UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 31, 2000.
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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.
--------------------------
(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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
As of May 15, 2000, the registrant had 100 shares of Common Stock, $.01 par
value, outstanding.
HAYNES INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of
September 30, 1999 and March 31, 2000 3
Consolidated Condensed Statements of Operations for the Three Months
and Six Months ended March 31, 1999 and 2000 4
Consolidated Condensed Statements of Comprehensive Income for the
Three Months and Six Months ended March 31, 1999 and 2000 5
Consolidated Condensed Statements of Cash Flows for the Six Months
ended March 31, 1999 and 2000 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Index to Exhibits 16
Page 2 of 18
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands, except share amounts)
September 30, March 31,
1999 2000
------------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $3,576 $4,129
Accounts and notes receivable, less allowance for
doubtful accounts of $876 and $1,019, respectively 40,241 45,178
Inventories 91,012 98,081
--------- ---------
Total current assets 134,829 147,388
--------- ---------
Property, plant and equipment (at cost) 107,524 112,740
Accumulated depreciation (74,952) (76,261)
--------- ---------
Net property, plant and equipment 32,572 36,479
Deferred income taxes 44,137 44,316
Prepayments and deferred charges, net 9,699 12,039
--------- ---------
Total assets $221,237 $240,222
========= =========
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $27,966 $31,732
Accrued postretirement benefits 4,200 4,200
Revolving credit 44,051 61,071
Note payable 208 886
Income taxes payable 263 874
Deferred income taxes 1,519 1,857
--------- ---------
Total current liabilities 78,207 100,620
--------- ---------
Long-term debt, net of unamortized discount 139,620 139,432
Accrued postretirement benefits 93,462 93,987
--------- ---------
Total liabilities 311,289 334,039
--------- ---------
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) (144,077)
Accumulated other comprehensive income 1,209 (1,015)
--------- ---------
Total capital deficiency (90,052) (93,817)
--------- ---------
Total liabilities and capital deficiency $221,237 $240,222
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Page 3 of 18
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- ---------------------------
1999 2000 1999 2000
--------- -------- --------- ----------
Net revenues $55,256 $57,585 $104,467 $105,612
Cost of sales 41,925 44,649 79,221 84,145
Selling and administrative 6,537 5,860 11,478 11,532
Research and technical 998 910 1,910 1,818
--------- -------- --------- ----------
Operating income 5,796 6,166 11,858 8,117
Other cost, net 55 216 285 454
Terminated acquisition costs 359 359
Interest expense 5,111 5,568 10,165 10,934
Interest income (29) (65) (50) (96)
--------- -------- --------- ----------
Income (loss) before provision for
(benefit from) income taxes and
cumulative effect of a change in
accounting principle 300 447 1,099 (3,175)
Provision for (benefit from) income taxes (4,675) (278) (4,056) (894)
--------- -------- --------- ----------
Income (loss) before cumulative
effect of a change in accounting
principle 4,975 725 5,155 (2,281)
Cumulative effect of a change in
accounting principle, net of tax 640
--------- -------- --------- ----------
Net income (loss) $4,975 $725 $5,155 $(1,641)
========= ======== ========= ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Page 4 of 18
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ------------------------
1999 2000 1999 2000
-------- ------ -------- --------
Net Income (loss) $4,975 $725 $5,155 $(1,641)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (1,572) (928) (1,976) (2,224)
-------- ------ -------- --------
Other comprehensive loss (1,572) (928) (1,976) (2,224)
-------- ------ -------- --------
Comprehensive income (loss) $3,403 $(203) $3,179 $(3,865)
======== ====== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Page 5 of 18
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Six Months Ended
March 31,
------------------------
1999 2000
-------- --------
Cash flows from operating activities:
Net income (loss) $5,155 $(1,641)
Depreciation 2,921 1,645
Amortization 634 546
Deferred income taxes (4,875) 333
Change in:
Inventories (4,195) (7,704)
Accounts receivable 4,092 (5,381)
Accounts payable and accruals (4,373) 4,584
Other, net (768) (2,446)
-------- --------
Net cash used in operating activities (1,409) (10,064)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (5,469) (5,831)
Other investing activities 220 279
-------- --------
Net cash used in investing activities (5,249) (5,552)
-------- --------
Cash flows from financing activities:
Net increase in revolving credit and
long-term debt 5,622 16,616
Capital contribution from parent company -- 100
-------- --------
Net cash provided by financing activities 5,622 16,716
-------- --------
Effect of exchange rates on cash (277) (547)
-------- --------
Increase (decrease) in cash and cash equivalents (1,313) 553
Cash and cash equivalents, beginning of period 3,720 3,576
-------- --------
Cash and cash equivalents, end of period $ 2,407 $4,129
======== ========
Supplemental disclosures of cash flow information:
Cash paid during period for: Interest $ 9,526 $9,938
======== =======
Income Taxes $ 808 $ 92
======== =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Page 6 of 18
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the Six Months Ended March 31, 2000
Note 1. Basis of Presentation
The interim financial statements are unaudited and reflect all
adjustments (consisting solely of normal recurring adjustments) that, in the
opinion of management, are necessary for a fair statement of results for the
interim periods presented. This report includes information in a condensed form
and should be read in conjunction with the audited consolidated financial
statements included in Form 10-K for the fiscal year ended September 30, 1999,
filed by the Company with the Securities and Exchange Commission ("SEC") on
December 28, 1999. The results of operations for the six months ended March
31,2000, 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, 1999 March 31, 2000
------------------ --------------
(Unaudited)
Raw Materials $ 4,883 $ 5,533
Work-in-process 38,876 47,357
Finished Goods 41,243 38,780
Other, net 6,010 6,411
--------- -------
Net inventories $91,012 $98,081
========= =======
Note 3. Income Taxes
The provision for income taxes for the three months and six months
ended March 31, 2000, differed from the U.S. Federal Statutory Rate of 34%
primarily due to taxes on foreign earnings against which the Company was unable
to utilize its U.S. federal net operating loss carryforwards. During the second
quarter of fiscal 1999, the Company reversed approximately $4,460 of its
deferred tax liability associated with the undistributed earnings of two foreign
affiliates. The Company concluded that the cumulative earnings from these two
affiliates, $12.2 million, will be permanently invested overseas.
Note 4. Terminated Acquisition Costs
On March 3, 1998, the Company announced that Haynes Holdings, Inc.
("Holdings"), its parent corporation, and Blackstone Capital Partners II
Merchant Banking Fund L.P. and two of its affiliates ("Blackstone"), had
abandoned their attempt to acquire Inco Alloys International ("IAI"), a 100%
owned business unit of Inco Limited ("Inco"). Certain deferred acquisition costs
were charged to operations in the quarter ended March 31, 1999.
Note 5. Cumulative Effect of Change in Accounting Principle
Effective 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 method previously used was to amortize any
unrecognized gain or loss over the average remaining service period of active
participants (approximately 12 years). The $640,000 cumulative effect of the
change on prior years (after reduction for income taxes of $426,000) is included
in income of the six months ended March 31, 2000. The effect of the change on
the three months ended March 31, 2000, was to increase net income $262,000; the
effect of the change on the six months ended March 31, 2000, was to increase
income before cumulative effect of a change in accounting principle by $524,000.
Page 7 of 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
References to years or portions of years in Management's Discussion and Analysis
of Financial Condition and Results of Operations refer to the Company's fiscal
years ended September 30, unless otherwise indicated. This discussion contains
statements that constitute forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements may include
statements regarding the intent, belief or current expectations of the Company
or its officers with respect to (i) the Company's strategic plans, (ii) the
policies of the Company regarding capital expenditures, financing or other
matters, and (iii) industry trends affecting the Company's financial condition
or results of operations. Readers of this discussion are cautioned that any such
forward looking statements are not guarantees of future performance and involve
risks and uncertainties and that actual results may differ materially from those
in the forward looking statements as a result of various factors. This report
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Form 10-K for the
fiscal year ended September 30, 1999, filed by the Company with the Securities
and Exchange Commission on December 28,1999.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Revenues. Net revenues increased approximately $2.3 million to
approximately $57.6 million in the second quarter of fiscal 2000, from
approximately $55.3 million in the second quarter of 1999, primarily as a result
of a 11.4% increase in volume from approximately 4.4 million pounds in the
second quarter of 1999 to approximately 4.9 million pounds in the second quarter
of 2000. The increase in volume was partially offset by a 6.1% decrease in the
average selling price per pound, falling from $12.28 per pound for fiscal 1999
to $11.53 per pound for fiscal 2000.
Sales to the aerospace industry in the second quarter of fiscal 2000
increased by 5.9% to approximately $24.8 million from approximately $23.4
million for the same period a year earlier, due primarily to a 15.9% increase in
volume. The increased volume was the result of improved domestic and export
sales directly to gas turbine component fabricators and resupply of flat
products in the domestic market for airframe parts. The increase in volume was
partially offset by a decline in the average selling price per pound due to a
greater proportion of the lower priced product forms and alloys. The aerospace
industry supply chain continues to adjust to changes in the commercial aircraft
build schedules.
Sales to the chemical processing industry decreased approximately $3.8
million to approximately $15.5 million for the second quarter of fiscal 2000
from approximately $19.3 million for the second quarter of 1999 due primarily to
a 20.8% decline in volume. The decline in volume can be attributed to decreased
worldwide project related activity. A 1.3% increase in the average selling price
per pound partially offset the decrease in volume.
Sales to the land-based gas turbine industry increased 62.1% in the
second quarter of fiscal 2000 to approximately $9.4 million from approximately
$5.8 million for the same period a year earlier due primarily to an increase in
volume, partially offset by a decrease in the average selling price per pound.
The large increase in volume was primarily due to improved export of proprietary
and specialty alloy products.
Sales to the flue gas desulfurization industry increased 18.8% to
approximately $1.9 million for the second quarter of 2000 from approximately
$1.6 million for the second quarter of 1999. Project related activity for new
equipment has increased as a result of enforcement of global clean air
standards. This market is characterized by large project requirements and
moderate continuing repair and maintenance needs.
Sales to the oil and gas industry increased approximately $100,000 in
the second quarter of fiscal 2000 to approximately $200,000 from approximately
$100,000 for the same period a year earlier. The increase in volume was
partially offset by a decrease in the average selling price per pound. This
market is entirely dependent upon large drilling projects, the timing of which
are difficult to predict.
Page 8 of 18
Sales to other industries increased 50.0% to approximately $5.4 million
for the second quarter of 2000 from approximately $3.6 million for the
comparable period a year ago, due primarily to an increase in volume in
automotive, wear, electronics, glass and industrial heating markets partially
offset by a reduction in the average selling price per pound.
Cost of Sales. Cost of sales as a percentage of net revenues increased
to 77.5% for the second quarter of fiscal 2000 compared to 75.9% in the same
period last year. The higher cost of sales percentage in fiscal 2000 resulted
primarily from higher raw material costs and higher distribution costs.
Selling and Administrative Expenses. Selling and administrative
expenses decreased approximately $600,000 to approximately $5.9 million in the
second quarter of fiscal 2000 from approximately $6.5 million in the same period
a year ago, primarily as a result of a non-recurring charge in connection with
the transition of executive management that occurred in the second quarter of
fiscal 1999, partially offset by expenses related to the Company's compliance
with the Department of Justice's investigation into the nickel alloy industry
and expenses associated with the Company's implementation of an information
technology project.
Research and Technical Expenses. Research and technical expenses
decreased approximately $100,000 to approximately $900,000 in the second quarter
of 2000 from approximately $1.0 million in the second quarter of 1999, primarily
as a result of decreased operating costs.
Operating Income. As a result of the above factors, the Company
recognized operating income for the second quarter of 2000 of approximately $6.2
million, approximately $1.4 million of which was contributed by the Company's
foreign subsidiaries. For the second quarter of 1999, operating income was
approximately $5.8 million, of which approximately $1.2 million was contributed
by the Company's foreign subsidiaries.
Other. Other cost was relatively flat in the second quarter of fiscal
2000 compared to the second quarter of 1999.
Terminated Acquisition Costs. Terminated acquisition costs of
approximately $400,000 were recorded in the second quarter of 1999 in connection
with the abandoned attempt to acquire IAI by Holdings.
Interest Expense. Interest expense increased approximately $500,000 to
approximately $5.6 million for the second quarter of 2000 from approximately
$5.1 million for the same period in 1999. Higher revolving credit balances and
higher interest rates during the second quarter of fiscal 2000 accounted for
this increase.
Income Taxes. An income tax benefit of approximately $300,000 was
recorded for the second quarter of fiscal 2000 compared to approximately $4.7
million in the second quarter of fiscal 1999. The tax benefit for the second
quarter of fiscal 1999 related to the reversal of the Company's deferred tax
liability associated with the undistributed earnings of two foreign affiliates.
Net Income. As a result of the above factors, the Company recognized
net income for the second quarter of 2000 of approximately $700,000, compared to
approximately $5.0 million for the second quarter of 1999.
Page 9 of 18
Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999
Net Revenues. Net revenues increased approximately $1.1 million to
approximately $105.6 million in the first half of 2000 from approximately $104.5
million in the first half of 1999, primarily as a result of a 13.6% increase in
shipments, to approximately 9.2 million pounds in the first six months of 2000,
from approximately 8.1 million pounds in the first six months of 1999. Volume
increases occurred in all markets except chemical processing, which suffered a
decrease. Average selling prices per pound decreased to $11.30 from $12.59 for
the first six months of 2000, compared to the same period in 1999.
Sales to the aerospace industry in the first half of 2000 declined by
7.9% to approximately $42.9 million from approximately $46.6 million for the
same period a year earlier, due primarily to a decrease in the average selling
price per pound partially offset by an increase in volume. The decrease in the
average selling price results from a larger proportion of the lower valued
nickel-base alloys and forms compared to the higher priced specialty alloys and
titanium tubulars.
Sales to the chemical processing industry declined by 21.3% in the
first six months of fiscal 2000 to approximately $28.5 million from
approximately $36.2 million in 1999 due to both volume and average selling price
per pound declines. The decrease in volume can be attributed to a lack of
project related business.
Sales to the land-based gas turbine industry increased approximately
$7.1 million in the first six months of 2000 to approximately $16.2 million from
approximately $9.1 million for the same period in 1999 due primarily to an
increase in volume. The increase in volume was the result of increased sales of
proprietary alloy products to meet the growing demand for gas turbines in the
power generation market. The increase in volume was partially offset by a 12.7%
decline in the average selling price per pound, primarily caused by increased
sales of lower priced product forms and alloys.
Sales to the flue gas desulfurization industry increased approximately
$1.6 million to approximately $3.6 million from approximately $2.0 million due
to both volume and average selling price increases, due primarily to increased
domestic sales resulting from increasing enforcement of United States air
quality standards.
Sales to the oil and gas industry in the first six months of 2000
increased approximately $2.5 million to approximately $3.2 million from
approximately $700,000 in 1999, due primarily to a single well for a proprietary
seamless tubing alloy which shipped during the period.
Sales to other industries increased by 40.0% to approximately $9.8
million from approximately $7.0 million due to both volume and average selling
price increases for the first six months of 2000. The increase in volume can be
attributed to improved shipments into the automotive, wear, electronics, glass
production, and industrial heating industries.
Cost of Sales. Cost of sales as a percentage of net revenues increased
to 79.7% for the first six months of 2000 compared to 75.8% in the same period
last year. The higher cost of sales percentage in fiscal 2000 resulted from
higher raw material costs, higher distribution costs and lower volumes of higher
value added coil, sheet, and seamless product forms due to significant planned
outages in sheet and coil equipment in the first quarter of 2000.
Selling and Administrative Expenses. Selling and administrative
expenses were relatively flat in the first six months of 2000 compared to the
first six months of 1999.
Research and Technical Expenses. Research and technical expenses were
relatively flat in the first six months of 2000 compared to the first six months
of 1999 as increased salary and related benefits were more than offset by
reduced operating costs.
Page 10 of 18
Operating Income. As a result of the above factors, the Company
recognized operating income for the first six months of 2000 of approximately
$8.1 million, approximately $2.4 million of which was contributed by the
Company's foreign subsidiaries. For the first six months of 1999, operating
income was approximately $11.9 million, of which approximately $2.5 million was
contributed by the Company's foreign subsidiaries.
Other. Other cost increased approximately $200,000 from approximately
$300,000 in the first half of 1999 to approximately $500,000 for the first half
of 2000, primarily due to higher contract service fees.
Terminated Acquisition Costs. Terminated acquisition costs of
approximately $400,000 were recorded in the first six months of 1999 in
connection with the abandoned attempt to acquire IAI by Holdings.
Interest Expense. Interest expense increased approximately $700,000 to
approximately $10.9 million for the first half of 2000 from approximately $10.2
million for the same period in 1999. Higher revolving credit balances and
interest rates accounted for this increase.
Income Taxes. An income tax benefit of approximately $900,000 was
recorded for the first six months of 2000 compared to approximately $4.1 million
in fiscal 1999. The tax benefit for the second quarter of fiscal 1999 related to
the reversal of the Company's deferred tax liability associated with the
undistributed earnings of two foreign affiliates.
Change in Accounting Principle. The cumulative effect of a change in
accounting principle represents a change in the Company's method of amortizing
unrecognized actuarial gains and losses with respect to its pension benefits.
The cumulative effect includes income of approximately $1.0 million, reduced by
an approximately $400,000 tax provision.
Net Income (Loss). As a result of the above factors, the Company
recognized a net loss for the first half of 2000 of approximately $1.6 million,
compared to net income of approximately $5.2 million for the first half of 1999.
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 $5.8 million in the first six months of 2000, compared to
capital expenditures of approximately $5.5 million for the first six months of
1999. Capital spending for the first six months of 2000 included improvements to
the Company's flat product production areas, including the four-high mill and
cold finishing areas, and completion of information technology projects. The
remainder of planned 2000 expenditures will be for improvements in cost,
quality, capacity and reliability of manufacturing operations. The Company does
not expect such capital expenditures to have a material adverse effect on its
long-term liquidity. The Company expects to fund its working capital needs and
capital expenditures with cash provided from operations, supplemented by
borrowings under its Revolving Credit Facility with Fleet Capital Corporation
("Fleet Revolving Credit Facility"), and capital lease obligations. 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 six months of 2000
was approximately $10.1 million, as compared to approximately $1.4 million in
the first six months of 1999. The negative cash flow from operations for 2000
was the result of a net loss of approximately $1.6 million, an increase in
inventories of approximately $7.7 million, an increase in accounts receivable of
approximately $5.4 million, an increase in accounts payable and accruals of
approximately $4.6 million, non-cash depreciation and amortization of
approximately $2.2 million, a decrease in the deferred tax asset of
approximately $300,000, and other net adjustments used in operating activities
of approximately $2.5 million.
Page 11 of 18
Net cash used in investing activities increased to approximately $5.6
million in the first six months of 2000 from approximately $5.2 million in the
same period for 1999, primarily as a result of increased capital spending. Net
cash provided by financing activities for the first six months of 2000 was
approximately $16.7 million, compared to approximately $5.6 million for six
months of 1999, primarily as a result of increased net borrowings by the Company
in support of increased working capital requirements.
Cash for the first six months of 2000 increased approximately $600,000,
resulting in a March 31, 2000 cash balance of approximately $4.1 million. Cash
in the first six months of 1999 decreased approximately $1.3 million, resulting
in a March 31, 1999 cash balance of approximately $2.4 million.
Total debt at March 31, 2000, was approximately $201.4 million compared
to approximately $180.6 million at March 31, 1999, reflecting increased
borrowing under the Fleet Revolving Credit Facility.
At March 31, 2000, approximately $61.1 million had been borrowed
pursuant to the Fleet Revolving Credit Facility compared to approximately $41.0
million at March 31, 1999. In addition, as of March 31, 2000 approximately
$500,000 in letter of credit reimbursement obligations had been incurred by the
Company. The Fleet Revolving Credit Facility includes a reserve for accrued
interest, payable March 1 and September 1, in connection with the Senior Notes
of approximately $1.4 million at March 31, 2000. The Company had available
additional borrowing capacity of approximately $6.4 million on the Fleet
Revolving Credit Facility at March 31, 2000.
Grand Jury Investigation
A Federal Grand Jury is investigating possible violations of federal
anti-trust laws in the nickel alloy industry. The Company, along with other
companies in this industry, is responding to the Government's request. The
Company has 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 year ended September 30, 1999, and the six
month period ended March 31, 2000, these costs were approximately $3.5 million
and $700,000, respectively. While the outcome of the investigation cannot be
predicted with certainty, in the opinion of management, resolution is expected
by the end of fiscal 2000 and there will be no liability incurred in this matter
other than ongoing legal expenses in its defense.
Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", is effective for all fiscal quarters of fiscal years beginning
after July 1, 2000. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
Management has not yet quantified the effect of the new standard on the
financial statements.
Year 2000 Costs
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 remaining uncertainties, but in the event one should arise, the
Company's Year 2000 Committee will remain active to respond to such an
occurrence.
Page 12 of 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 2000, the Company's primary market risk exposures were
foreign currency exchange rate risk with respect to forward contracts entered
into by the Company's foreign subsidiaries located in England and France and
commodity price risk with respect to forward contracts for nickel entered into
by the Company.
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 of less than six months. The commodity price
risk existed at March 31, 2000 with respect to a forward contract to purchase
nickel as a hedge against a large project order booked by the Company during the
second quarter.
At March 31, 2000, the Company did not have any outstanding foreign
currency exchange contracts. At March 31, 2000 the Company did have one nickel
forward commodity contract with an unrealized gain of $12,000.
[Rest of page intentionally left blank.]
Page 13 of 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
In connection with the regular February, 2000 Board of
Directors meeting of the Company and Holdings, John H. Tundermann was
elected to fill a vacancy on the Board of Directors, such that the
Board of Directors of the Company is now composed of the following
individuals: Francis J. Petro, John H. Tundermann, Chinh Chu, Marshall
A. Cohen, Eric Ruttenberg, and Richard C. Lappin.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits
(b) Reports on Form 8-K. No report on Form 8-K was filed during
the quarter for which this report is filed.
[Rest of page intentionally left blank.]
Page 14 of 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAYNES INTERNATIONAL, INC.
/s/ Francis J. Petro
Francis J. Petro
President and Chief Executive Officer
/s/ Joseph F. Barker
J. F. Barker
Vice President, Finance
Chief Financial Officer
Date: May 15, 2000
Page 15 of 18
INDEX TO EXHIBITS
Sequential
Number Numbering
Assigned In System Page
Regulation S-K Number of
Item 601 Description of Exhibit Exhibit
-------------- ---------------------- -------
(2) 2.01 Stock Purchase Agreement, dated as of January 24, 1997,
among Blackstone Capital Partners II Merchant Banking Fund
L.P., Blackstone Offshore Capital Partners II Merchant Banking
Fund L.P., Blackstone Family Investment Partnership L.P.,
Haynes Holdings, Inc. and Haynes International, Inc.
(Incorporated by reference to Exhibit 2.01 to Registrant's Form 8-
K Report, filed February 13, 1997, File No. 333-5411.)
2.02 Stock Redemption Agreement, dated as of January 24, 1997,
among MLGA Fund II, L.P., MLGAL Partners, L.P. and Haynes
Holdings, Inc. (Incorporated by reference to Exhibit 2.02 to
Registrant's Form 8-K Report, filed February 13, 1997, File No.
333-5411.)
2.03 Exercise and Repurchase Agreement, dated as of January 24,
1997, among Haynes Holdings, Inc. and the holders as listed
therein. (Incorporated by reference to Exhibit 2.03 to Registrant's
Form 8-K Report, filed February 13, 1997, File No. 333-5411.)
2.04 Consent Solicitation and Offer to Redeem, dated January 30,
1997. (Incorporated by reference to Exhibit 2.04 to Registrant's
Form 8-K Report, filed February 13, 1997, File No. 333-5411.)
2.05 Letter of Transmittal, dated January 30, 1997. (Incorporated by
reference to Exhibit 2.05 to Registrant's Form 8-K Report, filed
February 13, 1997, File No. 333-5411.)
(3) 3.01 Restated Certificate of Incorporation of Registrant. (Incorporated
by reference to Exhibit 3.01 to Registration Statement on Form S-
1, Registration No. 33-32617.)
3.02 By-laws of Registrant. (Incorporated by reference to Exhibit 3.02
to Registration Statement on Form S-1, Registration No. 33-
32617).
(4) 4.01 Indenture, dated as of August 23, 1996, between Haynes
International, Inc. and National City Bank, as Trustee, relating to
the 11 5/8% Senior Notes Due 2004, table of contents and
cross-reference sheet. (Incorporated by reference to Exhibit 4.01
to the Registrant's Form 10-K Report for the year ended
September 30, 1996, File No. 333-5411.)
4.02 Form of 11 5/8% Senior Note Due 2004. (Incorporated by
reference to Exhibit 4.02 to the Registrant's Form 10-K Report for
the year ended September 30, 1996, File No. 333-5411.)
(10) 10.01 Form of Severance Agreements, dated as of March 10, 1989,
between Haynes International, Inc. and the employees of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.03 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.02 Amended Stockholders' Agreement, dated as of January 29,
1997, among Haynes Holdings, Inc. and the investors listed
therein. (Incorporated by reference to Exhibit 4.01 to Registrant's
Form 8-K Report, filed February 13, 1997, File No. 333-5411.)
10.03 First Amendment to the Amended Stockholders'
Agreement, dated March 31, 1997. (Incorporated
by reference to Exhibit 10.10 to Registrant's
Form 10-Q Report, filed May 15, 1997, File No.
333-5411.)
10.04 Executive Employment Agreement, dated as of September 1,
1993, by and among Haynes International, Inc., Haynes
Holdings, Inc. and Michael D. Austin. (Incorporated by reference
to Exhibit 10.26 to the Registration Statement on Form S-4,
Registration No. 33-66346.)
Page 16 of 18
10.05 Amendment to Employment Agreement, dated as of July 15,
1996 by and among Haynes International, Inc., Haynes Holdings,
Inc. and Michael D. Austin (Incorporated by reference to
Exhibit 10.15 to Registration Statement on S-1, Registration No.
333-05411).
10.06 Haynes Holdings, Inc. Employee Stock Option Plan.
(Incorporated by reference to Exhibit 10.08 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.07 First Amendment to the Haynes Holdings, Inc. Employee Stock
Option Plan, dated March 31, 1997. (Incorporated by reference
to Exhibit 10.18 to Registrant's Form 10-Q Report, filed May 15,
1997, File No. 333-5411.)
10.08 Form of "New Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc.
named in the schedule to the Exhibit. (Incorporated by reference
to Exhibit 10.09 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.09 Form of "September Option" Agreements between Haynes
Holdings, Inc. and the executive officers of Haynes International,
Inc. named in the schedule to the Exhibit. (Incorporated by
reference to Exhibit 10.10 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.10 Form of "January 1992 Option" Agreements between Haynes
Holdings, Inc. and the executive officers of Haynes International,
Inc. named in the schedule to the Exhibit. (Incorporated by
reference to Exhibit 10.08 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.11 Form of "Amendment to Holdings Option Agreements" between
Haynes Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.09 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.12 Form of March 1997 Amendment to Holdings Option
Agreements. (Incorporated by reference to Exhibit 10.23 to
Registrant's Form 10-Q Report, filed May 15, 1997, File No. 333-
5411.)
10.13 March 1997 Amendment to Amended and Restated Holdings
Option Agreement, dated March 31, 1997. (Incorporated by
reference to Exhibit 10.24 to Registrant's Form 10-Q Report, filed
May 15, 1997, File No. 333-5411.)
10.14 Amended and Restated Loan and Security Agreement by and
among CoreStates Bank, N.A. and Congress Financial
Corporation (Central), as Lenders, Congress Financial
Corporation (Central), as Agent for Lenders, and Haynes
International, Inc., as Borrower. (Incorporated by reference to
Exhibit 10.19 to the Registrant's Form 10-K Report for the year
ended September 30, 1996, File No. 333-5411).
10.15 Amendment No. 1 to Amended and Restated Loan and Security
Agreement by and among CoreStates Bank, N.A. and Congress
Financial Corporation (Central), as Lenders, Congress Financial
Corporation (Central) as Agent for Lenders, and Haynes
International, Inc., as Borrower. (Incorporated by reference to
Exhibit 10.01 to Registrant's Form 8-K Report, filed January 22,
1997, File No. 333-5411.)
Page 17 of 18
10.16 Amendment No. 2 to Amended and Restated Loan and Security
Agreement, dated January 29, 1997, among CoreStates Bank,
N.A. and Congress Financial Corporation (Central), as Lenders,
Congress Financial Corporation (Central), as agent for Lenders,
and Haynes International, Inc. (Incorporated by reference to
Exhibit 10.01 to Registrant's Form 8-K Report, filed February 13,
1997, File No. 333-5411.)
10.17 Agreement by and between Galen Hodge and Haynes
International, dated January 13, 1998
(Incorporated by reference to Exhibit 10.17 to
Registrant's Form 10-Q Report filed February 13,
1998, File No. 333-5411).
10.18 Facility Management Agreement by and between Republic
Engineered Sales, 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)
10.19 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.)
10.20 Credit Agreement 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.)
10.21 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.
(15) No Exhibit.
(18) 18.01 Preferability Letter dated May 15, 2000 by Deloitte & Touche LLP.
(19) No Exhibit.
(22) No Exhibit.
(23) No Exhibit.
(24) No Exhibit.
(27) 27.01 Financial Data Schedule.
(99) No Exhibit.