10-Q 1 a15-2185_110q.htm 10-Q

Table of Contents

 

 

 

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 December 31, 2014

 

or

 

o

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:  001-33288

 

HAYNES INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware
(State or other jurisdiction of
incorporation or organization)

 

06-1185400
(I.R.S. Employer Identification No.)

 

 

 

1020 West Park Avenue, Kokomo, Indiana
(Address of principal executive offices)

 

46904-9013
(Zip Code)

 

Registrant’s telephone number, including area code (765) 456-6000

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filler” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes o  No x

 

As of February 6, 2015, the registrant had 12,446,300 shares of Common Stock, $.001 par value, outstanding.

 

 

 



Table of Contents

 

HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

 

Haynes International, Inc. and Subsidiaries:

 

 

 

 

 

Unaudited Consolidated Balance Sheets as of September 30, 2014 and December 31, 2014

1

 

 

 

 

Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 2013 and 2014

2

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended December 31, 2013 and 2014

3

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2013 and 2014

4

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

 

 

 

Item 6.

Exhibits

23

 

 

 

 

Signatures

24

 

 

 

 

Index to Exhibits

25

 



Table of Contents

 

PART 1                           FINANCIAL INFORMATION

 

Item 1.     Unaudited Condensed Consolidated Financial Statements

 

HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

 

 

 

September 30,
2014

 

December 31,
2014

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

45,871

 

$

38,374

 

Accounts receivable, less allowance for doubtful accounts of $861 and $951, respectively

 

72,439

 

68,921

 

Inventories

 

254,027

 

266,042

 

Income taxes receivable

 

3,235

 

353

 

Deferred income taxes

 

6,297

 

11,333

 

Other current assets

 

2,964

 

3,649

 

Total current assets

 

384,833

 

388,672

 

Property, plant and equipment, net

 

174,083

 

172,373

 

Deferred income taxes—long term portion

 

44,639

 

39,061

 

Prepayments and deferred charges

 

2,031

 

1,633

 

Other intangible assets, net

 

5,185

 

5,081

 

Total assets

 

$

610,771

 

$

606,820

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

41,957

 

$

35,157

 

Accrued expenses

 

13,213

 

14,078

 

Revolving credit facility

 

 

 

Accrued pension and postretirement benefits

 

4,572

 

4,572

 

Deferred revenue—current portion

 

2,500

 

2,500

 

Total current liabilities

 

62,242

 

56,307

 

Long-term obligations (less current portion)

 

745

 

745

 

Deferred revenue (less current portion)

 

27,829

 

27,204

 

Accrued pension benefits

 

72,315

 

72,087

 

Accrued postretirement benefits

 

100,910

 

101,103

 

Total liabilities

 

264,041

 

257,446

 

Commitments and contingencies (Note 6)

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.001 par value (40,000,000 shares authorized, 12,434,748 and 12,467,798 shares issued, 12,418,471 and 12,446,300 shares outstanding at September 30, 2014 and December 31, 2014, respectively)

 

12

 

12

 

Preferred stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued and outstanding)

 

 

 

Additional paid-in capital

 

242,387

 

242,844

 

Accumulated earnings

 

166,999

 

170,642

 

Treasury stock, 16,277 shares at September 30, 2014 and 21,498 shares at December 31, 2014

 

(840

)

(1,091

)

Accumulated other comprehensive loss

 

(61,828

)

(63,033

)

Total stockholders’ equity

 

346,730

 

349,374

 

Total liabilities and stockholders’ equity

 

$

610,771

 

$

606,820

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

 

HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2013

 

2014

 

 

 

 

 

 

 

Net revenues

 

$

93,700

 

$

110,676

 

Cost of sales

 

88,450

 

90,405

 

Gross profit

 

5,250

 

20,271

 

Selling, general and administrative expense

 

9,956

 

9,736

 

Research and technical expense

 

878

 

887

 

Operating income (loss)

 

(5,584

)

9,648

 

Interest income

 

(46

)

(23

)

Interest expense

 

18

 

16

 

Income (loss) before income taxes

 

(5,556

)

9,655

 

Provision for (benefit from) income taxes

 

(2,064

)

3,274

 

Net income (loss)

 

$

(3,492

)

$

6,381

 

Net income (loss) per share:

 

 

 

 

 

Basic

 

$

(0.29

)

$

0.51

 

Diluted

 

$

(0.29

)

$

0.51

 

 

 

 

 

 

 

Dividend declared per common share

 

$

0.22

 

$

0.22

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

 

HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

 

 

Three Months Ended
December 31

 

 

 

2013

 

2014

 

Net income (loss)

 

$

(3,492

)

$

6,381

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Pension and post-retirement

 

711

 

1,254

 

Foreign currency translation adjustment

 

1,290

 

(2,459

)

Comprehensive income (loss)

 

$

(1,491

)

$

5,176

 

 

The accompanying notes are an integral part of these financial statements.

 

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended
December 31,

 

 

 

2013

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

(3,492

)

$

6,381

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation

 

3,606

 

4,278

 

Amortization

 

104

 

104

 

Pension and post-retirement expense — U.S. and U.K.

 

2,611

 

3,203

 

Stock compensation expense

 

437

 

457

 

Excess tax benefit from option exercises and restricted stock vesting

 

(253

)

 

Deferred revenue

 

(625

)

(625

)

Deferred income taxes

 

(4,668

)

(177

)

Loss on disposition of property

 

17

 

113

 

Change in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

20,462

 

2,616

 

Inventories

 

3,541

 

(13,344

)

Other assets

 

(1,010

)

(308

)

Accounts payable and accrued expenses

 

3,822

 

(5,188

)

Income taxes

 

2,119

 

2,910

 

Accrued pension and postretirement benefits

 

(2,606

)

(1,246

)

Net cash provided by (used in) operating activities

 

24,065

 

(826

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant and equipment

 

(9,313

)

(3,214

)

Net cash used in investing activities

 

(9,313

)

(3,214

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Dividends paid

 

(2,720

)

(2,738

)

Proceeds from exercise of stock options

 

589

 

 

Payment for purchase of treasury stock

 

(335

)

(251

)

Excess tax benefit from option exercises and restricted stock vesting

 

253

 

 

Net cash used in financing activities

 

(2,213

)

(2,989

)

 

 

 

 

 

 

Effect of exchange rates on cash

 

158

 

(468

)

Increase (decrease) in cash and cash equivalents

 

12,697

 

(7,497

)

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

68,326

 

45,871

 

Cash and cash equivalents, end of period

 

$

81,023

 

$

38,374

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

Interest (net of capitalized interest)

 

$

2

 

$

0

 

Income taxes paid (net of refunds)

 

$

376

 

$

535

 

Capital expenditures incurred but not yet paid

 

$

3,941

 

$

1,032

 

 

The accompanying notes are an integral part of these financial statements.

 

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share and per share data)

 

Note 1.         Basis of Presentation

 

Interim Financial Statements

 

The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and such principles are applied on a basis consistent with information reflected in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments, which are necessary for a fair presentation of results for the respective interim periods. The results of operations for the three months ended December 31, 2014 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2015 or any interim period.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Haynes International, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All intercompany transactions and balances are eliminated.

 

Note 2.         New Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of the update is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the methods of adoption allowed by the new standard and the effect, if any, on its consolidated financial statements

 

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815).  The objective of the update is to set forth the definition of a derivative instrument and specify how to account for such instruments, including derivatives embedded in hybrid instruments.  In addition, this update establishes when reporting entities, in certain limited, well-defined circumstances, may apply hedge accounting to a relationship involving a designated hedging instrument and hedged exposure.  It is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period.  The Company does not anticipate a material impact to the consolidated financial statements upon adoption.

 

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805).  The objective of the update is to provide guidance on whether and at what threshold an acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements.  It became effective on November 18, 2014.  This update did not result in a material impact to the consolidated financial statements or the related disclosures.

 

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Note 3.         Inventories

 

The following is a summary of the major classes of inventories:

 

 

 

September 30,
2014

 

December 31,
2014

 

Raw Materials

 

$

25,050

 

$

29,093

 

Work-in-process

 

144,285

 

132,844

 

Finished Goods

 

83,674

 

103,049

 

Other

 

1,018

 

1,056

 

 

 

$

254,027

 

$

266,042

 

 

Note 4.         Income Taxes

 

Income tax expense for the three months ended December 31, 2013 and 2014 differed from the U.S. federal statutory rate of 35% primarily due to state income taxes, differing tax rates on foreign earnings and discrete tax items that impacted income tax expense in these periods. The effective tax rate for the three months ended December 31, 2014 was 33.9% compared to 37.1% in the same period of fiscal 2014.  This decrease is attributable to a change in our manufacturer’s deduction in the first quarter of fiscal 2014.

 

Note 5.         Pension and Post-retirement Benefits

 

Components of net periodic pension and post-retirement benefit cost for the three months ended December 31, 2013 and 2014 are as follows:

 

 

 

Three Months Ended December 31,

 

 

 

Pension Benefits

 

Other Benefits

 

 

 

2013

 

2014

 

2013

 

2014

 

Service cost

 

$

993

 

$

975

 

$

67

 

$

84

 

Interest cost

 

2,855

 

2,641

 

1,145

 

1,096

 

Expected return

 

(3,578

)

(3,563

)

 

 

Amortizations

 

1,354

 

1,361

 

(225

)

609

 

Net periodic benefit cost

 

$

1,624

 

$

1,414

 

$

987

 

$

1,789

 

 

The Company contributed zero to Company sponsored domestic pension plans, $987 to its other post-retirement benefit plans and $236 to the U.K. pension plan for the three months ended December 31, 2014. The Company presently expects future contributions of $3,490 to its other post-retirement benefit plan and $739 to the U.K. pension plan for the remainder of fiscal 2015 and is evaluating possible contribution amounts to the U.S. pension plan. The Company has a minimum contribution requirement of approximately $0.8 million in fiscal 2015 to the U.S. pension plan.

 

Note 6. Legal, Environmental, and Other Contingencies

 

The Company is regularly involved in litigation, both as a plaintiff and as a defendant, relating to its business and operations, including environmental, commercial, employment, and federal and/or state Equal Employment Opportunity Commission (EEOC) administrative actions. Future expenditures for environmental, employment, intellectual property, and other legal matters cannot be determined with any degree of certainty; however, 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 cash flows.

 

The Company is currently, and has in the past been, subject to claims involving personal injuries allegedly relating to its products and processes. For example, the Company is presently involved in two actions involving welding rod-related injuries, which were filed in California state court against numerous manufacturers, including the Company, in May 2006 and February 2007, respectively, alleging that the welding-related products of the defendant manufacturers harmed the users of such products through the inhalation of welding fumes containing manganese. The Company is also involved in two actions related to asbestos in its facilities, which were filed in 2012 and 2014, respectively. The Company believes

 

6



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that it has defenses to these allegations and that, if the Company were to be found liable, the cases would not have a material effect on its financial position, results of operations or liquidity.

 

The Company has received permits from the Indiana Department of Environmental Management, or IDEM, to close and to provide post-closure monitoring and care for certain areas at the Kokomo facility previously used for the storage and disposal of wastes, some of which are classified as hazardous under applicable regulations. Closure certification was received in fiscal 1988 for the South Landfill at the Kokomo facility, and post-closure monitoring and care is ongoing there. Closure certification was received in fiscal 1999 for the North Landfill at the Kokomo facility, and post-closure monitoring and care are permitted and ongoing there. In fiscal 2007, IDEM issued a single post-closure permit applicable to both the North and South Landfills, which contains monitoring and post-closure care requirements and which was renewed in 2012. In addition, IDEM required that a Resource Conservation and Recovery Act, or RCRA, Facility Investigation, or RFI be conducted in order to further evaluate one additional area of concern and one additional solid waste management unit. The RFI commenced in fiscal 2008 and is ongoing. Based on preliminary results, the Company has determined that additional testing and further source remediation are necessary.

 

The Company has also received permits from the North Carolina Department of Environment and Natural Resources, or NCDENR, to close and provide post-closure monitoring and care for the hazardous waste lagoon at its Mountain Home, North Carolina facility. The lagoon area has been closed and is currently undergoing post-closure monitoring and care. The Company is required to monitor groundwater and to continue post-closure maintenance of the former disposal areas at each site. As a result, the Company is aware of elevated levels of certain contaminants in the groundwater, and additional corrective action by the Company could be required.

 

On August 3, 2012, the Company received an information request from the United States Environmental Protection Agency, or EPA, relating to the Company’s compliance with laws relating to air quality. The Company has responded to the request, and there has been no further action by the EPA.

 

As of September 30, 2014 and December 31, 2014, the Company has accrued $823 for post-closure monitoring and maintenance activities. Accruals for these costs are calculated by estimating the cost to monitor and maintain each post-closure site and multiplying that amount by the number of years remaining in the post-closure monitoring.

 

Note 7.  Deferred Revenue

 

On November 17, 2006, the Company entered into a twenty-year agreement to provide conversion services to Titanium Metals Corporation (“TIMET”) for up to ten million pounds of titanium metal annually. TIMET paid the Company a $50,000 up-front fee and will also pay the Company for its processing services during the term of the agreement (20 years) at prices established by the terms of the agreement. TIMET may exercise an option to have ten million additional pounds of titanium converted annually, provided that it offers to loan up to $12,000 to the Company for certain capital expenditures which may be required to expand capacity. In addition to the volume commitment, the Company has granted TIMET a first priority security interest in its four-high Steckel rolling mill, along with rights of access if the Company enters into bankruptcy or defaults on any financing arrangements. The Company has agreed not to manufacture titanium products (other than cold reduced titanium tubing). The Company has also agreed not to provide titanium hot-rolling conversion services to any entity other than TIMET for the term of the Conversion Services Agreement. The agreement contains certain default provisions which could result in contract termination and damages, including liquidated damages of $25,000 and the Company being required to return the unearned portion of the up-front fee. The Company considered each provision and the likelihood of the occurrence of a default that would result in liquidated damages.  Based on the nature of the events that could trigger the liquidated damages clause, and the availability of the cure periods set forth in the agreement, the Company determined and continues to believe that none of these circumstances are reasonably likely to occur.  Therefore, events resulting in liquidated damages have not been factored in as a reduction to the amount of revenue recognized over the life of the contract.  The cash received of $50,000 is recognized in income on a straight-line basis over the 20-year term of the agreement.  If an event of default occurred and was not cured within any applicable grace period, the Company would recognize the impact of the liquidated damages in the period of default and re-evaluate revenue recognition under the contract for future periods. The portion of the up-front fee not recognized in income is shown as deferred revenue on the consolidated balance sheet.

 

Note 8.    Intangible Assets

 

The Company has patents, trademarks, and other intangibles. As the patents have a definite life, they are amortized over lives ranging from two to fourteen years. The Company reviews patents for impairment whenever events or circumstances indicate that the carrying amount of a patent may not be recoverable. Recoverability of the patent asset

 

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is measured by a comparison of the carrying amount of the asset to the undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.

 

As the trademarks have an indefinite life, the Company tests them for impairment at least annually as of August 31 (the annual impairment testing date). If the carrying value exceeds the fair value (determined by calculating a fair value based upon a discounted cash flow of an assumed royalty rate), impairment of the trademark may exist resulting in a charge to earnings to the extent of the impairment. No impairment was recognized in the years ended September 30, 2013 or 2014 because the fair value exceeded the carrying values. The Company has a non-compete agreement with a remaining life of eight months.

 

Amortization of the patents, non-competes, and other intangibles was $104 for each of the three-month periods ended December 31, 2013 and 2014.

 

The following represents a summary of intangible assets at September 30, 2014 and December 31, 2014:

 

September 30, 2014

 

Gross
Amount

 

Accumulated
Amortization

 

Carrying
Amount

 

Patents

 

$

4,030

 

$

(2,813

)

$

1,217

 

Trademarks

 

3,800

 

 

3,800

 

Non-compete

 

500

 

(452

)

48

 

Other

 

330

 

(210

)

120

 

 

 

$

8,660

 

$

(3,475

)

$

5,185

 

 

December 31, 2014

 

Gross
Amount

 

Accumulated
Amortization

 

Carrying
Amount

 

Patents

 

$

4,030

 

$

(2,883

)

$

1,147

 

Trademarks

 

3,800

 

 

3,800

 

Non-compete

 

500

 

(470

)

30

 

Other

 

330

 

(226

)

104

 

 

 

$

8,660

 

$

(3,579

)

$

5,081

 

 

Estimate of Aggregate Amortization
Expense:
Year Ended September 30,

 

 

 

2015 (remainder of fiscal year)

 

304

 

2016

 

388

 

2017

 

279

 

2018

 

279

 

2019

 

31

 

Thereafter

 

 

 

Note 9.   Net Income (Loss) Per Share

 

The Company accounts for earnings per share using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to participation rights in undistributed earnings. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. Per share amounts are computed by dividing net income attributable to common stockholders by the weighted average shares outstanding during each period. Basic earnings per share is computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. As aresult of the loss in first quarter of fiscal 2014, no additional common shares or restricted stock awards are included because their effect is antidilutive.

 

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The following table sets forth the computation of basic and diluted earnings per share:

 

 

 

Three Months Ended
December 31,

 

(in thousands, except share and per share data)

 

2013

 

2014

 

Numerator: Basic and Diluted

 

 

 

 

 

Net income (loss)

 

$

(3,492

)

$

6,381

 

Dividends paid

 

(2,720

)

(2,738

)

Undistributed income (loss)

 

$

(6,212

)

$

3,643

 

Percentage allocated to common shares (a)

 

100.0

%

99.1

%

 

 

 

 

 

 

Undistributed income (loss) allocated to common shares

 

$

(6,212

)

$

3,610

 

Dividends paid on common shares outstanding

 

2,720

 

2,713

 

Net income (loss) available to common shares

 

$

(3,492

)

$

6,323

 

 

 

 

 

 

 

Denominator: Basic and Diluted

 

 

 

 

 

Weighted average common shares outstanding

 

12,247,462

 

12,333,550

 

Adjustment for dilutive potential common shares

 

 

12,923

 

Weighted average shares outstanding - Diluted

 

12,247,462

 

12,346,473

 

 

 

 

 

 

 

Per common share net income (loss)

 

 

 

 

 

Basic

 

$

(0.29

)

$

0.51

 

Diluted

 

$

(0.29

)

$

0.51

 

 

 

 

 

 

 

Number of stock option shares excluded as their effect would be anti-dilutive

 

238,722

 

290,255

 

Number of restrictive stock option shares as their effect would be anti-dilutive

 

101,950

 

112,750

 

 


(a)  Percentage allocated to common shares - weighted average

 

Common shares outstanding

 

12,247,462

 

12,333,550

 

Unvested participating shares

 

 

112,750

 

 

 

12,247,462

 

12,446,300

 

 

Note 10.  Stock-Based Compensation

 

Restricted Stock Plan

 

On February 23, 2009, the Company adopted a restricted stock plan that reserved 400,000 shares of common stock for issuance. Grants of restricted stock are grants of shares of the Company’s common stock subject to transfer restrictions, which vest in accordance with the terms and conditions established by the Compensation Committee. The Compensation Committee may set vesting requirements based on the achievement of specific performance goals or the passage of time.

 

Restricted shares are subject to forfeiture if employment or service terminates prior to the vesting date or if any applicable performance goals are not met. The Company will assess, on an ongoing basis, the probability of whether the performance criteria will be achieved. The Company will recognize compensation expense over the performance period if it is deemed probable that the goals will be achieved. The fair value of the Company’s restricted stock is determined

 

9



Table of Contents

 

based upon the closing price of the Company’s common stock on the trading day immediately preceding the grant date. The plan provides for the adjustment of the number of shares covered by an outstanding grant and the maximum number of shares for which restricted stock may be granted in the event of a stock split, extraordinary dividend or distribution or similar recapitalization event.

 

On November 25, 2014, the Company granted 41,700 shares of restricted stock to certain key employees and non-employee directors. The shares of restricted stock granted to employees will vest on the third anniversary of their grant date, provided that (a) the recipient is still an employee of the Company and (b) the Company has met a three-year net income performance goal, if applicable. The shares of restricted stock granted to non-employee directors will vest on the earlier of (a) the first anniversary of the date of grant or (b) the failure of such non-employee director to be re-elected at an annual meeting of the stockholders of the Company as a result of such non-employee director being excluded from the nominations for any reason other than cause. The fair value of the grants were $46.72 per share, the closing price of the Company’s common stock on the trading day immediately preceding the day of the applicable grant.

 

The following table summarizes the activity under the restricted stock plan for the three months ended December 31, 2014:

 

 

 

Number of
Shares

 

Weighted
Average Fair
Value At

Grant Date

 

Unvested at September 30, 2014

 

97,150

 

$

51.96

 

Granted

 

41,700

 

$

46.72

 

Forfeited / Canceled

 

(8,650

)

$

55.72

 

Vested

 

(17,450

)

$

56.52

 

Unvested at December 31, 2014

 

112,750

 

$

49.07

 

Expected to vest

 

89,550

 

$

48.70

 

 

Compensation expense related to restricted stock for the three months ended December 31, 2013 and 2014 was $325 and $330, respectively. The remaining unrecognized compensation expense at December 31, 2014 was $3,232, to be recognized over a weighted average period of 1.20 years. During the first quarter of fiscal 2015, the Company repurchased 5,221 shares of stock from employees and directors at an average purchase price of $48.04 to satisfy required withholding taxes upon vesting of restricted stock-based compensation.

 

Stock Option Plans

 

The Company has two stock option plans that authorize the granting of non-qualified stock options to certain key employees and non-employee directors for the purchase of a maximum of 1,500,000 shares of the Company’s common stock. The first option plan was adopted in August 2004 and provides for the grant of options to purchase up to 1,000,000 shares of the Company’s common stock. In January 2007, the Company’s Board of Directors adopted a second option plan that provides for options to purchase up to 500,000 shares of the Company’s common stock. Each plan provides for the adjustment of the maximum number of shares for which options may be granted in the event of a stock split, extraordinary dividend or distribution or similar recapitalization event. Unless the Compensation Committee determines otherwise, options granted under the option plans are exercisable for a period of ten years from the date of grant and vest 331/3% per year over three years from the grant date. The amount of compensation cost recognized in the financial statements is measured based upon the grant date fair value.

 

The fair value of option grants was estimated as of the date of the grant. The Company has elected to use the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected life, risk-free interest rates, expected forfeitures and dividend yields. The volatility is based on historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected term of the stock option granted. The Company uses historical volatility because management believes such volatility is representative of prospective trends. The expected term of an award is based on historical exercise data. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the awards. The expected forfeiture rate is based upon historical experience. The dividend yield assumption is based on the Company’s history and expectations regarding dividend payouts at the time of the grant.  Valuation of future grants under the Black-Scholes model will include a dividend yield. The following assumptions were used for grants in the first quarter of fiscal 2015:

 

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Table of Contents

 

Grant Date

 

Fair
Value

 

Dividend
Yield

 

Risk-free
Interest Rate

 

Expected
Volatility

 

Expected
Life

 

November 25, 2014

 

$

8.17

 

1.90

%

0.96

%

28

%

3 years

 

 

On November 25, 2014, the Company granted 81,100 options at an exercise price of $46.72, the fair market value of the Company’s common stock the day immediately preceding the day of the grant. During the first quarter of fiscal 2015, no options were exercised.

 

The stock-based employee compensation expense for stock options for the three months ended December 31, 2013 and 2014 was $112 and $126, respectively.  The remaining unrecognized compensation expense at December 31, 2014 was $1,086, to be recognized over a weighted average vesting period of 1.53 years.

 

The following tables summarize the activity under the stock option plans for the three months ended December 31, 2014 and provide information regarding outstanding stock options:

 

 

 

Number of
Shares

 

Aggregate
Intrinsic
Value

(000s)

 

Weighted
Average
Exercise
Prices

 

Weighted
Average
Remaining
Contractual Life

 

Outstanding at September 30, 2014

 

282,001

 

 

 

$

51.61

 

 

 

Granted

 

81,100

 

 

 

$

46.72

 

 

 

Exercised

 

 

 

 

 

 

 

Canceled

 

 

 

 

 

 

 

Outstanding at December 31, 2014

 

363,101

 

$

1,085

 

$

50.52

 

6.20

 

Vested or expected to vest

 

342,016

 

$

1,046

 

$

50.66

 

6.06

 

Exercisable at December 31, 2014

 

239,367

 

$

934

 

$

51.66

 

4.51

 

 

Grant Date

 

Exercise
Price Per
Share

 

Remaining
Contractual
Life in Years

 

Outstanding
Number of
Shares

 

Exercisable
Number of
Shares

 

March 31, 2006

 

31.00

 

1.25

 

10,000

 

10,000

 

March 30, 2007

 

72.93

 

2.25

 

47,500

 

47,500

 

March 31, 2008

 

54.00

 

3.25

 

58,000

 

58,000

 

October 1, 2008

 

46.83

 

3.75

 

20,000

 

20,000

 

March 31, 2009

 

17.82

 

4.25

 

12,084

 

12,084

 

January 8, 2010

 

34.00

 

5.00

 

12,400

 

12,400

 

November 24, 2010

 

40.26

 

5.92

 

19,667

 

19,667

 

November 25, 2011

 

55.88

 

6.92

 

19,700

 

19,700

 

November 20, 2012

 

47.96

 

7.92

 

35,600

 

23,734

 

December 10, 2012

 

48.39

 

7.92

 

1,800

 

1,200

 

November 26, 2013

 

52.78

 

8.92

 

45,250

 

15,082

 

November 25, 2014

 

46.72

 

9.92

 

81,100

 

 

 

 

 

 

 

 

363,101

 

239,367

 

 

Note 11.    Dividend

 

In the first quarter of fiscal 2015, the Company declared and paid a quarterly cash dividend. The dividend of $0.22 per outstanding share of the Company’s common stock was paid December 15, 2014 to stockholders of record at the close of business on December 1, 2014.  The dividend cash pay-out was $2,738 for the quarter based on the number of shares outstanding.

 

On February 5, 2015, the Company announced that the Board of Directors declared a regular quarterly cash dividend of $0.22 per outstanding share of the Company’s common stock.  The dividend is payable March 16, 2015 to stockholders of record at the close of business on March 2, 2015.

 

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Table of Contents

 

Note 12.  Fair Value Measurements

 

The fair value hierarchy has three levels based on the inputs used to determine fair value.

 

·                  Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

·                  Level 2 — Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

·                  Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

When available, the Company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally-developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and currency rates. Items valued using internally-generated models are classified according to the lowest level input or value driver that is significant to the valuation. If quoted market prices are not available, the valuation model used depends on the specific asset or liability being valued. Money market funds included in cash and cash equivalents of $45,871 and $38,374 as of September 30, 2014 and December 31, 2014, respectively, are considered Level 1.

 

Note 13.  Changes in Accumulated Other Comprehensive Income (Loss) by Component

 

Comprehensive income (loss) includes changes in equity that result from transactions and economic events from non-owner sources. Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss) items, including pension and foreign currency translation adjustments, net of tax when applicable.

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

Three Months Ended December 31, 2013

 

 

 

Pension
Plan

 

Postretirement
Plan

 

Foreign
Exchange

 

Total

 

Accumulated other comprehensive income (loss) as of September 30, 2013

 

$

(42,798

)

$

(15,964

)

$

1,963

 

$

(56,799

)

Other comprehensive income before classifications

 

 

 

1,290

 

1,290

 

Amounts reclassified from accumulated other comprehensive income (loss)

 

853

 

(142

)

 

711

 

Net current-period other comprehensive income (loss)

 

853

 

(142

)

1,290

 

2,001

 

Accumulated other comprehensive income (loss) as of December 31, 2013

 

$

(41,945

)

$

(16,106

)

$

3,253

 

$

(54,798

)

 

 

 

Three Months Ended December 31, 2014

 

 

 

Pension
Plan

 

Postretirement
Plan

 

Foreign
Exchange

 

Total

 

Accumulated other comprehensive income (loss) as of September 30, 2014

 

$

(42,800

)

$

(20,000

)

$

972

 

$

(61,828

)

Other comprehensive income (loss) before classifications

 

 

 

(2,459

)

(2,459

)

Amounts reclassified from accumulated other comprehensive income (loss)

 

872

 

382

 

 

1,254

 

Net current-period other comprehensive income (loss)

 

872

 

382

 

(2,459

)

(1,205

)

Accumulated other comprehensive income (loss) as of December 31, 2014

 

$

(41,928

)

$

(19,618

)

$

1,487

 

$

(63,033

)

 

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Table of Contents

 

Reclassifications out of Accumulated Other Comprehensive Income

 

 

 

Three Months Ended
 December 31, 2013

 

Three Months Ended
December 31, 2014

 

 

 

Pension
Plan

 

Post-
retirement
Plan

 

Total

 

Pension
Plan

 

Post-
retirement
Plan

 

Total

 

Amortization of Pension and Postretirement Plan items

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior Service Costs (a) 

 

$

(202

)

$

724

 

$

522

 

$

(202

)

 

$

(202

)

Actuarial (losses) (a) 

 

(1,153

)

(499

)

(1,652

)

(1,183

)

$

(607

)

(1,790

)

Total before tax

 

(1,355

)

225

 

(1,130

)

(1,385

)

(607

)

(1,993

)

Tax (expense) or benefit

 

502

 

(83

)

419

 

513

 

225

 

738

 

Total reclassification for the period

 

$

(853

)

$

142

 

$

(711

)

$

(872

)

(382

)

$

(1,254

)

 


(a)       These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

 

Note 14.  Subsequent Event - Acquisition

 

On January 7, 2015, the Company acquired the assets and operations of Leveltek Processing, LLC located in LaPorte, Indiana for $14.6 million in cash.  The acquisition of the LaPorte assets will provide the Company control of a significant portion of the sheet stretching, leveling, slitting and cut-to-length capabilities that were previously an outsourced function. Acquisition costs incurred in the first quarter of fiscal 2015 were not significant. The business is being operated under the name LaPorte Custom Metal Processing, LLC (LCMP), a subsidiary of the Company.

 

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Table of Contents

 

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 Quarterly Report on Form 10-Q (this “Form 10-Q”) contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements other than statements of historical fact, including statements regarding market and industry prospects and future results of operations or financial position, made in this Form 10-Q are forward-looking.  In many cases, you can identify forward-looking statements by terminology, such as “may”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. The forward-looking information may include, among other information, statements concerning the Company’s outlook for fiscal year 2015 and beyond, overall volume and pricing trends, cost reduction strategies and their anticipated results, capital expenditures and dividends.  There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, many of which are beyond the Company’s control.

 

The Company has based these forward-looking statements on its current expectations and projections about future events.  Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate. As a result, the forward-looking statements based upon those assumptions also could be incorrect.  Risks and uncertainties may affect the accuracy of forward-looking statements. Some, but not all, of these risks are listed in Item 1A. of Part 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014.

 

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Business Overview

 

Haynes International, Inc. (“Haynes” or “the Company”) is one of the world’s largest producers of high-performance nickel and cobalt based alloys in sheet, coil and plate forms. The Company is focused on developing, manufacturing, marketing and distributing technologically advanced, high-performance alloys, which are sold primarily in the aerospace, chemical processing and land-based gas turbine industries. The Company’s products consist of high-temperature resistant alloys, or HTA products, and corrosion-resistant alloys, or CRA products. HTA products are used by manufacturers of equipment that is subjected to extremely high temperatures, such as jet engines, gas turbine engines, and industrial heating and heat treatment equipment. CRA products are used in applications that require resistance to very corrosive media found in chemical processing, power plant emissions control and hazardous waste treatment. Management believes Haynes is one of the principal producers of high-performance alloy flat products in sheet, coil and plate forms, and sales of these forms, in the aggregate, represented approximately 58% of net product revenues in fiscal 2014. The Company also produces its products as seamless and welded tubulars, and in slab, bar, billet and wire forms.

 

The Company has manufacturing facilities in Kokomo, Indiana; Arcadia, Louisiana; and Mountain Home, North Carolina. The Kokomo facility specializes in flat products, the Arcadia facility specializes in tubular products, and the Mountain Home facility specializes in wire products. The Company’s products are sold primarily through its direct sales organization, which includes 13 service and/or sales centers in the United States, Europe and Asia. All of these centers are Company operated.

 

Dividends Paid and Declared

 

In the first quarter of fiscal 2015, the Company declared and paid a regular quarterly cash dividend of $0.22 per outstanding share of the Company’s common stock. The dividend was paid December 15, 2014 to stockholders of record at the close of business on December 1, 2014.  The dividend cash pay-out was approximately $2.7 million for the quarter based on the number of shares outstanding and equal to approximately $10.9 million on an annualized basis.

 

On February 5, 2015, the Company announced that the Board of Directors declared a regular quarterly cash dividend of $0.22 per outstanding share of the Company’s common stock.  The dividend is payable March 16, 2015 to

 

14



Table of Contents

 

stockholders of record at the close of business on March 2, 2015.

 

Subsequent Event

 

On January 7, 2015, the Company acquired the assets and operations of Leveltek Processing, LLC located in LaPorte, Indiana for $14.6 million in cash.  The acquisition of the LaPorte assets will provide the Company control of a significant portion of the sheet stretching, leveling, slitting and cut-to-length capabilities that were previously an outsourced function. The business is being operated under the name LaPorte Custom Metal Processing, LLC (LCMP), a subsidiary of the Company.

 

Capital Spending

 

The Company’s strategic capital investment projects that were announced in fiscal 2012 are substantially complete and resulted in expansions of flat product capacity in Kokomo, Indiana and tubular production capacity in Arcadia, Louisiana.  The Company has already begun to capture operating leverage on these investments and management expects continued benefits as utilization ramps up on this new capacity. The forecast for capital investments in fiscal 2015 is approximately $22.0 million, excluding the previously-mentioned acquisition of the Leveltek LaPorte assets, which were purchased for $14.6 million in January, 2015. The combined $36.6 million is our projected cash used in investing activities for fiscal 2015.

 

Volumes, Competition and Pricing

 

Business conditions have improved significantly from the first quarter of fiscal 2014.  In that quarter, the Company experienced reduced demand, increased price competition in commodity-type alloys and destocking in the supply chain as customers consumed excess inventory.  In the first quarter of fiscal 2015, the Company experienced better pricing power and a stronger mix of high-value specialty and proprietary alloys in high-value product forms.  Both of these circumstances contributed to an average selling price improvement for product sales of $2.39 per pound sold, a 11.4% improvement.  The price increases that were announced in the second half of fiscal 2014 are favorably impacting the first quarter of fiscal 2015. Product-sales average selling price per pound differs from aggregate selling price per pound, as reported in previous filings, due to the exclusion of other revenue not associated with pounds shipped.

 

The market price of nickel has been declining, which can cause customers to delay orders for the Company’s products in order to receive a lower price in the future.  In addition, the Company values inventory utilizing the first-in, first-out (“FIFO”) inventory costing methodology. In a period of decreasing raw material costs, the FIFO inventory valuation normally results in higher costs of sales as compared to the last-in, first out method.  This could be a headwind for gross margins in the remainder of fiscal year 2015.

 

Net Revenue and Gross Profit Margin Performance

 

 

 

Comparison by Quarter of Gross Profit Margin and
Gross Profit Margin Percentage for Fiscal 2014 and 2015

 

 

 

Quarter Ended

 

(dollars in thousands)

 

December 31,
2013

 

March 31,
2014

 

June 30,
2014

 

September 30,
2014

 

December 31,
2014

 

Net Revenues

 

$

93,700

 

$

115,350

 

$

126,293

 

$

120,067

 

$

110,676

 

Gross Profit Margin

 

$

5,250

 

$

9,064

 

$

14,061

 

$

18,923

 

$

20,271

 

Gross Profit Margin %

 

5.6

%

7.9

%

11.1

%

15.8

%

18.3

%

 

15



Table of Contents

 

In the first quarter of each fiscal year, the Company’s gross profit margin percentage is typically lower than the preceding quarter due to lower absorption of fixed manufacturing costs that do not decrease in proportion with decreased production levels. Production levels decrease in the first quarter due to the Company’s observance of seasonal holidays and planned equipment downtime for capital upgrades and maintenance projects.

 

While volume shipped in the first quarter of fiscal 2015 was lower in pounds than the fourth quarter of fiscal 2014, the pricing and profitability of the product improved, which helped drive a higher gross margin percentage.  Gross margin dollars for the first quarter of fiscal 2015 were $20.3 million dollars, which increased by $1.3 million compared to the fourth quarter of fiscal 2014 and represented an increase of $15.0 million compared to the first quarter of last year.  Approximately $6.5 million of the increase from the comparable period last fiscal year is attributable to increased pricing and a more profitable mix of products and projects sold in the first quarter of fiscal 2015.  An estimated $8.5 million is attributable to higher-cost inventory charged to cost of sales in the first quarter of fiscal 2014.

 

Backlog

 

Set forth below are selected data relating to the Company’s backlog, the 30-day average nickel price per pound as reported by the London Metals Exchange and a breakdown of net revenues, shipments and average selling prices to the markets served by the Company for the periods shown. The data should be read in conjunction with the consolidated financial statements and related notes thereto and the remainder of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-Q.

 

 

 

Quarter Ended

 

 

 

December 31,
2013

 

March 31,
2014

 

June 30,
2014

 

September 30,
2014

 

December 31,
2014

 

Backlog (1)

 

 

 

 

 

 

 

 

 

 

 

Dollars (in thousands)

 

$

180,150

 

$

202,283

 

$

204,680

 

$

221,322

 

$

215,529

 

Pounds (in thousands)

 

5,875

 

7,520

 

8,240

 

7,835

 

8,032

 

Average selling price per pound

 

$

30.66

 

$

26.90

 

$

24.84

 

$

28.25

 

$

26.83

 

Average nickel price per pound

 

 

 

 

 

 

 

 

 

 

 

London Metals Exchange(2) 

 

$

6.31

 

$

7.10

 

$

8.42

 

8.20

 

7.22

 

 


(1)             The Company defines backlog to include firm commitments from customers for delivery of product at established prices. Approximately 30% of the orders in the backlog at any given time include prices that are subject to adjustment based on changes in raw material costs. Historically, approximately 75% of the backlog orders have shipped within six months and approximately 90% have shipped within 12 months. The backlog figures do not reflect that portion of the business conducted at service and sales centers on a spot or “just-in-time” basis.

(2)             Represents the average price for a cash buyer as reported by the London Metals Exchange for the 30 days ending on the last day of the period presented.

 

Backlog was $215.5 million at December 31, 2014, a decrease of approximately $5.8 million, or 2.6%, from $221.3 million at September 30, 2014. The backlog dollars decreased during the first quarter of fiscal 2015 due to a 5.0% decrease in the average selling price per pound, partially offset by a 2.5% increase in pounds.

 

Quarterly Market Information

 

 

 

Quarter Ended

 

 

 

December 31,
2013

 

March 31,
2014

 

June 30,
2014

 

September 30,
2014

 

December 31,
2014

 

Net revenues (in thousands)

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

$

39,951

 

$

47,257

 

$

54,177

 

$

53,776

 

$

43,255

 

Chemical processing

 

23,073

 

30,436

 

30,570

 

29,330

 

30,753

 

Land-based gas turbines

 

18,145

 

21,756

 

24,989

 

21,853

 

17,533

 

Other markets

 

9,403

 

11,389

 

12,626

 

10,993

 

14,100

 

Total product revenue

 

90,572

 

110,838

 

122,362

 

115,952

 

105,641

 

Other revenue

 

3,128

 

4,512

 

3,931

 

4,115

 

5,035

 

Net revenues

 

$

93,700

 

$

115,350

 

$

126,293

 

$

120,067

 

$

110,676

 

 

 

 

 

 

 

 

 

 

 

 

 

Shipments by markets (in thousands of pounds)

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

1,630

 

2,226

 

2,577

 

2,399

 

1,809

 

Chemical processing

 

1,121

 

1,528

 

1,369

 

1,224

 

1,182

 

Land-based gas turbines

 

1,206

 

1,515

 

1,641

 

1,524

 

1,084

 

Other markets

 

362

 

423

 

470

 

446

 

447

 

Total shipments

 

4,319

 

5,692

 

6,057

 

5,593

 

4,522

 

 

 

 

 

 

 

 

 

 

 

 

 

Average selling price per pound

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

$

24.51

 

$

21.23

 

$

21.02

 

$

22.42

 

$

23.91

 

Chemical processing

 

20.58

 

19.92

 

22.33

 

23.96

 

26.02

 

Land-based gas turbines

 

15.05

 

14.36

 

15.23

 

14.34

 

16.17

 

Other markets

 

25.98

 

26.92

 

26.86

 

24.65

 

31.54

 

Total product (excluding other revenue)

 

20.97

 

19.47

 

20.20

 

20.73

 

23.36

 

Total average selling price (including other revenue)

 

21.69

 

20.27

 

20.85

 

21.47

 

24.48

 

 

16



Table of Contents

 

Results of Operations for the Three Months Ended December 31, 2013 Compared to the Three Months Ended December 31, 2014

 

The following table sets forth certain financial information as a percentage of net revenues for the periods indicated and compares such information between periods.

 

 

 

Three Months Ended

 

 

 

 

 

 

 

December 31,

 

Change

 

($ in thousands)

 

2013

 

2014

 

Amount

 

%

 

Net revenues

 

$

93,700

 

100.0

%

$

110,676

 

100.0

%

$

16,976

 

18.1

%

Cost of sales

 

88,450

 

94.4

%

90,405

 

81.7

%

1,955

 

2.2

%

Gross profit

 

5,250

 

5.6

%

20,271

 

18.3

%

15,021

 

286.1

%

Selling, general and administrative expense

 

9,956

 

10.6

%

9,736

 

8.8

%

(220

)

(2.2

)%

Research and technical expense

 

878

 

0.9

%

887

 

0.8

%

9

 

1.0

%

Operating income

 

(5,584

)

(5.9

)%

9,648

 

8.7

%

15,232

 

(272.8

)%

Interest income

 

(46

)

0.0

%

(23

)

0.0

%

23

 

(50.0

)%

Interest expense

 

18

 

0.0

%

16

 

0.0

%

(2

)

(11.1

)%

Income before income taxes

 

(5,556

)

(5.9

)%

9,655

 

8.7

%

15,211

 

(273.8

)%

Provision for income taxes

 

(2,064

)

(2.2

)%

3,274

 

3.0

%

5,338

 

(258.6

)%

Net income

 

$

(3,492

)

(3.7

)%

6,381

 

5.8

%

$

9,873

 

(282.7

)%

 

The following table includes a breakdown of net revenues, shipments and average selling prices to the markets served by the Company for the periods shown.

 

By market

 

 

 

Three Months Ended
December 31,

 

Change

 

 

 

2013

 

2014

 

Amount

 

%

 

Net revenues (in thousands)

 

 

 

 

 

 

 

 

 

Aerospace

 

$

39,951

 

$

43,255

 

$

3,304

 

8.3

%

Chemical processing

 

23,073

 

30,753

 

7,680

 

33.3

%

Land-based gas turbines

 

18,145

 

17,533

 

(612

)

(3.4

)%

Other markets

 

9,403

 

14,100

 

4,697

 

50.0

%

Total product revenue

 

90,572

 

105,641

 

15,069

 

16.6

%

Other revenue

 

3,128

 

5,035

 

1,907

 

61.0

%

Net revenues

 

$

93,700

 

$

110,676

 

$

16,976

 

18.1

%

 

 

 

 

 

 

 

 

 

 

Pounds by market (in thousands)

 

 

 

 

 

 

 

 

 

Aerospace

 

1,630

 

1,809

 

179

 

11.0

%

Chemical processing

 

1,121

 

1,182

 

61

 

5.4

%

Land-based gas turbines

 

1,206

 

1,084

 

(122

)

(10.1

)%

Other markets

 

362

 

447

 

85

 

23.5

%

Total shipments

 

4,319

 

4,522

 

203

 

4.7

%

 

 

 

 

 

 

 

 

 

 

Average selling price per pound

 

 

 

 

 

 

 

 

 

Aerospace

 

$

24.51

 

$

23.91

 

$

(0.60

)

(2.4

)%

Chemical processing

 

20.58

 

26.02

 

5.44

 

26.4

%

Land-based gas turbines

 

15.05

 

16.17

 

1.12

 

7.4

%

Other markets

 

25.98

 

31.54

 

5.56

 

21.4

%

Total product (excluding other revenue)

 

20.97

 

23.36

 

2.39

 

11.4

%

Total average selling price (including other revenue)

 

21.69

 

24.48

 

2.79

 

12.9

%

 

17



Table of Contents

 

Net Revenues. Net revenues were $110.7 million in the first quarter of fiscal 2015, an increase of 18.1% from $93.7 million in the same period of fiscal 2014.  Volume was 4.5 million pounds in the first quarter of fiscal 2015, an increase of 4.7% from 4.3 million pounds in the same period of fiscal 2014.  The increase in volume is primarily due to the apparent end of the destocking in the aerospace market that was occurring in the first quarter of fiscal 2014 as well as solid project-type shipments in both the chemical processing and other markets during the first quarter of fiscal 2015.  The product-sales average selling price was $23.36 per pound in the first quarter of fiscal 2015, an increase of 11.4% from $20.97 per pound in the same period of fiscal 2014.  The average selling price increased as a result of several factors, including the following: price increases instituted in the second half of fiscal 2014, representing approximately $1.35 of the increase; higher raw material market prices, which represented approximately $0.48 per pound of the increase and change in product mix, representing approximately $0.56 of the increase.

 

Sales to the aerospace market were $43.3 million in the first quarter of fiscal 2015, an increase of 8.3% from $40.0 million in the same period of fiscal 2014, due to an 11.0% increase in volume partially offset by a 2.4% decrease in the average selling price per pound.  The increase in volume primarily reflects the end of destocking of inventory within the supply chain.  The average selling price per pound decline primarily reflects the change to lower-value product mix, which represented approximately $1.46 of the decrease, partially offset by an increase in market prices of raw material, which represented approximately $0.50 per pound of an increase, and price increases that were announced in the second half of fiscal 2014 on orders that shipped in the first quarter of fiscal 2015, which represented approximately $0.36 of an increase.

 

Sales to the chemical processing market were $30.8 million in the first quarter of fiscal 2015, an increase of 33.3 % from $23.1 million in the same period of fiscal 2014, due to a 26.4% increase in the average selling price per pound combined with a 5.4% increase in volume.  The increase in volume is primarily a result of a project that shipped in fiscal 2015.  The increase in average selling price primarily reflects the high value of the large project and was also impacted by the mix of alloys and forms into this market, which represented approximately $4.99 of the increase.  The increase in average selling price was also a result of higher raw material market prices, which represented approximately $0.45 of the increase.

 

Sales to the land-based gas turbine market were $17.5 million in the first quarter of fiscal 2015, a decrease of 3.4% from $18.1 million for the same period of fiscal 2014, due to a decrease of 10.1% in volume partially offset by an increase of 7.4% in the average selling price per pound. Volumes decreased due to lower volumes of transactional business. The increase in average selling price reflects pricing increases that were announced in the second half of fiscal 2014 on orders that shipped in the first quarter of fiscal 2015, which represented approximately $0.62 of the increase.  The increase in average selling price was also a result of higher raw material market prices, which represented approximately $0.46 of the increase, and a change in product mix, which represented approximately $0.05 of the increase.

 

Sales to other markets were $14.1 million in the first quarter of fiscal 2015, an increase of 50.0% from $9.4 million in the same period of fiscal 2014, due to a 21.4% increase in average selling price combined with a 23.5% increase in volume.  The increase in volume is due to certain project-based orders shipped in fiscal 2015.  The increase in average selling price reflects pricing increases that were announced in the second half of fiscal 2014 on orders that shipped in the first quarter of fiscal 2015, which represented approximately $0.38 of the increase.  The increase in average selling price was also a result of higher raw material market prices, which represented approximately $0.51 of the increase, and the sale of a greater proportion of higher-value forms and alloys, which represented approximately $4.67 of the increase.

 

Other Revenue.  Other revenue was $5.0 million in the first quarter of fiscal 2015, an increase of 61.0% from $3.1 million in the same period of fiscal 2014. The increase is due primarily to higher conversion sales.

 

Cost of Sales.  Cost of sales was $90.4 million, or 81.7% of net revenues, in the first quarter of fiscal 2015 compared to $88.5 million, or 94.4% of net revenues, in the same period of fiscal 2014. Cost of sales in the first quarter of fiscal 2015 increased by $2.0 million as compared to the same period of fiscal 2014 primarily due to higher volumes and higher-value products shipped, partially offset by lower cost of inventory charged to cost of sales in the first quarter of fiscal 2015 relative to the first quarter of fiscal 2014.

 

Gross Profit.  As a result of the above factors, gross profit was $20.3 million for the first quarter of fiscal 2015, an increase of $15.0 million from the same period of fiscal 2014. Gross margin as a percentage of net revenue increased to 18.3% in the first quarter of fiscal 2015 as compared to 5.6% in the same period of fiscal 2014. Approximately $6.5 million of the increase is attributable to increased pricing and a more profitable mix of products and projects sold in fiscal 2015.  An estimated $8.5 million is attributable to higher-cost inventory charged to cost of sales in the first quarter of fiscal 2014 relative to the first quarter of fiscal 2015.

 

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Table of Contents

 

Selling, General and Administrative Expense. Selling, general and administrative expense was $9.7 million for the first quarter of fiscal 2015, a decrease of $0.2 million from the same period of fiscal 2014. The decrease in expense was primarily driven by foreign exchange gains of $1.0 million in the first quarter of fiscal 2015 compared to $0.1 million of foreign exchange loss in the first quarter of fiscal 2014, partially offset by $0.5 million of higher incentive compensation as compared to the first quarter of fiscal 2014. Selling, general and administrative expense as a percentage of net revenues decreased to 8.8% for the first quarter of fiscal 2015 compared to 10.6% for the same period of fiscal 2014.

 

Research and Technical Expense.  Research and technical expense was $0.9 million, or 0.8% of revenue, for the first quarter of fiscal 2015, compared to $0.9 million, or 0.9% of revenue, in the same period of fiscal 2014.

 

Operating Income/(Loss). As a result of the above factors, operating income in the first quarter of fiscal 2015 was $9.6 million compared to an operating loss of $5.6 million in the same period of fiscal 2014.

 

Income Taxes. Income taxes expense was $3.3 million in the first quarter of fiscal 2015, an increase of $5.3 million from a benefit of $2.1 million in the first quarter of fiscal 2014.  The effective tax rate for the first quarter of fiscal 2015 was 33.9%, compared to 37.1% in the same period of fiscal 2014.  The decrease in the effective tax rate was due to a discrete tax item in the first quarter of fiscal 2014 which decreased the tax benefit by $0.2 million.

 

Net Income/(Loss). As a result of the above factors, net income in the first quarter of fiscal 2015 was $6.4 million, an increase of $9.9 million from a net loss of $3.5 million in the same period of fiscal 2014.

 

Working Capital

 

Controllable working capital, which includes accounts receivable, inventory, accounts payable and accrued expenses, was $285.7 million at December 31, 2014, an increase of $14.4 million or 5.3% from $271.3 million at September 30, 2014. This increase of $14.4 million resulted primarily from inventory increasing $12.0 million and accounts payable and accrued expenses decreasing by $5.9 million during the first quarter of fiscal 2015, partially offset by a decrease in accounts receivable of $3.5 million.

 

Liquidity and Capital Resources

 

Comparative cash flow analysis

 

During the first quarter of fiscal 2015, the Company’s primary sources of cash were cash on-hand offset by cash used in operations, as detailed below.  At December 31, 2014, the Company had cash and cash equivalents of $38.4 million compared to cash and cash equivalents of $45.9 million at September 30, 2014. As of December 31, 2014, the Company had cash and cash equivalents of $12.5 million that was held by foreign subsidiaries in various currencies. All of this amount is readily convertible to U.S. dollars.

 

Net cash used in operating activities was $0.8 million in the first quarter of fiscal 2015 compared to cash provided by operating activities of $24.1 million in the first quarter of fiscal 2014. Net income of $6.4 million in the first quarter of fiscal 2015 provided $9.9 million more cash than the net loss of $3.5 million in the first quarter of fiscal 2014.  Cash used in higher inventories was $13.3 million as compared to cash generated in the first quarter of fiscal 2014 of $3.5 million, a change of $16.8 million.  Additionally, cash generated from lower accounts receivable was $2.6 million compared to cash generated by accounts receivable of $20.5 million in the first quarter of fiscal 2014, a change of $17.8 million.  Cash generated from accounts payable and accrued expenses of $5.2 million compared to cash generated from accounts payable and accrued expenses of $3.8 million in the first quarter of fiscal 2014, a change of $1.4 million.  Net cash used in investing activities was $3.2 million in the first quarter of fiscal 2015 compared to $9.3 million in the first quarter of fiscal 2014 as a result of the ramp-down of our capacity investments in tubular and flat rolled products.  Net cash used in financing activities in the first quarter of fiscal 2015 of $3.0 million included $2.7 million of dividend payments, in addition to cash used to repurchase treasury stock to satisfy payroll taxes owed as a result of restricted stock vesting.

 

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Table of Contents

 

Future sources of liquidity

 

The Company’s sources of liquidity for the remainder of fiscal 2015 are expected to consist primarily of cash generated from operations, cash on-hand and, if needed, borrowings under the U.S. revolving credit facility.  At December 31, 2014, the Company had cash of $38.4 million, an outstanding balance of zero on the U.S. revolving credit facility and access to a total of approximately $120.0 million under the U.S. revolving credit facility, subject to a borrowing base formula and certain reserves that could limit the Company’s borrowing to approximately $105.0 million. Management believes that the resources described above will be sufficient to fund planned capital expenditures and working capital requirements over the next twelve months.

 

U.S. Revolving Credit Facility

 

The Company and Wells Fargo Capital Finance, LLC (“Wells Fargo”), entered into a Third Amended and Restated Loan and Security Agreement (the “Amended Agreement”) with certain other lenders with an effective date of July 14, 2011. The maximum revolving loan amount under the Amended Agreement is $120.0 million, subject to a borrowing base formula and certain reserves. The Amended Agreement permits an increase in the maximum revolving loan amount from $120.0 million up to an aggregate amount of $170.0 million at the request of the borrowers. Borrowings under the U.S. revolving credit facility bear interest, at the Company’s option, at either Wells Fargo’s “prime rate”, plus up to 0.75% per annum, or the adjusted Eurodollar rate used by the lender, plus up to 2.0% per annum.  As of December 31, 2014, the U.S. revolving credit facility had an outstanding balance of zero. In addition, the Company must pay monthly, in arrears, a commitment fee of 0.25% per annum on the unused amount of the U.S. revolving credit facility total commitment. For letters of credit, the Company must pay 1.5% per annum on the daily outstanding balance of all issued letters of credit, plus customary fees for issuance, amendments and processing. The Company is subject to certain covenants as to fixed charge coverage ratios and other customary covenants, including covenants restricting the incurrence of indebtedness, the granting of liens and the sale of assets. The covenant pertaining to fixed charge coverage ratios is only effective in the event the amount of excess availability under the revolver is less than 12.5% of the maximum credit revolving loan amount. The Company is permitted to pay dividends and repurchase common stock if certain financial metrics are met (which do not apply in the case of dividends less than $20.0 million in the aggregate in a year and repurchases in connection with the vesting of shares of restricted stock). As of December 31, 2014, the most recent required measurement date under the Amended Agreement, management believes the Company was in compliance with all applicable financial covenants under the Amended Agreement. The U.S. revolving credit facility matures on July 14, 2016. Borrowings under the U.S. revolving credit facility are collateralized by a pledge of substantially all of the U.S. assets of the Company, including the equity interests in its U.S. subsidiaries, but excluding the four-high Steckel rolling mill and related assets, which are pledged to Titanium Metals Corporation to secure the performance of the Company’s obligations under a Conversion Services Agreement with TIMET (see discussion of TIMET at Note 7 in the Company’s Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q). The U.S. revolving credit facility is also secured by a pledge of a 65% equity interest in each of the Company’s direct foreign subsidiaries.

 

Future uses of liquidity

 

The Company’s primary uses of cash over the next twelve months are expected to consist of expenditures related to:

 

·                  Funding operations;

 

·                  Capital spending (discussed below); and

 

·                  Dividends to stockholders.

 

Capital investment in the first quarter of fiscal 2015 was $3.2 million and the forecast for capital spending in fiscal 2015 is $22.0 million, excluding the previously-mentioned acquisition of the Leveltek LaPorte assets which were purchased for $14.6 million in cash in January, 2015. The combined $36.6 million is our projected cash used in investing activities for fiscal 2015. See “Capital Spending” in this Form 10-Q for additional discussion of actual and planned capital spending.

 

20



Table of Contents

 

Contractual Obligations

 

The following table sets forth the Company’s contractual obligations for the periods indicated, as of December 31, 2014:

 

 

 

Payments Due by Period

 

(in thousands)

 

Total

 

Less than
1 year

 

1-3 Years

 

3-5 Years

 

More than
5 years

 

 

 

(in thousands)

 

Contractual Obligations

 

 

 

 

 

 

 

 

 

 

 

Credit facility fees(1) 

 

$

522

 

$

340

 

$

182

 

$

 

$

 

Operating lease obligations

 

19,517

 

3,476

 

4,713

 

2,797

 

8,531

 

Capital lease obligations

 

151

 

33

 

66

 

52

 

 

Raw material contracts

 

55,943

 

55,943

 

 

 

 

Capital projects and other commitments

 

35,903

 

35,903

 

 

 

 

Pension plan(2) 

 

66,560

 

6,457

 

16,445

 

13,651

 

30,007

 

Non-qualified pension plans

 

789

 

95

 

190

 

190

 

314

 

Other postretirement benefits(3) 

 

49,011

 

4,477

 

9,534

 

10,000

 

25,000

 

Environmental post-closure monitoring

 

979

 

82

 

168

 

199

 

530

 

Total

 

$

229,375

 

$

106,806

 

$

31,298

 

$

26,889

 

$

64,382

 

 


(1)             As of December 31, 2014, the revolver balance was zero, therefore no interest is due. However, the Company is obligated to the Bank for unused line fees and quarterly management fees.

(2)             The Company has a funding obligation to contribute $65,585 to the domestic pension plan and expects its U.K. subsidiary to contribute $975 to the U.K. pension plan. These payments will be tax deductible. All benefit payments under the domestic pension plan are provided by the plan and not the Company.

(3)             Represents expected post-retirement benefits only based upon anticipated timing of payments.

 

New Accounting Pronouncements

 

See Note 2. New Accounting Pronouncements in the Notes to Consolidated Financial Statements.

 

Critical Accounting Policies and Estimates

 

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Assumptions and estimates were based on the facts and circumstances known at December 31, 2014. However, future events rarely develop exactly as forecasted and the best estimates routinely require adjustment. The accounting policies discussed in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014 are considered by management to be the most important to an understanding of the financial statements because their application places the most significant demands on management’s judgment and estimates about the effect of matters that are inherently uncertain. These policies are also discussed in Note 2 of the consolidated financial statements included in Item 8 of that report. There have been no material changes to that information since the end of fiscal 2014.

 

Item 3.         Quantitative and Qualitative Disclosures about Market Risk

 

As of December 31, 2014, there were no material changes in the market risks described in “Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014.

 

21



Table of Contents

 

Item 4.         Controls and Procedures

 

The Company has performed, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness and the design and operation of the Company’s disclosure controls and procedures (as defined by Exchange Act rules 13a-15(e) and 15d-15(e)) pursuant to Rule 13a-15(b) of the Exchange Act as of the end of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2014.

 

Effective October 1, 2014 the Company implemented Microsoft Dynamics AX ERP information technology solution for the following functions in the US operations: sales, shipping, accounts receivable and service center operations modules. The implementation of these ERP modules resulted in material changes to the Company’s internal controls over financial reporting (as that term is defined in Rule 13(a)-15(f) or 15(d)-15(f) under the Exchange Act). Therefore, modifications to the design and documentation of internal control processes and procedures relating to the new system to replace and supplement existing internal controls over financial reporting were made as appropriate. Evaluation of the operating effectiveness of these internal controls will be done at a later date. The system changes were undertaken to integrate systems and consolidated information, and were not undertaken in response to any actual or perceived deficiencies in the Company’s internal control over financial reporting.

 

There were no other changes in the Company’s internal control over financial reporting during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

22



Table of Contents

 

PART II  OTHER INFORMATION

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

Set forth below is information regarding the Company’s stock repurchases during the period covered by this report, comprising shares repurchased by the Company from employees and directors to satisfy taxes on share-based compensation.

 

Period

 

Total
Number of
Shares (or
Units)
Purchased

 

Average
Price
Paid per
Share (or
Unit)

 

Total
Number of
Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans of
Programs

 

Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs

 

October 1-31, 2014

 

 

$

 

 

$

 

November 1-30, 2014

 

5,221

 

48.04

 

 

 

December 1-31, 2014

 

 

 

 

 

Total

 

5,551

 

$

48.04

 

 

$

 

 

Item 6.         Exhibits

 

Exhibits.  See Index to Exhibits.

 

23



Table of Contents

 

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/ Mark Comerford

 

Mark Comerford

 

President and Chief Executive Officer

 

Date: February 5, 2015

 

 

 

 

 

/s/ Daniel Maudlin

 

Daniel Maudlin

 

Vice President — Finance and Chief Financial Officer

 

Date: February 5, 2015

 

24



Table of Contents

 

INDEX TO EXHIBITS

 

Exhibit
Number

 

Description

3.1

 

Second Restated Certificate of Incorporation of Haynes International, Inc. (incorporated by reference to Exhibit 3.1 to the Haynes International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).

3.2

 

Amended and Restated By-laws of Haynes International, Inc. (incorporated by reference to Exhibit 3.2 to the Haynes International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).

4.1

 

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.01 to the Haynes International, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2009).

4.2

 

Second Restated Certificate of Incorporation of Haynes International, Inc. (incorporated by reference to Exhibit 3.1 hereof).

4.3

 

Amended and Restated By-laws of Haynes International, Inc. (incorporated by reference to Exhibit 3.2 hereof).

10.1

 

Amendment No. 3 to Haynes International, Inc. 2009 Restricted Stock Plan. (filed herewith)

10.2

 

Amendment No. 4 to Haynes International, Inc. 2009 Restricted Stock Plan. (filed herewith)

31.1

 

Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1*

 

Section 1350 Certifications

101

 

The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income (Loss); (iv) the Consolidated Statements of Cash Flows; and (v) related notes.

 


*Furnished not filed.

 

25