operating income was approximately $5.8 million,
of which approximately $1.1 million was contributed by the Company's foreign
subsidiaries.
Other cost, net, decreased approximately $150,000 from approximately
$220,000 in the second quarter of 1996 to approximately $70,000 for the second
quarter of 1997, primarily as a result of increased foreign exchange gains
realized in the second quarter of 1997.
Interest expense decreased approximately $100,000 to approximately $5.1
million for the second quarter of 1997 from approximately $5.2 million for the
same period in 1996. Lower interest rates and reduced debt issue cost
amortization, achieved as a result of the refinancing of the Company's
long-term debt in 1996, contributed to the decrease. This decrease was
partially offset by higher revolving credit balances during the second quarter
of 1997, compared to the same period in 1996.
The provision for income taxes of approximately $1.2 million for the
second quarter of 1997 increased by approximately $900,000 due primarily to
current U.S. taxes payable recorded during the second quarter. Due to the
change in control of the Company's parent which occurred in January, 1997, the
Company's ability to offset U.S. taxable income with U.S. net operating loss
carryforwards is limited, which was not the case during the second quarter of
1996.
As a result of the above factors, the Company recognized a net loss for
the second quarter of 1997 of approximately $6.3 million, compared to net
income of approximately $189,000 for the second quarter of 1996.
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
Net revenues increased approximately $6.9 million, or 6.3%, to
approximately $116.9 million in the first half of 1997 from approximately
$110.0 million in the first half of 1996, primarily as a result of a 12.8%
increase in shipments, from approximately 7.8 million pounds in the first six
months of 1996 to approximately 8.8 million pounds in the first six months of
1997. Volume increases occurred in essentially all markets except the
land-based gas turbine market. Average selling prices per pound decreased by
6.2% from $13.88 to $13.02 for the first six months of 1997, compared to the
same period in 1996. Decreases in the average selling price per pound
occurred in the aerospace, chemical processing, and other market segments as a
result of changes in product mix.
Sales to the aerospace market for the first half of 1997 increased 21.2%
to approximately $49.1 million from approximately $40.5 million for the same
period in 1996. The increase in revenue can be attributed to a 29.6% increase
in volume to approximately 3.5 million pounds in the first half of 1997 from
approximately 2.7 million pounds in the first half of 1996. This volume
increase offset a decline in average selling price per pound, caused by a
proportionately higher increase in the volume of the lower-priced,
nickel-based alloys and forms, compared to the higher-priced,
cobalt-containing alloys and forms. Sales in the aerospace sector remain
strong in the U.S. and Europe, while lagging in the export market, compared to
the same period in 1996.
Volume shipped to the chemical processing industry during the first half
of 1997 increased by 6.5% to approximately 3.3 million pounds, compared to 3.1
million pounds in the first half of 1996. The increase in volume, however,
was not sufficient to offset a decrease in the average selling price per
pound, and revenue from sales to the chemical processing industry in the first
six months of 1997 declined by 3.1% to approximately $40.8 million from
approximately $42.1 million for the same period of 1996. Revenue from
domestic customers and through the Company's European affiliates increased due
to increases in volume. Export sales declined due to lower sales to key
export distributors and the absence of any significant projects. The decline
in the average selling price can be attributed to proportionately higher sales
of lower-priced alloy and form combinations. Sales of higher-priced tubular
products, in particular, were appreciably lower due to the absence of any
significant project activity.
Sales to the land-based gas turbine market declined by 17.2% in the first
half of 1997 to approximately $7.7 million from approximately $9.3 million for
the comparable period in 1996. The sales decrease was the result of a 25.0%
decrease in volume to approximately 600,000 pounds in the first half of 1997
compared to approximately 800,000 pounds in the first half of 1996. This
change in volume is a result of a major European gas pipeline project in 1996
that did not repeat in the current six month period. The decline is further
influenced by the reduced requirements from the European manufacturers gas
turbine program for power generation. These declines have significantly
impacted the export and European market segments, while the U.S. market has
continued to grow modestly in volume and revenue.
Sales to the flue gas desulfurization market increased to approximately
$5.1 million in the first half of 1997 as compared to approximately $3.5
million for the same period in 1996. The improved sales results can be
attributed to an increase in volume from approximately 400,000 pounds in the
first six months of 1996 to approximately 550,000 pounds in the first six
months of 1997. The increase in volume was accompanied by a 3.3% increase in
the average selling price. The favorable change in volume and sales can be
attributed to FGD projects in Spain, Italy and the United States. It is
estimated that about 50% of the volume can be attributed to maintenance of
existing FGD systems, and the balance to construction of new systems.
Sales to the oil and gas industry were insignificant for the first half
of both 1997 and 1996. Sales to this sector are typically linked to sour gas
project requirements. These requirements vary substantially from
quarter-to-quarter and year-to-year. The Company's backlog for this sector
indicates 1997 sales likely will exceed those for 1996.
Sales to other markets declined 1.6% in the first six months of 1997 to
approximately $12.4 million from approximately $12.6 million for the same
period a year ago as a result of a decline in the average selling price. This
can be attributed to proportionately lower sales of higher-priced alloys.
Cost of sales as a percent of net revenues decreased to 75.7% from 80.4%
in the respective periods as a result of lower raw material costs and higher
capacity utilization. Average raw material costs increased in the second
quarter of 1997, compared to the first quarter of 1997, yet remained below the
prior year averages. Volume in the higher-priced, high value-added, product
sheet and coil form increased in the first half of 1997, compared to the first
half of 1996. Increased capacity utilization in these operations led to
efficiencies that lowered per-unit cost.
Selling and administrative expenses increased approximately $1.0 million
to approximately $9.4 million for the first half of 1997 from approximately
$8.4 million in the first half of 1996. The increase was primarily the result
of a net increase of approximately $500,000 in payments and accruals for
incentive compensation in 1997, compared to the same period in 1996. Salary
increases contributed to the remaining increase in selling and administrative
expenses.
Recapitalization expense of approximately $8.7 million recorded in the
first half of 1997 includes approximately $6.2 million of expenses paid by the
Company in connection with the Recapitalization and approximately $2.5 million
in non-cash compensation expense pertaining to certain modifications to
management stock option agreements which eliminated put and call rights
provided therein.
Research and technical expenses increased approximately $300,000 to
approximately $2.0 million in the first half of 1997 from approximately $1.7
million in the first half of 1996, primarily as a result of salary increases
combined with headcount additions which occurred in the latter part of 1996.
Also, research efforts sponsored by the Company at various universities were
increased during the first six months of 1997, as compared to the same period
a year ago.
As a result of the above factors, the Company recognized operating income
for the first six months of 1997 of approximately $8.3 million, approximately
$2.5 million of which was contributed by the Company's foreign subsidiaries.
For the first six months of 1996, operating income was approximately $11.5
million, of which approximately $2.0 million was contributed by the Company's
foreign subsidiaries.
Other cost (income), net, decreased approximately $400,000 from an
expense of approximately $350,000 in the first half of 1996 to income of
approximately $50,000 for the first half of 1997, primarily as a result of
foreign exchange gains realized in the first six months of 1997, as compared
to foreign exchange losses experienced during the first six months of 1996.
Interest expense decreased approximately $300,000 to approximately $10.0
million for the first six months of 1997 from approximately $10.3 million for
the same period in 1996, due primarily to lower interest rates and reduced
debt issue cost amortization, achieved as a result of the refinancing of the
Company's long-term debt in 1996. This decrease was partially offset by
higher revolving credit balances during the first half of 1997, compared to
the same period in 1996.
The provision for income taxes of approximately $1.8 million for the
first half of 1997 increased by approximately $1.0 million from approximately
$800,000 due to taxes on higher foreign earnings and current U.S. taxes
payable recorded during the second quarter. Due to the change in control of
the Company in January, 1997, the Company's ability to offset taxable income
with U.S. net operating loss carryforwards is now limited.
As a result of the above factors, the Company recognized net loss for the
first half of 1997 of approximately $3.4 million, compared to net income of
approximately $300,000 for the first half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's near-term future cash needs will be driven by working
capital requirements, which are likely to increase, and planned capital
expenditures. Capital expenditures were approximately $4.0 million in the
first half of 1997, as compared to capital expenditures of approximately
$400,000 for the first half of 1996. The increased capital investments for
1997 and 1998 are designated for significant new equipment and integrated
information systems. The Company does not expect such capital expenditures to
have a material adverse effect on its long-term liquidity. Moreover, the
Company does not currently have any significant capital expenditure
commitments. The Company expects to fund its working capital needs and
capital expenditures with cash provided from operations, supplemented by
borrowings under its Revolving Credit Facility with CoreStates Bank, N.A. and
Congress Financial Corporation (Central) (the Facility ). The Company
believes these sources of capital will be sufficient to fund these capital
expenditures and working capital requirements over the next 12 months,
although there can be no assurance of this.
Net cash used in operating activities in the first half of 1997 was
approximately $14.2 million, as compared to approximately $3.6 million in the
first half of 1996. The negative cash flow from operations for 1997 was
primarily a result of net loss of approximately $3.4 million, increases of
approximately $12.5 million in inventories and approximately $7.3 million in
accounts receivable, which were offset by non-cash depreciation and
amortization expenses of approximately $4.2 million, non-cash stock option
expense of approximately $2.5 million, an increase in the accounts payable and
accrued expenses balance of approximately $2.6 million and other adjustments.
Net cash used in investing activities increased from approximately $300,000 in
the first half of 1996 to approximately $4.0 million in the first half of
1997, primarily as a result of higher capital expenditures. Net cash provided
by financing activities for the first half of 1997 was approximately $14.4
million due to net increased borrowings of approximately $14.1 million under
the Facility, offset by approximately $300,000 received by the Company in the
form of a capital contribution of proceeds from the exercise of certain
management stock options. Cash for the first half of 1997 decreased
approximately $3.9 million, resulting in a March 31, 1997 cash balance of
approximately $800,000. Cash in the first six months of 1996 decreased
approximately $1.5 million, resulting in a cash balance of approximately $3.5
million at March 31, 1996.
Total debt at March 31, 1997, was approximately $182.3 million compared
to approximately $168.2 million at September 30, 1996, reflecting increased
borrowing under the Facility.
At March 31, 1997, approximately $44.8 million had been borrowed pursuant
to the Facility compared to approximately $30.9 million at September 30, 1996.
In addition, as of March 31, 1997, approximately $3.1 million in letter of
credit reimbursement obligations had been incurred by the Company. The
Company had available additional borrowing capacity of approximately $11.8
million on the Facility at March 31, 1997. In January, 1997, the aggregate
amount available under the Facility was increased from $50 to $60 million (see
"Recapitalization" ).
RECAPITALIZATION
The Company announced on January 29, 1997 that the Recapitalization had
been effected, and that in connection therewith Holdings had completed a stock
purchase transaction with Blackstone Capital Partners II Merchant Banking Fund
L.P. and two of its affiliates ( Blackstone ) and a stock redemption
transaction with MLGA Fund II, L.P. and MLGAL Partners L.P., the principal
investors in Holdings prior to the Recapitalization. As part of the
Recapitalization, Holdings redeemed approximately 79.9% of its outstanding
shares of common stock at $10.15 per share in cash and Blackstone purchased a
like number of shares at the same price. Due to this change in ownership, the
Company's ability to utilize its U.S. net operating loss carryforwards will be
limited in the future. In conjunction with the above-mentioned transactions,
the maximum amount available under the Company's Facility was increased from
$50 to $60 million.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of is effective for the year ending September 30, 1997. This
statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. In the opinion of management, this statement is not
expected to materially impact the Company's financial position or results of
operations.
SFAS No. 123 Accounting for Stock-Based Compensation , is effective for
the year ending September 30, 1997. This statement encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments based on a fair value method of
accounting. Companies that choose not to adopt the new expense recognition
rules of SFAS No. 123 will continue to apply the existing accounting rules of
Accounting Principles Board Opinion (APB) No. 25, but will be required to
provide pro forma disclosure of the compensation expense determined under the
fair value provisions of SFAS No. 123, if material. APB No. 25 requires that
there be no recognition of compensation expense for the stock-based
compensation arrangements provided by the Company, where the exercise price is
equal to or greater than the market price at the data of grant. The Company
expects to continue to follow the accounting provisions of APB No. 25 for
stock-based compensation and to furnish the pro forma disclosures required
under SFAS No. 123, if material.
SFAS No. 129, Disclosure of Information about Capital Structure , is
effective for the year ending September 30, 1998. In the opinion of
management, SFAS No. 129 will not have a material impact on the Company's
financial position or results of operations.
American Institute of Certified Public Accountants Statement of Position
No. 96-1, Environmental Remediation Liabilities , is effective for the year
ending September 30, 1998. Management has not yet determined the impact that
adoption of this statement will have on the Company's financial position or
results of operations, but does not anticipate that material liabilities will
need to be recorded in addition to those already provided for under the
provisions of generally accepted accounting principles as prescribed by SFAS
No. 5, Accounting for Contingencies .
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PART II OTHER INFORMATION
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ITEM 1. Not applicable
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ITEM 2. Not applicable
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ITEM 3. Not applicable
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ITEM 4. In connection with the recapitalization of the Company and the
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Company's parent, Haynes Holdings, Inc. ("Holdings"), Holdings as the sole
stockholder of the Company approved (a) the Recapitalization of the
of trannsactions contemplated in connection therewith and (b) the
reconstitution the Board of Directors, such that the Board of Directors of
the Company is now composed of the following individuals:
Michael D. Austin, Ira Starr, David A. Stockman, Chin Chu, David Blitzer
and Glenn Hutchins.
ITEM 5. Not applicable
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ITEM 6. Exhibits and Reports on Form 8-K
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(a) Exhibits. See Index to Exhibits
--------
(b) Reports on Form 8-K. Two reports on Form 8-K have been filed during
--------------------
the quarter for which this report is filed.
1. On January 22, 1997, a report on Form 8-K was filed to report the
pending sale of a controlling interest in the Company's parent, Haynes
Holdings, Inc., which was disclosed in a press release issued January 7, 1997.
Amendment No. 1 to the Amended and Restated Loan and Security Agreement with
CoreStates Bank, N.A. and Congress Financial Corporation (Central) was also
filed with this report.
2. On February 13, 1997, a report on Form 8-K was filed to report the sale
of a controlling interest in Haynes Holdings, Inc. to Blackstone Capital
Partners II Merchant Banking Fund L.P. and two of Blackstone s affiliates.
Amendment No. 2 to the Amended and Restated Loan and Security Agreement with
CoreStates Bank, N.A. and Congress Financial Corporation (Central) was also
filed with this report.
[Remainder of page intentionally left blank.]
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAYNES INTERNATIONAL, INC.
/s/ Michael D. Austin
-----------------------------
M. D. Austin
President and Chief Executive Officer
/s/ Joseph F. Barker
----------------------------
J. F. Barker
Vice President, Finance
Chief Financial Officer
Date: May 14, 1997
INDEX TO EXHIBITS
Sequential
Number Numbering
Assigned In System Page
Regulation S-K Number of
Item 601 Exhibit
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(2) 2.01 Stock Purchase Agreement, dated as of January 24, 1997, among
Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners II Merchant Banking Fund L.P., Blackstone
Family Investment Partnership L.P., Haynes Holdings, Inc. and Haynes
International, Inc. (Incorporated by reference to Exhibit 2.01 to
Registrant s Form 8-K Report, filed February 13, 1997, File No. 333-
5411.)
2.02 Stock Redemption Agreement, dated as of January 24, 1997, among
MLGA Fund II, L.P., MLGAL Partners, L.P. and Haynes Holdings, Inc.
(Incorporated by reference to Exhibit 2.02 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
2.03 Exercise and Repurchase Agreement, dated as of January 24, 1997,
among Haynes Holdings, Inc. and the holders as listed therein.
(Incorporated by reference to Exhibit 2.03 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
2.04 Consent Solicitation and Offer to Redeem, dated January 30, 1997.
(Incorporated by reference to Exhibit 2.04 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
2.05 Letter of Transmittal, dated January 30, 1997. (Incorporated by
reference to Exhibit 2.05 to Registrant s Form 8-K Report, filed
February 13, 1997, File No. 333-5411.)
(3) 3.01 Restated Certificate of Incorporation of Registrant. (Incorporated by
reference to Exhibit 3.01 to Registration Statement on Form S-1,
Registration No. 33-32617.)
3.02 By-laws of Registrant. (Incorporated by reference to Exhibit 3.02 to
Registration Statement on Form S-1, Registration No. 33-32617).
(4) 4.01 Indenture, dated as of August 23, 1996, between Haynes International,
Inc. and National City Bank, as Trustee, relating to the 11 5/8% Senior
Notes Due 2004, table of contents and cross-reference sheet.
(Incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-
K Report for the year ended September 30, 1996, File No. 333-5411.)
4.02 Form of 11 5/8% Senior Note Due 2004. (Incorporated by reference to
Exhibit 4.02 to the Registrant's Form 10-K Report for the year ended
September 30, 1996, File No. 333-5411.)
(10) 10.01 Form of Severance Agreements, dated as of March 10, 1989, between
Haynes International, Inc. and the employees of Haynes International,
Inc. named in the schedule to the Exhibit. (Incorporated by reference
to Exhibit 10.03 to Registration Statement on Form S-1, Registration
No. 33-32617.)
10.02 Stock Subscription Agreement, dated as of August 31, 1989, among
Haynes Holdings, Inc., Haynes International, Inc. and the persons
listed on the signature pages thereto (Investors). (Incorporated by
reference to Exhibit 4.07 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.03 Amendment to the Stock Subscription Agreement To Add a Party,
dated August 14, 1992, among Haynes Holdings, Inc., Haynes
International, Inc., MLGA Fund II, L.P., and the persons listed on the
signature pages thereto. (Incorporated by reference to Exhibit 10.17 to
Registration Statement on Form S-4, Registration No. 33-66346.)
10.04 Second Amendment to Stock Subscription Agreement, dated
March 16, 1993, among Haynes Holdings, Inc., Haynes International,
Inc., MLGA Fund II, L.P., MLGAL Partners, Limited Partnership, and
the persons listed on the signature pages thereto. (Incorporated by
reference to Exhibit 10.21 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.05 Fifth Amendment to Stock Subscription Agreement, dated as of
January 29, 1997, among Haynes Holdings, Inc., Haynes International,
Inc. and the persons on the signature pages thereof. (Incorporated by
reference to Exhibit 4.02 to Registrant s Form 8-K Report, filed
February 13, 1997, File No. 333-5411.)
10.06 Termination of Stock Subscription Agreement, dated March 31, 1997.
10.07 Stockholders Agreement, dated as of August 31, 1989, among Haynes
Holdings, Inc. and the persons listed on the signature pages thereto
(Investors). (Incorporated by reference to Exhibit 4.08 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.08 Amendment to the Stockholders Agreement To Add a Party, dated
August 14, 1992, among Haynes Holdings, Inc., MLGA Fund II, L.P.,
and the persons listed on the signature pages thereto. (Incorporated
by reference to Exhibit 10.18 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.09 Amended Stockholders Agreement, dated as of January 29, 1997,
among Haynes Holdings, Inc. and the investors listed therein.
(Incorporated by reference to Exhibit 4.01 to Registrant s Form 8-K
Report, filed February 13, 1997, File No. 333-5411.)
10.10 First Amendment to the Amended Stockholders Agreement, dated
March 31, 1997.
10.11 Investment Agreement, dated August 10, 1992, between MLGA Fund
II, L.P., and Haynes Holdings, Inc. (Incorporated by reference to
Exhibit 10.22 to Registration Statement on Form S-4, Registration
No. 33-66346.)
10.12 Investment Agreement, dated August 10, 1992, between MLGAL
Partners, Limited Partnership and Haynes Holdings, Inc. (Incorporated
by reference to Exhibit 10.23 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.13 Investment Agreement, dated August 10, 1992, between Thomas F.
Githens and Haynes Holdings, Inc. (Incorporated by reference to
Exhibit 10.24 to Registration Statement on Form S-4, Registration
No. 33-66346.)
10.14 Consent and Waiver Agreement, dated August 14, 1992, among
Haynes Holdings, Inc., Haynes International, Inc., MLGA Fund II, L.P.,
and the persons listed on the signature pages thereto. (Incorporated
by reference to Exhibit 10.19 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.15 Executive Employment Agreement, dated as of September 1, 1993, by
and among Haynes International, Inc., Haynes Holdings, Inc. and
Michael D. Austin. (Incorporated by reference to Exhibit 10.26 to the
Registration Statement on Form S-4, Registration No. 33-66346.)
10.16 Amendment to Employment Agreement, dated as of July 15, 1996 by
and among Haynes International, Inc., Haynes Holdings, Inc. and
Michael D. Austin (Incorporated by reference to Exhibit 10.15 to
Registration Statement on S-1, Registration No. 333-05411).
10.17 Haynes Holdings, Inc. Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.08 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.18 First Amendment to the Haynes Holdings, Inc. Employee Stock Option
Plan, dated March 31, 1997.
10.19 Form of "New Option" Agreements between Haynes Holdings, Inc. and
the executive officers of Haynes International, Inc. named in the
schedule to the Exhibit. (Incorporated by reference to Exhibit 10.09 to
Registration Statement on Form S-1, Registration No. 33-32617.)
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10.20 Form of "September Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc. named in
the schedule to the Exhibit. (Incorporated by reference to Exhibit 10.10
to Registration Statement on Form S-1, Registration No. 33-32617.)
10.21 Form of "January 1992 Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc. named in
the schedule to the Exhibit. (Incorporated by reference to Exhibit 10.08
to Registration Statement on Form S-4, Registration No. 33-66346.)
10.22 Form of "Amendment to Holdings Option Agreements" between
Haynes Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit. (Incorporated
by reference to Exhibit 10.09 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.23 Form of March 1997 Amendment to Holdings Option Agreements.
10.24 March 1997 Amendment to Amended and Restated Holdings Option
Agreement, dated March 31, 1997.
10.25 Amended and Restated Loan and Security Agreement by and among
CoreStates Bank, N.A. and Congress Financial Corporation (Central),
as Lenders, Congress Financial Corporation (Central), as Agent for
Lenders, and Haynes International, Inc., as Borrower. (Incorporated by
reference to Exhibit 10.19 to the Registrant's Form 10-K Report for the
year ended September 30, 1996, File No. 333-5411).
10.26 Amendment No. 1 to Amended and Restated Loan and Security
Agreement by and among CoreStates Bank, N.A. and Congress
Financial Corporation (Central), as Lenders, Congress Financial
Corporation (Central) as Agent for Lenders, and Haynes International,
Inc., as Borrower. (Incorporated by reference to Exhibit 10.01 to
Registrant's Form 8-K Report, filed January 22, 1997, File No. 333-
5411.)
10.27 Amendment No. 2 to Amended and Restated Loan and Security
Agreement, dated January 29, 1997, among CoreStates Bank, N.A.
and Congress Financial Corporation (Central), as Lenders, Congress
Financial Corporation (Central), as agent for Lenders, and Haynes
International, Inc. (Incorporated by reference to Exhibit 10.01 to
Registrant s Form 8-K Report, filed February 13, 1997, File No. 333-
5411.)
(11) No Exhibit.
(15) No Exhibit.
(18) No Exhibit.
(19) No Exhibit.
(22) No Exhibit.
(23) No Exhibit.
(24) No Exhibit.
(27) 27.01 Financial Data Schedule.
(99) No Exhibit.
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