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, 2002.
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: 33-32617
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.)
incorporation or organization)
1020 West Park Avenue, Kokomo, Indiana 46904-9013
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(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 14, 2002, the registrant had 100 shares of Common Stock, $.01 par
value, outstanding.
Page 1 of 17
HAYNES INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of
September 30, 2001 and March 31, 2002
3
Consolidated Condensed Statements of Operations
for the Three Months and Six Months ended
March 31, 2001 and 2002 4
Consolidated Condensed Statements of Comprehensive
Income for the Three Months and Six Months ended
March 31, 2001 and 2002 5
Consolidated Condensed Statements of Cash Flows
for the Six Months ended March 31, 2001 and 2002 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 17
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands, except share amounts)
September 30, March 31,
2001 2002
------------- ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 171 $ 1,124
Accounts and notes receivable, less allowance for
doubtful accounts of $721 and $1,401, respectively 47,978 40,301
Inventories 98,150 106,220
Refundable income taxes 150 ---
Deferred income taxes 899 1,823
-------- --------
Total current assets 147,348 149,468
-------- --------
Property, plant and equipment (at cost) 122,753 125,616
Accumulated depreciation (81,196) (83,252)
-------- --------
Net property, plant and equipment 41,557 42,364
-------- --------
Deferred income taxes 42,994 40,384
Prepayments and deferred charges, net 10,546 8,457
-------- --------
Total assets $242,445 $240,673
======== ========
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 31,300 $ 30,013
Accrued postretirement benefits 4,400 4,400
Revolving credit 61,206 56,028
Note payable 2,307 2,313
Income taxes payable --- 74
-------- --------
Total current liabilities 99,213 92,828
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Long-term debt, net of unamortized discount 42,749 142,180
Accrued postretirement benefits 97,809 100,668
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Total liabilities 339,771 335,676
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Capital deficiency:
Common stock, $.01 par value (100 shares authorized,
issued and outstanding)
Additional paid-in capital 51,306 51,362
Accumulated deficit (146,324) (143,075)
Accumulated other comprehensive loss (2,308) (3,290)
-------- --------
Total capital deficiency (97,326) (95,003)
-------- --------
Total liabilities and capital deficiency $242,445 $240,673
======== ========
The accompanying notes are an integral part of these financial statements.
Page 3 of 17
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -------------------
2001 2002 2001 2002
---- ---- ---- ----
Net revenues $ 63,848 $ 58,136 $ 124,926 $ 120,071
Cost of sales 51,969 43,068 101,551 90,467
Selling and administrative 6,201 5,593 12,264 10,989
Research and technical 1,084 939 1,986 1,848
--------- --------- --------- ---------
Operating income 4,594 8,536 9,125 16,767
Other costs, net 169 636 843 765
Interest expense 5,890 5,143 11,942 10,412
Interest income (36) (19) (57) (35)
--------- --------- --------- ---------
Income (loss) before provision for
(benefit from) income taxes (1,429) 2,776 (3,603) 5,625
Provision for (benefit from) income taxes (349) 1,202 (1,208) 2,377
--------- --------- --------- ---------
Net income (loss) $ (1,080) $ 1,574 $ (2,395) $ 3,248
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
Page 4 of 17
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -------------------
2001 2002 2001 2002
---- ---- ---- ----
Net income (loss) $ (1,080) $ 1,574 $ (2,395) $ 3,248
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (1,888) (586) (714) (982)
--------- --------- --------- ---------
Other comprehensive loss (1,888) (586) (714) (982)
--------- --------- --------- ---------
Comprehensive income (loss) $ (2,968) $ 988 $ (3,109) $ 2,266
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
Page 5 of 17
HAYNES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Six Months Ended
March 31,
------------------------
2001 2002
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (2,395) $ 3,248
Depreciation 2,417 2,300
Amortization 666 653
Deferred income taxes (1,429) 1,686
Change in:
Inventories 1,268 (8,594)
Accounts receivable (381) 7,178
Accounts payable and accruals 1,502 1,455
Other, net (1,155) 1,729
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Net cash provided by operating activities 493 9,655
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (2,032) (3,237)
Other investing activities 104 130
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Net cash used in investing activities (1,928) (3,107)
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Cash flows from financing activities:
Net increase (decrease) in revolving credit and long-term debt 796 (5,612)
Other financing activities 30 57
--------- ---------
Net cash provided by (used in) financing activities 826 (5,555)
--------- ---------
Effect of exchange rates on cash (31) (40)
--------- ---------
Increase (decrease) in cash and cash equivalents (640) 953
Cash and cash equivalents, beginning of period 1,285 171
--------- ---------
Cash and cash equivalents, end of period $ 645 $ 1,124
========= =========
Supplemental disclosures of cash flow information:
Cash paid (received) during period for: Interest $ 11,320 $ 9,852
========= =========
Income taxes $ 697 $ (67)
========= =========
The accompanying notes are an integral part of these financial statements.
Page 6 of 17
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the six months ended March 31, 2002
(dollars in thousands)
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, 2001, filed by the
Company with the Securities and Exchange Commission ("SEC") on December 27,
2001. The results of operations for the six months ended March 31, 2002, are not
necessarily indicative of the results to be expected for the full year or any
other interim period.
Certain amounts in prior year financial statements have been reclassified
to conform with current year presentation.
Note 2. Inventories
The following is a summary of the major classes of inventories:
September 30, 2001 March 31, 2002
------------------ --------------
(Unaudited)
Raw materials $ 5,971 $ 6,873
Work-in-process 44,510 43,243
Finished goods 36,845 47,784
Other, net 10,824 8,320
------- --------
Net inventories $98,150 $106,220
======= ========
Note 3. Income Taxes
The income tax provision for the three months and six months ended March
31, 2002, differed from the U.S. federal statutory rate of 34% primarily due to
state income taxes and differing tax rates on foreign earnings. The income tax
benefit for the three months and six months ended March 31, 2001, differed from
the U.S. federal statutory rate of 34% primarily due to state tax benefits and
differing tax rates on foreign earnings.
Page 7 of 17
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
securities laws. 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, 2001, filed by the Company with the Securities and Exchange Commission on
December 27, 2001.
Results of Operations
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
Net Revenues. Net revenues decreased approximately $5.7 million to
approximately $58.1 million in the second quarter of fiscal 2002 from
approximately $63.8 million in the second quarter of fiscal 2001. Volume
decreased 19.2% to approximately 4.2 million pounds in the second quarter of
fiscal 2002 from approximately 5.2 million pounds in the second quarter of
fiscal 2001. The average selling price increased 13.1% to $13.68 per pound in
the second quarter of fiscal 2002 from $12.10 per pound in the second quarter of
fiscal 2001.
Sales to the aerospace industry decreased by 9.4% to approximately $25.2
million in the second quarter of fiscal 2002 from approximately $27.8 million
for the same period a year earlier, due to a 32.7% decrease in volume partially
offset by a 34.6% increase in the average selling price per pound. The decreased
volume was primarily caused by significantly lower domestic and European sales
of nickel-based alloys and forms as the industry adjusts to the reduced demand
of the commercial aircraft industry. The increase in the average selling price
was due to a greater proportion of the higher priced cobalt containing specialty
alloys and tubular products compared to the lower priced nickel base alloys and
forms.
Sales to the chemical processing industry decreased by 48.4% to
approximately $9.5 million in the second quarter of fiscal 2002 from
approximately $18.4 million for the same period a year earlier, due primarily to
a 51.3% decrease in volume which was partially offset by a 6.1% increase in the
average selling price per pound. The decrease in volume can be attributed to
less equipment maintenance business and a significant lack of project related
business worldwide. The increase in the average selling price was due to a
greater proportion of the higher value nickel based alloy products and
quantities.
Sales to the land-based gas turbine industry increased by 67.7% to
approximately $16.1 million in the second quarter of fiscal 2002 from
approximately $9.6 million for the same period a year earlier, due primarily to
a 63.2% increase in volume. The increased volume can be attributed to improved
sales of proprietary alloy round products in the domestic and export markets and
increased domestic shipments of specialty alloy flat products to support the
growing demand of the gas turbine manufacturers.
Sales to the flue gas desulfurization industry decreased by 62.5% to
approximately $300,000 in the second quarter of fiscal 2002 from approximately
$800,000 for the same period a year earlier, due primarily to a 60.2% decrease
in volume. The decrease in volume can be attributed to the completion of a major
project in the second quarter of fiscal 2001 that did not repeat during the
second quarter of fiscal 2002.
Sales to the oil and gas industry increased by 10.0% to approximately $2.2
million for the second quarter of fiscal 2002 from approximately $2.0 million
for the same period a year earlier, due to a 5.8% increase in volume along with
a 3.3% increase in the average selling price per pound. The increase in volume
can be attributed to the larger volume major project that occurred in this
period, but not in the same period a year earlier. The increase in the average
selling price can be attributed to improved market prices.
Page 8 of 17
Sales to other industries decreased by 8.3% to approximately $4.4 million
in the second quarter of fiscal 2002 from approximately $4.8 million for the
same period a year earlier, due primarily to a 7.4% decrease in volume. The
decrease in volume can be attributed to the lower volume flat and tubular
products relating to reduced sales for product applications in the industrial
and recreational equipment market sectors.
Cost of Sales. Cost of sales as a percentage of net revenues decreased to
74.1% in the second quarter of fiscal 2002 from 81.4% for the same period a year
earlier. The lower percentage of cost compared to sales in the second quarter of
fiscal 2002 was due to higher prices on sales of value-added products partially
offset by higher unit costs.
Selling and Administrative Expenses. Selling and administrative expenses
decreased by approximately $600,000 to $5.6 million for the second quarter of
fiscal 2002 from approximately $6.2 million for the same period a year earlier.
The decrease in selling and administrative expenses can be attributed to lower
compensation expenses.
Research and Technical Expense. Research and technical expenses remained
relatively flat when comparing the second quarter of fiscal 2002 with the same
period a year earlier.
Operating Income. As a result of the above factors, the Company recognized
operating income for the second quarter of fiscal 2002 of approximately $8.5
million, approximately $1.0 million of which was contributed by the Company's
foreign subsidiaries. For the second quarter of fiscal 2001, operating income
was approximately $4.6 million, of which approximately $1.8 million was
contributed by the Company's foreign subsidiaries.
Other. Other costs increased by approximately $400,000 to approximately
$600,000 for the second quarter of fiscal 2002 from approximately $200,000 for
the same period a year earlier. The increase in other costs was due to an
increase in the allowance for bad debt reserve.
Interest Expense. Interest expense decreased approximately $800,000 to
approximately $5.1 million for the second quarter of fiscal 2002 from
approximately $5.9 million for the same period a year earlier. Lower revolving
credit balances and lower interest rates contributed to the decrease when
comparing the two quarters.
Income Taxes. The income taxes changed by approximately $1.5 million to a
provision of approximately $1.2 million for the second quarter of fiscal 2002
from a benefit of approximately $300,000 for the same period a year earlier, due
to the change in the Company's results from a pretax loss to pretax income.
Net Income. As a result of the above factors, the Company recognized net
income of approximately $1.6 million for the second quarter of fiscal 2002
compared with a net loss of approximately $1.1 million for the same period a
year earlier.
Six Months Ended March 31, 2002 Compared to Six Months Ended March 31, 2001
Net Revenues. Net revenues decreased approximately $4.8 million to
approximately $120.1 million in the first half of fiscal 2002 from approximately
$124.9 million in the first half of fiscal 2001. Volume decreased 14.6% to
approximately 8.8 million pounds in the first half of fiscal 2002 from
approximately 10.3 million pounds in the first half of fiscal 2001. The average
selling price increased 12.4% to $13.49 per pound in the first half of fiscal
2002 from $12.00 per pound in the first half of fiscal 2001.
Sales to the aerospace industry decreased by 6.8% to approximately $49.2
million in the first half of fiscal 2002 from approximately $52.8 million for
the same period a year earlier, due to a 31.0% decrease in volume mostly offset
by a 35.0% increase in the average selling price per pound. The decreased volume
was primarily caused by a substantial reduction in domestic and European sales
of nickel-based alloy flat and round products as the industry adjusts to the
reduced demand of the commercial aircraft industry. The increase in the average
selling price was due to a greater proportion of the higher value cobalt
specialty alloy flat products and titanium tubulars as compared to lower priced
nickel base alloy products.
Page 9 of 17
Sales to the chemical processing industry decreased by 34.1% to
approximately $23.8 million in the first half of fiscal 2002 from approximately
$36.1 million for the same period a year earlier, due primarily to a 35.2%
decrease in volume. The decrease in volume can be attributed to a significant
absence of worldwide project business and reduced maintenance related activity.
Sales to the land-based gas turbine industry increased by 38.5% to
approximately $28.8 million in the first half of fiscal 2002 from approximately
$20.8 million for the same period a year earlier, due primarily to a 33.6%
increase in volume. The increase in volume was mainly due to improved sales of
proprietary HAYNES(R) HR-120(R) alloy round products in the global markets and
domestic shipments of specialty alloy flat products to support the high level of
demand by the gas turbine manufacturers.
Sales to the flue gas desulfurization industry remained relatively flat
with approximately $1.8 million in both the first half of fiscal 2002 and the
first half of fiscal 2001.
Sales to the oil and gas industry increased by 68.8% to approximately $5.4
million for the first half of fiscal 2002 from approximately $3.2 million for
the same period a year earlier, due to a 34.3% increase in volume along with a
24.9% increase in the average selling price per pound. The increase in volume
can be attributed to the larger volume major project that occurred in this
period, but not in the same period a year earlier. The increase in the average
selling price can be attributed to a greater proportion of tubular products
compared to lower priced round products.
Sales to other industries increased by 7.6% to approximately $9.9 million
in the first half of fiscal 2002 from approximately $9.2 million for the same
period a year earlier, due primarily to an 8.4% increase in volume. The increase
in volume can be attributed to a new application in the European market.
Cost of Sales. Cost of sales as a percentage of net revenues decreased to
75.3% in the first half of fiscal 2002 from 81.3% for the same period a year
earlier. The lower percentage of cost compared to sales in the first half of
fiscal 2002 was due to higher prices on sales of value-added products partially
offset by higher unit costs.
Selling and Administrative Expenses. Selling and administrative expenses
decreased by approximately $1.3 million to $11.0 million for the first half of
fiscal 2002 from approximately $12.3 million for the same period a year earlier.
The decrease in selling and administrative expenses can be attributed to lower
compensation expenses and lower legal costs.
Research and Technical Expense. Research and technical expenses remained
relatively flat when comparing the first half of fiscal 2002 with the same
period a year earlier.
Operating Income. As a result of the above factors, the Company recognized
operating income for the first half of fiscal 2002 of approximately $16.8
million, approximately $1.9 million of which was contributed by the Company's
foreign subsidiaries. For the first half of fiscal 2001, operating income was
approximately $9.1 million, of which approximately $3.4 million was contributed
by the Company's foreign subsidiaries.
Other. Other costs remained relatively flat when comparing the first half
of fiscal 2002 with the same period a year earlier.
Interest Expense. Interest expense decreased by approximately $1.5 million
to approximately $10.4 million for the first half of fiscal 2002 from
approximately $11.9 million for the same period a year earlier. Lower revolving
credit balances and lower interest rates contributed to the decrease when
comparing the first half of fiscal 2002 to the first half of fiscal 2001.
Income Taxes. The income taxes changed by approximately $3.6 million to a
provision of approximately $2.4 million for the first half of fiscal 2002 from a
benefit of approximately $1.2 million for the same period a year earlier, due to
the change in the Company's results from a pretax loss to pretax income.
Net Income. As a result of the above factors, the Company recognized net
income of approximately $3.2 million for the first half of fiscal 2002 compared
with a net loss of approximately $2.4 million for the same period a year
earlier.
Page 10 of 17
Liquidity and Capital Resources
The Company's near term future cash needs will be driven by working capital
requirements and planned capital expenditures. Capital expenditures were
approximately $3.2 million for the first half of fiscal 2002 compared to $2.0
million for the same period a year earlier. The remainder of planned fiscal 2002
expenditures is targeted for the Company's annealing capabilities for the
Arcadia tubular facility and environmental projects. 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"). The Company believes these sources of capital will
be sufficient to fund these capital expenditures and working capital
requirements over the next 12 months, although there can be no assurance of
this.
Net cash provided by operating activities in the first half of fiscal 2002
was approximately $9.7 million, as compared to $500,000 for the same period a
year earlier. The cash provided by operating activities for the first half of
fiscal 2002 was the result of a decrease of approximately $7.2 million in
accounts receivable, net income of approximately $3.2 million, non-cash
depreciation and amortization of approximately $3.0 million, approximately $1.7
million of deferred income taxes, an increase of approximately $1.5 million in
accounts payable and accruals, an increase of approximately $8.6 million in
inventory, and approximately $1.7 million in other adjustments. Net cash used
for investing activities increased to approximately $3.1 million for the first
half of 2002 from approximately $1.9 million for the same period a year earlier,
due to the increase in capital expenditures. Net cash used in financing
activities for the first half of fiscal 2002 was approximately $5.6 million, due
to net reductions in borrowings under the Fleet Revolving Credit Facility.
Cash for the first half of fiscal 2002 increased approximately $900,000
resulting in a March 31, 2002, cash balance of approximately $1.1 million. Cash
for the first half of fiscal 2001 decreased approximately $600,000, resulting in
a cash balance of approximately $600,000 at March 31, 2001.
Total debt at March 31, 2002, was approximately $200.5 million compared to
approximately $210.4 million at March 31, 2001, reflecting decreased borrowing
under the Fleet Revolving Credit Facility and capital lease financing.
At March 31, 2002, approximately $56.0 million had been borrowed pursuant
to the Fleet Revolving Credit Facility compared to approximately $65.1 million
at March 31, 2001. In addition, as of March 31, 2002, approximately $1.6 million
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, 2002 and a permanent fixed charge
reserve which is $2.0 million at March 31, 2002. The Company had available
additional borrowing capacity of approximately $13.5 million on the Fleet
Revolving Credit Facility at March 31, 2002.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses Haynes' consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the 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. On an on-going basis, management evaluates its
estimates and judgments, including those related to bad debts, inventories,
income taxes, retirement benefits, and environmental matters. The process of
determining significant estimates is fact specific and takes into account
factors such as historical experience, current and expected economic conditions,
product mix and in some cases, actuarial techniques, and various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The Company
constantly reevaluates these significant factors and makes adjustments where
facts and circumstances dictate. Actual results may differ from these estimates
under different assumptions or conditions.
Our accounting policies are more fully described in Note 1 to the financial
statements, which was incorporated in the 2001 10-K. We have identified certain
critical accounting policies, which are described below.
Page 11 of 17
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. In addition, Haynes writes down its inventory for
estimated obsolescence or unmarketable inventory in an amount equal to the
difference between the cost of inventory and the estimated market or scrap
value, if applicable, based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
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
basis. 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. Haynes has considered
future taxable income and ongoing prudent and feasible tax planning strategies
in accessing the need for a valuation allowance. Management believes the
deferred tax assets are fully recoverable and, therefore, no valuation allowance
has been recorded. In the event Haynes were to determine that it would be unable
to realize its deferred tax assets in future periods, an adjustment to the
deferred tax asset would be charged to income in the period such a determination
was made.
Accounts Receivable
Haynes maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
Company markets its products to a diverse customer base, both in the United
States and overseas. Trade credit is extended based upon evaluation of each
customer's ability to perform its obligation, which are updated periodically. If
the financial condition of Haynes' customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
Revenue Recognition
Revenue is recognized at the time of shipment. Allowances for sales returns
are recorded as a component of net sales in the periods in which the related
sales are recognized.
Accrued Liabilities
Significant accrued liabilities include reserves for environmental
remediation, salaries and benefits, interest on debt, and other operating items.
The measurement of these by the Company is based on currently available facts,
present laws, and regulations.
Environmental Remediation
When it is probable that a liability has been incurred or an asset of the
Company has been impaired, a loss is recognized assuming the amount of the loss
can be reasonably estimated. The measurement of environmental liabilities by the
Company is based on currently available facts, present laws and regulations and
current technology. Such estimates take into consideration the Company's prior
experience in site investigation and remediation, the data concerning cleanup
costs available from other companies and regulatory authorities, and the
professional judgment of the Company's environmental experts in consultation
with outside environmental specialists, when necessary. To the extent there are
additional future developments, administrative actions or liabilities relating
to environmental matters, the Company may incur additional expenses related to
environmental remediation.
Page 12 of 17
Pension and Post-Retirement Benefits
The Company has defined benefit pension and post-retirement plans covering
most of its current and former employees. Significant elements in determining
the assets or liabilities and related income or expense for these plans are the
expected return on plan assets (if any), the discount rate used to value future
payment streams, expected trends in health care costs, and other actuarial
assumptions. Annually, the Company evaluates the significant assumptions to be
used to value its pension and post-retirement plan assets and liabilities based
on current market conditions and expectations of future costs. If actual results
are less favorable than those projected by management, additional expense may be
required in future periods.
The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. See our audited
consolidated financial statements and notes thereto which begin on page 28 of
the 2001 10-K which contain accounting policies and other disclosures required
by generally accepted accounting principles.
Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that all business combinations be accounted for
under the purchase method only and that certain acquired intangible assets in a
business combination be recognized as assets apart from goodwill. SFAS No. 142
requires that ratable amortization of goodwill be replaced with periodic tests
of the goodwill's impairment and that identifiable intangible assets other than
goodwill be amortized over their useful lives. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. The provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001. The adoption of
these standards will have no effect on the Company's results of operations or
financial position.
SFAS No. 143 "Accounting for Asset Retirement Obligation" and SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" were issued
during fiscal year 2001. SFAS No. 143 is effective for all fiscal years
beginning after June 15, 2002, and addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. SFAS No. 144 is effective for all fiscal years
beginning after December 15, 2001 and addresses recognition and measurement of
impairment losses on long-lived assets. The Company has not yet determined the
impact that adopting SFAS No. 143 and SFAS No. 144 will have on its results of
operations or financial position.
SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections" was issued April 2002. The
Company has not yet determined the impact that adopting SFAS No. 145 will have
on its results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At March 31, 2002, the Company's primary market risk exposure was foreign
currency exchange rate, interest rate, and raw material price fluctuations.
The foreign exchange contracts offset foreign currency denominated purchase
commitments to suppliers, accounts receivable from, and future committed sales
to, customers, and operating expenses. Any US dollar exposure aggregating more
than $500,000 requires approval from the Company's Vice President of Finance.
Most of the currency contracts to buy US dollars are with maturity dates of less
than six months.
Changes in interest rates offset the Company's variable rate debt.
Approximately 27.9% of the Company's total debt was variable rate debt at March
31, 2002. A hypothetical 10% increase in the interest rate on variable debt
would result in $.3 million additional interest expense at March 31, 2002; the
Company has not entered into any derivative instruments to protect against the
effects of changes in interest rates.
At March 31, 2002, the Company had no foreign currency exchange contracts
outstanding.
Page 13 of 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings
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.
On July 13, 2000, the Indiana Department of Environmental Management
("IDEM") issued a notice of violation to the Company imposing monetary sanctions
and alleging that the Company has violated various conditions of its Title V air
emissions permit. The Company is attempting to resolve these issues with IDEM.
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 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter for which this report is filed.
Page 14 of 17
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/ Calvin S. McKay
------------------------------------------
Calvin S. McKay
Vice President, Finance
Chief Financial Officer
Date: May 14, 2002
Page 15 of 17
INDEX TO EXHIBITS
Sequential
Number Numbering
Assigned In System Page
Regulation S-K Number of
Item 601 Description of Exhibit Exhibit
- -------------- ---------------------- -------
(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.)
(10) 10.01 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.)
10.02 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.)
10.03 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.)
10.04 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.)
10.05 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.)
10.06 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.)
10.09 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.)
Page 16 of 17
10.10 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.)
10.11 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.)
10.12 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.)
10.13 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.)
10.14 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.)
10.15 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).
10.16 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.)
10.22 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.)
10.23 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.
(22) No Exhibit.
(23) No Exhibit.
(24) No Exhibit.
(99) No Exhibit.
Page 17 of 17