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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023
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: 001-33288
HAYNES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
06-1185400 |
|
|
|
1020 West Park Avenue, Kokomo, Indiana |
|
46904-9013 |
Registrant’s telephone number, including area code (765) 456-6000
|
Securities registered pursuant to Section 12(b) of the Act: |
|
|
Tile of each class |
Trading Symbol |
Name of each exchange on which registered |
Common Stock, par value $0.001 per share |
“HAYN” |
NASDAQ Global Select Market |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
|
Accelerated filer ☒ |
Non-accelerated filer ☐ |
|
Smaller reporting company☐ |
|
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of July 31, 2023, the registrant had 12,731,838 shares of Common Stock, $0.001 par value, outstanding.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Page |
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2 |
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Consolidated Balance Sheets (Unaudited) as of September 30, 2022 and June 30, 2023 |
2 |
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3 |
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4 |
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5 |
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Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 2022 and 2023 |
6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
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25 |
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25 |
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26 |
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26 |
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26 |
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27 |
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28 |
1
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
HAYNES INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data)
|
|
September 30, |
|
June 30, |
|
||
|
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2022 |
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2023 |
|
||
ASSETS |
|
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|
|
|
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Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,440 |
|
$ |
12,931 |
|
Accounts receivable, less allowance for credit losses of $428 and $858 at September 30, 2022 and June 30, 2023, respectively |
|
|
94,912 |
|
|
87,745 |
|
Inventories |
|
|
357,556 |
|
|
411,697 |
|
Income taxes receivable |
|
|
— |
|
|
3,437 |
|
Other current assets |
|
|
3,514 |
|
|
3,245 |
|
Total current assets |
|
|
464,422 |
|
|
519,055 |
|
Property, plant and equipment, net |
|
|
142,772 |
|
|
141,919 |
|
Deferred income taxes |
|
|
5,680 |
|
|
6,764 |
|
Other assets |
|
|
9,723 |
|
|
9,933 |
|
Goodwill |
|
|
4,789 |
|
|
4,789 |
|
Other intangible assets, net |
|
|
4,909 |
|
|
5,750 |
|
Total assets |
|
$ |
632,295 |
|
$ |
688,210 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
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Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
54,886 |
|
$ |
56,145 |
|
Accrued expenses |
|
|
19,294 |
|
|
17,066 |
|
Income taxes payable |
|
|
828 |
|
|
613 |
|
Accrued pension and postretirement benefits |
|
|
3,371 |
|
|
3,371 |
|
Deferred revenue—current portion |
|
|
2,500 |
|
|
2,500 |
|
Total current liabilities |
|
|
80,879 |
|
|
79,695 |
|
Revolving credit facilities - Long-term |
|
|
74,721 |
|
|
98,665 |
|
Long-term obligations (less current portion) |
|
|
7,848 |
|
|
7,648 |
|
Deferred revenue (less current portion) |
|
|
7,829 |
|
|
5,954 |
|
Deferred income taxes |
|
|
3,103 |
|
|
3,315 |
|
Operating lease liabilities |
|
|
576 |
|
|
370 |
|
Accrued pension benefits (less current portion) |
|
|
21,090 |
|
|
16,573 |
|
Accrued postretirement benefits (less current portion) |
|
|
60,761 |
|
|
62,489 |
|
Total liabilities |
|
|
256,807 |
|
|
274,709 |
|
Commitments and contingencies |
|
|
— |
|
|
— |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
Common stock, $0.001 par value (40,000,000 shares authorized, 12,854,773 and 13,124,401 shares issued and 12,479,741 and 12,731,838 shares outstanding at September 30, 2022 and June 30, 2023, respectively) |
|
|
13 |
|
|
13 |
|
Preferred stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued and outstanding) |
|
|
— |
|
|
— |
|
Additional paid-in capital |
|
|
266,193 |
|
|
276,831 |
|
Accumulated earnings |
|
|
135,040 |
|
|
155,450 |
|
Treasury stock, 375,032 shares at September 30, 2022 and 392,563 shares at June 30, 2023 |
|
|
(14,666) |
|
|
(15,591) |
|
Accumulated other comprehensive loss |
|
|
(11,092) |
|
|
(3,202) |
|
Total stockholders’ equity |
|
|
375,488 |
|
|
413,501 |
|
Total liabilities and stockholders’ equity |
|
$ |
632,295 |
|
$ |
688,210 |
|
The accompanying notes are an integral part of these financial statements.
2
HAYNES INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
|
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|
|
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||||
|
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Three Months Ended June 30, |
|
Nine Months Ended June 30, |
|
||||||||
|
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
||||
Net revenues |
|
$ |
130,165 |
|
$ |
143,901 |
|
$ |
346,651 |
|
$ |
429,360 |
|
Cost of sales |
|
|
96,943 |
|
|
117,839 |
|
|
272,239 |
|
|
349,382 |
|
Gross profit |
|
|
33,222 |
|
|
26,062 |
|
|
74,412 |
|
|
79,978 |
|
Selling, general and administrative expense |
|
|
11,847 |
|
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11,832 |
|
|
34,991 |
|
|
35,486 |
|
Research and technical expense |
|
|
957 |
|
|
1,008 |
|
|
2,806 |
|
|
3,028 |
|
Operating income |
|
|
20,418 |
|
|
13,222 |
|
|
36,615 |
|
|
41,464 |
|
Nonoperating retirement benefit expense (income) |
|
|
(1,088) |
|
|
(366) |
|
|
(3,264) |
|
|
(1,097) |
|
Interest income |
|
|
(1) |
|
|
(17) |
|
|
(15) |
|
|
(33) |
|
Interest expense |
|
|
750 |
|
|
2,156 |
|
|
1,564 |
|
|
5,522 |
|
Income before income taxes |
|
|
20,757 |
|
|
11,449 |
|
|
38,330 |
|
|
37,072 |
|
Provision for income taxes |
|
|
5,149 |
|
|
2,690 |
|
|
9,579 |
|
|
8,225 |
|
Net income |
|
$ |
15,608 |
|
$ |
8,759 |
|
$ |
28,751 |
|
$ |
28,847 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
$ |
1.25 |
|
$ |
0.69 |
|
$ |
2.30 |
|
$ |
2.28 |
|
Diluted |
|
$ |
1.24 |
|
$ |
0.68 |
|
$ |
2.28 |
|
$ |
2.24 |
|
Weighted Average Common Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
|
12,339 |
|
|
12,611 |
|
|
12,346 |
|
|
12,552 |
|
Diluted |
|
|
12,459 |
|
|
12,796 |
|
|
12,507 |
|
|
12,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.22 |
|
$ |
0.22 |
|
$ |
0.66 |
|
$ |
0.66 |
|
The accompanying notes are an integral part of these financial statements.
3
HAYNES INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
|
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|
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|
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||||
|
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Three Months Ended June 30, |
|
Nine Months Ended June 30, |
|
||||||||
|
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
||||
Net income |
|
$ |
15,608 |
|
$ |
8,759 |
|
$ |
28,751 |
|
$ |
28,847 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement |
|
|
— |
|
|
(393) |
|
|
(1) |
|
|
(1,179) |
|
Foreign currency translation adjustment |
|
|
(5,169) |
|
|
1,330 |
|
|
(6,029) |
|
|
9,069 |
|
Other comprehensive income (loss) |
|
|
(5,169) |
|
|
937 |
|
|
(6,030) |
|
|
7,890 |
|
Comprehensive income |
|
$ |
10,439 |
|
$ |
9,696 |
|
$ |
22,721 |
|
$ |
36,737 |
|
The accompanying notes are an integral part of these financial statements.
4
HAYNES INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share data)
|
|
Three Months Ended June 30, 2022 and 2023 |
||||||||||||||||||
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|
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|
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Accumulated |
|
|
|
|
|
|
|
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Additional |
|
|
|
|
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Other |
|
Total |
|||
|
|
Common Stock |
|
Paid-in |
|
Accumulated |
|
Treasury |
|
Comprehensive |
|
Stockholders’ |
||||||||
|
|
Shares |
|
Par |
|
Capital |
|
Earnings |
|
Stock |
|
Income (Loss) |
|
Equity |
||||||
Balance March 31, 2022 |
|
12,458,953 |
|
$ |
13 |
|
$ |
264,098 |
|
$ |
108,619 |
|
$ |
(14,218) |
|
$ |
(13,202) |
|
$ |
345,310 |
Net income |
|
|
|
|
|
|
|
|
|
|
15,608 |
|
|
|
|
|
|
|
|
15,608 |
Dividends paid and accrued ($0.22 per share) |
|
|
|
|
|
|
|
|
|
|
(2,732) |
|
|
|
|
|
|
|
|
(2,732) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,169) |
|
|
(5,169) |
Exercise of stock options |
|
3,025 |
|
|
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
124 |
Issue restricted stock (less forfeitures) |
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
Stock compensation |
|
|
|
|
|
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
932 |
Balance June 30, 2022 |
|
12,462,478 |
|
$ |
13 |
|
$ |
265,154 |
|
$ |
121,495 |
|
$ |
(14,218) |
|
$ |
(18,371) |
|
$ |
354,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2023 |
|
12,731,248 |
|
$ |
13 |
|
$ |
275,962 |
|
$ |
149,514 |
|
$ |
(15,591) |
|
$ |
(4,139) |
|
$ |
405,759 |
Net income |
|
|
|
|
|
|
|
|
|
|
8,759 |
|
|
|
|
|
|
|
|
8,759 |
Dividends paid and accrued ($0.22 per share) |
|
|
|
|
|
|
|
|
|
|
(2,823) |
|
|
|
|
|
|
|
|
(2,823) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
937 |
|
|
937 |
Issue restricted stock (less forfeitures) |
|
590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
Stock compensation |
|
|
|
|
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
869 |
Balance June 30, 2023 |
|
12,731,838 |
|
$ |
13 |
|
$ |
276,831 |
|
$ |
155,450 |
|
$ |
(15,591) |
|
$ |
(3,202) |
|
$ |
413,501 |
|
|
Nine Months Ended June 30, 2022 and 2023 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
Other |
|
Total |
|||
|
|
Common Stock |
|
Paid-in |
|
Accumulated |
|
Treasury |
|
Comprehensive |
|
Stockholders’ |
||||||||
|
|
Shares |
|
Par |
|
Capital |
|
Earnings |
|
Stock |
|
Income (Loss) |
|
Equity |
||||||
Balance September 30, 2021 |
|
12,562,140 |
|
$ |
13 |
|
$ |
262,057 |
|
$ |
101,015 |
|
$ |
(7,423) |
|
$ |
(12,341) |
|
$ |
343,321 |
Net income |
|
|
|
|
|
|
|
|
|
|
28,751 |
|
|
|
|
|
|
|
|
28,751 |
Dividends paid and accrued ($0.66 per share) |
|
|
|
|
|
|
|
|
|
|
(8,271) |
|
|
|
|
|
|
|
|
(8,271) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,030) |
|
|
(6,030) |
Exercise of stock options |
|
9,558 |
|
|
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
347 |
Issue restricted stock (less forfeitures) |
|
25,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
Vesting of restricted stock |
|
32,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
Purchase of treasury stock |
|
(167,806) |
|
|
|
|
|
|
|
|
|
|
|
(6,795) |
|
|
|
|
|
(6,795) |
Stock compensation |
|
|
|
|
|
|
|
2,750 |
|
|
|
|
|
|
|
|
|
|
|
2,750 |
Balance June 30, 2022 |
|
12,462,478 |
|
$ |
13 |
|
$ |
265,154 |
|
$ |
121,495 |
|
$ |
(14,218) |
|
$ |
(18,371) |
|
$ |
354,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2022 |
|
12,479,741 |
|
$ |
13 |
|
$ |
266,193 |
|
$ |
135,040 |
|
$ |
(14,666) |
|
$ |
(11,092) |
|
$ |
375,488 |
Net income |
|
|
|
|
|
|
|
|
|
|
28,847 |
|
|
|
|
|
|
|
|
28,847 |
Dividends paid and accrued ($0.66 per share) |
|
|
|
|
|
|
|
|
|
|
(8,437) |
|
|
|
|
|
|
|
|
(8,437) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,890 |
|
|
7,890 |
Exercise of stock options |
|
218,576 |
|
|
|
|
|
8,228 |
|
|
|
|
|
|
|
|
|
|
|
8,228 |
Issue restricted stock (less forfeitures) |
|
38,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
Vesting of restricted stock |
|
12,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
Purchase of treasury stock |
|
(17,531) |
|
|
|
|
|
|
|
|
|
|
|
(925) |
|
|
|
|
|
(925) |
Stock compensation |
|
|
|
|
|
|
|
2,410 |
|
|
|
|
|
|
|
|
|
|
|
2,410 |
Balance June 30, 2023 |
|
12,731,838 |
|
$ |
13 |
|
$ |
276,831 |
|
$ |
155,450 |
|
$ |
(15,591) |
|
$ |
(3,202) |
|
$ |
413,501 |
The accompanying notes are an integral part of these financial statements
5
HAYNES INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
|
|
|
||
|
|
Nine Months Ended June 30, |
|
||||
|
|
2022 |
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
28,751 |
|
$ |
28,847 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Depreciation |
|
|
13,810 |
|
|
13,480 |
|
Amortization |
|
|
547 |
|
|
479 |
|
Pension and post-retirement expense - U.S. and U.K. |
|
|
1,650 |
|
|
1,961 |
|
Change in long-term obligations |
|
|
(15) |
|
|
(50) |
|
Stock compensation expense |
|
|
2,750 |
|
|
2,410 |
|
Deferred revenue |
|
|
(1,875) |
|
|
(1,875) |
|
Deferred income taxes |
|
|
4,182 |
|
|
(549) |
|
Loss on disposition of property |
|
|
5 |
|
|
65 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
(24,312) |
|
|
10,955 |
|
Inventories |
|
|
(98,880) |
|
|
(47,167) |
|
Other assets |
|
|
1,666 |
|
|
(31) |
|
Accounts payable and accrued expenses |
|
|
18,045 |
|
|
(4,620) |
|
Income taxes |
|
|
2,666 |
|
|
(3,685) |
|
Accrued pension and postretirement benefits |
|
|
(6,589) |
|
|
(6,285) |
|
Net cash used in operating activities |
|
|
(57,599) |
|
|
(6,065) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(11,464) |
|
|
(11,770) |
|
Net cash used in investing activities |
|
|
(11,464) |
|
|
(11,770) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Revolving credit facility borrowings |
|
|
64,500 |
|
|
101,294 |
|
Revolving credit facility repayments |
|
|
(18,000) |
|
|
(77,350) |
|
Dividends paid |
|
|
(8,329) |
|
|
(8,397) |
|
Proceeds from exercise of stock options |
|
|
347 |
|
|
8,228 |
|
Payment for purchase of treasury stock |
|
|
(6,795) |
|
|
(925) |
|
Payment for debt issuance cost |
|
|
— |
|
|
(1,320) |
|
Payments on long-term obligations |
|
|
(183) |
|
|
(211) |
|
Net cash provided by financing activities |
|
|
31,540 |
|
|
21,319 |
|
Effect of exchange rates on cash |
|
|
(765) |
|
|
1,007 |
|
Increase (decrease) in cash and cash equivalents: |
|
|
(38,288) |
|
|
4,491 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
Beginning of period |
|
|
47,726 |
|
|
8,440 |
|
End of period |
|
$ |
9,438 |
|
$ |
12,931 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Interest (net of capitalized interest) |
|
$ |
1,004 |
|
$ |
4,890 |
|
Income taxes paid, net |
|
$ |
2,521 |
|
$ |
12,245 |
|
Capital expenditures incurred but not yet paid |
|
$ |
424 |
|
$ |
308 |
|
Dividends declared but not yet paid |
|
$ |
152 |
|
$ |
239 |
|
The accompanying notes are an integral part of these financial statements.
6
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 (“GAAP”), and such principles are applied on a basis consistent with information reflected in the Haynes International, Inc. Annual Report on Form 10-K for the fiscal year ended September 30, 2022 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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 which are necessary for a fair presentation of results for the respective interim periods. The results of operations for the three and nine months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2023 or any other interim period.
Principles of Consolidation
The consolidated financial statements include the accounts of Haynes International, Inc. and directly or indirectly wholly-owned subsidiaries (collectively, the “Company”). All intercompany transactions and balances are eliminated.
Note 2. Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This new update provides optional expedients to ease the potential burden of accounting for the effects of reference rate reform as it pertains to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. These amendments are effective immediately and may be applied prospectively to modifications made or relationships entered into or evaluated on or before December 31, 2022. This standard did not have a material impact on the Company’s Consolidated Financial Statements.
Note 3. Revenues from Contracts with Customers
Contract Balances
As of September 30, 2022 and June 30, 2023, accounts receivable with customers were $95,340 and $88,603, respectively. Allowance for credit losses as of September 30, 2022 and June 30, 2023 were $428 and $858, respectively, and are presented within accounts receivable, less allowance for credit losses on the Consolidated Balance Sheet.
Contract liabilities are recognized when the Company has received consideration from a customer to transfer goods or services at a future point in time when the Company performs under the purchase order or contract. As of September 30, 2022 and June 30, 2023, contract liabilities of $10,329 and $8,454, respectively, for the Titanium Metals Corporation agreement, as described in Note 8 to the Condensed Consolidated Financial Statement have been recorded. Additionally, contract liabilities of $700 and $790, respectively, were recorded for accrued product returns.
7
Disaggregation of Revenue
Revenue is disaggregated by end-use markets. The following table includes a breakdown of net revenues to the markets served by the Company for the three and nine months ended June 30, 2022 and 2023.
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2022 |
|
2023 |
|
2022 |
|
2023 |
||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
60,981 |
|
$ |
77,456 |
|
$ |
162,354 |
|
$ |
208,586 |
Chemical processing |
|
|
24,180 |
|
|
17,696 |
|
|
64,480 |
|
|
69,016 |
Industrial gas turbine |
|
|
23,991 |
|
|
28,073 |
|
|
63,377 |
|
|
86,518 |
Other markets |
|
|
14,518 |
|
|
13,416 |
|
|
38,760 |
|
|
45,688 |
Total product revenue |
|
|
123,670 |
|
|
136,641 |
|
|
328,971 |
|
|
409,808 |
Other revenue |
|
|
6,495 |
|
|
7,260 |
|
|
17,680 |
|
|
19,552 |
Net revenues |
|
$ |
130,165 |
|
$ |
143,901 |
|
$ |
346,651 |
|
$ |
429,360 |
Note 4. Inventories
The following is a summary of the major classes of inventories:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
June 30, |
|
|
||
|
|
2022 |
|
2023 |
|
|
||
Raw Materials |
|
$ |
31,887 |
|
$ |
35,958 |
|
|
Work-in-process |
|
|
226,572 |
|
|
244,156 |
|
|
Finished Goods |
|
|
97,657 |
|
|
129,926 |
|
|
Other |
|
|
1,440 |
|
|
1,657 |
|
|
|
|
$ |
357,556 |
|
$ |
411,697 |
|
|
Note 5. Income Taxes
Income tax expense for the three and nine months ended June 30, 2022 and 2023 differed from the U.S. federal statutory rate of 21.0%, primarily due to state income taxes, differing tax rates on foreign earnings and discrete tax items that impacted income tax expense (benefit) in these periods. The effective tax rate for the three months ended June 30, 2023 was 23.5% on $11,449 of income before income taxes compared to 24.8% on income before income taxes of $20,757 for the three months ended June 30, 2022. The effective tax rate for the nine months ended June 30, 2023 was 22.2% on $37,072 of income before income taxes compared to 25.0% on income before income taxes of $38,330 for the nine months ended June 30, 2022.
Note 6. Pension and Post-retirement Benefits
Components of net periodic pension and post-retirement benefit cost for the three and nine months ended June 30, 2022 and 2023 were as follows:
|
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
|
||||||||||||||||||||
|
|
Pension Benefits |
|
Other Benefits |
|
Pension Benefits |
|
Other Benefits |
|
||||||||||||||||
|
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
||||||||
Service cost |
|
$ |
1,182 |
|
$ |
672 |
|
$ |
456 |
|
$ |
348 |
|
$ |
3,546 |
|
$ |
2,016 |
|
$ |
1,368 |
|
$ |
1,042 |
|
Interest cost |
|
|
1,923 |
|
|
2,772 |
|
|
559 |
|
|
799 |
|
|
5,769 |
|
|
8,316 |
|
|
1,677 |
|
|
2,399 |
|
Expected return |
|
|
(3,561) |
|
|
(3,419) |
|
|
— |
|
|
— |
|
|
(10,683) |
|
|
(10,257) |
|
|
— |
|
|
— |
|
Amortizations |
|
|
51 |
|
|
52 |
|
|
(60) |
|
|
(569) |
|
|
153 |
|
|
154 |
|
|
(180) |
|
|
(1,709) |
|
Net periodic benefit cost |
|
$ |
(405) |
|
$ |
77 |
|
$ |
955 |
|
$ |
578 |
|
$ |
(1,215) |
|
$ |
229 |
|
$ |
2,865 |
|
$ |
1,732 |
|
The Company contributed $4,500 to Company-sponsored U.S. pension plans and $1,713 to its other post-retirement benefit plans for the nine months ended June 30, 2023. The Company expects to make contributions of $1,500 to its U.S. pension plan and $1,563 to its other post-retirement benefit plan for the remainder of fiscal 2023.
8
Note 7. Legal, Environmental and Other Contingencies
Legal
The Company is regularly involved in litigation, both as a plaintiff and as a defendant, relating to its business and operations, including environmental, commercial, asbestos, employment and federal and/or state Equal Employment Opportunity Commission administrative actions. Future expenditures for environmental, employment, intellectual property and other legal matters cannot be determined with any degree of certainty.
Environmental
The Company has received permits from the Indiana Department of Environmental Management and the North Carolina Department of Environment and Natural Resources to close and provide post-closure environmental monitoring and care for certain areas of its Kokomo, Indiana and Mountain Home, North Carolina facilities, respectively.
The Company is required to, among other things, monitor groundwater and 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 testing and corrective action by the Company could be required. The Company is unable to estimate the costs of any further corrective action at these sites, if required. Accordingly, the Company cannot assure that the costs of any future corrective action at these or any other current or former sites would not have a material effect on the Company’s financial condition, results of operations or liquidity.
As of both September 30, 2022 and June 30, 2023, the Company has accrued $407 for post-closure monitoring and maintenance activities, of which $341 is included in long-term obligations as it is not due within one year. 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.
Expected maturities of post-closure monitoring and maintenance activities (discounted) included in long-term obligations are as follows at June 30, 2023.
Expected maturities of post-closure monitoring and maintenance activities (discounted) |
|
|
|
Year Ending September 30, |
|
|
|
2024 |
$ |
82 |
|
2025 |
|
60 |
|
2026 |
|
58 |
|
2027 |
|
62 |
|
2028 and thereafter |
|
79 |
|
|
$ |
341 |
|
Note 8. Deferred Revenue
On November 17, 2006, the Company entered into a 20-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 20-year term of the agreement 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.
9
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 9. Goodwill and Other Intangible Assets, Net
The Company has goodwill, trademarks, customer relationships and other intangibles. Customer relationships have a definite life and are amortized over a period of fifteen years. The Company reviews customer relationships for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the assets is measured by a comparison of the carrying amount of the asset to the undiscounted 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.
Goodwill and trademarks (indefinite lived) are tested for impairment at least annually as of January 31 for goodwill and August 31 for trademarks (the annual impairment testing dates), and more frequently if impairment indicators exist. If the carrying value of a trademark exceeds its fair value (determined using an income approach, 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. The impairment test for goodwill is performed by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment loss in the event that the carrying amount is greater than the fair value. Any goodwill impairment loss recognized would not exceed the total carrying amount of goodwill allocated to that reporting unit. No impairment has been recognized as of June 30, 2023 because the fair value exceeds the carrying values.
During the first nine months of fiscal 2023, there were no changes in the carrying amount of goodwill.
Amortization of customer relationships and other intangibles was $225 and $263 for the three-month periods ended June 30, 2022 and 2023, respectively, and $547 and $479 for the nine-month periods ended June 30, 2022 and 2023, respectively. The following represents a summary of intangible assets at September 30, 2022 and June 30, 2023.
|
|
Gross |
|
Accumulated |
|
Carrying |
|
|||
September 30, 2022 |
|
Amount |
|
Amortization |
|
Amount |
|
|||
Trademarks |
|
$ |
3,800 |
|
$ |
— |
|
$ |
3,800 |
|
Customer relationships |
|
|
2,100 |
|
|
(1,128) |
|
|
972 |
|
Other |
|
|
1,100 |
|
|
(963) |
|
|
137 |
|
|
|
$ |
7,000 |
|
$ |
(2,091) |
|
$ |
4,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Accumulated |
|
Carrying |
|
|||
June 30, 2023 |
|
Amount |
|
Amortization |
|
Amount |
|
|||
Trademarks |
|
$ |
3,800 |
|
$ |
— |
|
$ |
3,800 |
|
Customer relationships |
|
|
2,100 |
|
|
(1,225) |
|
|
875 |
|
Other |
|
|
1,075 |
|
|
— |
|
|
1,075 |
|
|
|
$ |
6,975 |
|
$ |
(1,225) |
|
$ |
5,750 |
|
|
|
|
|
Estimated future Aggregate Amortization Expense: |
|
|
|
Year Ending September 30, |
|
|
|
2023 |
$ |
99 |
|
2024 |
|
395 |
|
2025 |
|
392 |
|
2026 |
|
388 |
|
2027 |
|
318 |
|
Thereafter |
|
358 |
|
10
Note 10. 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. 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.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
(in thousands, except share and per share data) |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
||||
Numerator: Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,608 |
|
$ |
8,759 |
|
$ |
28,751 |
|
$ |
28,847 |
|
Dividends paid and accrued |
|
|
(2,732) |
|
|
(2,823) |
|
|
(8,271) |
|
|
(8,437) |
|
Undistributed income (loss) |
|
|
12,876 |
|
|
5,936 |
|
|
20,480 |
|
|
20,410 |
|
Percentage allocated to common shares (a) |
|
|
99.0 |
% |
|
99.2 |
% |
|
99.0 |
% |
|
99.2 |
% |
Undistributed income (loss) allocated to common shares |
|
|
12,749 |
|
|
5,890 |
|
|
20,271 |
|
|
20,250 |
|
Dividends paid on common shares outstanding |
|
|
2,705 |
|
|
2,801 |
|
|
8,187 |
|
|
8,372 |
|
Net income available to common shares |
|
|
15,454 |
|
|
8,691 |
|
|
28,458 |
|
|
28,622 |
|
Denominator: Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
12,339,308 |
|
|
12,611,020 |
|
|
12,346,372 |
|
|
12,551,889 |
|
Adjustment for dilutive potential common shares |
|
|
119,947 |
|
|
184,824 |
|
|
160,566 |
|
|
223,646 |
|
Weighted average shares outstanding - Diluted |
|
|
12,459,255 |
|
|
12,795,844 |
|
|
12,506,938 |
|
|
12,775,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
1.25 |
|
$ |
0.69 |
|
$ |
2.30 |
|
$ |
2.28 |
|
Diluted net income per share |
|
$ |
1.24 |
|
$ |
0.68 |
|
$ |
2.28 |
|
$ |
2.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stock option shares excluded as their effect would be anti-dilutive |
|
|
218,787 |
|
|
184,868 |
|
|
254,133 |
|
|
210,666 |
|
Number of restricted stock shares excluded as their effect would be anti-dilutive |
|
|
51,830 |
|
|
42,022 |
|
|
56,536 |
|
|
43,018 |
|
Number of deferred restricted stock shares excluded as their effect would be anti-dilutive |
|
|
2,976 |
|
|
5,403 |
|
|
3,427 |
|
|
6,268 |
|
Number of performance share awards excluded as their effect would be anti-dilutive |
|
|
47,896 |
|
|
38,650 |
|
|
51,466 |
|
|
41,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Percentage allocated to common shares - Weighted average |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
12,339,308 |
|
|
12,611,020 |
|
|
12,346,372 |
|
|
12,551,889 |
|
Unvested participating shares |
|
|
123,336 |
|
|
99,377 |
|
|
127,219 |
|
|
99,050 |
|
|
|
|
12,462,644 |
|
|
12,710,397 |
|
|
12,473,591 |
|
|
12,650,939 |
|
11
Note 11. Stock-Based Compensation
Restricted Stock
The following table summarizes the activity under the 2016 and 2020 Incentive Compensation Plans with respect to restricted stock for the nine months ended June 30, 2023:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average Fair |
|
|
|
|
Number of |
|
Value At |
|
|
|
|
Shares |
|
Grant Date |
|
|
Unvested at September 30, 2022 |
|
96,536 |
|
$ |
33.23 |
|
Granted |
|
30,159 |
|
$ |
49.23 |
|
Forfeited / Canceled |
|
(510) |
|
$ |
30.11 |
|
Vested |
|
(35,692) |
|
$ |
37.06 |
|
Unvested at June 30, 2023 |
|
90,493 |
|
$ |
37.07 |
|
Expected to vest |
|
90,493 |
|
$ |
37.07 |
|
Compensation expense related to restricted stock for the three months ended June 30, 2022 and 2023 was $375 and $298, respectively and for the nine months ended June 30, 2022 and 2023 was $1,120 and $945, respectively. The remaining unrecognized compensation expense related to restricted stock at June 30, 2023 was $1,764, to be recognized over a weighted average period of 1.42 years. During the first nine months of fiscal 2023, the Company repurchased 17,531 shares of stock from employees at an average purchase price of $52.74 to satisfy required withholding taxes upon vesting of restricted stock-based compensation.
Deferred Restricted Stock
The following table summarizes the activity under the 2016 and 2020 Incentive Compensation Plans with respect to deferred restricted stock for the nine months ended June 30, 2023.
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average Fair |
|
|
|
|
Number of |
|
Value At |
|
|
|
|
Shares |
|
Grant Date |
|
|
Unvested and deferred at September 30, 2022 |
|
3,801 |
|
$ |
44.07 |
|
Granted |
|
8,974 |
|
$ |
49.19 |
|
Vested and deferred |
|
(3,801) |
|
$ |
44.07 |
|
Unvested and deferred at June 30, 2023 |
|
8,974 |
|
$ |
49.19 |
|
Vested and deferred at June 30, 2023 |
|
21,351 |
|
$ |
31.32 |
|
Compensation expense related to deferred restricted stock for the three months ended June 30, 2022 and 2023 was $42 and $110, respectively and for the nine months ended June 30, 2022 and 2023 was $126 and $269, respectively. The remaining unrecognized compensation expense related to deferred restricted stock at June 30, 2023 was $202, to be recognized over a weighted average period of 0.46 years.
Performance Shares
The following table summarizes the activity under the 2016 and 2020 Incentive Compensation Plans with respect to performance shares for the nine months ended June 30, 2023.
|
|
|
|
Weighted |
|
|
|
|
|
|
Average Fair |
|
|
|
|
Number of |
|
Value At |
|
|
|
|
Shares |
|
Grant Date |
|
|
Unvested at September 30, 2022 |
|
76,420 |
|
$ |
41.37 |
|
Granted |
|
19,555 |
|
$ |
69.39 |
|
Vested |
|
(25,226) |
|
$ |
42.83 |
|
Forfeited / Canceled |
|
— |
|
$ |
0.00 |
|
Unvested at June 30, 2023 |
|
70,749 |
|
$ |
48.60 |
|
12
During the first nine months of fiscal 2023, 25,226 performance share awards vested which resulted in the issuance of 12,429 shares of stock to certain employees. The Company repurchased 5,474 shares of stock from employees at an average purchase price of $52.41 to satisfy required withholding taxes upon release of performance share awards. Compensation expense related to the performance shares for the three months ended June 30, 2022 and 2023 was $284 and $309, respectively, and for the nine months ended June 30, 2022 and 2023 was $737 and $915, respectively. The remaining unrecognized compensation expense related to performance shares at June 30, 2023 was $1,684 to be recognized over a weighted average period of 1.36 years.
Stock Options
The Company has elected to use the Black-Scholes option pricing model to estimate fair value, which incorporates various assumptions including volatility, expected life, risk-free interest rates 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 dividend yield assumption is based on the Company’s history and expectations regarding dividend payouts at the time of the grant. The following assumptions were used for grants during fiscal year 2023:
|
|
Fair |
|
Dividend |
|
Risk-free |
|
Expected |
|
Expected |
|
||
Grant Date |
|
Value |
|
Yield |
|
Interest Rate |
|
Volatility |
|
Life |
|
||
June 16, 2023 |
|
$ |
20.82 |
|
1.70 |
% |
3.91 |
% |
48 |
% |
5 |
years |
|
February 7, 2023 |
|
$ |
22.70 |
|
1.65 |
% |
3.81 |
% |
51 |
% |
5 |
years |
|
November 22, 2022 |
|
$ |
20.52 |
|
1.80 |
% |
3.97 |
% |
51 |
% |
5 |
years |
|
The stock-based employee compensation expense for stock options for the three months ended June 30, 2022 and 2023 was $231 and $149, respectively, and for the nine months ended June 30, 2022 and 2023 was $768 and $500, respectively. The remaining unrecognized compensation expense at June 30, 2023 was $836, to be recognized over a weighted average vesting period of 1.33 years.
The following table summarizes the activity under the 2007, 2016 and 2020 Incentive Compensation Plans with respect to stock options for the nine months ended June 30, 2023 and provides information regarding outstanding stock options:
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Aggregate |
|
Weighted |
|
Average |
|
|||
|
|
|
|
Intrinsic |
|
Average |
|
Remaining |
|
|||
|
|
Number of |
|
Value |
|
Exercise |
|
Contractual |
|
|||
|
|
Shares |
|
(000s) |
|
Prices |
|
Life |
|
|||
Outstanding at September 30, 2022 |
|
697,220 |
|
|
|
|
$ |
34.75 |
|
|
|
|
Granted |
|
32,985 |
|
|
|
|
$ |
49.08 |
|
|
|
|
Exercised |
|
(218,576) |
|
|
|
|
$ |
37.90 |
|
|
|
|
Surrendered |
|
(13,081) |
|
|
|
|
$ |
47.96 |
|
|
|
|
Outstanding at June 30, 2023 |
|
498,548 |
|
$ |
8,407 |
|
$ |
33.96 |
|
6.51 |
yrs. |
|
Vested or expected to vest |
|
479,274 |
|
$ |
8,032 |
|
$ |
34.07 |
|
6.45 |
yrs. |
|
Exercisable at June 30, 2023 |
|
399,672 |
|
$ |
7,031 |
|
$ |
33.23 |
|
6.05 |
yrs. |
|
Note 12. Dividend
In the first, second and third quarters of fiscal 2023, the Company declared and paid quarterly cash dividends of $0.22 per outstanding share of the Company’s common stock. The first quarter dividend was paid on December 19, 2022 to stockholders of record at the close of business on December 5, 2022, the second quarter dividend was paid on March 15, 2023 to stockholders of record at the close of business on March 1, 2023 and the third quarter dividend was paid on June 15, 2023 to stockholders of record at the close of business on June 1, 2023. The dividend cash pay-outs were $2,796, $2,807 and $2,794 for the first, second and third quarters of fiscal 2023, respectively.
On August 3, 2023, 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 September 15, 2023 to stockholders of record at the close of business on September 1, 2023.
13
Note 13. 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. 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. The valuation model used depends on the specific asset or liability being valued.
Fixed income securities are held as individual bonds and are valued as either level 1 assets as they are quoted in active markets or level 2 assets. U.S and International equities, and Other Investments held in the Company’s pension plan are held as individual bonds or in mutual funds and common / collective funds which are valued using net asset value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. These investments are not classified in the fair value hierarchy in accordance with guidance included in ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).
Note 14. 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, post-retirement and foreign currency translation adjustments, primarily caused by the strengthening or weakening of the U.S. dollar against the British pound sterling, net of tax when applicable.
Accumulated Other Comprehensive Income (Loss)
|
|
Three Months Ended June 30, 2022 |
||||||||||
|
|
Pension |
|
Postretirement |
|
Foreign |
|
|
|
|||
|
|
Plan |
|
Plan |
|
Exchange |
|
Total |
||||
Accumulated other comprehensive income (loss) as of March 31, 2022 |
|
$ |
(14,700) |
|
$ |
8,925 |
|
$ |
(7,427) |
|
$ |
(13,202) |
Other comprehensive income (loss) before reclassifications |
|
|
— |
|
|
— |
|
|
(5,169) |
|
|
(5,169) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Pension and Postretirement Plan items (1) |
|
|
51 |
|
|
— |
|
|
— |
|
|
51 |
Actuarial losses (1) |
|
|
8 |
|
|
(60) |
|
|
— |
|
|
(52) |
Tax benefit |
|
|
(12) |
|
|
13 |
|
|
— |
|
|
1 |
Net current-period other comprehensive income (loss) |
|
|
47 |
|
|
(47) |
|
|
(5,169) |
|
|
(5,169) |
Accumulated other comprehensive income (loss) as of June 30, 2022 |
|
$ |
(14,653) |
|
$ |
8,878 |
|
$ |
(12,596) |
|
$ |
(18,371) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2023 |
||||||||||
|
|
Pension |
|
Postretirement |
|
Foreign |
|
|
|
|||
|
|
Plan |
|
Plan |
|
Exchange |
|
Total |
||||
Accumulated other comprehensive income (loss) as of March 31, 2023 |
|
$ |
(17,075) |
|
$ |
23,581 |
|
$ |
(10,645) |
|
$ |
(4,139) |
Other comprehensive income (loss) before reclassifications |
|
|
— |
|
|
— |
|
|
1,330 |
|
|
1,330 |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Pension and Postretirement Plan items (1) |
|
|
51 |
|
|
— |
|
|
— |
|
|
51 |
Actuarial losses (1) |
|
|
7 |
|
|
(570) |
|
|
— |
|
|
(563) |
Tax benefit |
|
|
(14) |
|
|
133 |
|
|
— |
|
|
119 |
Net current-period other comprehensive income (loss) |
|
|
44 |
|
|
(437) |
|
|
1,330 |
|
|
937 |
Accumulated other comprehensive income (loss) as of June 30, 2023 |
|
$ |
(17,031) |
|
$ |
23,144 |
|
$ |
(9,315) |
|
$ |
(3,202) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2022 |
||||||||||
|
|
Pension |
|
Postretirement |
|
Foreign |
|
|
|
|||
|
|
Plan |
|
Plan |
|
Exchange |
|
Total |
||||
Accumulated other comprehensive income (loss) as of September 30, 2021 |
|
$ |
(14,791) |
|
$ |
9,017 |
|
$ |
(6,567) |
|
$ |
(12,341) |
Other comprehensive income (loss) before reclassifications |
|
|
— |
|
|
— |
|
|
(6,029) |
|
|
(6,029) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
14
Amortization of Pension and Postretirement Plan items (1) |
|
|
154 |
|
|
— |
|
|
— |
|
|
154 |
Actuarial losses (1) |
|
|
25 |
|
|
(180) |
|
|
— |
|
|
(155) |
Tax provision (benefit) |
|
|
(41) |
|
|
41 |
|
|
— |
|
|
— |
Net current-period other comprehensive income (loss) |
|
|
138 |
|
|
(139) |
|
|
(6,029) |
|
|
(6,030) |
Accumulated other comprehensive income (loss) as of June 30, 2022 |
|
$ |
(14,653) |
|
$ |
8,878 |
|
$ |
(12,596) |
|
$ |
(18,371) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2023 |
||||||||||
|
|
Pension |
|
Postretirement |
|
Foreign |
|
|
|
|||
|
|
Plan |
|
Plan |
|
Exchange |
|
Total |
||||
Accumulated other comprehensive income (loss) as of September 30, 2022 |
|
$ |
(17,165) |
|
$ |
24,457 |
|
$ |
(18,384) |
|
$ |
(11,092) |
Other comprehensive income (loss) before reclassifications |
|
|
— |
|
|
— |
|
|
9,069 |
|
|
9,069 |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Pension and Postretirement Plan items (1) |
|
|
154 |
|
|
— |
|
|
— |
|
|
154 |
Actuarial losses (1) |
|
|
21 |
|
|
(1,709) |
|
|
— |
|
|
(1,688) |
Tax provision (benefit) |
|
|
(41) |
|
|
396 |
|
|
— |
|
|
355 |
Net current-period other comprehensive income (loss) |
|
|
134 |
|
|
(1,313) |
|
|
9,069 |
|
|
7,890 |
Accumulated other comprehensive income (loss) as of June 30, 2023 |
|
$ |
(17,031) |
|
$ |
23,144 |
|
$ |
(9,315) |
|
$ |
(3,202) |
| (1) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost. |
Note 15. Long-term Obligations
The following table sets forth the components of the Company’s Long-term obligations.
|
|
September 30, |
|
June 30, |
|
||
|
|
2022 |
|
2023 |
|
||
Finance lease obligations |
|
$ |
7,384 |
|
$ |
7,187 |
|
Environmental post-closure monitoring and maintenance activities |
|
|
407 |
|
|
407 |
|
Long-term disability |
|
|
210 |
|
|
195 |
|
Deferred dividends |
|
|
199 |
|
|
239 |
|
Less amounts due within one year |
|
|
(352) |
|
|
(380) |
|
Long-term obligations (less current portion) |
|
$ |
7,848 |
|
$ |
7,648 |
|
Note 16. Debt
U.S. revolving credit facility
On June 20, 2023, Haynes International, Inc. and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”) entered into Amendment No. 3 to Credit Agreement (the “Amendment”) which amended that certain Credit Agreement, dated October 19, 2020 (as amended by that certain Amendment No. 1 to Credit Agreement dated August 30, 2022, by that certain Increase Joinder Regarding Incremental Revolving Commitments and Amendment No. 2 to Credit Agreement dated October 7, 2022, the “Credit Agreement”). The Amendment provides for revolving loans in the maximum amount of $200,000, subject to a borrowing base and certain reserves.
As of June 30, 2023, the amounts borrowed by the Company under the Credit Agreement totaled $98,700 which is classified as long-term on the Consolidated Balance Sheet. Borrowings under the Credit Agreement bear interest at the Company’s option, at either the Prime Rate (as defined in the Credit Agreement), plus 1.00% - 1.50% per annum, or the adjusted daily simple SOFR (as defined in the Credit Agreement) used by the Lenders (as defined in the Credit Agreement), plus 2.00% - 2.50% per annum. This Amendment has a five-year term which matures on June 20, 2028.
The Company must pay monthly, in arrears, a commitment fee of 0.375% per annum on the unused amount of the revolving credit facility total commitment. For letters of credit, the Company must pay a fronting fee of 0.125% per annum as well as 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 the greater of (i) 15.0% of the maximum credit revolving loan amount and (ii) $25,000.
15
The Company is permitted to pay dividends and repurchase common stock if certain financial metrics are met. The Company may pay quarterly cash dividends up to $3,500 per fiscal quarter so long as the Company is not in default under the Credit Agreement and the related Security Agreement (as defined in the Credit Agreement). As of June 30, 2023, the Company was in compliance with the covenants of the Credit Agreement.
Borrowings under the Credit Agreement 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 TIMET to secure the performance of the Company’s obligations under a Conversion Services Agreement with TIMET (see discussion of TIMET at Note 15 in the Company’s Notes to Consolidated Financial Statements in its Annual Report on Form 10-K). Borrowings under the Credit Agreement are also secured by a pledge of a 100% equity interest in each of the Company’s direct foreign subsidiaries.
Note 17. Foreign Currency Forward Contracts
The Company enters into foreign currency forward contracts to reduce income statement volatility resulting from foreign currency denominated transactions. The Company has not designated the contracts as hedges, therefore, changes in fair value are recognized in earnings. All of these contracts are designed to be settled within the same fiscal quarter they are entered into and, accordingly, as of June 30, 2023, there were no contracts that remain unsettled. As a result, there was no impact to the balance sheet from those contracts as of September 30, 2022 or June 30, 2023. Foreign exchange contract gains and losses are recorded within selling, general and administrative expenses on the Consolidated Statements of Operations along with foreign currency transactional gains and losses as follows.
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
|
||||||||
|
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
||||
Foreign currency transactional gain (loss) |
|
$ |
1,994 |
|
$ |
(434) |
|
$ |
2,284 |
|
$ |
(2,763) |
|
Foreign exchange forward contract gain (loss) |
|
$ |
(2,183) |
|
$ |
106 |
|
$ |
(3,642) |
|
$ |
2,092 |
|
Net gain (loss) included in selling, general and administrative expense |
|
$ |
(189) |
|
$ |
(328) |
|
$ |
(1,358) |
|
$ |
(671) |
|
| ● |
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 2023 and beyond, overall volume and pricing trends, cost reduction strategies and their anticipated impact on our results, capital expenditures, dividends, capital allocation strategies and their expected results, operations and demand for our products. 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 described in Item 1A. of Part 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and Item 1A of Part II of this Quarterly Report on Form 10-Q..
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.
16
Business Overview
Haynes International, Inc. (“Haynes”, “the Company”, “we”, “our” or “us”) is one of the world’s largest developers, producers, and distributors of technologically advanced high-performance nickel- and cobalt-based alloys. The Company’s products, which are sold primarily into the aerospace, chemical processing and industrial gas turbine industries, 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 for the aerospace market, gas turbine engines used for power generation and industrial heating equipment. CRA products are used in applications that require resistance to very corrosive media found in chemical processing, power plant emissions control and waste treatment. Haynes high-performance alloy sales in sheet, coil and plate forms, in the aggregate, represented approximately 62% of net product revenues in fiscal 2022. The Company also produces its products as seamless and welded tubulars, which represented approximately 13% of fiscal 2022 net product revenues and in wire form, which represented approximately 7% of fiscal 2022 net product revenues, and in slab, bar and billet form, which, in the aggregate, represented approximately 18% of fiscal 2022 net product revenues.
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 11 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, second and third quarters of fiscal 2023, the Company declared and paid a regular quarterly cash dividend of $0.22 per outstanding share of the Company’s common stock. The first quarter dividend was paid on December 19, 2022 to stockholders of record at the close of business on December 5, 2022, the second quarter dividend was paid on March 15, 2023 to stockholders of record at the close of business on March 1, 2023 and the third quarter dividend was paid on June 15, 2023 to stockholders of record at the close of business on June 1, 2023. The total dividend cash pay-outs in the first, second and third quarters were approximately $2.8 million each based on the number of shares outstanding.
On August 3, 2023, 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 September 15, 2023 to stockholders of record at the close of business on September 1, 2023. Any future dividends will be at the discretion of the Board of Directors.
Capital Spending
During the first nine months of fiscal 2023, capital investment was $11.8 million, and total planned capital expenditures for fiscal 2023 are expected to be between $16.0 million and $18.0 million.
Cybersecurity Incident
As previously disclosed, the Company began experiencing a network outage indicative of a cybersecurity incident on June 10, 2023. Upon detection of the incident, the Company engaged third-party specialists to assist in investigating the source of the outage, determine its potential impact on the Company’s systems, and securely restore full system functionality. On June 21, 2023, less than 2 weeks after the incident began, the Company announced that all manufacturing operations were running and that the Company had substantially restored administrative, sales, financial and customer service functions. Nevertheless, during those 11 days many aspects of the Company’s production were substantially disrupted.
Based on lost production time, the Company estimates that net revenues for the quarter were impacted by roughly $18 - $20 million resulting in net sales for the third quarter of $143.9 million. The lower production level also impacted efficiency and absorption of fixed costs which compressed the gross margin percentage for the quarter and impacted earnings. Also impacting earnings are the costs related to the investigation and restoration efforts. In total, the Company currently estimates the full impact of this event to be approximately $0.40 - $0.45 on diluted earnings per share. In addition, the estimated headwind from raw material fluctuations, primarily Cobalt, lowered diluted earnings per share an additional $0.09 resulting in a diluted earnings per share of $0.68 for the third quarter of fiscal 2023.
Volume and Pricing
Volume shipped in the third quarter of fiscal 2023 was 4.4 million pounds which is 2.5% lower than the third quarter of the prior fiscal year and 5.1% lower sequentially from the second quarter of fiscal 2023. The lower volumes were primarily a result of the cybersecurity incident which during an 11-day period substantially disrupted many aspects of the Company’s production during the last month of the quarter as discussed above.
17
Volumes shipped into the aerospace market remained solid despite the cyber-related disruption. Aerospace volume increased 10.9% along with a 14.5% increase in aerospace average selling price, resulting in a 27.0% or $16.5 million aerospace revenue increase compared to the prior year. The volume increase was primarily driven by the single-aisle commercial aircraft recovery. Similarly industrial gas turbine (IGT) volumes increased 20.3% partially offset by a 2.7% decrease in the IGT average selling price, which resulted in a 17.0% or $4.1 million IGT revenue increase compared to the prior year. Volumes in the chemical processing industry (CPI) decreased by 47.6%. However, CPI average selling price increased 39.7%, which resulted in a 26.8% or $6.5 million CPI revenue decrease compared to the prior year. Other markets revenue decreased 7.6%, however other revenue increased by 11.8%. Decreases in CPI and Other Markets were impacted by the cybersecurity incident as well as mix management actions related to low-margin commoditized products.
The Company has an ongoing strategy of increasing margins. This is achieved by reducing processing costs as well as increasing pricing for the high-value, differentiated products and services it offers. The Company implemented multiple price increases for contract and non-contract business as market conditions improved and in response to higher inflation. Customer long-term agreements typically have adjustors for specific raw material prices and for changes in the producer price index to help cover general inflationary items. The product average selling price per pound in the third quarter of fiscal 2023 was $30.87, which is a 13.4% increase year-over-year, primarily due to the noted price increases and raw material adjustors.
Set forth below are selected data relating to the Company’s net revenues, gross profit, 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-Q.
Net Revenue and Gross Profit Margin Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison by Quarter of Net Revenues, Gross Profit Margin and |
|
|||||||||||||||||||
|
|
Gross Profit Margin Percentage for Fiscal 2022 and YTD 2023 |
|
|||||||||||||||||||
|
|
Quarter Ended |
|
|||||||||||||||||||
|
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
|||||||
(dollars in thousands) |
|
2021 |
|
2022 |
|
2022 |
|
2022 |
|
2022 |
|
2023 |
|
2023 |
|
|||||||
Net Revenues |
|
$ |
99,430 |
|
$ |
117,056 |
|
$ |
130,165 |
|
$ |
143,810 |
|
$ |
132,673 |
|
$ |
152,786 |
|
$ |
143,901 |
|
Gross Profit Margin |
|
$ |
17,777 |
|
$ |
23,413 |
|
$ |
33,222 |
|
$ |
31,921 |
|
$ |
23,038 |
|
$ |
30,878 |
|
$ |
26,062 |
|
Gross Profit Margin % |
|
|
17.9 |
% |
|
20.0 |
% |
|
25.5 |
% |
|
22.2 |
% |
|
17.4 |
% |
|
20.2 |
% |
|
18.1 |
% |
The Company has made a significant strategic effort to improve gross margins over the past few years. As a result of this strategy, the Company reduced the volume breakeven point by over 25%. The Company previously struggled to be profitable at roughly 5.0 million pounds. With the current product mix, the Company can generate profits at lower volumes as first demonstrated in the third quarter of fiscal 2021, producing a positive net income at only 3.7 million pounds shipped.
Gross profit margin was 18.1% in the third quarter of fiscal 2023 compared to 25.5% in the same period last year and 20.2% in second quarter of fiscal 2023. The gross margin percentage was negatively impacted this quarter by the cybersecurity incident estimated at roughly two percentage points. Volatility of raw materials, specifically nickel and cobalt, have impacted gross margins. During fiscal 2022 this impact was favorable due to rising raw material prices which increased gross margins; however, in fiscal 2023 this impact was unfavorable due to decreasing raw material prices which lowered gross margins. The estimated impact from raw material volatility in each quarter of fiscal 2023 was a headwind of $5.6 million in the first quarter that compressed gross margin percentage by approximately 4.2%, a headwind of $1.7 million in the second quarter that compressed gross margin percentage by approximately 1.1% and a headwind of $1.5 million in the third quarter that compressed gross margin percentage by approximately 1.1%. This compares to the previous year’s estimated favorable impact of raw material prices in the third quarter of fiscal 2022 of approximately $4.1 million which increased gross margin percentage by approximately 3.1%.
18
Backlog
|
|
Quarter Ended |
|
|||||||||||||||||||
|
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
|||||||
|
|
2021 |
|
2022 |
|
2022 |
|
2022 |
|
2022 |
|
2023 |
|
2023 |
|
|||||||
Backlog(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars (in thousands) |
|
$ |
217,477 |
|
$ |
280,687 |
|
$ |
338,178 |
|
$ |
373,736 |
|
$ |
408,181 |
|
$ |
446,749 |
|
$ |
468,132 |
|
Pounds (in thousands) |
|
|
8,931 |
|
|
10,654 |
|
|
12,125 |
|
|
12,798 |
|
|
13,640 |
|
|
14,177 |
|
|
14,632 |
|
Average selling price per pound |
|
$ |
24.35 |
|
$ |
26.35 |
|
$ |
27.89 |
|
$ |
29.20 |
|
$ |
29.93 |
|
$ |
31.51 |
|
$ |
31.99 |
|
Average nickel price per pound |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
London Metals Exchange(2) |
|
$ |
9.10 |
|
$ |
15.47 |
|
$ |
11.71 |
|
$ |
10.28 |
|
$ |
13.08 |
|
$ |
10.56 |
|
$ |
9.61 |
|
(1) |
Approximately 50% of the orders in the backlog include prices that are subject to adjustment based on changes in raw material costs. Historically, approximately 70% 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. |
The Company continued to experience high levels of order entry over the past quarter, predominately in the aerospace and industrial gas turbine markets. The Company established another record backlog of $468.1 million as of June 30, 2023, an increase of $21.4 million, or 4.8% from the second quarter of fiscal 2023 and an increase of $130.0 million, or 38.4%, from the same period of last year. In addition, the backlog has increased for 27 consecutive months. Backlog pounds increased 3.2% during the third quarter to approximately 14.6 million pounds and increased by 20.7% from the third quarter of fiscal 2022.
Quarterly Market Information
|
|
Quarter Ended |
|
|||||||||||||||||||
|
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
|||||||
|
|
2021 |
|
2022 |
|
2022 |
|
2022 |
|
2022 |
|
2023 |
|
2023 |
|
|||||||
Net revenues (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
48,455 |
|
$ |
52,918 |
|
$ |
60,981 |
|
$ |
67,647 |
|
$ |
64,518 |
|
$ |
66,612 |
|
$ |
77,456 |
|
Chemical processing |
|
|
17,450 |
|
|
22,850 |
|
|
24,180 |
|
|
27,185 |
|
|
22,715 |
|
|
28,605 |
|
|
17,696 |
|
Industrial gas turbines |
|
|
14,598 |
|
|
24,788 |
|
|
23,991 |
|
|
28,501 |
|
|
26,025 |
|
|
32,420 |
|
|
28,073 |
|
Other markets |
|
|
14,487 |
|
|
9,755 |
|
|
14,518 |
|
|
14,946 |
|
|
14,722 |
|
|
17,550 |
|
|
13,416 |
|
Total product revenue |
|
|
94,990 |
|
|
110,311 |
|
|
123,670 |
|
|
138,279 |
|
|
127,980 |
|
|
145,187 |
|
|
136,641 |
|
Other revenue |
|
|
4,440 |
|
|
6,745 |
|
|
6,495 |
|
|
5,531 |
|
|
4,693 |
|
|
7,599 |
|
|
7,260 |
|
Net revenues |
|
$ |
99,430 |
|
$ |
117,056 |
|
$ |
130,165 |
|
$ |
143,810 |
|
$ |
132,673 |
|
$ |
152,786 |
|
$ |
143,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments by markets (in thousands of pounds) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
|
1,864 |
|
|
1,808 |
|
|
2,142 |
|
|
2,402 |
|
|
2,187 |
|
|
1,982 |
|
|
2,376 |
|
Chemical processing |
|
|
794 |
|
|
870 |
|
|
882 |
|
|
921 |
|
|
786 |
|
|
845 |
|
|
462 |
|
Industrial gas turbines |
|
|
799 |
|
|
1,416 |
|
|
1,090 |
|
|
1,242 |
|
|
1,289 |
|
|
1,430 |
|
|
1,311 |
|
Other markets |
|
|
420 |
|
|
244 |
|
|
427 |
|
|
318 |
|
|
290 |
|
|
410 |
|
|
278 |
|
Total shipments |
|
|
3,877 |
|
|
4,338 |
|
|
4,541 |
|
|
4,883 |
|
|
4,552 |
|
|
4,667 |
|
|
4,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average selling price per pound |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
26.00 |
|
$ |
29.27 |
|
$ |
28.47 |
|
$ |
28.16 |
|
$ |
29.50 |
|
$ |
33.61 |
|
$ |
32.60 |
|
Chemical processing |
|
|
21.98 |
|
|
26.26 |
|
|
27.41 |
|
|
29.52 |
|
|
28.90 |
|
|
33.85 |
|
|
38.30 |
|
Industrial gas turbines |
|
|
18.27 |
|
|
17.51 |
|
|
22.01 |
|
|
22.95 |
|
|
20.19 |
|
|
22.67 |
|
|
21.41 |
|
Other markets |
|
|
34.49 |
|
|
39.98 |
|
|
34.00 |
|
|
47.00 |
|
|
50.77 |
|
|
42.80 |
|
|
48.26 |
|
Total product (product only; excluding other revenue) |
|
|
24.50 |
|
|
25.43 |
|
|
27.23 |
|
|
28.32 |
|
|
28.12 |
|
|
31.11 |
|
|
30.87 |
|
Total average selling price (including other revenue) |
|
$ |
25.65 |
|
$ |
26.98 |
|
$ |
28.66 |
|
$ |
29.45 |
|
$ |
29.15 |
|
$ |
32.74 |
|
$ |
32.51 |
|
19
Results of Operations for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
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 June 30, |
|
Change |
|
|||||||||||
|
|
2022 |
|
2023 |
|
Amount |
|
% |
|
|||||||
Net revenues |
|
$ |
130,165 |
|
100.0 |
% |
$ |
143,901 |
|
100.0 |
% |
$ |
13,736 |
|
10.6 |
% |
Cost of sales |
|
|
96,943 |
|
74.5 |
% |
|
117,839 |
|
81.9 |
% |
|
20,896 |
|
21.6 |
% |
Gross profit |
|
|
33,222 |
|
25.5 |
% |
|
26,062 |
|
18.1 |
% |
|
(7,160) |
|
(21.6) |
% |
Selling, general and administrative expense |
|
|
11,847 |
|
9.1 |
% |
|
11,832 |
|
8.2 |
% |
|
(15) |
|
(0.1) |
% |
Research and technical expense |
|
|
957 |
|
0.7 |
% |
|
1,008 |
|
0.7 |
% |
|
51 |
|
5.3 |
% |
Operating income |
|
|
20,418 |
|
15.7 |
% |
|
13,222 |
|
9.2 |
% |
|
(7,196) |
|
(35.2) |
% |
Nonoperating retirement benefit expense (income) |
|
|
(1,088) |
|
(0.8) |
% |
|
(366) |
|
(0.3) |
% |
|
722 |
|
(66.4) |
% |
Interest income |
|
|
(1) |
|
(0.0) |
% |
|
(17) |
|
(0.0) |
% |
|
(16) |
|
1,600.0 |
% |
Interest expense |
|
|
750 |
|
0.6 |
% |
|
2,156 |
|
1.5 |
% |
|
1,406 |
|
187.5 |
% |
Income before income taxes |
|
|
20,757 |
|
15.9 |
% |
|
11,449 |
|
8.0 |
% |
|
(9,308) |
|
(44.8) |
% |
Provision for income taxes |
|
|
5,149 |
|
4.0 |
% |
|
2,690 |
|
1.9 |
% |
|
(2,459) |
|
(47.8) |
% |
Net income |
|
$ |
15,608 |
|
12.0 |
% |
$ |
8,759 |
|
6.1 |
% |
$ |
(6,849) |
|
(43.9) |
% |
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.
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
June 30, |
|
Change |
|
|||||||
By market |
|
2022 |
|
2023 |
|
Amount |
|
% |
|
|||
Net revenues (dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
60,981 |
|
$ |
77,456 |
|
$ |
16,475 |
|
27.0 |
% |
Chemical processing |
|
|
24,180 |
|
|
17,696 |
|
|
(6,484) |
|
(26.8) |
% |
Industrial gas turbine |
|
|
23,991 |
|
|
28,073 |
|
|
4,082 |
|
17.0 |
% |
Other markets |
|
|
14,518 |
|
|
13,416 |
|
|
(1,102) |
|
(7.6) |
% |
Total product revenue |
|
|
123,670 |
|
|
136,641 |
|
|
12,971 |
|
10.5 |
% |
Other revenue |
|
|
6,495 |
|
|
7,260 |
|
|
765 |
|
11.8 |
% |
Net revenues |
|
$ |
130,165 |
|
$ |
143,901 |
|
$ |
13,736 |
|
10.6 |
% |
Pounds by market (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
|
2,142 |
|
|
2,376 |
|
|
234 |
|
10.9 |
% |
Chemical processing |
|
|
882 |
|
|
462 |
|
|
(420) |
|
(47.6) |
% |
Industrial gas turbine |
|
|
1,090 |
|
|
1,311 |
|
|
221 |
|
20.3 |
% |
Other markets |
|
|
427 |
|
|
278 |
|
|
(149) |
|
(34.9) |
% |
Total shipments |
|
|
4,541 |
|
|
4,427 |
|
|
(114) |
|
(2.5) |
% |
Average selling price per pound |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
28.47 |
|
$ |
32.60 |
|
$ |
4.13 |
|
14.5 |
% |
Chemical processing |
|
|
27.41 |
|
|
38.30 |
|
|
10.89 |
|
39.7 |
% |
Industrial gas turbine |
|
|
22.01 |
|
|
21.41 |
|
|
(0.60) |
|
(2.7) |
% |
Other markets |
|
|
34.00 |
|
|
48.26 |
|
|
14.26 |
|
41.9 |
% |
Total product (excluding other revenue) |
|
|
27.23 |
|
|
30.87 |
|
|
3.64 |
|
13.4 |
% |
Total average selling price (including other revenue) |
|
$ |
28.66 |
|
$ |
32.51 |
|
$ |
3.85 |
|
13.4 |
% |
Net Revenues. Net revenues were $143.9 million in the third quarter of fiscal 2023, an increase of 10.6% from the same period of fiscal 2022 due to an increase in product average selling price per pound of $3.64 or 13.4%. The increase in product average selling price per pound largely reflects price increases and other sales factors, which increased the product average selling price per pound by approximately $5.76. It also includes a favorable product mix, which increased product average selling price per pound by approximately $0.26. Partially offsetting these increases were lower market prices of raw materials, which decreased product average selling price per pound by approximately $2.38. The decrease in pounds sold is due to lower shipments of product later in the quarter as because of a cybersecurity incident that caused disruption in our manufacturing locations. The reduction in pounds sold is largely attributable to the reduction in the chemical processing market as we have focused our production away from some of our lower-value alloys towards our higher-value products more commonly found in aerospace and industrial gas turbines.
20
The aerospace market has experienced increased demand as inventory throughout the aerospace supply chain continues to be replenished in response to the increase in engine builds. The increase in average selling price per pound largely reflects price increases and other pricing factors, which increased average selling price per pound by approximately $5.98 along with a change in product mix, which increased average selling price per pound by approximately $0.59, partially offset by lower market prices of raw materials, which decreased average selling price per pound by approximately $2.44.
Volume to the chemical processing market in the third quarter of fiscal 2023 was 47.6% lower than the third quarter of fiscal 2022 primarily due to the Company’s strategy to manage the mix of products away from lower-value commodity grade alloys towards more specialty and proprietary alloys. The increase in average selling price per pound in the chemical processing market reflects the change in product mix, which increased average selling price per pound by approximately $6.52 and price increases and other sales factors, which increased average selling price per pound by approximately $6.37, partially offset by lower market prices of raw materials, which decreased average selling price per pound by approximately $2.00 per pound.
Volume to the industrial gas turbine market was 20.3% higher in the third quarter of fiscal 2023 as compared to the third quarter of fiscal 2022. The third quarter of fiscal 2022 was negatively impacted by a higher volume of shipments in the previous quarter which resulted in a lower volume of available to ship during the third quarter. The decrease in average selling price per pound reflects a change in product mix which decreased average selling price per pound by approximately $3.86 and lower market prices of raw materials, which decreased average selling price per pound by approximately by $2.08, partially offset by price increases and other sales factors, which increased average selling price per pound by approximately $5.34.
Volume to other markets was 34.9% lower than the third quarter of fiscal 2022 primarily due to decreases in the flue-gas desulfurization market. The average selling price per pound increase to other markets reflects a change in product mix, which increased average selling price per pound by approximately $13.36 and price increases and other sales factors, which increased average selling price per pound by approximately $4.82, partially offset by lower market prices of raw materials, which decreased average selling price per pound by $3.95.
Other Revenue. The increase in other revenue was due primarily to increased sales of conversion services.
Cost of Sales. Cost of sales as a percentage of revenues in the third quarter of fiscal 2023 was higher than third quarter of fiscal 2022 due to higher raw material prices included in cost of sales relative to the impact of raw material price adjustors in selling prices.
Gross Profit. Gross profit in the third quarter of fiscal 2023 decreased compared to the same quarter of the prior year as gross profit in the third quarter of fiscal 2023 was adversely impacted by higher raw material prices included in cost of sales relative to the impact of raw material price adjustors in selling prices, which decreased gross profit. In the third quarter of fiscal 2022, gross profit benefited from lower raw material prices included in cost of sales relative to the impact of raw material price adjustors in selling prices, which increased gross profit. Additionally, lower volumes shipped in the third quarter of fiscal 2023 due to the cybersecurity incident resulted in a lower absorption of fixed costs.
Selling, General and Administrative Expense. The decrease as a percent of net revenues for selling, general and administrative expense was largely driven by higher net revenues as spend in the third quarter of fiscal 2023 of $11.8 million was consistent with the third quarter of fiscal 2022.
Nonoperating retirement benefit expense (income). The lower benefit recorded in nonoperating retirement benefit was primarily driven by an increase in the discount rate used in the actuarial valuation of the U.S. pension plan liability as of September 30, 2022 that resulted in a higher interest cost component of nonoperating retirement benefit expense (income) in the third quarter of fiscal 2023 when compared to the third quarter of fiscal 2022. Partially offsetting the higher interest cost was the amortization of the actuarial gains of the U.S. pension plan liability in the third quarter of fiscal 2023.
Income Taxes. The decrease in income tax expense was driven primarily by a difference in income before income taxes of $9.3 million. Income tax expense in the third quarter of fiscal 2023 as a percentage of income before income taxes was 23.5% as compared to 24.8% in the third quarter of fiscal 2022. The decrease was largely driven by a higher utilization of foreign tax credits in fiscal 2023.
21
Results of Operations for the Nine Months Ended June 30, 2023 Compared to the Nine Months Ended June 30, 2022
The following table sets forth certain financial information as a percentage of net revenues for the periods indicated and compares such information between periods.
|
|
Nine Months Ended June 30, |
|
Change |
|
|||||||||||
|
|
2022 |
|
2023 |
|
Amount |
|
% |
|
|||||||
Net revenues |
|
$ |
346,651 |
|
100.0 |
% |
$ |
429,360 |
|
100.0 |
% |
$ |
82,709 |
|
23.9 |
% |
Cost of sales |
|
|
272,239 |
|
78.5 |
% |
|
349,382 |
|
81.4 |
% |
|
77,143 |
|
28.3 |
% |
Gross profit |
|
|
74,412 |
|
21.5 |
% |
|
79,978 |
|
18.6 |
% |
|
5,566 |
|
7.5 |
% |
Selling, general and administrative expense |
|
|
34,991 |
|
10.1 |
% |
|
35,486 |
|
8.3 |
% |
|
495 |
|
1.4 |
% |
Research and technical expense |
|
|
2,806 |
|
0.8 |
% |
|
3,028 |
|
0.7 |
% |
|
222 |
|
7.9 |
% |
Operating income |
|
|
36,615 |
|
10.6 |
% |
|
41,464 |
|
9.7 |
% |
|
4,849 |
|
13.2 |
% |
Nonoperating retirement benefit expense (income) |
|
|
(3,264) |
|
(0.9) |
% |
|
(1,097) |
|
(0.3) |
% |
|
2,167 |
|
(66.4) |
% |
Interest income |
|
|
(15) |
|
(0.0) |
% |
|
(33) |
|
(0.0) |
% |
|
(18) |
|
120.0 |
% |
Interest expense |
|
|
1,564 |
|
0.5 |
% |
|
5,522 |
|
1.3 |
% |
|
3,958 |
|
253.1 |
% |
Income before income taxes |
|
|
38,330 |
|
11.1 |
% |
|
37,072 |
|
8.6 |
% |
|
(1,258) |
|
(3.3) |
% |
Provision for income taxes |
|
|
9,579 |
|
2.8 |
% |
|
8,225 |
|
1.9 |
% |
|
(1,354) |
|
(14.1) |
% |
Net income |
|
$ |
28,751 |
|
8.3 |
% |
$ |
28,847 |
|
6.7 |
% |
$ |
96 |
|
0.3 |
% |
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.
|
|
Nine Months Ended |
|
|
|
|
|
|
||||
|
|
June 30, |
|
Change |
|
|||||||
|
|
2022 |
|
2023 |
|
Amount |
|
% |
|
|||
Net revenues (dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
162,354 |
|
$ |
208,586 |
|
$ |
46,232 |
|
28.5 |
% |
Chemical processing |
|
|
64,480 |
|
|
69,016 |
|
|
4,536 |
|
7.0 |
% |
Industrial gas turbine |
|
|
63,377 |
|
|
86,518 |
|
|
23,141 |
|
36.5 |
% |
Other markets |
|
|
38,760 |
|
|
45,688 |
|
|
6,928 |
|
17.9 |
% |
Total product revenue |
|
|
328,971 |
|
|
409,808 |
|
|
80,837 |
|
24.6 |
% |
Other revenue |
|
|
17,680 |
|
|
19,552 |
|
|
1,872 |
|
10.6 |
% |
Net revenues |
|
$ |
346,651 |
|
$ |
429,360 |
|
$ |
82,709 |
|
23.9 |
% |
Pounds by market (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
|
5,814 |
|
|
6,545 |
|
|
731 |
|
12.6 |
% |
Chemical processing |
|
|
2,546 |
|
|
2,093 |
|
|
(453) |
|
(17.8) |
% |
Industrial gas turbine |
|
|
3,305 |
|
|
4,030 |
|
|
725 |
|
21.9 |
% |
Other markets |
|
|
1,091 |
|
|
978 |
|
|
(113) |
|
(10.4) |
% |
Total shipments |
|
|
12,756 |
|
|
13,646 |
|
|
890 |
|
7.0 |
% |
Average selling price per pound |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
27.92 |
|
$ |
31.87 |
|
$ |
3.95 |
|
14.1 |
% |
Chemical processing |
|
|
25.33 |
|
|
32.97 |
|
|
7.64 |
|
30.2 |
% |
Industrial gas turbine |
|
|
19.18 |
|
|
21.47 |
|
|
2.29 |
|
11.9 |
% |
Other markets |
|
|
35.53 |
|
|
46.72 |
|
|
11.19 |
|
31.5 |
% |
Total product (excluding other revenue) |
|
|
25.79 |
|
|
30.03 |
|
|
4.24 |
|
16.4 |
% |
Total average selling price (including other revenue) |
|
$ |
27.18 |
|
$ |
31.46 |
|
$ |
4.28 |
|
15.7 |
% |
Net Revenues. Net revenues were $429.4 million in the first nine months of fiscal 2023, an increase of 23.9% from $346.7 million in the same period of fiscal 2022 due primarily to volume increases in the aerospace and industrial gas turbine markets and average selling price per pound increases in each of our markets. The 7.0% increase in pounds sold is due to the demand recovery and strong sales in the industrial gas turbine market, which increased by 21.9%, as well as the aerospace market, which increased by 12.6% from the first nine months of fiscal 2022. The 16.4% increase in product average selling price per pound largely reflects price increases and other sales factors, which increased product average selling price per pound by approximately $4.92, partially offset by lower market prices of raw materials which decreased average selling price per pound by approximately $0.42 and product mix, which decreased product average selling price per pound by approximately $0.26.
22
The aerospace market has experienced increased demand as inventory throughout the aerospace supply chain continues to be replenished in response to the increase in engine builds. The increase in average selling price per pound in the aerospace market largely reflects price increases and other pricing factors, which increased average selling price per pound by approximately $4.96 partially offset by a change in product mix, which decreased average selling price per pound by approximately $0.52 and a decrease in market prices of raw materials, which decreased average selling price per pound by approximately $0.49.
Volume to the chemical processing market in the first nine months of fiscal 2023 was 17.8% lower than the same period of fiscal 2022 primarily due to lower special project shipments and the mix-management of product shipments away from lower-value commodity alloys. The increase in average selling price per pound in the chemical processing market reflects price increases and other sales factors, which increased average selling price per pound by approximately $4.61 and a change in product mix, which increased average selling price per pound by approximately $2.80 along with higher market prices of raw materials, primarily molybdenum, which increased average selling price per pound by approximately $0.23 per pound.
The higher volume to the industrial gas turbine market was a result of overall increased demand in the market as well as timing of deliveries to one of the Company’s larger customers. The increase in average selling price per pound in the industrial gas turbine market reflects price increases and other sales factors, which increased average selling price per pound by approximately $4.41, partially offset by a change in product mix, which decreased average selling price per pound by approximately $1.75 and lower market prices of raw materials, which decreased average selling price per pound by approximately $0.37.
Volume to other markets decreased in the first nine months of fiscal 2023 from the same period in fiscal 2022 due to lower shipments into the flue-gas desulfurization markets. The average selling price per pound increase to other markets reflects price increases and other sales factors, which increased average selling price per pound by approximately $7.42 and a change in product mix, which increased average selling price per pound by approximately $5.41, partially offset by lower market prices of raw materials, which decreased average selling price per pound by $1.63.
Other Revenue. The increase in other revenue was due primarily to increased sales of conversion services.
Cost of Sales. Cost of sales as a percentage of revenues in the first nine months of fiscal 2023 was higher than the first nine months of fiscal 2022 due to higher raw material prices included in cost of sales relative to the impact of raw material price adjustors in selling prices
Gross Profit. Gross profit in the first nine months of fiscal 2023 was adversely affected by higher raw material prices included in cost of sales relative to the impact of raw material price adjustors in selling prices, which lowered gross profit, while gross profit in the first nine months of fiscal 2022 benefited from lower raw material prices in cost of sales relative to the impact of raw material price adjustors in selling prices, which increased gross profit during that period. Partially offsetting the compression of margins due to raw material price changes was increased gross profit generated from variable cost saving measures and a higher absorption of fixed costs driven from greater volumes shipped.
Selling, General and Administrative Expense. Selling, general and administrative expense as a percentage of net revenues decreased to 8.3% for the first nine months of fiscal 2023 compared to 10.1% for the same period of fiscal 2022, largely driven by a 23.9% increase in net revenues.
Nonoperating retirement benefit expense (income). The lower benefit recorded in nonoperating retirement benefit was primarily driven by an increase in the discount rate used in the actuarial valuation of the U.S. pension plan liability as of September 30, 2022 which resulted in a higher interest cost component of nonoperating retirement benefit expense (income) in the first nine months of fiscal 2023 when compared to the same period of fiscal 2022. Partially offsetting the higher interest cost was the amortization of the actuarial gains of the U.S. pension plan liability in the first nine months of fiscal 2023.
Income Taxes. The decrease in income tax expense was driven primarily by a difference in income before income taxes of $1.3 million. The first nine months of fiscal 2023 benefited from a discrete tax benefit of approximately $0.3 million that was related to vestings of stock-based compensation and option exercises that occurred during the year.
Working Capital
Controllable working capital, which includes accounts receivable, inventory, accounts payable and accrued expenses, was $426.2 million as of June 30, 2023, an increase of $47.9 million, or 12.7%, from $378.3 million as of September 30, 2022. The increase resulted primarily from inventory increasing by $54.1 million and accounts payable and accrued expenses decreasing by $1.0 million, partially offset by accounts receivable decreasing by $7.2 million during the first nine months of fiscal 2023.
23
Liquidity and Capital Resources
Comparative cash flow analysis
The Company had cash and cash equivalents of $12.9 million as of June 30, 2023, inclusive of $11.7 million that was held by foreign subsidiaries in various currencies, compared to $8.4 million as of September 30, 2022. Additionally, the Company had $98.7 million of borrowings against the $200.0 million line of credit outstanding with remaining capacity available of $101.3 million as of June 30, 2023, putting total liquidity at $114.2 million.
Net cash used in operating activities in the first nine months of fiscal 2023 was $6.1 million compared to net cash used in operating activities of $57.6 million in the first nine months of fiscal 2022. The decrease in cash used in operating activities in the first nine months of fiscal 2023 was driven by an increase in inventory of $47.2 million as compared to an increase of $98.9 million during the same period of fiscal 2022 and a decrease in accounts receivable of $11.0 million as compared to an increase of $24.3 million during the same period of fiscal 2022. This was partially offset by a decrease in accounts payable and accrued expenses of $4.6 million during the first nine months of fiscal 2023 as compared to an increase of $18.0 million during the same period of fiscal 2022, a difference of $22.7 million.
Net cash used in investing activities was $11.8 million in the first nine months of fiscal 2023, which was higher than net cash used in investing activities of $11.5 million during the same period of fiscal 2022 due to higher additions to property, plant and equipment.
Net cash provided by financing activities was $21.3 million in the first nine months of fiscal 2023, a decrease of $10.2 million from cash provided by financing activities of $31.5 million during the first nine months of fiscal 2022. This difference was primarily driven by a net borrowing of $23.9 million against the revolving line of credit during the first nine months of fiscal 2023 compared to a net borrowing of $46.5 million during the same period of fiscal 2022. This was partially offset with proceeds from the exercise of stock options of $8.2 million during the first nine months of fiscal 2023 as compared to proceeds from exercise of stock options of $0.3 million during the same period of fiscal 2022 and lower share repurchases of $0.9 million in the first nine months of fiscal 2023 as compared to $6.8 million during the same period of fiscal 2022. Dividends paid of $8.4 million during the first nine months of fiscal 2023 were higher than dividends paid of $8.3 million during the same period of fiscal 2022.
U.S. revolving credit facility
On June 20, 2023, Haynes International, Inc. and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”) entered into Amendment No. 3 to Credit Agreement (the “Amendment”) which amended that certain Credit Agreement, dated October 19, 2020 (as amended by that certain Amendment No. 1 to Credit Agreement dated August 30, 2022, by that certain Increase Joinder Regarding Incremental Revolving Commitments and Amendment No. 2 to Credit Agreement dated October 7, 2022, the “Credit Agreement”). The Amendment provides for revolving loans in the maximum amount of $200.0 million, subject to a borrowing base and certain reserves (See Note 16 to the Consolidated Financial Statements provided in Item 1 of Part I of this Report for more information on the Credit Agreement).
Future sources and uses of liquidity
The Company’s sources of liquidity for the next twelve months are expected to consist primarily of cash generated from operations, cash on-hand and borrowings under the U.S. revolving credit facility. At June 30, 2023, the Company had cash of $12.9 million, an outstanding balance of $98.7 million on the U.S. revolving credit facility (described above) and total remaining borrowing availability against the revolving credit facility of approximately $101.3 million, subject to a borrowing base formula and certain reserves. Management believes that the resources described above will be sufficient to fund planned capital expenditures, any regular quarterly dividends declared and working capital requirements over the next twelve months.
The Company’s primary uses of cash over the next twelve months are expected to consist of expenditures related to:
● Funding operations, including raw material purchases, labor costs, insurance, utilities, equipment maintenance;
● Capital spending, including for purchases of new plant and equipment;
● Dividends to stockholders; and
● Pension and postretirement plan contributions, including an anticipated contribution to the U.S. pension plan of $1.5 million during the remainder of fiscal 2023.
24
The Company’s primary uses of cash beyond the next twelve months are expected to remain the same as those expenditures expected over the next twelve months.
The Company expects to fund these uses of cash with existing cash on-hand, cash generated from net income over the next twelve months and additional borrowings from the revolving credit facility. The Company anticipates that cash generated from net income, as a result of increased revenue as the Company works through the record backlog, will have a favorable result on the Company’s cash flow from operations in the fourth quarter of fiscal 2023 and into fiscal 2024. Additional demands for inventory are expected to be lower than in previous quarters as much of the necessary work-in-process inventory is currently in place. Conversely, the Company has several capital projects underway which will result in higher capital spending than amounts spent in recent quarters which are expected to be funded by cash generated from operations or increased borrowings on the U.S. credit facility, if needed.
New Accounting Pronouncements
See Note 2. Recently Issued Accounting Standards 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 June 30, 2023. However, future events rarely develop exactly as forecasted and the best estimates routinely require adjustment. The accounting policies and estimates discussed in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022 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. The applicable critical policies are also discussed in Note 2 of the consolidated financial statements included in Item 8 of that report. For the quarter ended June 30, 2023, there were no material changes to the critical accounting policies and estimates.
Item 3.Quantitative and Qualitative Disclosures about Market Risk.
As of June 30, 2023, 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, 2022.
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 June 30, 2023.
There were no 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.
25
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
For a discussion of certain legal proceedings, see Note 7 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of the Quarterly Report on Form 10-Q.
Item 1A. Risk Factors.
In connection with information set forth in this report, the risk factors disclosed in Part I Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and the risk factor below related to the cybersecurity incident should be considered. These risks and uncertainties could have a material adverse impact on our business, financial condition and operating results.
The risks described herein and in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q are not the only risks we face. New risk factors or risks that we currently deem immaterial emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the impact such risk factors might have on our business, financial condition and operating results, or the extent to which any such risk factor or combination of risk factors may impact our business, financial condition and operating results.
Cybersecurity incidents could have numerous adverse effects on our business.
Cybersecurity incidents may result in compromises or breaches of our and our customers’ systems, the insertion of malicious code, malware, ransomware or other vulnerabilities into our systems and products and in our customers’ systems, the exploitation of vulnerabilities in our and our customers’ environments, theft or misappropriation of our and our customers’ proprietary and confidential information, interference with our and our customers’ operations, exposure to legal and other liabilities, higher customer, employee and partner attrition, negative impacts to our sales and reputational harm and other serious negative consequences, any or all of which could materially harm our business.
The recent Haynes Cybersecurity Incident resulted in a significant loss of production time and a reduction of products shipped in the third quarter of fiscal 2023, which negatively impacted the Company’s financial results for the third quarter and first nine months of fiscal 2023. In addition, the Company incurred significant costs and expenses, as well as the diversion of management’s attention, in responding to the Cybersecurity Incident, all of which had a negative impact on the Company. While the Company has determined that some data was copied from the network, at this stage, there is no evidence that either customer or employee information was accessed. It is not possible to determine any future impact, if any, on the Company’s results.
26
Item 6.Exhibits
Exhibit |
|
Description |
3.1 |
|
|
3.2 |
|
|
10.1 |
|
|
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 |
|
|
101 |
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 formatted in Inline 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 Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) related notes. |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
27
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/ Michael Shor |
|
Michael Shor |
|
President and Chief Executive Officer |
|
Date: August 3, 2023 |
|
|
|
|
|
/s/ Daniel Maudlin |
|
Daniel Maudlin |
|
Vice President — Finance and Chief Financial Officer |
|
Date: August 3, 2023 |
28
Exhibit 31.1
CERTIFICATIONS
I, Michael L. Shor, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Haynes International, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-159f) and 15(d)-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 3, 2023 |
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/s/ Michael l. Shor Michael L. Shor |
Exhibit 31.2
CERTIFICATIONS
I, Daniel W. Maudlin, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Haynes International, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-159f) and 15(d)-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 3, 2023 |
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/s/ Daniel W. Maudlin Daniel W. Maudlin |
Exhibit 32.1
Certifications Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the
Sarbanes—Oxley Act of 2002
I, Daniel W. Maudlin, the Vice President Finance and Chief Financial Officer of Haynes International, Inc., certify that (i) the Quarterly Report on Form 10-Q for fiscal quarter ended June 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Haynes International, Inc. as of the dates and for the periods set forth therein.
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/s/ Daniel W. Maudlin Daniel W. Maudlin |
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August 3, 2023 Date |
I, Michael, L. Shor, the President and Chief Executive Officer of Haynes International, Inc., certify that (i) the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Haynes International, Inc. as of the dates and for the periods set forth therein.
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/s/ Michael L. Shor Michael, L. Shor President and Chief Executive Officer |
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August 3, 2023 Date |