UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 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
(State or other jurisdiction of
incorporation or organization)
1020 West Park Avenue, Kokomo, Indiana
(Address of principal executive offices)
06-1185400
(I.R.S. Employer Identification No.)
46904-9013
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code (765) 456-6000
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol
HAYN
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 ☐
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
Non-accelerated filer ☐
Accelerated filer ☒
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒ Yes ☐ No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
As of March 31, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $437,446,639 based on the
closing sale price as reported on the NASDAQ Global Market. Shares of common stock held by each executive officer and director and by each person who owns 10%
or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily
a conclusive determination that any such person is an affiliate of the registrant and there may be other persons who are affiliates.
12,753,936 shares of Haynes International, Inc. common stock were outstanding as of November 16, 2023.
Portions of the registrant’s Proxy Statement to be delivered to stockholders in connection with the 2024 Annual Meeting of Stockholders have been incorporated
DOCUMENTS INCORPORATED BY REFERENCE
by reference into Part III of this report.
TABLE OF CONTENTS
Page No.
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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This Annual Report on Form 10-K 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
Annual Report on Form 10-K are forward-looking. In many cases, you can identify forward-looking statements by
terminology, such as “may”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. The
forward-looking information may include, among other information, statements concerning the Company’s outlook for
fiscal year 2024 and beyond, overall volume and pricing trends, cost reduction strategies and their anticipated results,
market and industry trends, capital expenditures, expected borrowings under the Company’s revolving credit facility and
dividends. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not historical facts. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which
are difficult to predict and are generally outside the Company’s control, that could cause actual results to differ materially
from those expressed in, or implied or projected by, the forward-looking statements. These risks and uncertainties include,
without limitation, those risks set forth in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
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.
Except to the extent required by law, 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.
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Item 1. Business
Overview
Part I
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 64% of net product revenues in fiscal 2023. The Company also produces its products as
seamless and welded tubulars, which represented approximately 12% of fiscal 2023 net product revenues and in wire form,
which represented approximately 6% of fiscal 2023 net product revenues and in slab, bar and billet form which, in the
aggregate, represented approximately 18% of fiscal 2023 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 and small diameter bar 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. In fiscal 2023, approximately 75% of the Company’s net revenue was
generated by its direct sales organization, and the remaining 25% was generated by a network of independent distributors,
resellers and sales agents that supplement the Company’s direct sales efforts primarily in the United States, Europe and
Asia, some of whom have been associated with the Company for over 30 years.
A key strength of the Company is innovation through developing new alloys and developing new applications
for its new and existing alloys. This strength combined with our unique business model that utilizes both the mill and
Company-owned service centers provides exceptional customer service with short lead times, smaller quantities and value-
add cutting operations. The Company has leveraged these strengths with a focused strategy of providing high-value
differentiated products and services, and realizing variable cost reductions. This has resulted in a 25% reduction in our
volume breakeven point, which provides incremental margin strength as volumes rise.
Business Strategy
The Company’s strategy is pursued within the overarching goal of safety, which continues to be the Company’s
core priority. Its approach to safety includes providing leadership on awareness, communication, accountability, and
process change. In addition to its ongoing focus on safety, the Company seeks to continue to improve its business
performance, which includes providing high-value differentiated products and services, and pricing for that value. This
is combined with pursuing reduced costs, including yield and process improvements, with the result being expansion of
its gross margin percentage and a significant reduction in its breakeven point.
The Company’s performance business metrics have improved significantly versus historical periods, including
a 25% reduction in its volume breakeven point from roughly 5 million pounds shipped to 3.7 million pounds shipped per
quarter with the current product mix. This lower breakeven point has enabled the Company to capitalize on increasing
volumes shipped which has resulted in the improvement of our gross margin as a percentage of sales.
While maintaining this improvement focus, the Company continues to evaluate new opportunities and
applications for its products, particularly in its core markets of aerospace, chemical processing and industrial gas
turbines, but also in the areas of renewable clean energy sources and other developing technologies relating to
environmental and climate change issues. These opportunities include new generation jet engines with better fuel
efficiency and fewer emissions, as well as the use or consideration for use of HAYNES® alloys in advanced ultra-
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supercritical power plants, concentrated solar power, fuel cells, molten salt nuclear reactors, waste-to-energy, hydrogen
production, and use of supercritical-CO2 power cycles for energy generation. Innovation is a foundational strength of
the Company.
The following provides further discussion on certain focus initiatives that are core to this strategy.
• Ensure the Company is compensated for the high-value differentiated products and services it provides.
The Company favorably adjusted pricing year-over-year; which is expected to continue as additional
agreements are renewed. These price increases are in addition to raw material price increases and
contribute to improving margins.
• Optimize processes to reduce costs. The Company continues to pursue operational improvements, which
include specific variable cost reduction projects. This ongoing pursuit includes initiatives in many different
areas such as material management, productivity enhancements, yield and efficiency improvements and
process optimization. These cost reductions are sustainable and expected to have a larger favorable impact
with increasing volumes.
•
Increase production and sales volumes. The Company is focused on increasing production activity and
top-line sales volumes in response to the higher backlog driven by increased customer demand. This has
included increasing production headcount and investing in inventory to increase volumes produced. Given
the long production cycle of the Company’s high-performance alloys, an increase in primary melting
results in an increase in work-in-process inventory and represents a use of cash until the sales volume
grows to be more in-balance with the melting. Borrowings on the Company’s credit facility were required
for this investment, but operating cash generation is expected going forward.
• Capitalize on strategic equipment investment and outsourcing opportunities. The Company expects to
continue to improve return on investment from capital invested in manufacturing facilities and equipment.
Future equipment investment is likely to focus on increasing production capacity and capabilities for high-
value premium products. In addition to in-house equipment investment, strategic outsourcing opportunities
have been evaluated and pursued in certain cases.
•
Increase revenues by inventing new alloys, developing new applications and expanding into new
markets. The Company believes it is an industry leader in inventing new alloys to meet the specialized and
demanding requirements of the markets we serve. The Company continues to work closely with customers
and end users of its products to identify opportunities to develop and manufacture new high-performance
alloys. The Company’s technical programs have yielded many new proprietary alloys with multiple
applications, an accomplishment that the Company believes distinguishes it from its competitors.
Developing new applications for its new and existing alloys is also a key strength and strategy of the
Company. The Company leverages its technical expertise to develop unique applications for its products,
especially proprietary and specialty alloys that can yield higher margins. These new applications, including
use in unique special projects and new programs, are an important part of the Company’s growth and
profitability strategy.
Through the development of new alloys and new applications, the Company is seeking to participate in
additional markets with new revenue streams beyond the core markets of aerospace, chemical processing
and industrial gas turbines. The Company believes that medical/pharmaceutical, consumer electronics,
petrochemical and emerging technologies such as renewable and clean energy, hydrogen production and
next-generation nuclear power generation all present possible growth opportunities for its products.
•
Increase revenues and provide additional product and service differentiation by providing value-added
processing services and leveraging the Company’s global distribution network. The Company believes
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that its network of Company-owned service and sales centers throughout the United States, Europe and
Asia distinguishes it from its competitors, many of whom operate only mills. The Company’s service and
sales centers enable it to develop close customer relationships through direct interaction with customers
and to respond to customer orders quickly, while also providing value-added cutting services such as laser,
plasma and water-jet cutting. These services allow the Company’s customers to minimize their processing
costs and outsource non-core activities.
•
Increase market share by leveraging its unique business model. Haynes is both a mill and a service
center. This business model focuses on superior customer service and allows for mill flexibility and value-
added services for the customer as described above. The Company’s strategy leverages this differentiator
to grow market share, as reflected by its growth rates.
• Continue to expand the Company’s environmental, social, and governance (ESG) initiatives. The
Company is committed to a culture of openness, trust and integrity in all aspects of its business. These high
standards governing business conduct are for the good of the Company, its employees, its stockholders, its
customers and the communities in which it operates. The Company has a number of policies in place
governing ethical conduct and believes that all people should be treated with respect in an inclusive and
diverse environment. In addition, the Company has always been conscious of its environmental impact and
is actively working to lighten its carbon footprint. As part of our environmental efforts, we completed two
solar power projects; one at our North Carolina facility that is providing over 50% of the electricity needed
to power that facility and a second solar installation at our Louisiana tubular facility. Another important
ESG consideration is the customers’ use of the Company’s products. Ever-increasing demand for more
efficient, cleaner and renewable energy by businesses aligned with ESG principles has led to the
development of several emerging technologies that require high-performance alloys for demanding
operating conditions, making Haynes’ products an integral part of many energy solutions designed to be
more environmentally friendly.
•
Increase profitability through strategic acquisitions and alliances. The Company intends to continue to
examine opportunities that enable it to enhance stockholder value. These may include product line
additions, market expansion or other commercial or cost opportunities. The Company also plans to
continue to evaluate strategic relationships in the industry in order to enhance its competitive position and
relationships with customers.
• Focus on eliminating the U.S. Pension Liability. The Company also established strategies to de-risk its
U.S. pension plan and strive to decrease and eventually eliminate the associated liability, which was the
largest liability on its balance sheet three years ago. The U.S. pension plan net liability was $105 million at
the beginning of fiscal 2021 and decreased to $14 million at the end of fiscal 2023; a drop of $91 million
over the three-year period. This strategy included a lump-sum contribution of $15 million into the plan in
fiscal 2021 in addition to normal contributions of $6 million in each of fiscal 2021, 2022 and 2023. A glide
path was adopted in fiscal 2021 to help secure funding improvements including a customized liability-
driven investing (LDI) strategy designed to reduce interest rate risk and equity risk. At the end of fiscal
2023, the plan’s funding percentage was approximately 94%.
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• Optimize its allocation of capital. The Company believes that its best use of capital can differ in times when the
markets that we serve are in a high growth period as opposed to when those markets are in decline. We will focus
on cash generation in times when the backlog is level or in decline and allocate that capital towards debt reduction,
pension funding or share re-purchases. Conversely, at the beginning of a growth cycle, capital may be allocated
towards building inventory to support a higher level of business. The Company continues to reinvest in the
business with capital expenditures as well as a consistent dividend returned to stockholders.
Products
The global specialty alloy market includes stainless steel, titanium alloys, general-purpose nickel alloys and
high-performance nickel- and cobalt-based alloys. The Company believes that the high-performance alloy sector
represents less than 10% of the total specialty alloy market. The Company competes primarily in the high-performance
nickel- and cobalt-based alloy sectors, which includes HTA products and CRA products. In fiscal 2021, 2022 and 2023,
HTA products accounted for approximately 75%, 79% and 85%, respectively, of the Company’s net revenues, and sales
of the Company’s CRA products accounted for approximately 25%, 21% and 15%, respectively, of the Company’s net
revenues. These percentages are based on data which include revenue associated with sales by the Company to its foreign
subsidiaries, but exclude revenue associated with sales by foreign subsidiaries to their customers. Management believes,
however, that the effect of including revenue data associated with sales by its foreign subsidiaries would not materially
change the percentages presented in this section.
High-temperature Resistant Alloys. HTA products are used primarily in manufacturing components for the hot
sections of gas turbine engines. Stringent safety and performance standards in the aerospace industry result in development
lead times typically as long as eight to ten years in the introduction of new aerospace-related market applications for HTA
products. However, once a particular new alloy is shown to possess the properties required for a specific application in the
aerospace market, it tends to remain in use for extended periods. HTA products are also used in gas turbine engines
produced for use in applications such as naval and commercial vessels, electric power generation, power sources for
offshore drilling platforms, gas pipeline booster stations and emergency standby power generators. Our HTA products
offer excellent resistance to oxidation, sulfidation, metal dusting, and other high-temperature degradation modes. As such,
the Company expects our HTA products to be relevant in emerging technologies for lowering carbon footprints, while
chemical, petrochemical, and several other industries could also create additional long-term growth opportunities.
Corrosion-resistant Alloys. CRA products are used in a variety of applications, such as chemical and
petrochemical processing, power plant emissions control, hazardous waste treatment, sour gas production and
pharmaceutical vessels. Historically, the chemical processing market has represented the largest end-user sector for CRA
products. The Company believes the chemical processing market continues to represent an area of potential long-term
growth since CRA product purchases can be driven by reoccurring maintenance, a need to improve safety, and a need to
improve environmental protections by minimizing alloy degradation. Moreover, the Company also sees the availability of
abundant natural gas as a feedstock for chemicals as a potential for long term growth for our CRA products. In addition to
the use of CRA products in the chemical and petrochemical processing industry, the Company has seen an increased
demand for some of these alloys in applications such as gas-to-liquid and synthetic gas operations. Higher operating
temperatures and harsher environmental conditions can improve efficiency in certain applications and, consequently, high-
temperature, corrosion-resistant alloys are used to enable these technologies. Unlike aerospace applications within the
HTA product market, the development of new market applications for CRA products generally does not require long lead
times.
Material Resources
Patents and Trademarks
The Company currently maintains a total of approximately 17 published U.S. patents and applications and
approximately 227 foreign counterpart patents and applications targeted at countries with significant or potential markets
for the patented products. Since fiscal 2003, the Company’s technical programs have yielded nine new proprietary alloys.
The alloys being commercialized saw significant further advancement in the process during fiscal 2021, 2022 and 2023.
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The Company will continue to develop and actively promote new alloys through customer engineering visits, technical
presentations, and publication of technical papers for industry and academia.
In the aerospace, industrial gas turbine, and other high temperature alloys markets one of the alloys that has
already seen significant commercial success is HAYNES® 282® alloy. This alloy has an excellent combination of high
temperature strength, formability and fabricability. There have been a significant number of customer tests and evaluations
of this product for the hot sections of gas turbines in the aerospace and industrial gas turbine markets, and for other high
temperature applications. The alloy is specified into major aerospace and industrial gas turbine applications, as well as for
certain high temperature components in the automotive and industrial applications. The American Society of Mechanical
Engineers (“ASME”) code case for this alloy was approved in fiscal 2021. The code case will help further expand the use
of the alloy into pressure vessel and boiler applications requiring ASME approvals. Another new alloy for use in the
aerospace and industrial gas turbine markets is HAYNES® 244® alloy. It combines high strength to 1400 degrees
Fahrenheit with a low coefficient of thermal expansion. Commercialization is ongoing for this alloy, and it has been
specified into certain aerospace engine programs and is being evaluated on others.
Our customers in the chemical processing industry and corrosion resistance alloys markets have extensive
applications for HASTELLOY® G-35® alloy, particularly in wet phosphoric acid production. Commercialization is
ongoing for HASTELLOY® HYBRID-BC1® alloy. HYBRID-BC1® alloy is a CRA product with applications in the
chemical processing and petrochemical industries that has demonstrated resistance to hydrochloric and sulfuric acids as
well as several organic acids. Most recently the alloy has found applications in agrichemical and refinery industries, as
well as chemical processing applications that are growing as a result of the manufacturing of electric vehicle batteries.
These applications are further expanding the use of the alloy. Management expects demand for these specialty and
proprietary alloys will continue to grow in chemical processing and other markets.
In the oil and gas industry, HASTELLOY® C-22HS® alloy has found multiple applications. Commercialization
of this alloy continues, as is the testing, evaluation, and promotion of this alloy with special emphasis on applications for
this industry.
In addition to the successful commercialization of the above alloys, the Company continues to develop
applications for three new alloys which are still being scaled up at the mill and are in the early stages of the
commercialization process. HAYNES® HR-224® alloy is an HTA product with superior resistance to oxidation and
excellent fabricability, and is being assessed in certain current and emerging technology applications. HAYNES®
HR-235® alloy has excellent resistance to metal dusting in high temperature carbonaceous environments. Good progress
in developing new applications for the alloy for petrochemical and syngas production applications has been made this past
fiscal year. Most recently, HAYNES® 233® alloy was introduced to provide excellent oxidation resistance coupled with
superior creep strength at temperatures to 2100°F or higher. The Company believes this combination of properties has not
been previously achieved in a readily fabricable alloy. Commercialization for this alloy is ongoing and significant progress
has been made over the past year in developing applications for this new alloy in aerospace, industrial gas turbines, power
generation and other high temperature applications.
Patents or other proprietary rights are an important element of the Company’s business. The Company’s strategy
is to file patent applications in the U.S. and any other country that represents an important commercial market. In addition,
the Company seeks to protect technology that is important to the development of the Company’s business. The Company
also relies upon trade secret rights to protect its technologies and its development of new processes, applications and alloys.
The Company protects its trade secrets in part through confidentiality and proprietary information agreements with its
customers and employees. Trademarks on the names of many of the Company’s alloys have also been applied for or
granted in the U.S. and certain foreign countries.
While the Company believes its patents are important to its competitive position, significant barriers to entry may
exist beyond the expiration of any patent period. These barriers to entry include the unique equipment required to produce
these materials and the exacting processes required to achieve the desired metallurgical properties. These processing
requirements include optimal melting and thermo-mechanical processing parameters for each alloy. Management believes
that the current alloy development programs and these barriers to entry reduce the impact of patent expirations on the
Company.
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Raw Materials
Raw materials represented an estimated 48% of cost of sales in fiscal 2023. Nickel, a major component of many
of the Company’s products, accounted for approximately 43% of raw material costs, or approximately 21% of total cost
of sales in fiscal 2023. Other key raw materials include cobalt, chromium, molybdenum and tungsten. Melt materials
consist of virgin raw material, purchased scrap and internally produced scrap.
The average nickel prices per pound for cash buyers for the 30-day periods ended on September 30, 2021, 2022
and 2023, as reported by the London Metals Exchange, were $8.80, $10.28 and $8.90, respectively. Prices for certain other
raw materials that are significant in the manufacture of the Company’s products, such as cobalt and chromium, were lower
in fiscal 2023 compared to fiscal 2022, while molybdenum was higher in fiscal 2023 compared to fiscal 2022.
The Company’s business model includes mill manufacturing and global distribution facilities, which create a long
working capital cycle and contribute to a long position as it relates to commodity price risk, especially for product sold
out of distribution facility inventory at spot prices. In addition, the type of high-performance products the Company
produces require multiple production steps to create the final yielded product that is sold to the customer. These refining
steps generate high revert scrap pounds that are recycled back through the melt at metal value. This scrap cycle also
contributes to a long position as it relates to commodity price risk.
Although alternative sources of supply are available, the Company currently purchases nickel through an
exclusive arrangement with a single supplier to ensure consistent quality and supply. The Company purchases raw
materials through various arrangements including fixed-term contracts and spot purchases, which involve a variety of
pricing mechanisms. In cases where the Company prices its products at the time of order placement, the Company attempts
to establish selling prices with reference to known costs of materials, thereby reducing the risk associated with changes in
the cost of raw materials. However, to the extent that the price of nickel fluctuates rapidly, there may be a favorable or
unfavorable effect on the Company’s gross profit margins. The Company periodically purchases material forward with
certain suppliers in connection with fixed price agreements with customers.
The Company values inventory utilizing the first-in, first-out (“FIFO”) inventory costing methodology. Under
the FIFO inventory costing method, the cost of materials included in cost of sales may be different from the current market
price at the time of sale of finished product due to the length of time from the acquisition of the raw material to the sale of
the finished product. In a period of decreasing raw material costs, the FIFO inventory valuation method normally results
in higher costs of sales as compared to the last-in, first out method. Conversely, in a period of rising raw material costs,
the FIFO inventory valuation method normally results in lower costs of sales as compared to the last-in, first out method.
End Markets
The global specialty alloy market includes stainless steels, titanium alloys, general purpose nickel alloys and
high-performance nickel- and cobalt-based alloys. Of this total market, the Company competes primarily in the high-
performance nickel- and cobalt-based alloy sectors which require highly specialized alloys that can meet the demanding
materials’ needs of the applications in the high growth markets such as Aerospace, CPI, IGT, Emerging Technologies, to
name a few. Compared to the stainless steels and general-purpose nickel alloys markets, the Company believes that the
high-performance alloy sector provides greater growth potential and opportunities for higher price differentiation and
profit margins. This is due to the technologically demanding nature of the applications, products, strict customer
requirements and higher-growth end markets.
The Company believes it is an industry leader in developing new alloys to meet its customers’ specialized and
demanding requirements. The Company continues to work closely with customers and end users of its products to identify
opportunities to develop and manufacture new high-performance alloys. The Company’s technical programs have yielded
many new proprietary alloys with multiple applications, an accomplishment that the Company believes distinguishes it
from its competitors.
Developing new applications for its new and existing alloys is also a key strength and strategy of the Company.
The Company leverages its technical expertise to develop unique applications for its products, especially proprietary and
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specialty alloys that can yield higher margins. These new applications, including use in unique special projects and new
programs, are an important part of the Company’s growth and profitability strategy.
Aerospace. The Company has manufactured HTA products for the aerospace market since the late 1930s and
has developed numerous proprietary alloys for this market. Customers in the aerospace market tend to be the most
demanding with respect to meeting specification requirements, precise tolerances and achieving new product performance
standards. Stringent safety standards and continuous efforts to reduce equipment weight, reduce emissions, and develop
more fuel-efficient designs require close coordination among the Company, the aero-engine original equipment
manufacturer (“OEMs”), and their customers in the selection and development of HTA products. As a result, sales to
aerospace customers tend to be made through the Company’s direct sales force. Demand for the Company’s products in
the aerospace market is based on the new and replacement market for jet engines and the maintenance needs of operators
of commercial and military aircraft. The Company’s HTA products are used for static components in the hot sections of
aircraft engines. The hot sections are subjected to substantial wear and tear and require periodic maintenance, repair and
overhaul. The Company views the maintenance, repair and overhaul (“MRO”) business as an area of continuing long-term
growth. The Company is aware of decarbonization efforts by the aviation industry, which involves improved operational
efficiency, the use of sustainable aviation fuel (“SAF”) and hydrogen as a fuel source for the next-generation engines. The
Company believes this may be a growth area as aero engines run hotter and in harsher conditions thereby requiring
advanced HTA products, such as HAYNES® 233® alloy. Additionally, commercial aircraft, military aircraft, and the
space technology markets are experiencing continued growth using wrought and additive manufacturing technology with
our HTA products. Three of our newest alloys that are enabling new technologies with wrought and additive manufactured
products are HAYNES® 282® alloy, HAYNES® 244® alloy and HAYNES® 233® alloy.
Chemical Processing. The chemical processing market represents a large base of customers with diverse CRA
and HTA applications driven by demand in key end-use markets such as automobiles, housing, health care,
biopharmaceuticals, agriculture and metals production. Both CRA and HTA products supplied by the Company have been
used in the chemical processing market since the early 1930s. Demand for the Company’s products in this market is driven
by the level of MRO and expansion requirements of existing chemical processing facilities, as well as the construction of
new facilities. The expansion of manufacturing of chemicals from natural gas in North America is expected to be a driver
of demand in this market. In addition, the Company believes the extensive worldwide network of Company-owned service
and sales centers, as well as its network of independent distributors and sales agents who supplement the Company’s direct
sales efforts outside of the U.S., provide, in certain cases, a competitive advantage in marketing its CRA and HTA products
in the chemical processing market.
Industrial Gas Turbine (IGT). Demand for the Company’s products in the industrial gas turbine market is driven
primarily by utility-scale electricity generation, both for base load as well as for backup generation during times of peak
power demand. The benefit of these turbines are their relatively low cost, high efficiency, rapid response and reliability,
especially as weather-controlled renewables have become major sources of electricity. An additional demand consideration
is the drive to lower emissions from coal-fired generating facilities, since natural gas has gained acceptance as a cleaner,
lower-cost alternative to coal. Industrial gas turbines are also used for power and propulsion in certain classes of ships
and ferries, most commonly as derivatives of popular aero turbine engines. Demand is also generated by mechanical drive
units used for oil and gas production and pipeline transportation and for back-up sources of power generation for hospitals
and shopping malls. The Company also has a strong presence in micro turbine applications, which provide decentralized
power and thermal heating for many key markets including as backups for renewable energy. The turbine hot sections are
subjected to substantial wear and require periodic maintenance, and this MRO business is viewed by the Company as an
area of continuing long-term growth. The Company’s products have allowed turbines to operate at higher temperatures
and efficiencies for much longer service intervals than had been previously achieved. The Company believes that multiple
OEMs are modernizing their turbine models to use from 30% up to 100% hydrogen as fuel. Hydrogen as a fuel may
dramatically decarbonize turbines and prepare the IGT market for future environmental regulations. The Company is
supporting customers to enable the use of hydrogen as an alternative fuel for next-generation gas turbines.
Other Markets. Other markets in which the Company sells its HTA products and CRA products include flue-gas
desulfurization (FGD), oil and gas, waste incineration, industrial heat treating, automotive, thermocouples, sensors and
instrumentation, biopharmaceuticals, solar and nuclear fuel. The Company also sells its products for use in the oil and gas
10
market, primarily in connection with sour gas production. In addition, incineration of municipal, biological, industrial and
hazardous waste products typically produces very corrosive conditions that demand high performance alloys. Our alloys,
such as ULTIMET® alloy, are also actively marketed and used in wear and tear – corrosion applications. The Company
continues to look for opportunities to introduce and expand the use of its alloys in emerging technologies such as solar,
fuel cells, emerging battery technologies, ultra-supercritical steam and supercritical-CO2 power plants, hydrogen
production, and molten salt nuclear reactor applications. Markets capable of providing growth are being driven by
increasing performance, reliability and service life requirements for products used in these markets, which could provide
further applications for the Company’s products.
Through development of new alloys and new applications, the Company continues to seek to participate in
additional markets with new revenue streams beyond the core markets of aerospace, chemical processing and industrial
gas turbine industries. The Company believes that wear, medical/pharmaceutical, consumer electronics, petrochemical and
emerging technologies such as renewable and clean energy, hydrogen production, next-generation nuclear power
generation and additive manufacturing all present possible significant growth opportunities for its products.
Sales and Marketing and Distribution
The Company sells its products primarily through its direct sales organization, which operates from 14 total
locations in the U.S., Europe and Asia, 11 of which are service and/or sales centers. All of the Company’s service and/or
sales centers are operated either directly by the Company or through its direct or indirect wholly-owned subsidiaries.
Approximately 75% of the Company’s net revenues in fiscal 2023 were generated by the Company’s direct sales
organization. The remaining 25% of the Company’s fiscal 2023 net revenues were generated by a network of independent
distributors and sales agents who supplement the Company’s direct sales in the U.S., Europe and Asia. Going forward,
the Company expects its direct sales force to generate approximately 75% of its total net revenues.
Providing technical assistance to customers is an important part of the Company’s marketing strategy. The
Company provides performance analyses of its products and those of its competitors for its customers. These analyses
enable the Company to evaluate the performance of its products, enabling the products to be included as part of the
technical specifications used in the production of customers’ products. The Company’s market development professionals
are assisted by its engineering and technology staff in directing the sales force to new opportunities. Management believes
the Company’s combination of direct sales, technical marketing, engineering and customer support provides an advantage
over other manufacturers in the high-performance alloy industry. This framework allows the Company to obtain direct
insight into customers’ alloy needs and to develop proprietary alloys that provide solutions to customers’ demanding
applications.
While the Company continues to make concentrated efforts to expand foreign sales, the majority of its revenue
continues to be from sales to U.S. customers. The Company’s domestic expansion effort includes, but is not limited to, the
continued development of new high-performance alloys, the addition of equipment in U.S. service and sales centers to
improve the Company’s ability to provide a product closer to the form required by the customer and the continued effort,
through the technical expertise of the Company, to find solutions to customer challenges.
The following table sets forth the approximate percentage of the Company’s fiscal 2023 net revenues generated
through each of the Company’s distribution channels.
Company mill direct/service and sales centers
Independent distributors/sales agents
Total
From
Domestic
Locations
From
Foreign
Locations
Total
51 %
24 %
24 %
1 %
75 %
25 %
75 %
25 %
100 %
11
The Company’s top twenty customers accounted for approximately 34%, 39% and 43% of the Company’s net
revenues in fiscal 2021, 2022 and 2023, respectively. No customer or group of affiliated customers of the Company
accounted for more than 10% of the Company’s net revenues in fiscal 2021, 2022 or 2023.
Manufacturing Process
High-performance alloys require an extensive knowledge of both the specific alloy systems, as well as the process
parameters required to deliver a tightly controlled product to customer specifications. These products are tightly controlled
from a chemistry standpoint and require specialized equipment capable of delivering the physical and metallurgical
properties that our customers require for their specialized applications. The number of process steps are typically more
extensive for these high-performance alloy systems as compared to what would be required for stainless or carbon steel
products. This longer production cycle contributes to slower inventory turns. The Company manufactures its
high-performance alloys in various forms, including sheet, coil, plate, billet/ingot, tubular, wire and other forms. The
Company also performs value-added cutting services to supply certain customers with product cut to their specification.
At the Kokomo, Indiana facility, the manufacturing process begins with raw materials being combined, melted
and refined in a precise manner to produce the chemical composition specified for each high-performance alloy. The
Company’s primary melt facility utilizes two different melting processes. The ARC/AOD process utilizes electric melting
and gas refinement to remove carbon and other undesirable elements, thereby allowing more tightly-controlled chemistries,
which in turn produce more consistent properties in the high-performance alloys. The other primary melt method utilizes
vacuum induction melting, which involves the melting of raw materials through electromagnetic induction while under
vacuum conditions to produce the desired tightly-controlled chemistry. The control systems allow for statistical process
control monitoring in real time to improve product quality. For most high-performance alloys, this molten material is cast
into electrodes and additionally refined through electro slag remelting. The resulting ingots are then forged or rolled to an
intermediate shape and size depending upon the intended final product form. Intermediate shapes destined for flat products
are then sent through a series of hot and cold rolling, annealing, pickling, leveling and shearing operations before being
cut to final size.
The Company has a four-high Steckel rolling mill for use in hot rolling high-performance alloys, created
specifically for that purpose. The four-high Steckel rolling mill was installed in 1982 and is one of the most powerful
four-high Steckel rolling mills in the world. The mill is capable of generating over 12.0 million pounds of separating force
and rolling a plate up to 72 inches wide. The mill includes integrated computer controls (with automatic gap control and
programmed rolling schedules), two coiling Steckel furnaces and seven heating furnaces. Computer-controlled rolling
schedules for each of the hundreds of combinations of product shapes and sizes the Company produces allow the mill to
roll numerous widths and gauges to exact specifications without stoppages or changeovers.
The Company also operates a three-high hot rolling mill and a two-high hot rolling mill, each of which is capable
of custom processing much smaller quantities of material than the four-high Steckel rolling mill. These mills provide the
Company with significant flexibility in running smaller batches of varied products in response to customer requirements.
The Company believes the flexibility provided by the three-high and two-high mills provides the Company with an
advantage over its major competitors in obtaining smaller specialty orders.
The coil and sheet operation includes the ability to cold roll to tight tolerances, bright anneal, oxidize anneal and
pickle, along with finishing processes that slit and cut to size. The Company has invested and successfully brought on-
line additional cold rolling capability, as well as additional annealing capacity to support the added rolling capacity. This
added annealing capacity gives the Company the ability to offer either bright annealed finish or annealed and pickled finish
that will be determined by specifications, application or type of alloy.
The Company also produces bar and billet products through a series of bar mills and a forge press operation that
is located at the Kokomo, Indiana facility.
The Arcadia, Louisiana facility uses nickel feedstock produced at the Kokomo facility to manufacture welded
and seamless nickel alloy pipe, tubing and fittings, and purchases titanium extruded tube hollows to produce seamless
titanium tubing. The manufacturing processes at Arcadia require cold pilger mills, weld mills, annealing furnaces, pickling
12
facilities, and various finishing lines. The Company has also invested in specialized ultrasonic testing and eddy current
testing equipment, including its own testing laboratory. The facility recently installed and is operating a 300 KW rooftop
solar array. This solar array investment allows us to reduce annual carbon dioxide emissions by approximately 800,000
pounds.
The Mountain Home, North Carolina facility manufactures high-performance alloy wire and small diameter bar
products. Finished wire, bar, and powder products are also warehoused at this facility for quick delivery. The 1MW solar
array investment continues to produce 50% of the facility’s baseline electrical demand.
Backlog
The Company defines backlog to include firm commitments from customers for delivery of product at established
prices. At any given time, approximately 65% of the orders in the backlog include prices that are subject to adjustment
based on changes in raw material costs. Historically, approximately 50% of the Company’s backlog orders have shipped
within six months and approximately 90% have shipped within 12 months. The backlog figures do not typically reflect
that portion of the Company’s business conducted at its service and sales centers on a spot or “just-in-time” basis. For
additional discussion of backlog, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in this Annual Report on Form 10-K.
Consolidated Backlog at Fiscal Quarter End
1st quarter
2nd quarter
3rd quarter
4th quarter
Research and Technical Support
2022
2019
2023
2020
2021
(in millions)
$ 237.8 $ 237.6 $ 145.1 $ 217.5 $ 408.2
446.7
468.1
460.4
253.0
254.9
235.2
204.7
174.6
153.3
280.7
338.2
373.7
140.9
150.9
175.3
The Company’s technology facilities are located at the Kokomo headquarters and consist of 19,000 square feet
of offices and laboratories. The Company has six fully equipped technology testing laboratories, including a mechanical
and wear test lab, a metallographic lab, an electron microscopy lab, a corrosion lab, a high-temperature lab and a welding
lab. These facilities also contain a reduced scale, fully equipped melt shop and process lab. As of September 30, 2023, the
technology, engineering and technological testing staff consisted of 28 persons, 16 of whom have engineering or science
degrees, including 8 with doctoral degrees, with the majority of degrees in the field of metallurgical engineering or
materials science.
During fiscal 2023, research and development projects were focused on new alloy development, new product
form development, process modeling, supportive data generation, and new alloy concept validation, relating to products
for the aerospace, industrial gas turbine, chemical processing and oil and gas industries. In addition, significant projects
were conducted to generate technical data in support of major market application opportunities in areas such as renewable
energy, fuel cell systems, biotechnology (including toxic waste incineration and pharmaceutical manufacturing) and power
generation.
Competition
The high-performance alloy market is a highly competitive market in which eight to ten major producers
participate in various product forms. The Company’s primary competitors in flat rolled products include Special Metals
Corporation, a subsidiary of Precision Castparts Corp. and ATI, Inc. The Company faces strong competition from domestic
and foreign manufacturers of both high-performance alloys (similar to those the Company produces) and other competing
metals. The Company may face additional competition in the future to the extent new materials are developed, such as
plastics, ceramics or additive manufacturing that may be substituted for the Company’s products. The Company also
13
believes that it will face increased competition from non-U.S. entities, especially from competitors located in Eastern
Europe and Asia. Additionally, in past years, the Company’s domestic business has been challenged by a strong U.S.
dollar, which makes the goods of foreign competitors less expensive to import into the U.S and makes the Company’s
products more expensive to export outside the U.S.
In past years, the Company experienced strong price competition from competitors which requires the Company
to price its products competitively. The Company continues to respond to this competition through alloy and application
development, increasing emphasis on service centers, offering value-added services, improving its cost structure and
striving to improve delivery times and reliability.
Human Capital Resources
The Company values its workforce as one of its most important assets. Accordingly, the Company has adopted
and maintains a number of programs and practices designed to attract and retain the best available personnel.
Succession and Recruitment
The Company has an organizational development and succession planning process in place for human capital
strategic planning. The succession planning process evaluates performance, skillsets and leadership capabilities of
employees to backfill strategic roles. Such succession plans have been utilized throughout the Company to prepare
employees for future roles and leadership opportunities.
The Company attempts to promote from within when opportunities occur, given employee growth and
progression. In addition to our internal corporate recruiter, the Company may also use external recruiters due to the
challenging and competitive hiring environment. In order to encourage development of a future workforce for the
Company, the Company continues to sponsor projects at Purdue University, as well as providing internships in various
departments and locations throughout the Company.
Retirement and Exit Programs
The Company also utilizes exit interviews and on-boarding interviews to provide feedback regarding turnover
and employee desires for growth and development. These interviews are also utilized to identify drivers of voluntary
turnover and departures from the Company. Employee turnover rate and reasons, including voluntary and involuntary
departures, are monitored annually. The global turnover rate in both fiscal 2022 and 2023 was 13%. Both voluntary and
involuntary terminations, including retirements, are used to calculate the turnover rate.
Compensation Equity
The Company conducts inflation-adjusted compensation analysis to promote competitive compensation. This
analysis takes into account ranges for the geographical area, education level and job title under consideration. The
Company’s Human Resources Department develops offers for new salaried employees and also develops and administers
promotions to maintain the internal integrity of the compensation levels for comparable positions. The Company works
with managers to ensure that high potential employees and those individuals with unique talents are appropriately
developed and compensated. For example, the Board of Directors authorized a pool of restricted stock that can be used to
compensate high potential employees and for retention purposes. The Compensation Committee, with the approval of the
full Board in the case of Chief Executive Officer, determines annual salaries and other elements of compensation of the
Company’s executive management team, taking into account similarly situated executives employed by a peer group of
companies while also considering input of the Compensation Committee’s independent compensation consultant.
Diversity and Inclusion
The Company considers diversity as a criterion evaluated as a part of the attributes and qualifications a candidate
possesses. The Company construes the notion of diversity broadly, considering differences in viewpoint, professional
experience, education, skills and other individual qualities, in addition to race, gender, age, ethnicity and cultural
14
backgrounds as elements that contribute to a diverse Company.
Management also considers similar broad concepts of diversity in its selection of vendors, contractors and other
service providers. As a federal government subcontractor, the Company follows applicable federal rules and regulations
relating to diversity and other matters, including reporting requirements.
Company Culture
The Company has controls in place relating to compliance with the Company’s Code of Business Conduct and
Ethics, including a requirement for annual employee certification of that code as well as an established whistleblower
hotline and related procedures. In addition, human capital management, and more specifically employee hiring and
retention, are included within the Company’s Enterprise Risk Management program, which is subject to Board oversight
through regular reporting.
Community Involvement
The Company has used internships and partnerships with universities to enrich recruiting efforts, particularly for
technical roles such as research, alloy development and engineering. The Company has also utilized outreach and
partnerships with local community resources at all major locations such as community and technical colleges, workforce
development agencies, industry groups and other entities to strengthen the Company’s hiring process and expand the future
workforce candidate pool.
Employee Engagement and Wellness
The Company has a long-standing tuition reimbursement program to assist employees with the continuation of
their education. In addition, Company-sponsored employee assistance programs offer counseling for emotional, financial
and family issues. Continuing financial planning education is provided by the Company’s 401(k) plan administrator to
assist employees in financial and retirement planning. For many years, the Company’s investment in human capital has
involved commitments to worker training, apprenticeship programs and funding college scholarships.
Management and Board Oversight
Management is engaged in the Company’s efforts regarding management of human capital resources at all levels
through regular informational meetings, the Company’s Enterprise Risk Management program and organized succession
planning. The Board oversees these activities through regular reports by senior management regarding new or altered
programs and as part of the Enterprise Risk Management process. In addition, the Corporate Governance and Nominating
Committee of the Board is actively engaged in monitoring and encouraging diversity at the Board level while the
Compensation Committee also focuses on achieving and maintaining internal and external pay equity for the executive
team and the Board members while overseeing incentive compensation more broadly throughout the organization. In
promoting pay equity, the Board and the Compensation Committee make use of peer comparisons and benchmarking
measures.
Employee Statistics
As of September 30, 2023, the Company employed 1,248 full-time employees and 36 part-time employees
worldwide. All eligible hourly employees at the Kokomo, Indiana and Arcadia, Louisiana plants (640 in the aggregate)
are covered by two collective bargaining agreements.
On July 25, 2023, the Company entered into a five-year collective bargaining agreement with the United
Steelworkers of America Local 2958, which covers eligible hourly employees at the Kokomo, Indiana plant. This
agreement became effective on July 1, 2023 and will expire in June 2028.
On December 21, 2020, the Company entered into a collective bargaining agreement with the United
Steelworkers of America Local 1505, which covers eligible hourly employees at the Company’s Arcadia, Louisiana plant.
15
This agreement will expire in December 2025.
Management believes that current relations with the union are satisfactory.
Environmental Compliance
The Company has an enterprise level environmental policy, which focuses on fostering a safe workplace, offering
high quality products while protecting the environment, compliance with law and health and safety management systems,
utilization of all available resources to improve the quality, environmental, health and safety management systems and
setting, implementing and reviewing quality, environmental, health and safety objectives and targets. This policy is
communicated to contractors and vendors who provide services on site, and the Company periodically audits selected
suppliers from an environmental compliance perspective. The Company maintains an environmental management system
certified to ISO 14001 standards and, for its Kokomo operations, ISO 50001 standards. The Company maintains multiple
policies designed to comply with the Occupational Safety and Health Administration standards and has ISO 45001
certification.
The Company’s facilities and operations are subject to various foreign, federal, state and local laws and
regulations relating to the protection of human health and the environment, including those governing the discharge of
pollutants into the environment and the storage, handling, use, treatment and disposal of hazardous substances and wastes.
In the U.S., such laws include, without limitation, the Occupational Safety and Health Act, the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act and the Resource Conservation and Recovery Act. As environmental laws
and regulations continue to evolve, it is likely the Company will be subject to increasingly stringent environmental
standards in the future, particularly under air quality and water quality laws and standards related to climate change issues,
such as reporting of greenhouse gas emissions. Violations of these laws and regulations can result in the imposition of
substantial penalties and can require facility improvements. Expenses related to environmental compliance, which are
primarily included in Cost of sales on the Consolidated Statements of Operations, were approximately $3.5 million for
fiscal 2023 and are currently expected to be approximately $3.9 million for fiscal 2024.
The Company’s facilities are subject to periodic inspection by various regulatory authorities, who from time to
time have issued findings of violations of governing laws, regulations and permits. In the past five years, the Company
has paid administrative fines, none of which have had a material effect on the Company’s financial condition, for alleged
violations relating to environmental matters, requirements relating to its Title V Air Permit and alleged violations of record
keeping and notification requirements relating to industrial wastewater discharge. Capital expenditures of approximately
$3.6 million were made for pollution control improvements during fiscal 2023, with additional expenditures of
approximately $4.0 million for similar improvements planned for fiscal 2024.
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 and Mountain Home, North Carolina facilities, respectively.
The Company is required among other things to monitor groundwater and to continue post-closure maintenance
of the former disposal areas at each site. As a result, the Company is aware of elevated levels of certain contaminants in
the groundwater on the Company’s property. These levels are stable or decreasing, but 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.
The Company may also incur liability for alleged environmental damages associated with the off-site
transportation and disposal of hazardous substances. Generators of hazardous substances which are transported to disposal
sites where environmental problems are alleged to exist are subject to claims under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, or CERCLA, and state counterparts. CERCLA imposes strict, joint
and several liabilities for investigatory and cleanup costs upon hazardous substance generators, site owners and operators
and other potentially responsible parties. The Company is currently named as a potentially responsible party at one site.
16
There can be no assurance that the Company will not be named as a potentially responsible party at other sites in the future
or that the costs associated with those sites would not have a material adverse effect on the Company’s financial condition,
results of operations or liquidity.
Legal Compliance
In addition to environmental laws and regulations, the Company must comply with a wide variety of other laws
and regulations, including, without limitation, federal and state securities laws, Delaware corporate law, international laws,
data privacy laws in the U.S. and globally and safety laws and regulations. The Company continues to engage in
collaboration with key stakeholders, such as customers and regulators, to adapt to changing regulatory expectations.
Compliance with law and government regulations is not expected to have a material effect upon capital expenditures,
earnings or the competitive position of the Company.
Environmental, Social and Governance Matters
In addition to the information set forth below and above under “Environmental Compliance,” further information
regarding the Company’s environmental, social and governance activities can be found under the Sustainability tab on the
Company’s website at www.haynesintl.com/company-information/sustainability.
Governance and Social Matters
The Company is committed to a culture of openness, trust and integrity in all aspects of its business. It is critical
that all employees, vendors and customers understand and accept that, in everything it does, the Company will conduct
itself from the perspective of “doing the right thing for the right reason” at all times.
The Company has a number of policies in place governing social and ethical issues, including, without limitation:
• Code of Business Conduct and Ethics
• Anti-Harassment Policy
• Human Rights Policy
• Clawback Policy
•
Insider Trading Policy
• Human Trafficking Policy
• Anti-Corruption Policy
• Conflict Minerals Policy
• Gift Policy
In addition, all vendors of the Company must adhere to the Company’s Supplier Code of Conduct, which requires
compliance with laws regarding anti-trust, human rights, health and safety, and conflict minerals, as well as laws
prohibiting corruption, bribery, conflicts of interest, and child labor.
Similarly, all employees must adhere to the Code of Business Conduct and Ethics as well as attend training
regarding these and other policies. In addition, the Company maintains a whistleblower hotline with access available on
an anonymous basis online or by telephone.
17
Environmental Matters
During fiscal 2022 and 2023, the Company completed installations of solar arrays at two of its manufacturing
facilities. The first installation, located at its wire facility in Mountain Home, North Carolina, is a 1MW solar fixed ground
mount array, which continues to produce approximately 50% of the facility’s baseline electrical demand. The second
installation, located at its tubular facility in Arcadia, Louisiana, is a 300KW rooftop solar array, which allows the Company
to reduce annual carbon dioxide emissions by approximately 800,000 pounds at that location.
The Company is conscious of its environmental impact and is actively working to lighten its carbon footprint,
including projects to measure greenhouse gas emissions and develop goals of reduction. The ever-increasing demand for
clean energy generation has led to the development of several emerging technologies that require high-temperature alloys
for demanding operating conditions.
Since the invention of HASTELLOY® X alloy in 1954, the Company’s alloys have made it possible for aerospace
engines to run at high temperatures for long periods of time. This has been further enhanced with alloys used in new
generation engines such as HAYNES 282®. Engines being placed in service today reportedly consume 15% less fuel,
produce 50% less pollutants and reduce the noise footprint near airports compared to the previous generation of airplane
engines. The environmental related improvements stem in part from the increased use of alloys, such as HASTELLOY®
X, HAYNES® 188, 230®, 282®, 242®, 244® and other Haynes-invented alloys.
In addition to the Company’s alloys for energy production and powering modern aircraft in a more
environmentally friendly manner, the Company’s alloys are used in chemical plants that produce ecologically safe
agrichemicals which help to feed the world’s growing population. Company-invented HASTELLOY® G-35®, HYBRID-
BC1® and C-276 alloys are commonly used in these applications. In addition, HASTELLOY® C-22®, C-2000® and B-3®
alloys are used by the pharmaceutical companies for production of chemicals.
Renewable power generation offers the promise of producing power from nature’s resources, such as wind, sun,
rivers and oceans, with minimal depletion of the Earth’s resources and damage to the environment. Many renewable
energy technologies require the capture of energy at very high temperatures in extreme environments for which the
Company’s alloys are well suited. For example, the Company’s materials withstand intense heat in concentrated solar
power plants to facilitate storable thermal power to generate electricity after the sun sets.
Safety Matters
Safety is the Company’s top priority. Listed below are certain improvement efforts the Company has
implemented in order to reduce occurrences of injuries, occupational diseases and work-related fatalities.
• Each year, employees receive emergency preparedness training, and the Company conducts severe weather
and fire drills periodically.
• Employees attend refresher training annually. This training includes coverage of the following items: Lock
Out Tag Out, Confined Spaces, First Aid and Blood borne Pathogens, Fire Prevention and Emergency Action
Plan, Hearing Conservation, Hand Safety, Personal Protective Equipment requirements, Working Around
Mobile Equipment and Walking and Working Surfaces.
• All of the Company’s manufacturing sites have a volunteer Emergency Response Team (ERT). The ERT
members are state-certified trained in first aid and HAZMAT response.
• Company supervisors receive OSHA-10 Hour and Incident Investigation training.
• The Company conducts routine departmental safety audits.
18
The Company extends its health and safety policies to suppliers, visitors and contractors. When suppliers, visitors
and contractors come on site, they receive safety training. The training includes a review of relevant policies, required
personal protection equipment, emergency procedures and specific hazards that may be encountered.
Available Information
The address of the Company’s website is www.haynesintl.com. The Company makes available on its website its
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) as soon as reasonably practicable after filing such reports with the U.S. Securities and Exchange
Commission (the “SEC”). The filings available on the Company’s website date back to February 3, 2011. For all filings
made prior to that date, the Company’s website includes a link to the SEC’s website where such filings are available.
Information contained or referenced on the Company’s website is not incorporated by reference into, and does not form a
part of this Annual Report on Form 10-K or any other report the Company files or furnishes with the SEC.
Information about our Executive Officers
The following table sets forth certain information concerning the persons who serve as executive officers of the
Company as of September 30, 2023. Except as indicated in the following paragraphs, the principal occupations of these
persons have not changed during the past five years.
Name
Michael L. Shor
Daniel W. Maudlin
Angela M. Kohlheim
Marlin C. Losch
Susan M. Perry
Scott R. Pinkham
David L. Strobel
Gregory W. Tipton
David S. Van Bibber
Age
Position with Haynes International, Inc.
64 President and Chief Executive Officer
57 Vice President—Finance, Treasurer and Chief Financial Officer
51 Vice President—General Counsel and Corporate Secretary
63 Vice President—Sales & Distribution
51 Vice President—Human Resources
56 Vice President—Tube & Wire Products
62 Vice President—Operations
62 Vice President & Chief Information Officer
52 Controller and Chief Accounting Officer
Mr. Shor has served as President and Chief Executive Officer of the Company since September 2018 and has
been a director since 2012.
Mr. Maudlin has served as the Vice President-Finance, Treasurer and Chief Financial Officer of the Company
since December 2012.
Ms. Kohlheim has served as Vice President – General Counsel and Corporate Secretary of the Company since
February 2023. Prior to that, she served as Chief Legal Officer, General Counsel, and Compliance Officer of American
Pain Consortium Holdings LLC from August 2021 to February 2023 and Counsel at Faegre Drinker Biddle & Reath
LLP from April 2017 to August 2021.
Mr. Losch has served as Vice President—Sales & Distribution of the Company since January 2010.
Ms. Perry has served as Vice President – Human Resources of the Company since June 2023. Prior to that, she
served as Senior Director of Human Resources of Compal USA from October 2021 to June 2023 and Director of Human
Resources, Americas for Delphi / Borg Warner from September 2018 to October 2021.
Mr. Pinkham has served as Vice President—Tube and Wire Products of the Company since September 2018.
Mr. Strobel has served as Vice President—Operations of the Company since September 2018.
Mr. Tipton has served as Vice President and Chief Information Officer of the Company since January 2019. Prior
to that, he served as Chief Information Officer Americas for Dometic from August 2016 to December 2018.
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Mr. Van Bibber has served as Controller and Chief Accounting Officer of the Company since December 2012.
Item 1A. Risk Factors
The following risk factors should be considered carefully in addition to the other information contained in this
filing.
The risks and uncertainties described below are not the only ones we face and represent risks that our management
believes are material to investors regarding an investment in our Company and our business. Additional risks and
uncertainties not presently known to us or that we currently deem not material may also harm our business. If any of the
following risks actually occur, our business, financial condition or results of operations could be harmed.
Risks Related to Our Markets
Our revenues may fluctuate based upon changes in demand for our customers’ products.
Demand for our products is dependent upon and derived from the level of demand for the machinery, parts and
equipment produced by our customers, which are principally manufacturers and fabricators of machinery, parts and
equipment for highly specialized applications. Historically, certain markets in which we compete have experienced
unpredictable, wide demand fluctuations. Because of the comparatively high level of fixed costs associated with our
manufacturing processes, significant declines in our markets in prior years have had, and in the future may have, a
disproportionately adverse impact on our operating results.
We have, in several instances, experienced substantial year-to-year declines in net revenues, primarily as a result
of decreases in demand in the industries to which our products are sold. For example, in fiscal 2009, 2010, 2013, 2016,
2020 and 2021, our net revenues, when compared to the immediately preceding year, declined by approximately 31.1%,
13.0%, 16.7%, 16.6%, 22.4% and 11.3%, respectively. We may experience similar declines in our net revenues in the
future.
Profitability in the high-performance alloy industry is highly sensitive to changes in sales volumes.
The high-performance alloy industry is characterized by high capital investment and high fixed costs. The cost
of raw materials is the primary variable cost in the manufacture of our high-performance alloys and, in fiscal 2023,
represented approximately 48% of our total cost of sales. Other manufacturing costs, such as labor, energy, maintenance
and supplies, often thought of as variable, have a significant fixed element. Profitability is, therefore, very sensitive to
changes in volume, and relatively small changes in volume can result in significant variations in earnings. Our ability to
effectively utilize our manufacturing assets depends greatly upon continuing demand in our markets, market share gains,
and continued acceptance of our new products into the marketplace.
We operate in cyclical markets.
A significant portion of our revenues is derived from the historically cyclical aerospace, power generation and
chemical processing markets. Our sales to the aerospace industry constituted 49.2%, to the industrial gas turbine industry
20.5% and to the chemical processing industry constituted 15.6% of our total sales in fiscal 2023.
The commercial aerospace industry is historically driven by demand from commercial airlines for new aircraft.
Demand for commercial aircraft is influenced by industry profitability, trends in airline passenger traffic, the state of U.S.
and world economies, the ability of participants within the supply chain to access the necessary levels of staffing required
to meet industry demand and the ability of aircraft purchasers to obtain required financing and numerous other factors,
including the effects of terrorism and health and safety concerns. Supply chain disruptions in this or any of our other
markets could materially and adversely affect our results of operations and financial condition.
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The military aerospace cycle is highly dependent on U.S. and foreign government funding which is driven by,
among other factors, the effects of terrorism, a changing global political environment, U.S. foreign policy, military
conflicts around the world and the retirement of older aircraft and technological improvements to new engines that increase
reliability. Accordingly, the timing, duration and magnitude of cyclical upturns and downturns cannot be forecasted with
certainty. Downturns or reductions in demand for our products sold into the aerospace market could have a material adverse
effect on our business.
The industrial gas turbine market is also historically cyclical in nature. Demand for power generation products is
global and is affected by the state of the U.S. and world economies, the availability of financing to power generation
project sponsors, the increase in renewable energy and the political environments of numerous countries. The availability
of fuels and related prices also have a large impact on demand. Decreased demand for our products in the industrial gas
turbine industry may have a material adverse effect on our business.
We also sell products into the chemical processing industry, which is also historically cyclical in nature. Customer
demand for our products in this market may fluctuate widely depending on U.S. and world economic conditions, the
availability and price of natural gas, the availability of financing, and the general economic strength of the end use
customers in this market. Cyclical declines or sustained weakness in this market could have a material adverse effect on
our business.
Our business depends, in part, on the success of commercial aircraft programs and our ability to accelerate production
levels to timely match order increases in new or existing programs.
The success of our business will depend, in part, on the success of new and existing commercial aircraft
programs. We are currently under contract
to supply components for a number of commercial aircraft
programs. Cancellations, reductions or delays of orders or contracts in any of these programs, or regulatory or
certification-related groundings which impact the production schedules for any aircraft programs could have a material
adverse effect on our business.
The competitive nature of our business could result in pressure for price concessions to our customers and increased
pressure to reduce costs.
We are subject to competition in all of the markets we serve. As a result, we may make price concessions to our customers
in the aerospace, chemical processing and power generation markets from time to time, and customer pressure for further
price concessions may occur. During periods of lower demand in other alloy markets, some of our competitors may use
their available capacity to produce higher volumes of high-performance alloys, which leads to increased competition in
the high-performance alloy market. We have experienced increased competition from competitors who produce both
stainless steel and high-performance alloys. Maintenance of our market share will depend, in part, on our ability to sustain
a cost structure that enables us to be cost-competitive. If we are unable to adjust our costs relative to our pricing and
inflation, our profitability could suffer. Our effectiveness in managing our cost structure and pricing for the value provided
will be a key determinant of future profitability and competitiveness.
Aerospace demand is primarily dependent on two manufacturers.
A significant portion of our aerospace products are sold to fabricators and are ultimately used in the production
of new commercial aircraft. There are only two primary manufacturers of large commercial aircraft in the world, The
Boeing Company and Airbus. A significant portion of our aerospace sales are dependent on the number of new aircraft
built by these two manufacturers, which is in turn dependent on a number of factors over which we have little or no control.
Those factors include demand for new aircraft from around the globe, utilization levels of commercial and military aircraft,
success of new commercial and military aircraft programs, insufficient levels of inventory throughout the supply chain
and factors that impact manufacturing capabilities, such as the availability of raw materials and manufactured components,
changes in highly exacting performance requirements and product specifications, U.S. and world economic conditions,
changes in the regulatory environment and labor relations between the aircraft manufacturers and their work forces.
Significant interruptions and slowdowns in the number of new aircraft built by the aircraft manufacturers has and may
continue to have a material adverse effect on our business. Additionally, as growth in airline travel is less concentrated in
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international flights, demand for new aircraft will be more weighted towards single aisle aircraft, as opposed to double
aisle aircraft, which utilizes a smaller proportion of our material.
During periods of lower demand in other alloy markets, some of our competitors may use their available capacity to
produce higher volumes of high-performance alloys, which leads to increased competition in the high-performance
alloy market.
We have experienced increased competition from competitors who produce both stainless steel and
high-performance alloys. As a result of the competition in our markets, we have made price concessions to our customers
from time to time, typically on higher volume of more commodity type orders. Maintenance of our market share will
depend, in part, on our ability to sustain a cost structure that enables us to be cost-competitive. If we are unable to adjust
our costs relative to our pricing, inflation and raw material costs, our profitability will suffer. Our effectiveness in managing
our cost structure through changing circumstances will be a key determinant of future profitability and competitiveness.
Periods of reduced demand and excess supply as well as the availability of substitute lower-cost materials can adversely
affect our ability to price and sell our products at the profitability levels we require to be successful.
Additional worldwide capacity and reduced demand for our products could significantly impact future worldwide
pricing, which would adversely impact our business. In addition, the potential availability of substitute materials may also
cause significant fluctuations in future results as our customers opt for a lower-cost alternative. For example, the potential
substitution of wrought products that we produce by either powder or additive manufacturing could impact our future
results.
We change prices on our products as we deem necessary. In addition to the above general competitive impact,
other market conditions and various economic factors beyond our control can adversely affect the timing of our pricing
actions. The effects of any pricing actions may be delayed due to long manufacturing lead times or the terms of existing
contracts. There is no guarantee that the pricing actions we implement will be effective in maintaining our profit margin
levels.
Risks Related to Raw Materials
Rapid fluctuations in the prices of nickel, cobalt and other raw materials may materially adversely affect our business.
To the extent that we are unable to adjust to rapid fluctuations in the price of nickel, cobalt and other raw materials
that we use in large quantities, there may be a negative effect on our gross profit margins. Additionally, increases in value
added premiums charged by our commodity vendors, particularly nickel, could adversely impact our gross profit margins
if those costs cannot be timely included in changes to selling prices. In fiscal 2023, nickel, a major component of many
of our products, accounted for approximately 43% of our raw material costs, or approximately 21% of our total cost of
sales. We enter into several different types of sales contracts with our customers, some of which allow us to pass on
increases in nickel or other raw material prices to our customers. In other cases, we fix the nickel or other raw materials
component of our prices for a period of time through the life of a long-term contract. In yet other cases, we price our
products at the time of order, which allows us to establish prices with reference to known costs of our raw material
inventory, but which does not allow us to offset an unexpected rise in the price of raw materials. We may not be able to
successfully offset rapid changes in the price of nickel, cobalt or other raw materials in the future. In the event that raw
material price increases occur that we are unable to pass on to our customers, our cash flows or results of operations could
be materially adversely affected.
Our business cycle is long, involving multiple steps. These refining steps generate high revert scrap pounds that
are recycled back through the melt at metal value. This scrap cycle also contributes to a long position as it relates to
commodity price risk.
Our results of operations may also be negatively impacted if both customer demand and raw material prices
rapidly fall at the same time. Because we value our inventory utilizing the first-in, first-out inventory costing methodology,
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a rapid decrease in raw material costs has a negative effect on our operating results. In those circumstances, we recognize
higher material cost in cost of sales relative to lower raw material market prices that drive the sales price.
In addition, we periodically enter into forward purchase agreements for our raw material supply. If we enter into
a forward purchase agreement in which the quantity purchased does not match in a timely manner to the quantity sold in
one or more customer contracts with fixed raw material prices (including vendor premiums), a rapid or prolonged decrease
in the price of significant raw materials could adversely impact our business.
Our business is dependent on a number of raw materials that may not be available.
We use a number of raw materials in our products which are found in only a few parts of the world and are
available from a limited number of suppliers. The availability of these materials may be influenced by private or
government cartels, changes in world politics, trade sanctions as a result of geopolitical events such as war, additional
regulation, labor relations between the materials producers and their work force, unstable governments in exporting
nations, inflation, general economic conditions and export quotas imposed by governments in nations with rare earth
element supplies. The ability of key material suppliers to meet quality and delivery requirements or to provide materials
on terms acceptable to us is beyond our control and can also impact our ability to meet commitments to customers.
Shortages of certain raw materials or price fluctuations in raw materials could result in decreased sales as well as decreased
margins, or otherwise adversely affect our business. The enactment of new or increased import duties on raw materials
imported by us could also decrease availability, thereby adversely affecting our business. The implementation of trade
sanctions could result in reduced availability of certain raw materials or result in the need for us to find alternative sources
of supply at a higher cost.
If suppliers are unable to meet our demands, we may not have alternative sources of supply. In some cases, we
have entered into exclusive supply agreements with respect to raw materials, which could adversely affect our business if
the exclusive supplier cannot meet quality and delivery requirements to provide materials on terms acceptable to us.
The manufacturing of the majority of our products is a complex process and requires long lead times. We may
experience delays or shortages in the supply of raw materials. If we are unable to obtain adequate and timely deliveries of
required raw materials, we may be unable to timely manufacture sufficient quantities of products, which could cause us to
lose sales, incur additional costs, delay new product introductions or suffer harm to our reputation.
Risks Related to Our Production and Operations
Our operations are dependent on production levels at our Kokomo facility.
Our principal assets are located at our primary integrated production facility in Kokomo, Indiana and at our
production facilities in Arcadia, Louisiana and in Mountain Home, North Carolina. The Arcadia and Mountain Home
plants, as well as all of the domestic and foreign service centers, rely to a significant extent upon feedstock produced at
the Kokomo facility. Any production failures, shutdowns or other significant problems at the Kokomo facility could have
a material adverse effect on our financial condition and results of operations. We maintain property damage insurance to
provide for reconstruction of damaged equipment, as well as business interruption insurance to mitigate losses resulting
from any production shutdown caused by an insured loss. Although we believe that our insurance is adequate to cover any
such losses, that may not be the case. Additionally, our insurance policies include deductibles that would require us to
incur losses that could have an adverse effect on our financial results in the event a significant interruption occurs. One
or more significant uninsured losses at our Kokomo facility may have a material adverse effect on our business.
In addition, from time to time we schedule planned outages on the equipment at our Kokomo facility for
maintenance and upgrades. These projects are subject to a variety of risks and uncertainties, including a variety of market,
operational and labor-related factors, many of which may be beyond our control. Should a planned or unplanned shut
down on a significant piece of equipment, or a significant decrease in personnel or lack of necessary new personnel, last
substantially longer than originally planned, there could be a material adverse effect on our business.
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Our production may be interrupted due to equipment failures, energy or personnel shortages, lack of critical spares, or
other events affecting our factories.
Our manufacturing processes depend on certain sophisticated and high-value equipment, some of which has been
in operation for a long period of time for which there may be only limited or no production alternatives. Failures of this
equipment, possible significant unplanned delays in equipment upgrades, or the lack of critical spares or skilled personnel
to timely repair this equipment, could result in production delays, revenue loss and significant repair costs. In addition,
our factories rely on the availability of electrical power and natural gas, transportation for raw materials and finished
products and employee access to our workplace that are subject to interruption in the event of severe weather conditions
or other natural or manmade events. While we maintain backup resources to the extent practicable, a severe or prolonged
equipment outage, failure or other interruptive event affecting areas where we have significant manufacturing operations
may result in loss of manufacturing or shipping days, which could have a material adverse effect on our business. Natural
or manmade events that interrupt significant manufacturing operations of our customers also have had and could continue
to have a material adverse effect on our business.
Issues related to our agreements with Titanium Metals Corporation could require us to make significant payments and
could disrupt our operations and materially affect our financial results.
We entered into a Conversion Services Agreement and an Access and Security Agreement with Titanium Metals
Corporation (TIMET) in November 2006 that provide for the performance of certain titanium conversion services through
November 2026. In 2012, TIMET was acquired by Precision Castparts Corp. which owns Special Metals Corporation, a
direct competitor of ours. Events of default under the Conversion Services Agreement include (a) a change in control in
which the successor does not assume the agreement, (b) a violation by us of certain non-compete obligations relating to
the manufacture and conversion of titanium and (c) failure to meet agreed-upon delivery and quality requirements. If an
event of default under the Conversion Services Agreement occurs, TIMET could require us to repay the unearned portion
of the $50.0 million fee paid to us by TIMET when the agreement was signed, plus liquidated damages of $25.0 million.
Our obligations to pay these amounts to TIMET are secured by a security interest in our four-high Steckel rolling mill,
through which we process a substantial amount of our products. In addition, the Access and Security Agreement with
TIMET includes, among other terms, an access right that would allow TIMET to use certain of our operating assets,
including the four-high mill, to perform titanium conversion services in the event of our bankruptcy or the acceleration of
our indebtedness. Exercise by TIMET of its rights under its security interest following a default and non-payment of the
amounts provided in the Conversion Services Agreement or exercise of the access rights under the Access and Security
Agreement could cause significant disruption in our Kokomo operations, which would have a material adverse effect on
our business.
In addition, the Conversion Services Agreement contains a requirement that we reserve a significant amount of
capacity exclusively for TIMET. That agreement does not contain a volume commitment on TIMET’s part. The
agreement also severely limits our ability to manufacture titanium, using the 4 high rolling mill, for any customer other
than TIMET. Our levels of business with TIMET have fluctuated. Should TIMET underutilize its reserved capacity, we
would not be able to reallocate that capacity during the life of this contract, which could negatively impact our business.
Our operations could result in injury to our workers or third parties.
Our manufacturing operations could result in harm to our workers or third parties in our facilities. Our
manufacturing processes involve the use of heavy equipment, vehicles and chemicals, among other matters, which could
lead to harm, injury, death or illness. In addition to harm to individuals, any such occurrences could result in reputational
harm, adverse effects on employee morale, litigation and other costs, any of which could materially and adversely affect
our business.
Although collective bargaining agreements are in place for certain employees, union or labor disputes could still disrupt
the manufacturing process.
Our operations rely heavily on our skilled employees. Any labor shortage, disruption or stoppage caused by any
deterioration in employee relations or difficulties in the renegotiation of labor contracts could reduce our operating margins
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and income. Approximately 56% of our full-time U.S. employees are affiliated with unions or covered by collective
bargaining agreements. The Company entered into two collective bargaining agreements with the United Steel Workers
of America which cover eligible hourly employees at the Company’s Arcadia, Louisiana and Kokomo, Indiana facilities.
The bargaining agreement which covers eligible hourly employees in the Kokomo, Indiana operations will expire on June
30, 2028 and the bargaining agreement which covers eligible hourly employees at the Company’s Arcadia, Louisiana
operations will expire on December 21, 2025. Failure to negotiate new labor agreements when required could result in a
work stoppage at one or more of our facilities. In addition, other Company facilities could be subject to union organizing
activity. Although we believe that our labor relations have generally been satisfactory, it is possible that we could become
subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor
disturbances could occur in the future, any of which could reduce our operating margins and income and place us at a
disadvantage relative to non-union competitors.
Product liability and product warranty risks could adversely affect our operating results.
We produce many critical products for commercial and military aircraft, industrial gas turbines, chemical
processing plants and pharmaceutical production facilities. Failure of our products could give rise to potential substantial
product liability and other damage claims as well as reputational harm. We maintain insurance addressing this risk, but
our insurance coverage may not be adequate or insurance may not continue to be available on terms acceptable to us.
Additionally, we manufacture our products to strict contractually-established specifications using complex
manufacturing processes. If we fail to meet the contractual requirements for a product, we may be subject to warranty
costs to repair or replace the product itself and additional costs related to customers’ damages or the investigation and
inspection of non-complying products. These costs are generally not insured.
Risks Related to our Research and Technology Activities
Failure to successfully develop, commercialize, market and sell new applications and new products could adversely
affect our business.
We believe that our proprietary alloys, technology, applications development, technical services and metallurgical
manufacturing expertise provide us with a competitive advantage over other high-performance alloy producers. Our ability
to maintain this competitive advantage depends on our ability to continue to offer products and technical services that have
equal or better performance characteristics than competing products at competitive prices. Our future growth will depend,
in part, on our ability to address the increasingly demanding needs of our customers by inventing new alloys, enhancing
the properties of our existing alloys, timely developing new applications for our existing and new alloys, and timely
developing, commercializing, marketing and selling new alloys and products. If we are not successful in these efforts, or
if our new alloys/products and product enhancements do not adequately meet the requirements of the marketplace and
achieve market acceptance, our business could be negatively affected.
Failure to protect our intellectual property rights could adversely affect our business.
We rely on a combination of confidentiality, invention assignment and other types of agreements and trade secret,
trademark and patent law to establish, maintain, protect and enforce our intellectual property rights. Our efforts in regard
to these measures may be inadequate, however, to prevent others from misappropriating our intellectual property rights.
In addition, laws in some non-U.S. countries affecting intellectual property are uncertain in their application, which can
affect the scope or enforceability of our intellectual property rights. Any of these events or factors could diminish or cause
us to lose the competitive advantages associated with our intellectual property, which could have a material adverse effect
on our business.
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Risks Related to Our Cybersecurity Activities
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. Additionally, outside service providers could be subject to attack which could inhibit those providers’ abilities
to provide necessary services to us. Any such attack could disrupt our operations and could have a material adverse
effect on our business.
As previously disclosed, the Company experienced 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 two 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. This 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 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.
We have put in place a number of systems, processes and practices designed to protect against intentional or
unintentional misappropriation or corruption of our systems and information or disruption of our operations including
unauthorized access to our networks, servers and data, encryption of network access and the introduction of malware.
Despite our cybersecurity efforts, we could be subject to future breaches of our security systems, which may result in
unauthorized access, misappropriation, corruption or disruption of the information we are trying to protect, in which case
we could suffer material harm. For example, access to our proprietary information regarding new alloy formulations
would allow our competitors to use that information in the development of competing products. Current employees have,
and former employees may have, access to a significant amount of information regarding our Company which could be
disclosed to our competitors or otherwise used to harm us. Any future misappropriation or corruption of our systems and
information or disruption of our operations could have a material adverse effect on our business.
We depend on our information technology infrastructure to support the current and future information requirements
of our operations which exposes us to risk.
Management relies on our information technology infrastructure, including hardware, network, software, people
and processes, to provide useful information to support assessments and conclusions about operating performance. Our
inability to produce relevant or reliable measures of operating performance in an efficient, cost-effective and
well-controlled fashion may have significant negative impacts on our business. We continue to evaluate options to further
upgrade our systems, including an implementation to a new enterprise resource planning (ERP) system. A transition to a
critical system or the discontinuation of support from legacy systems could result in disruptions, which could have a
significant adverse impact on our business.
Risks Related to Our Finance Activities
We value our inventory using the FIFO method, which could put pressure on our margins.
The cost of our inventories is determined using the first-in, first-out (FIFO) method. Under the FIFO inventory
costing method, the cost of materials included in cost of sales may be different than the current market price at the time of
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sale of finished product due to the length of time from the acquisition of raw material to the sale of the finished product.
In a period of decreasing raw material costs, the FIFO inventory valuation normally results in higher costs of sales as
compared to the last-in, first-out method. This could result in compression of the gross margin on our product sales.
Changes in tax rules and regulations, or interpretations thereof, may adversely affect our effective tax rates.
We are a U.S. based company with customers and suppliers in foreign countries. We import various raw materials
used in our production processes, and we export goods to our foreign customers. The United States, the European
Commission, countries in the EU, the United Kingdom, and other countries where we do business may change relevant
tax, border tax, accounting and other laws, regulations and interpretations, which may unfavorably impact our effective
tax rate or result in other costs to us. In addition, the Company has deferred tax assets on its balance sheet which could be
subjected to unfavorable impacts if tax rates are reduced.
We could be required to make additional contributions to our defined benefit pension plans or recognize higher related
expense in our statement of operations as a result of adverse changes in interest rates and the capital markets.
Our estimates of liabilities and expenses for pension benefits incorporate significant assumptions, including the
rate used to discount the future estimated liability, the long-term rate of return on plan assets and several assumptions
relating to the employee workforce (salary increases, retirement age and mortality). We currently expect that we will be
required to make future minimum contributions to our defined benefit pension plans. Many domestic and international
competitors do not provide defined benefit plans and/or retiree health plans (which we do provide), and those competitors
may have a resulting cost advantage. A decline in the value of plan investments in the future, an increase in costs or
liabilities, including those caused by the lowering of the rate used to discount future payouts, or unfavorable changes in
laws or regulations that govern pension plan funding could materially change the timing and amount of required pension
funding or the amount of related expense recognized in our statement of operations. The Company mitigates this risk with
a glide path strategy that utilized liability driven investing (LDI) which shifts a greater concentration towards fixed income
securities as the funding percentage increases. The LDI approach is designed to match the duration and risk of the fixed
income securities within the U.S. pension plan with that of the US pension benefit obligation. Our mitigation strategies
may not be successful, in which case we may be required to fund additional contributions to the plan. A requirement to
fund any deficit created in the future could have a material adverse effect on our business.
The carrying value of goodwill and other intangible assets may not be recoverable.
Goodwill and other intangible assets are recorded at fair value on the date of acquisition. We review these assets
at least annually for impairment. Impairment may result from, among other things, deterioration in performance, adverse
market conditions, adverse changes in applicable laws or regulations and a variety of other factors. A sustained downturn
may result in the carrying value of our goodwill or other intangible assets exceeding their fair value, which may require
us to recognize impairment to those assets. Any future impairment of goodwill or other intangible assets could have a
material adverse effect on our business.
We may not be able to obtain financing on terms that are acceptable to us, or at all.
The strength of the global economy can have a significant impact on the availability of financing from capital
markets. Terms for borrowers could become significantly less favorable. As a result of this and other issues, we may not
be able to obtain needed financing on terms that are acceptable to us, or at all. Because we rely on financing to fund our
working capital requirements, higher finance costs or an inability to obtain financing could negatively impact our business
and financial results.
Our working capital requirements may negatively affect our liquidity and capital resources.
Our working capital requirements can vary significantly, depending in part on the timing of our delivery
obligations under various customer contracts and the payment terms with our customers and suppliers. In the past year,
the Company experienced a significant increase in order entry and production lead times have been extended which has
increased the length of time from the time that we accept a customer order to the time that cash is collected from the sale
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of material. If our working capital needs exceed our cash flows from operations, we would look to our cash balances and
availability for borrowings under our existing credit facility to satisfy those needs, as well as potential sources of additional
capital, which may not be available on satisfactory terms and in adequate amounts, if at all.
Risks Related to Our Global Operations
Political and social turmoil including global war could adversely affect our business.
Political and social turmoil as well as war, could put pressure on economic conditions in the United States and
worldwide. These political, social and economic conditions could make it difficult for us, our suppliers and our customers
to forecast accurately and plan future business activities, and could adversely affect the financial condition of our suppliers
and customers and affect customer decisions as to the amount and timing of purchases from us.
We are subject to risks associated with global trade matters.
We are subject to macroeconomic downturns and geopolitical events in the United States and abroad that may
affect the general economic climate, our performance and the demand of our customers. The Russian invasion of Ukraine
has resulted in trade restrictions with companies operating in Russia, which has forced us and other companies to source
raw materials from other countries which can lead to insufficient supply or higher prices for us. Transportation and
logistics resources, including shipping and transportation services, have been in short supply, which has had, and may
continue to have, an adverse effect on our business. Further, any global trade wars or similar economic turmoil, including
new or existing tariffs, could adversely affect our business. In past years, the U.S. and China have imposed tariffs on large
amounts of products imported into each of the countries from one another. A “trade war” or other governmental action
related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products,
our costs, customers, suppliers and/or the U.S. economy or certain sections thereof, and, thus, adversely affect our business.
Our competitors outside of the United States may not be subject to these tariffs or other measures, and therefore, could
have a significant competitive advantage over us in that respect.
A global recession or disruption in global financial markets could adversely affect us.
A global recession or disruption in the global financial markets, including any significant tariff impositions or
trade wars, presents risks and uncertainties that we cannot predict. During recessionary economic conditions or financial
market disruptions, we face risks that may include:
•
•
•
declines in revenues and profitability from reduced or delayed orders by our customers;
reductions in credit availability due to governmental regulations on banking institutions and other concerns;
and
increases in corporate tax rates to finance government spending programs.
The risks inherent in our international operations may adversely impact our revenues, results of operations and
financial condition.
We anticipate that we will continue to derive a significant portion of our revenues from operations in international
markets. As we continue to expand internationally, we will need to hire, train and retain qualified personnel for our direct
sales efforts and retain distributors and train their personnel in countries where language, cultural or regulatory
impediments may exist. Distributors, regulators or government agencies may not continue to accept our products, services
and business practices, and costs related to international trade have increased and may continue to increase. In addition,
we purchase raw materials on the international market. The sale and shipment of our products and services across
international borders, as well as the purchase of raw materials from international sources, subject us to the trade regulations
of various jurisdictions, including tariffs and other possible punitive measures. In addition, the Russian invasion of Ukraine
led us to voluntarily cease the procurement of nickel from Russia (which was previously only a small portion of our need
28
at roughly 5%). Compliance with such regulations is costly. Any failure to comply with applicable legal and regulatory
obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and
administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of
shipments and restrictions on certain business activities. Failure to comply with applicable legal and regulatory obligations
could result in the disruption of our shipping, sales and service activities. Our international sales operations expose us and
our representatives, agents and distributors to risks inherent in operating in foreign jurisdictions, any one or more of which
may adversely affect our business, including:
•
•
•
•
•
•
•
•
•
•
our ability to obtain, and the costs associated with obtaining, U.S. export licenses and other required export
or import licenses or approvals;
changes in duties and tariffs, quotas, taxes, trade restrictions, license obligations and other non-tariff barriers
to trade;
policy changes affecting the market for our products;
burdens of complying with the Foreign Corrupt Practices Act and a wide variety of foreign laws and
regulations;
business practices or laws favoring local companies;
fluctuations in foreign currencies;
restrictive trade policies of foreign governments;
longer payment cycles and difficulties collecting receivables through foreign legal systems;
difficulties in enforcing or defending agreements and intellectual property rights; and
foreign political or economic conditions.
Any material decrease in our international revenues or inability to expand our international operations as a result
of these or other factors would adversely impact our business.
Export sales could present risks to our business.
Export sales account for a significant percentage of our revenues, and we believe this will continue to be the case
in the future. Risks associated with export sales include: political and economic instability, including weak conditions in
the world’s economies; accounts receivable collection; export controls; changes in legal and regulatory requirements;
policy changes affecting the markets for our products; changes in tax laws and tariffs; trade duties; and exchange rate
fluctuations (which may affect sales to international customers and the value of profits earned on export sales when
converted into dollars). Any of these factors could materially adversely affect our business.
Risks Related to Our Legal and Environmental Activities
We may be adversely impacted by costs related to environmental, health and safety laws, regulations, and other
liabilities.
We are subject to various foreign, federal, state and local environmental, health and safety laws and regulations,
including those governing the discharge of pollutants into the environment, the storage, handling, use, treatment and
disposal of hazardous substances and wastes and the health and safety of our employees. Under these laws and regulations,
we may be held liable for all costs arising out of any release of hazardous substances on, under or from any of our current
or former properties or any off-site location to which we sent or arranged to be sent wastes for disposal or treatment, and
29
such costs may be material. We could also be held liable for any and all consequences arising out of human exposure to
such substances or other hazardous substances that may be attributable to our products or other environmental damage. In
addition, some of these laws and regulations require our facilities to operate under permits that are subject to renewal or
modification. These laws, regulations and permits can require expensive pollution control equipment or operational
changes to limit actual or potential impacts to the environment. Violations of these laws, regulations or permits can also
result in the imposition of substantial penalties, permit revocations and/or facility shutdowns.
We have received permits from the environmental regulatory authorities in Indiana and North Carolina to close
and to provide post-closure monitoring and care for certain areas of our Kokomo and Mountain Home facilities that were
used for the storage and disposal of wastes, some of which are classified as hazardous under applicable regulations. We
are required to monitor groundwater and to continue post-closure maintenance of the former disposal areas at each site.
As a result, we are aware of elevated levels of certain contaminants in the groundwater and additional corrective action
could be required. Additionally, it is possible that we could be required to undertake other corrective action for any other
solid waste management unit or other conditions existing or determined to exist at our facilities. We are unable to estimate
the costs of any further corrective action, if required. However, the costs of future corrective action at these or any other
current or former sites could have a material adverse effect on our business.
We may also incur liability for alleged environmental damages associated with the off-site transportation and
disposal of hazardous substances. Our operations generate hazardous substances, many of which we accumulate at our
facilities for subsequent transportation and disposal or recycling by third parties off-site. Generators of hazardous
substances which are transported to disposal sites where environmental problems are alleged to exist are subject to liability
under CERCLA and state counterparts. In addition, we may have generated hazardous substances disposed of at sites
which are subject to CERCLA or equivalent state law remedial action. We have been named as a potentially responsible
party at one site. CERCLA imposes strict, joint and several liabilities for investigatory and cleanup costs upon hazardous
substance generators, site owners and operators and other potentially responsible parties regardless of fault. If we are
named as a potentially responsible party at other sites in the future, the costs associated with those future sites could have
a material adverse effect on our business.
Environmental laws are complex, change frequently and have tended to become increasingly stringent over time,
including those relating to greenhouse gases. While we have budgeted for future capital and operating expenditures to
comply with environmental laws, changes in any environmental law may directly or indirectly increase our costs of
compliance and liabilities arising from any past or future releases of, or exposure to, hazardous substances and may
materially adversely affect our business. See “Business—Environmental Compliance” in Part I, Item I in this Annual
Report on Form 10-K.
Government regulation is increasing and if we fail to comply with such increased regulation, we could be subject to
fines, penalties and expenditures.
The United States Congress has adopted several significant pieces of legislation, such as the Sarbanes-Oxley Act
of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including conflict minerals
regulations, that affect our operation as well as those of other publicly traded companies. In addition, regulations relating
to data protection and privacy law have become increasingly stringent. Failure to comply with such regulations could
result in fines, penalties or expenditures which could have a material adverse effect on our business.
Our business is affected by federal rules, regulations and orders applicable to some of our customers who are
government contractors.
A number of our products are manufactured and sold to customers who are parties to U.S. government contracts
or subcontracts. Consequently, we are indirectly subject to various federal rules, regulations and orders applicable to
government contractors. From time to time, we are also subject to government inquiries and investigations of our business
practices due to our participation in government programs. These inquiries and investigations are costly and consume a
substantial amount of internal resources, and costs are expected to increase. Violations of applicable government rules and
regulations could result in civil liability, in cancellation or suspension of existing contracts or in ineligibility for future
30
contracts or subcontracts funded in whole or in part with federal funds, any of which could have a material adverse effect
on our business.
Our business could be materially and adversely affected by climate change and related matters.
We analyze climate change risks in two separate categories: transition risks and physical risks. Transition risks
are those risks relating to the transition of the global economy to a focus on more climate-friendly technologies. This
transition could have adverse financial impacts on us in several ways. For instance, more stringent environmental policies
or regulations could lead to increased expenses relating to green-house gas emissions or other emissions that could increase
our operating costs. Enhanced emissions-reporting or shifting technology could require us to write off or impair assets or
retire existing assets early. Increased environmental mandates could also increase our exposure to litigation. We could be
required to incur increased costs and significant capital investment to transition to lower emissions technology. In addition,
overall market shifts could increase costs of our raw materials and cause unexpected shifts in energy costs. Market shifts
could also bring a prompt change in our overall revenue mix and sources, resulting in reduced demand in alloys and a
decrease in revenues. Focus on sustainability has increased, and the entire industry could be stigmatized as not friendly
to the environment, which could adversely affect our reputation and our business, including due to difficulties in employee
hiring and retention and our ability to access capital. Any of these matters could materially and adversely affect our
business, financial condition or results of operations.
Physical risks from climate change that could affect our business include acute weather events such as floods,
tornadoes or other severe weather and ongoing changes such as rising temperatures or extreme variability in weather
patterns. These events could lead to increased capital costs from damage to our facilities, increased insurance premiums
or reduced revenue from decreased production capacity based on supply chain interruptions. Any of these events could
have a material adverse effect on our business, financial condition or results of operations.
Our business subjects us to the risk of litigation claims, including those that might not be covered by insurance.
Litigation claims may relate to the conduct of our business, including claims pertaining to product liability,
commercial disputes, employment actions, employee benefits, compliance with domestic and federal laws and personal
injury. Due to the uncertainties of litigation, we might not prevail on claims made against us in the lawsuits that we
currently face, and additional claims may be made against us in the future. The outcome of litigation cannot be predicted
with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to us. The resolution in
any reporting period of one or more of these matters could have a material adverse effect on our business, particularly in
the event that adverse outcomes are not covered by insurance.
Our insurance may not provide enough coverage or may not be available on terms that are acceptable to us.
We maintain various forms of insurance, including insurance covering claims related to our properties and risks
associated with our operations. Our existing property and liability insurance coverages contain exclusions and limitations
on coverage. From time-to-time, in connection with renewals of insurance, we have experienced additional exclusions and
limitations on coverage, larger self-insured retentions and deductibles and significantly higher premiums. In the future,
our insurance coverage may not cover claims to the extent that it has in the past and the costs that we incur to procure
insurance may increase significantly, either of which could have an adverse effect on our business. Furthermore, the
insurance industry, or our carriers specifically, may continue to alter their business models in manners that are unfavorable
to us, resulting in insufficient or more costly coverage, which could adversely affect our business.
31
General Risk Factors
Our results of operations, financial condition and cash flows have been and may be adversely affected by pandemics,
epidemics or other public health emergencies.
Our business, results of operations, financial condition, cash flows and stock price have been, and may be in the
future, adversely affected by pandemics, epidemics or other public health emergencies, such as the global outbreak of
COVID-19, and the responses of governmental authorities to those emergencies.
An interruption in energy services may cause manufacturing curtailments or shutdowns.
We rely upon third parties for our supply of energy resources consumed in the manufacture of our products. The
potential for curtailment of certain energy resources exists which could have a material adverse effect on our business.
The prices for and availability of electricity, natural gas, hydrogen, oil and other energy resources are subject to volatile
market conditions. These market conditions often are affected by political and economic factors, weather issues and other
factors, which may be beyond our control. Disruptions in the supply of energy resources could impair our ability to
manufacture products for customers. Further, increases in energy costs, which are outside of our control, or changes in
costs relative to energy costs paid by competitors, have and may continue to adversely affect our business. To the extent
that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an
adverse effect on our business.
If we are unable to recruit, hire and retain skilled and experienced personnel, our ability to effectively manage and
expand our business will be harmed.
Our success largely depends on the skills, experience and efforts of our officers and other key employees who
may terminate their employment at any time. The loss of any of our senior management team could harm our business.
Our ability to retain our skilled workforce and our success in attracting and hiring new skilled employees in a rising wage
environment will be a critical factor in determining whether we will be successful in the future. We face challenges in
hiring, training, managing and retaining employees in certain areas including metallurgical researchers, equipment
technicians and sales and marketing staff as well as production and maintenance employees. We also face hiring
challenges relating to the location of our business. If we are unable to recruit, hire and retain skilled employees, our new
product and alloy development and commercialization could be delayed and our marketing and sales efforts could be
hindered, which would adversely impact our business.
Healthcare costs, including those related to healthcare legislation, have and may continue to impact our business.
The Patient Protection and Affordable Care Act and other legislation relating to healthcare have increased our
annual employee healthcare cost obligations. In addition, costs associated with healthcare generally, including our retiree
healthcare plans, are expected to continue to increase. We cannot predict the effect that healthcare legislation or regulation,
and the costs of healthcare in general, will ultimately have on our business. However, each year as opportunities arise,
programs are being implemented that are intended to drive savings and improve the health status of our population. The
most recent project involved the transition to a new Third Party Administrator (TPA), with added support elements, which
became effective on January 1, 2023.
Any significant delay or problems in any future upgrades of our operations could materially adversely affect our
business, financial condition and results of operations.
We have undertaken, and may continue to undertake, significant capital projects in order to enhance, expand
and/or upgrade our facilities and operational capabilities, including rebuilding the A&K line and 4-HI rolling system
upgrades. Our ability to achieve the anticipated increased revenues or otherwise realize acceptable returns on these
investments or other strategic capital projects that we may undertake is subject to a number of risks, many of which are
beyond our control, including the ability of management to ensure the necessary resources are in place to properly execute
these projects on time and in accordance with planned costs, the ability of key suppliers to deliver the necessary equipment
according to schedule, customer demand (which fluctuates as a result of the cyclical markets in which we operate, as well
32
as other factors) and our ability to implement these projects with minimal impact to our existing operations. In addition,
the cost to implement any given strategic capital project ultimately may prove to be greater than originally anticipated. If
we are not able to achieve the anticipated results from the implementation of any of our strategic capital projects, or if we
incur unanticipated implementation costs or delays, our business may be materially adversely affected.
We consider acquisitions, joint ventures and other business combination opportunities, as well as possible business unit
dispositions, as part of our overall business strategy, which involve uncertainties and potential risks that we cannot
predict or anticipate fully.
We intend to continue to strategically position our businesses in order to improve our ability to compete.
Strategies we may employ include seeking new or expanding existing specialty market niches for our products, expanding
our global presence, acquiring businesses complementary to existing strengths and continually evaluating the performance
and strategic fit of our existing business units. From time to time, management of the Company holds discussions with
management of other companies to explore acquisitions, joint ventures and other business combination. As a result, the
relative makeup of our business is subject to change. Acquisitions, joint ventures and other business combinations involve
various inherent risks, such as: assessing accurately the value, strengths, weaknesses, contingent and other liabilities and
potential profitability of acquisition or other transaction candidates; the potential loss of key personnel of an acquired
business; integration of technological systems; our ability to achieve identified financial and operating synergies
anticipated to result from an acquisition or other transaction; diversion of the attention of certain management personnel
from their day-to-day duties; and unanticipated changes in business and economic conditions affecting an acquisition or
other transaction. International acquisitions or business combinations could be affected by many additional factors,
including, without limitation, export controls, exchange rate fluctuations, domestic and foreign political conditions and
deterioration in domestic and foreign economic conditions.
Our stock price is subject to fluctuations that may not be related to our performance as a result of being traded on a
public exchange.
The stock market can be highly volatile. The market price of our common stock is likely to be similarly volatile,
and investors in our common stock may experience a decrease in the value of their stock, including decreases unrelated to
our operating performance or our prospective outlook of our business. The price of our common stock could be subject to
wide fluctuations in response to a number of factors, including, but not limited to, those described elsewhere in this “Risk
Factors” section and those listed below:
•
fluctuations in the market price of nickel (or other raw materials, such as cobalt, molybdenum or
ferrochrome) or energy as well as increases in value added vendor premiums;
• market conditions in the end markets into which our customers sell their products, principally aerospace,
power generation and chemical processing;
•
•
•
•
implementation of barriers to free trade between the United States and other countries;
announcements of technological innovations or new products and services by us or our competitors;
the operating and stock price performance of other companies that investors may deem comparable to us;
announcements by us of acquisitions, alliances, joint development efforts or corporate partnerships in the
high-temperature resistant alloy and corrosion-resistant alloy markets;
• market conditions in the technology, manufacturing or other growth sectors
•
•
financial performance of our competitors; and
rumors relating to us or our competitors.
33
We may not continue to pay dividends at the current rate or at all.
Any future payment of dividends, including the timing and amount thereof, will depend upon our Board of
Director’s assessment of the economic environment, our operations, financial condition, projected liabilities, compliance
with contractual restrictions in our credit agreement and restrictions imposed by applicable law and other factors.
Provisions of our certificate of incorporation and by-laws could discourage potential acquisition proposals and could
deter or prevent a change in control.
Some provisions in our certificate of incorporation and by-laws, as well as Delaware statutes, may have the effect
of delaying, deterring or preventing a change in control. These provisions, including those regulating the nomination of
directors and those allowing the Board of Directors to issue shares of preferred stock without stockholder approval, may
make it more difficult for other persons, without the approval of our Board of Directors, to launch takeover attempts that
a stockholder might consider to be in his or her best interest. These provisions could limit the price that some investors
might be willing to pay in the future for shares of our common stock.
Our business could be adversely affected by actions of proxy advisory firms, large institutional Stockholders and
activist Stockholders in response to Environmental, Social and Governance (ESG) matters.
An organization’s reputation is built on its relationship with employees, customers, suppliers, investors and the
community they operate within. Companies across a variety of industries, including the metals industry, are experiencing
an increase in shareholder activism, particularly shareholder proposals regarding environmental sustainability, diversity
and inclusion, and governance matters. If we are required to respond to stockholder proposals (including the
implementation of any proposals), proxy contests or other actions by activist stockholder, we could incur significant
expense, disruptions to our operations and diversion of the attention of management and our employees. Perceived
uncertainties as to our future direction, strategy or leadership as a consequence of activist stockholders initiatives may
result in reputational damage, which could negatively impact our relationships with customers and strategic partners,
impair our ability to attract and retain employees, and cause volatility in our stock price.
In addition, both Institutional Shareholder Services and Glass Lewis, two primary proxy advisory firms, as well
as large institutional investors, have emphasized the importance of disclosure regarding the environmental, social and
governance actions taken by publicly traded companies. If we are unable to achieve acceptable scores relating to these
matters, our stock price and reputation may be affected.
Item 1B. Unresolved Staff Comments
There are no unresolved comments by the staff of the U.S. Securities and Exchange Commission.
Item 2. Properties
Manufacturing Facilities. The Company owns manufacturing facilities in the following locations:
• Kokomo, Indiana—manufactures and sells all product forms, other than tubular and wire goods;
• Arcadia, Louisiana—manufactures and sells welded and seamless tubular goods; and
• Mountain Home, North Carolina—manufactures and sells high-performance alloy wire and small diameter
bar.
The Kokomo plant, the Company’s primary production facility, is located on approximately 180 acres of
industrial property and includes over 1.0 million square feet of building space. There are three sites consisting of (1) a
headquarters and research laboratory; (2) primary and secondary melting, forge press and several smaller hot mills; and
(3) the Company’s four-high Steckel rolling mill and sheet product cold working equipment, including two cold rolling
34
mills and three annealing furnaces. All alloys and product forms other than tubular and wire goods are produced in
Kokomo.
The Arcadia plant is located on approximately 42 acres of land and includes 202,500 square feet of buildings on
a single site. Arcadia uses feedstock produced in Kokomo to fabricate welded and seamless high-performance alloy pipe
and tubing and purchases extruded tube hollows to produce seamless titanium tubing. Manufacturing processes at Arcadia
require cold pilger mills, weld mills, draw benches, annealing furnaces and pickling facilities.
The Mountain Home plant is located on approximately 29 acres of land and includes approximately 100,000
square feet of building space. The Mountain Home facility is primarily used to manufacture finished high-performance
alloy wire. Finished wire products are also warehoused at this facility.
The owned facilities located in the United States are subject to a negative pledge which secures the Company’s
obligations under its U.S. revolving credit facility with a group of lenders led by JPMorgan Chase Bank, N.A. The credit
agreement provides that no liens can encumber the owned real property other than certain permitted encumbrances. For
more information, see Note 8 to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report
on Form 10-K.
Service and Sales Centers. The service and sales centers, which stock and sell all product forms, contain
equipment capable of precision laser and water jet processing services to cut and shape products to customers’ precise
specifications. The Company owns service and sales centers in the following locations:
• Openshaw, England
The Openshaw plant, located near Manchester, England, consists of approximately 5 acres of land and over
85,000 square feet of buildings on a single site.
• Lenzburg, Switzerland
In addition, the Company leases service and sales centers, which stock and sell all product forms, in the following
locations:
• LaPorte, Indiana
• La Mirada, California
• Houston, Texas
• Windsor, Connecticut
• Shanghai, China
Sales Centers. The Company leases sales centers, which sell all product forms, in the following locations:
• Paris, France
• Singapore
• Milan, Italy
• Tokyo, Japan
35
On January 1, 2015, the Company entered into a finance lease agreement for the building that houses the assets
and operations of LaPorte Custom Metal Processing (LCMP). The finance asset and obligation are recorded at the present
value of the minimum lease payments. The asset is included in Property, plant and equipment, net on the Consolidated
Balance Sheets and is depreciated over the 20-year lease term. The long-term component of the finance lease obligation
is included in Long-term obligations (See Note 18. Long-term Obligations).
All owned and leased service and sales centers, not described in detail above, are single site locations and are less
than 100,000 square feet, except for the LaPorte service center which is approximately 230,000 square feet.
Item 3. Legal Proceedings
The Company is regularly involved in litigation, both as a plaintiff and as a defendant, relating to its business and
operations. Such litigation includes, without limitation, federal and state EEOC administrative and judicial actions,
litigation of commercial matters, asbestos litigation and litigation and administrative actions relating to environmental
matters. For more information, see Business—Environmental Compliance” in Part I, Item I in this Annual Report on Form
10-K and Note 10 – “Legal, Environmental and Other Contingencies” in Part II, Item 8 in this Annual Report on Form 10-
K. Financial Statements and Supplementary Data.” Litigation and administrative actions may result in substantial costs
and may divert management’s attention and resources, and the level of future expenditures for legal matters cannot be
determined with any degree of certainty.
Item 4. Mine Safety Disclosures
Not applicable.
36
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The Company’s common stock is listed on the NASDAQ Global Market (“NASDAQ”) and traded under the
symbol “HAYN”.
As of November 1, 2023, there were approximately 56 holders of record of the Company’s common stock.
The Company has historically paid quarterly cash dividends. Any decision to pay future cash dividends will be
made by the Company’s Board of Directors and will depend upon the Company’s earnings, financial condition, cash
position and other factors. The Company may pay quarterly cash dividends up to $3.5 million per fiscal quarter so long
as the Company is not in default under its existing credit facility.
Set forth below is information regarding the Company’s stock repurchases during the fourth quarter of fiscal
2023, comprising shares repurchased by the Company from employees to satisfy tax withholding obligations with respect
to share-based compensation.
Maximum
Number (or
Approximate
Dollar
Value[000's]) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced
Plans or
Programs
Total Number of
Shares (or Units)
Purchased
Average Price
Paid per Share (or
Unit)
— $
90
87
177 $
—
51.25
49.41
50.35
— $
—
—
—
—
—
—
Period
July 1-31, 2023
August 1-31, 2023
September 1-30, 2023
Total
Cumulative Total Stockholder Return
The graph below compares the cumulative total stockholder return on the Company’s common stock to the
cumulative total return of the Russell 2000 Index, S&P MidCap 400 Index, and Peer Group for each of the last five fiscal
years ended September 30. The cumulative total return assumes an investment of $100 on September 30, 2018 and the
reinvestment of any dividends during the period. The Russell 2000 is a broad-based index that includes smaller market
capitalization stocks. The S&P MidCap 400 Index is the most widely used index for mid-sized companies. Management
believes that the S&P MidCap 400 is representative of companies with similar market and economic characteristics to
Haynes. Furthermore, we also believe the Russell 2000 Index is representative of the Company’s current market
capitalization status and this index is also provided on a comparable basis. The companies included in the Peer Group
Index: Allegheny Technologies, Inc., Howmet Aerospace Inc., Carpenter Technology Corp., Commercial Metals, Inc.,
Insteel Industries, Inc., Kaiser Aluminum Corporation, Materion Corporation, Olympic Steel, Inc., and Universal Stainless
& Alloy Products, Inc. Management believes that the companies included in the Peer Group, taken as a whole, provide a
meaningful comparison in terms of competition, product offerings and other relevant factors. The total stockholder return
for the peer groups is weighted according to the respective issuer’s stock market capitalization at the beginning of each
period.
37
Haynes International, Inc.
Russell 2000
S&P MidCap 400
Peer Group
Item 6. [Reserved]
2018
100.00
100.00
100.00
100.00
2019
2020 2021
2022
2023
103.79
91.11
97.51
98.70
51.30
91.47
95.40
73.23
115.23
135.08
137.08
131.83
111.14
103.34
116.17
137.64
149.86
112.56
134.20
208.89
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Please refer to page 2 of this Annual Report on Form 10-K for a cautionary statement regarding forward-looking
information.
Overview of Business
The Company is one of the world’s largest producers of high-performance nickel- and cobalt-based alloys in flat
product form, such as sheet, coil and plate. The Company is focused on developing, manufacturing, marketing and
distributing technologically advanced, high-performance alloys, which are used primarily in the aerospace, chemical
processing and industrial gas turbine industries. The global specialty alloy market includes stainless steel, titanium alloys,
general-purpose nickel alloys and high-performance nickel- and cobalt-based alloys. The Company competes primarily in
the high-performance nickel- and cobalt-based alloy sector, which includes high-temperature resistant alloys, or HTA
products, and corrosion-resistant alloys, or CRA products. The Company also produces its products as seamless and
welded tubulars and in bar, billet and wire forms.
The Company has manufacturing facilities in Kokomo, Indiana; Arcadia, Louisiana; and Mountain Home, North
Carolina. The Kokomo facility specializes in flat products, the Arcadia facility specializes in tubular products and the
Mountain Home facility specializes in wire and small-diameter bar products. The Company distributes its products
38
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.
Financial Data Trends
The following table shows certain financial information of the Company for each year in the five-year period
ended September 30, 2023. This information should be read in conjunction with the consolidated financial statements and
related notes thereto included elsewhere in this Annual Report on Form 10-K. Amounts below are in thousands, except
share and per share information.
Statement of Operations Data:
Net revenues
Cost of sales
Selling, general and administrative expense
Research and technical expense
Operating income (loss)
Nonoperating retirement benefit expense
Interest expense, net
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Dividends declared per common share
Weighted average shares outstanding:
Basic
Diluted
2019
Year Ended September 30,
2021
2022
2020
490,215 $
424,712
44,195
3,592
17,716
3,446
900
3,625
9,745 $
380,530 $
335,898
40,307
3,713
612
6,822
1,288
(1,020)
(6,478) $
337,661 $
297,931
43,470
3,403
(7,143)
1,470
1,170
(1,100)
(8,683) $
490,461 $
384,128
47,089
3,822
55,422
(4,655)
2,463
12,527
45,087 $
2023
589,956
480,196
48,028
4,126
57,606
(1,834)
7,538
9,927
41,975
0.78 $
0.78 $
0.88 $
(0.53) $
(0.53) $
0.88 $
(0.71) $
(0.71) $
0.88 $
3.62 $
3.57 $
0.88 $
3.31
3.26
0.88
$
$
$
$
$
12,445,212
12,480,908
12,470,664
12,470,664
12,499,609
12,499,609
12,346,025
12,505,500
12,566,843
12,780,278
2019
2020
September 30,
2021
2022
2023
Balance Sheet Data:
Working capital
Property, plant and equipment, net
Total assets
Total debt and other finance obligations
Long-term portion of debt and other finance obligations
Accrued pension and postretirement benefits(1)
Stockholders’ equity
Cash dividends paid
$ 311,793 $ 313,320 $ 287,393 $ 383,543 $ 462,377
142,540
706,281
121,961
121,659
66,440
434,324
11,192
147,248
546,455
7,613
7,385
109,722
343,321
11,175
169,966
593,800
7,979
7,809
215,741
296,275
11,011
142,772
632,295
82,105
81,839
85,222
375,488
11,072
159,819
560,724
7,809
7,614
199,223
301,501
11,058
(1)
Significant volatility in the pension and postretirement benefits liability has occurred due to many factors such as
changes in the discount rate used to value the future liability, variation in the return on assets and trends of
postretirement health care expenses incurred by the Company. These changes have been reflected in the Pension
and Postretirement Benefits Liability and a corresponding change to the accumulated other comprehensive loss
account. During fiscal 2021 as a part of a broader capital allocation strategy, the U.S. pension asset allocation
was changed to 30% equity and 70% fixed income as a part of a customized liability driven investment (LDI)
strategy designed to secure the improved funding percentage and reduce interest rate and equity risk. In addition,
a lump sum funding of $15 million occurred in the fourth quarter of fiscal 2021. During fiscal 2022 and fiscal
2023, the pension asset allocation was changed multiple times to the current allocation of 11% equity and 89%
fixed income in accordance with the Company’s customized LDI strategy.
39
Overview of Markets
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.
2019
2020
Year Ended September 30,
2021
2022
2023
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
$ 258.1
89.7
59.4
57.9
465.1
25.1
$ 490.2
$ 300.7
$ 189.5
52.7 % $ 192.0
63.1
18.3
56.6
12.1
45.1
11.8
356.8
94.9
50.5 % $ 128.1
63.1
16.6
66.8
14.9
58.1
11.8
316.1
93.8
37.9 % $ 230.0
91.7
18.7
91.9
19.8
53.7
17.2
467.3
93.6
46.9 % $ 290.4
92.0
18.7
120.7
18.7
60.3
11.0
563.4
95.3
49.2 %
15.6
20.5
10.2
95.5
5.1
23.7
100.0 % $ 380.5
61.3 % $ 230.8
38.7 % $ 149.7
6.2
21.6
100.0 % $ 337.7
60.7 % $ 179.1
39.3 % $ 158.6
6.4
23.2
100.0 % $ 490.5
53.0 % $ 278.5
47.0 % $ 212.0
4.7
26.6
100.0 % $ 590.0
56.8 % $ 344.4
43.2 % $ 245.6
4.5
100.0 %
58.4 %
41.6 %
10.3
4.3
3.4
2.0
20.0
51.5 %
21.5
17.0
10.0
7.2
2.8
3.3
1.3
100.0 % 14.6
49.3 %
19.2
22.6
8.9
5.0
2.8
4.2
2.0
100.0 % 14.0
35.7 %
20.0
30.0
14.3
100.0 %
8.2
3.5
4.5
1.4
17.6
46.6 %
19.9
25.6
7.9
100.0 %
9.1
2.7
5.4
1.2
18.5
49.2 %
14.6
29.2
7.0
100.0 %
Net Revenues
(dollars in millions)
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total product
Other revenue(1)
Net revenues
U.S.
Foreign
Shipments by Market
(millions of pounds)
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total Shipments
Average Selling Price Per
Pound
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total product(2)
Total average selling price
$ 25.11
20.80
17.44
28.35
23.21
24.46
$ 26.56
22.21
16.96
35.85
24.33
25.95
$ 25.81
22.40
15.95
28.46
22.56
24.10
$ 27.99
26.44
20.21
38.12
26.49
27.81
$ 31.99
33.51
22.19
48.35
30.43
31.87
(1)
(2)
Other revenue consists of toll conversion, royalty income, scrap sales and revenue recognized from the TIMET
agreement (see Note 15 in the Notes to the Consolidated Financial Statements in Part II, Item 8 in this Annual
Report on Form 10-K). Other revenue does not include associated shipment pounds.
Total product price per pound excludes “Other Revenue”.
Over the past five years, aerospace demand was favorably impacted by the transition to new engine platforms
driven by a desire for more fuel-efficiency and lower emissions. Fiscal 2019 sales into the aerospace market represented
a record year in both volume and revenue with continued traction of the new generation engine platforms in spite of the
grounding of the Boeing 737 MAX aircraft at that time. Sales in the first half of fiscal 2020 were reduced with the continued
grounding and subsequent production halt of the Boeing 737 MAX aircraft. Sales in the second half of fiscal 2020 were
further severely impacted by the global COVID-19 pandemic causing significant reductions in air travel, which impacted
both new plane builds and aftermarket sales. Sales into the aerospace market were also negatively affected by high
inventory levels of metal in the supply chain, which take time to work through the inventory and slow order volume to the
Company. Volume shipped into the aerospace market declined 30.1% in fiscal 2020 compared to the prior year. Volumes
continued to decline in the first quarter of fiscal year 2021 as sales in fiscal year 2021 were 50% of the fiscal year 2019
levels, then began to increase by the end of fiscal 2021. Growth continued as the number of people flying and announced
aircraft build rates significantly increased. Net sales to the aerospace industry increased over $100 million from fiscal
year 2021 to 2022 and an additional $60 million from fiscal year 2022 to 2023. One of the Company’s core focus initiatives
was to be compensated for value provided, which contributed to the revenue increase in fiscal 2023 with the average
selling price per pound increasing by 14.3% or $4.00 per pound to $31.99 per pound. This contributed to fiscal 2023, being
a new Company record year in revenue into the aerospace industry. Single-aisle aircraft build rates and additional increases
40
announced in the industry show significant growth expectations going forward. Double-aisle build rates are just beginning
to increase, which should be a positive contributor to sales into the aerospace market going forward.
The main driver of demand in the chemical processing market is capital spending in the chemical processing
sector, driven by end-user demand for housing, automotive, energy and agricultural products. The chemical processing
market is sensitive to oil prices, currency fluctuations and fiscal policies as well as world economic conditions and GDP
growth. Additional drivers of demand in this market include the increase in North American production of natural gas
liquids and the further downstream processing of chemicals that may utilize equipment that requires high-performance
alloys. Increased sales to the chemical processing industry in fiscal 2019 were related to improvement in global spending
in the chemical processing sector combined with the Company’s initiatives aimed at improving volumes. Fiscal 2020 and
2021 volume and sales were significantly impacted by the global COVID-19 pandemic. Volume shipped into the chemical
processing industry market declined 34.9% in fiscal 2020 compared to the prior year and generally remained at that level
across fiscal year 2021. Fiscal year 2022 volumes increased 23.0% combined with a higher value mix driving a 45.2%
revenue increase. Fiscal year 2023 revenue into the chemical processing industry was relatively flat at $92 million in spite
of significant mix management as the Company focused more on the higher-value portion of the market vs. the commodity
lower-value alloys and applications. This was evident as volume shipped into the chemical processing industry declined
nearly 23% in fiscal 2023 compared to the prior year; however, the average selling price per pound sold increased over
$7.00 per pound to $33.51 per pound. The Company expects to continue its focus on high-value alloys and application
within this market going forward.
Industrial gas turbines are beneficial in electricity generating facilities due to low capital cost at installation and
fewer emissions than traditional fossil fuel-fired facilities. Sales to the industrial gas turbine market declined in years
leading up to fiscal 2019 with significant overcapacity in large-frame turbines primarily used for electrical power
generation combined with growth in renewable energy facilities which had taken a toll on demand for large-frame gas
turbines. Sales and volume began to recover in fiscal 2019 and the first half of fiscal 2020. The recovery included a
market share gain for the Company at an original equipment manufacturer which began to gain traction in fiscal 2020.
The global COVID-19 pandemic negatively affected this market; however, sales declines in fiscal 2020 were mitigated by
the Company’s market share gains as well as restocking beginning to occur in the supply chain. Sales declined only 4.7%
in fiscal 2020 compared to the prior year, then increased 18.0% in fiscal 2021, 37.6% in fiscal 2022 and 31.3% in fiscal
2023 as the market share gain showed its full impact. Also expanding sales into this market included traction of a Haynes
proprietary alloy into a specific component during the repair, maintenance and overhaul of certain industrial gas turbines.
The Company’s strategy includes efforts to further increase market share going forward and promote Haynes proprietary
and specialty alloys into this market.
Other markets represent certain traditional businesses of oil and gas, flue-gas desulfurization, automotive and
heat treating, as well as new emerging technologies such as ultra-supercritical CO2, next-generation nuclear, fuel cells,
solar and other alternative energy applications. The industries in the other markets category focus on upgrading overall
product quality, improving product performance through increased efficiency, prolonging product life and lowering
long-term costs. Companies in these industries are looking to achieve these goals through the use of “advanced materials”
which support the increased use of high-performance alloys in an expanding number of applications. Sales into the other
markets category improved in fiscal 2019. Sales in fiscal 2020 declined 22.1%, as these markets were significantly
impacted by the global COVID-19 pandemic. Sales in fiscal year 2021 increased 28.8% as the Company strategically
sought increased mill volumes especially in the flue-gas desulphurization (FGD) industry to help improve fixed costs
absorption challenges in the overall low volume environment in early fiscal year 2021. In fiscal year 2022, as overall
volumes improved, the Company reallocated capacity to higher value markets such as aerospace and de-emphasized
certain low-value commodity grade alloys such as those going into the FGD industry. This mix management strategy
continued in fiscal 2023 with volumes declining 14.3% in fiscal 2023 compared to fiscal 2022, but revenue increased
12.3% year-over-year due to the average selling price per pound increasing over $10 per pound to $48.35 per pound. This
demonstrated the Company’s focus on higher-valued alloys and applications as well as one of the Company’s core focus
initiatives to be compensated for value provided. The Company continues to evaluate new opportunities and applications
for its products, particularly in the areas of renewable clean energy sources and other developing technologies relating to
environmental and climate change issues.
41
Other revenue consists primarily of toll conversion, but also includes royalty income, scrap sales and revenue
recognized from the TIMET agreement. The demand for toll conversion includes TIMET conversion demand completed
on the Company’s four-high Steckel hot rolling mill in Kokomo, Indiana, as well as conversion work completed through
LaPorte Custom Metal Processing. Other revenue demand levels vary year-to-year based upon demand drivers in the
respective markets of the Company’s tolling customers. The global COVID-19 pandemic impacted tolling revenue,
particularly revenue from those tolling customers that sell into the aerospace market. Other revenue in fiscal 2023
increased 14.7% compared to fiscal 2022, helped by the recovery of aerospace market. In fiscal 2023, other revenue
represented 4.5% of net sales. Other revenue does not include associated shipment pounds because the metal is not owned
by the Company.
Valuation of the Pension Plan and the Retiree Healthcare Plan
The actuarial valuation of the U.S. pension and retiree healthcare plans on September 30, 2023 included a
favorable increase in the discount rates used to measure the plan liabilities along with continued favorable retiree health
care spending. The U.S. defined benefit pension net liabilities decreased $7.0 million from $20.7 million at the beginning
of fiscal 2023 to $13.6 million at September 30, 2023. The funding percentage of plan assets compared to benefit
obligation was 93.7% as of September 30, 2023. This funding percentage has held relatively steady even through
significant market turmoil as the Company had previously implemented a glide path which includes a customized liability
driven investment strategy designed to secure this funding percentage. In addition, the post-retirement health care liability,
which is unfunded, declined $11.7 million during fiscal 2023 from $64.0 million at September 30, 2022 to $52.3 million
at September 30, 2023 driven by the higher discount rates. These amounts do not include the U.K. pension plan which is
a $8.8 million net asset (shown in other assets on the Consolidated Balance Sheets) or two small nonqualified pension
plans with a liability of $0.5 million.
Volumes and Pricing
Prior to the pandemic, the Company shipped 20.0 million pounds in fiscal 2019. Then in the first half of fiscal
2020, volumes were negatively impacted by the grounding and subsequent production halt of the Boeing 737 MAX
aircraft. The second half of fiscal 2020 was additionally significantly additionally impacted by the global COVID-19
pandemic, which dramatically lowered volumes for fiscal 2020 to 14.6 million pounds and fiscal 2021 to 14.0 million
pounds. Volumes progressively improved during fiscal 2022 to 17.6 million pounds and then in fiscal 2023 to 18.5 million
pounds; with the fourth quarter of fiscal 2023 at 4.9 million pounds, a run rate nearing the pre-pandemic levels. Fiscal
2023 was unfavorably impacted in the third quarter by the cyber-security incident described above, which impacted
shipping levels. Revenue was negatively impacted by an estimated $18-$20 million dollars (roughly 0.6 million pounds)
as a result of this incident. The Company expects to make up this shortfall over the next several quarters.
Solid increases in volume and average selling price per pound were achieved in aerospace and industrial gas
turbines in fiscal 2023. Fiscal 2023 aerospace volume increased 10.5% along with a 14.3% increase in aerospace average
selling price, resulting in a 26.3%, or $60.4 million, aerospace revenue increase compared to the prior year. This increase
was primarily driven by the single-aisle commercial aircraft recovery, with the double-aisle aircraft recovery just
beginning. Industrial gas turbine (IGT) volumes were up 19.7% along with a 9.8% increase in the IGT average selling
price, resulting in a 31.4%, or $28.9 million, IGT revenue increase compared to the prior year due to market share gains
along with higher usage of a Haynes proprietary alloy in a maintenance repair and overhaul application for a certain
turbine. Fiscal 2023 volumes in the chemical processing industry (CPI) decreased 20.8% compared to the prior year;
however, the CPI average selling price per pound increased 26.7%, resulting in flat revenue compared to the prior year.
The Company focused on higher-value alloys and applications, with less focus on the commodity lower-value segment of
the CPI market. Similarly, volumes in other markets decreased (11.5)% compared to the prior year; however, the other
markets’ average selling price per pound increased 26.8%, resulting in a 12.3% increase compared to the prior year as a
result of similar mix management strategies.
The product average selling price per pound in fiscal 2023 was $30.43, which was a 14.9% increase over the prior
fiscal year. The product average selling price per pound for the fourth quarter of fiscal 2023 was $31.56, which was an
increase of 11.5% from the same period last year. This increase was driven by raw material costs, price increases, and
product mix.
42
Gross Profit Trend Performance
The following tables show net revenue, gross profit and gross profit percentage for fiscal 2022 and fiscal 2023.
Trend of Gross Profit and Gross Profit Percentage for Fiscal
2022
Quarter Ended
December 31 March 31
June 30
September 30
Net revenues
Gross Profit
Gross Profit %
Net revenues
Gross Profit
Gross Profit %
$ 99,430 $
17,777
17.9%
117,056 $
23,413
20.0%
130,165 $ 143,810
31,921
33,222
22.2%
25.5%
Trend of Gross Profit and Gross Profit Percentage for Fiscal
2023
Quarter Ended
December 31 March 31
June 30
September 30
$
132,673 $
23,038
17.4%
152,786 $
30,878
20.2%
143,901 $ 160,596
29,782
26,062
18.5%
18.1%
A significant strategic effort to improve gross margins has occurred over the past few years involving both pricing
actions and cost improvements. This effort was beginning to gain traction with gross profit as a percent of revenue hitting
approximately 18% in the months preceding the pandemic. 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. Now,
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. As volume continued to rise during
fiscal 2022 and fiscal 2023, incremental profitability leverage helped improve gross margins significantly when
considering neutral raw material impact.
Rising or falling raw material costs can impact gross margins significantly. Rising raw material market prices
helped expand gross margins in fiscal 2022 especially in the third quarter. Falling raw material market prices compress
gross margins which occurred during fiscal 2023 especially in the first and fourth quarters.
Controllable Working Capital
Controllable working capital, which includes accounts receivable, inventory, accounts payable and accrued
expenses, was $449.4 million at September 30, 2023, an increase of $71.1 million or 18.8% from $378.3 million at
September 30, 2022. The increase resulted primarily from inventory increasing by $56.5 million during fiscal 2023,
accounts receivable increasing by $11.4 million during the same period, and accounts payable and accrued expenses
decreasing by $3.2 million during the same period.
Dividends Declared
On November 16, 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 December 15, 2023, to
stockholders of record at the close of business on December 1, 2023. The aggregate cash payout based on current shares
outstanding will be approximately $2.8 million, or approximately $11.2 million on an annualized basis if current dividend
levels are maintained.
43
Backlog
Set forth below is information relating to the Company’s backlog and the 30-day average nickel price per pound
as reported by the London Metals Exchange.
2019
2020
2021
2022
2023
Consolidated Backlog at Fiscal Quarter End(1) (in millions):
1st quarter
2nd quarter
3rd quarter
4th quarter
Average nickel price per pound(2)
$ 237.8 $ 237.6 $ 145.1 $ 217.5 $ 408.2
446.7
468.1
460.4
253.0
254.9
235.2
204.7
174.6
153.3
140.9
150.9
175.3
280.7
338.2
373.7
Year Ended September 30,
2022
2020
2019
2023
2021
$ 8.02 $ 6.74 $ 8.80 $ 10.28 $ 8.90
(1)
(2)
The Company defines backlog to include firm commitments from customers for delivery of product at established
prices. There are orders in the backlog at any given time which include prices that are subject to adjustment based
on lead times and changes in raw material costs, which can vary but is roughly 65% of the orders. Historically,
approximately 50% of the backlog orders have shipped within six months and approximately 90% have shipped
within 12 months. The backlog figures do not typically reflect that portion of the business conducted at service
and sales centers on a spot or “just-in-time” basis.
Represents the average price for a cash buyer as reported by the London Metals Exchange for the 30 days ending
on the last day of the period presented.
Backlog
Dollars (in thousands)
Pounds (in thousands)
Average selling price per
pound
Average nickel price per
pound
London Metals
Exchange(1)
Quarter Ended
Quarter Ended
December 31, March 31, June 30,
September 30, December 31, March 31, June 30,
2021
2022
2022
2022
2022
2023
2023
September 30,
2023
$
217,477 $ 280,687 $ 338,178 $
8,931 10,654 12,125
373,736 $
12,798
408,181 $ 446,749 $ 468,132 $
13,640 14,177 14,632
$
24.35 $
26.35 $
27.89 $
29.20 $
29.93 $
31.51 $
31.99 $
460,370
14,635
31.46
$
9.10 $
15.47 $
11.71 $
10.28 $
13.08 $
10.56 $
9.61 $
8.90
(1)
Represents the average price for a cash buyer as reported by the London Metals Exchange for the 30 days ending
on the last day of the period presented.
Backlog has significantly increased due to strong demand. In response, the Company added production headcount
and invested in inventory in order to increase shipping levels and net revenue. The backlog peaked in the third quarter of
fiscal 2023 at $468.1 million, then declined $7.8 million as fourth quarter revenue increased to $160.6 million; the highest
quarterly revenue of fiscal 2023. The Company’s backlog dollars at September 30, 2023 increased compared September
30, 2022 by 23.2% due to a 14.4% increase in backlog pounds combined with a 7.7% increase in backlog average selling
price. The increase in backlog was primarily driven by sales order increases in the industrial gas turbine market and the
aerospace market.
44
Revenues by geographic area
Net revenues in fiscal 2021, 2022 and 2023 were generated primarily by the Company’s U.S. operations. Sales
to domestic customers comprised approximately 53%, 57% and 58% of the Company’s net revenues in fiscal 2021, 2022
and 2023, respectively. In addition, the majority of the Company’s operating costs are incurred in the U.S., as all of its
manufacturing facilities are located in the U.S. It is expected that net revenues will continue to be highly dependent on the
Company’s domestic sales and manufacturing facilities in the U.S.
The Company’s foreign and export sales were approximately $158.6 million, $212.0 million and $245.6 million
for fiscal 2021, 2022 and 2023, respectively. Additional information concerning foreign operations and export sales is set
forth in Note 13 to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.
Quarterly Market Information
Quarter Ended
Quarter Ended
December 31, March 31, June 30,
September 30, December 31, March 31, June 30,
2021
2022
2022
2022
2022
2023
2023
September 30,
2023
Net revenues (in thousands)
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total product revenue
Other revenue
Net revenues
Shipments by markets (in
thousands of pounds)
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total shipments
Average selling price per
pound
$
$
52,918 $ 60,981 $
48,455 $
22,850
17,450
24,788
14,598
9,755
14,487
110,311
94,990
4,440
6,745
99,430 $ 117,056 $ 130,165 $
24,180
23,991
14,518
123,670
6,495
67,647 $
27,185
28,501
14,946
138,279
5,531
143,810 $
64,518 $
22,715
26,025
14,722
127,980
4,693
66,612 $ 77,456 $
28,605 17,696
32,420 28,073
17,550 13,416
145,187 136,641
7,260
7,599
132,673 $ 152,786 $ 143,901 $
1,864
794
799
420
3,877
1,808
870
1,416
244
4,338
2,142
882
1,090
427
4,541
2,402
921
1,242
318
4,883
2,187
786
1,289
290
4,552
1,982
845
1,430
410
4,667
2,376
462
1,311
278
4,427
$
Aerospace
Chemical processing
Industrial gas turbine
Other markets
26.00 $
21.98
18.27
34.49
29.27 $
26.26
17.51
39.98
28.47 $
27.41
22.01
34.00
28.16 $
29.52
22.95
47.00
29.50 $
28.90
20.19
50.77
33.61 $
33.85
22.67
42.80
32.60 $
38.30
21.41
48.26
Total average selling price
(product only; excluding
other revenue)
Total average selling price
(including other revenue)
Results of Operations
24.50
25.43
27.23
28.32
28.12
31.11
30.87
25.65
26.98
28.66
29.45
29.15
32.74
32.51
81,805
23,003
34,213
14,599
153,620
6,976
160,596
2,533
653
1,412
269
4,867
32.30
35.23
24.23
54.27
31.56
33.00
This section of this Annual Report on Form 10-K generally discusses fiscal 2023 and fiscal 2022 items and year-
to-year comparisons between fiscal 2023 and fiscal 2022. For discussion related to fiscal 2021 items and year-to-year
comparisons between fiscal 2022 and fiscal 2021 that are not included in this Annual Report on Form 10-K, please refer
to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the
Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on November
17, 2022.
45
Year Ended September 30, 2023 Compared to Year Ended September 30, 2022
($ in thousands, except per share figures)
Year Ended September 30,
Change
Net revenues
Cost of sales
Gross profit
Selling, general and administrative expense
Research and technical expense
Operating income
Nonoperating retirement benefit expense
(income)
Interest income
Interest expense
Income before income taxes
Provision for income taxes
Net income
2022
Amount %
2023
$ 490,461 100.0 % $ 589,956 100.0 % $ 99,495 20.3 %
25.0 %
3.2 %
2.0 %
8.0 %
3.9 %
78.3 % 480,196
21.7 % 109,760
9.6 % 48,028
4,126
0.8 %
11.3 % 57,606
81.4 % 96,068
18.6 % 3,427
939
8.1 %
0.7 %
304
9.8 % 2,184
384,128
106,333
47,089
3,822
55,422
(4,655)
(18)
2,481
57,614
12,527
$ 45,087
(0.9) % (1,834)
(56)
(0.0) %
7,594
0.5 %
11.7 % 51,902
2.6 %
9,927
9.2 % $ 41,975
(0.3) % 2,821
(0.0) %
(38)
1.3 % 5,113
8.8 % (5,712)
1.7 % (2,600)
7.1 % $ (3,112)
(60.6) %
211.1 %
206.1 %
(9.9) %
(20.8) %
(6.9) %
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.
By market
Year Ended
September 30,
Change
2022
2023
Amount
%
Net revenues (dollars in thousands)
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total product revenue
Other revenue
Net revenues
Pounds by market (in thousands)
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total shipments
Average selling price per pound
Aerospace
Chemical processing
Industrial gas turbine
Other markets
$ 230,001 $ 290,391 $
91,665
91,878
53,706
467,250
23,211
92,019
120,731
60,287
563,428
26,528
$ 490,461 $ 589,956 $
8,216
3,467
4,547
1,409
17,639
9,078
2,746
5,442
1,247
18,513
27.99 $
26.44
20.21
38.12
26.49
27.81 $
31.99 $
33.51
22.19
48.35
30.43
31.87 $
$
60,390
354
28,853
6,581
96,178
3,317
99,495
862
(721)
895
(162)
874
4.00
7.07
1.98
10.23
3.94
4.06
26.3 %
0.4 %
31.4 %
12.3 %
20.6 %
14.3 %
20.3 %
10.5 %
(20.8) %
19.7 %
(11.5) %
5.0 %
14.3 %
26.7 %
9.8 %
26.8 %
14.9 %
14.6 %
Total product (excluding other revenue)
Total average selling price (including other revenue)
$
Net Revenues. Net revenues were $590.0 million in fiscal 2023, an increase of 20.3% from $490.5 million in
fiscal 2022 due to average selling price per pound increases in all of our markets and increases in volume in the aerospace
46
and industrial gas turbine markets, partially offset by lower volumes in the chemical processing and other markets. The
product average selling price was $30.43 in fiscal 2023, an increase of 14.9% from $26.49 per pound in fiscal 2022. The
increase in product average selling price per pound in fiscal 2023 largely reflected price increases and other sales factors,
which increased average selling price per pound by approximately $3.90, and a change in product mix, which increased
average selling prices per pound by approximately $0.46, partially offset by lower market prices of raw materials, which
decreased average selling price per pound by approximately $0.42. The 5.0% increase in pounds sold was due to the
demand recovery and strong sales in the industrial gas turbine market, which increased volume sold by 19.7% and the
aerospace market which increased volume sold by 10.5%.
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 reflected price increases and other pricing factors, which increased average selling price per
pound by approximately $3.91, and a change in product mix, which increased average selling price per pound by
approximately $0.59, partially offset by a decrease in market prices of raw materials, which decreased average selling
price per pound by approximately $0.50.
Volume to the chemical processing market in fiscal 2023 was 20.8% lower than 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 reflected price increases and other sales
factors, which increased average selling price per pound by approximately $3.75, a change in product mix, which increased
average selling price per pound by approximately $3.08, and higher market prices of raw materials, primarily molybdenum,
which increased average selling price per pound by approximately $0.24.
The higher volume to the industrial gas turbine market was a result of overall increased demand in the market.
The increase in average selling price per pound in the industrial gas turbine market reflected price increases and other sales
factors, which increased average selling price per pound by approximately $3.41, partially offset by a change in product
mix, which decreased average selling price per pound by approximately $1.08 and lower market prices of raw materials,
which decreased average selling price per pound by approximately $0.35.
Volume to other markets decreased in fiscal 2023 by 11.5% from fiscal 2022 due to lower shipments into the
flue-gas desulfurization markets. The average selling price per pound increase to other markets reflected price increases
and other sales factors, which increased average selling price per pound by approximately $6.29 and a change in product
mix, which increased average selling price per pound by approximately $5.38, partially offset by lower market prices of
raw materials, which decreased average selling price per pound by $1.44.
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 fiscal 2023 was higher than 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 fiscal 2023 decreased compared to the prior year as gross profit in 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 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.
Selling, General and Administrative Expense. The decrease as a percent of net revenues for selling, general and
administrative expense was largely driven by the leveraging effect of higher net revenues, as spend in fiscal 2023 of $48.0
million was 2.0% higher than spend in fiscal 2022 of $47.1 million.
Research and Technical Expense. The decrease as a percent of net revenues for research and technical expense
was largely driven by the leverage effect of higher net revenues, as spend in fiscal 2023 of $4.1 million was 8.0% higher
than spend in fiscal 2022 of $3.8 million.
47
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 fiscal 2023 when compared to fiscal 2022. Partially offsetting the higher interest cost was the amortization
of the actuarial gains of the U.S. pension plan liability in fiscal 2023.
Interest Expense. The increase in interest expense in fiscal 2023 as compared to fiscal 2022 was driven by higher
borrowings against the revolving line of credit along with higher borrowing rates.
Income Taxes. The decrease in income tax expense was driven primarily by a difference in income before income
taxes of $5.7 million. Income tax expense in fiscal 2023 as a percentage of income before income taxes was 19.1% as
compared to 21.7% in fiscal 2022. The decrease was largely driven by a change in estimate of taxes owed on income
earned in international locations in tax years ended September 30, 2022 and 2023.
Liquidity and Capital Resources
Comparative cash flow analysis (2022 to 2023)
The Company had cash and cash equivalents of $10.7 million as of September 30, 2023, inclusive of $10.8 million
that was held by foreign subsidiaries in various currencies, compared to $8.4 million as of September 30,
2022. Additionally, the Company had $114.8 million of borrowings against the $200.0 million line of credit outstanding
with remaining capacity available of $85.2 million as of September 30, 2023, putting total liquidity at $95.9 million.
Net cash used in operating activities during fiscal 2023 was $16.7 million compared to net cash used in operating
activities of $79.5 million in fiscal 2022. The decrease in cash used in operating activities during fiscal 2023 was driven
by an increase in inventory of $50.4 million as compared to an increase of $116.8 million during fiscal 2022 and an increase
in accounts receivable of $8.2 million as compared to an increase of $42.7 million in fiscal 2022. This was partially offset
by a decrease in accounts payable and accrued expenses of $8.5 million during fiscal 2023 as compared to an increase of
$10.7 million in fiscal 2022, a difference of $19.2 million.
Net cash used in investing activities was $16.4 million during fiscal 2023, which was higher than net cash used
in investing activities of $15.1 million during fiscal 2022 due to higher additions to property, plant and equipment.
Net cash provided by financing activities was $34.6 million during fiscal 2023, a decrease of $22.0 million from
cash provided by financing activities of $56.6 million in fiscal 2022. This difference was primarily driven by a net
borrowing of $40.1 million against the revolving line of credit during fiscal 2023 compared to a net borrowing of $74.7
million in fiscal 2022. This was partially offset with proceeds from the exercise of stock options of $8.2 million during
fiscal 2023 as compared to proceeds from the exercise of stock options of $0.5 million in fiscal 2022 and lower share
repurchases of $0.9 million in fiscal 2023 as compared to $7.2 million during fiscal 2022. Dividends paid of $11.2 million
during fiscal 2023 were higher than dividends paid of $11.1 million in fiscal 2022.
Future sources 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, the terms of which are described
in Note 8 to the Company’s Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form
10-K. At September 30, 2023, the Company had cash of $10.7 million, an outstanding balance of $114.8 million on the
U.S. revolving credit facility and total remaining borrowing availability against the revolving credit facility of
approximately $85.2 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.
48
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 $6 million during fiscal 2024.
Capital investment in fiscal 2023 was $16.4 million, and the capital spending in fiscal 2024 is planned to be
between $25.0 million and $35.0 million.
Contractual Obligations
The following table sets forth the Company’s contractual obligations for the periods indicated, as of
September 30, 2023. Management believes cash from operations, cash on hand and borrowings under the Company’s
Credit Facility will be sufficient to meet these obligations as they come due.
Contractual Obligations
Credit facility(1)
Operating lease obligations(2)
Finance lease obligations(3)
Raw material contracts(4)
Capital projects and other commitments
Pension plan(5)
Non-qualified pension plans
Other postretirement benefits(6)
Environmental post-closure monitoring
Total
Payments Due by Period
Total
Less than
1 year
1-3 Years
(in thousands)
3-5 Years
More than
5 years
$ 158,761 $
4,315
12,656
98,722
5,893
13,622
492
52,326
355
9,256 $
2,285
1,032
82,996
5,720
6,000
95
2,844
89
18,510 $ 130,995 $
1,911
2,081
15,726
173
7,622
190
5,851
137
119
2,100
—
—
—
190
5,911
129
$ 347,142 $ 110,317 $
52,201 $ 139,444 $
—
—
7,443
—
—
—
17
37,720
—
45,180
(1)
(2)
(3)
(4)
As of September 30, 2023, the balance under the revolving credit facility was $114,843 which expires on June
20, 2028 (See Note 8. “Debt” to the Company’s Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report on Form 10-K). Additionally, future unused line fees and interest expense are estimated
assuming current borrowings on the revolving credit facility and no extension of terms beyond the current
maturity date.
Represents multi-year obligation for all operating leases for certain land and buildings, plant equipment, vehicles,
office and computer equipment, including short term lease obligations. Typically, lease obligations on real estate
are renewed upon expiration and lease obligations on equipment are replaced with new leases unless the Company
makes a decision to purchase new equipment.
Represents payments for finance lease obligations of real property that are intended to be held for a long time.
Raw material purchase obligations consist primarily of commitments to purchase commodities, primarily nickel,
cobalt, chromium or molybdenum as well as scrap alloys. We believe the minimum required purchase quantities
are lower than our current requirements for these metals. Additionally, changes in the market price of these
49
commodities along with changes in the Company’s production volumes will determine if future requirements
beyond these commitments will differ from the current levels.
The Company has a funding obligation to contribute $13,622 to the domestic pension plan. These payments will
be tax deductible. All benefit payments under the domestic pension plan will come from the plan and not the
Company.
Represents expected other postretirement benefits based upon anticipated timing of payments.
(5)
(6)
Inflation or Deflation
The Company may be favorably or unfavorably impacted by inflation or deflation, resulting in a material impact
on its operating results. The Company attempts to pass onto customers both increases in consumable costs and material
costs because of the value-added contribution the material makes to the final product; however, the Company may not be
able to successfully offset a rapid increase in raw material costs with adjustments to customer selling prices. In the event
of raw material price declines, the Company’s customers may delay order placement, resulting in lower volumes. In the
event of raw material price increases that the Company is unable to pass on to its customers, the Company’s cash flows or
results of operations could be materially adversely affected.
Critical Accounting Policies and Estimates
Overview
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the
Company’s consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to credit
losses, inventories, income taxes, asset impairments, retirement benefits, matters related to product liability and other
lawsuits and environmental matters. The process of determining significant estimates is fact specific and takes into account
factors such as historical experience, current and expected economic conditions, product mix, pension asset mix and, in
some cases, actuarial techniques and various other factors that are believed to be reasonable under the circumstances. The
results of this process form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. The Company routinely reevaluates these significant factors and makes adjustments
where facts and circumstances dictate. Actual results may differ from these estimates under different assumptions or
conditions.
The Company’s accounting policies are more fully described in Note 2 in the Notes to the Consolidated Financial
Statements included in Part II, Item 8 in this Annual Report on Form 10-K. The Company has identified certain critical
accounting policies, which are described below. The following listing of policies is not intended to be a comprehensive
list of all of the Company’s accounting policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their
application. There are also areas in which management’s judgment in selecting any available alternative would not produce
a materially different result.
Pension and Postretirement Benefits
The Company has defined benefit pension and postretirement plans covering many of its current and former
employees. Significant elements in determining the assets or liabilities and related income or expense for these plans are
the expected return on plan assets (if any), the discount rate used to value future payment streams, expected trends in health
care costs and other actuarial assumptions. Annually, the Company evaluates the significant assumptions to be used to
50
value its pension and postretirement plan assets and liabilities based on current market conditions and expectations of
future costs. If actual results are less favorable than those projected by management, additional expense may be required
in future periods.
The selection of the U.S. pension plan’s assumption for the expected long-term rate of return on plan assets is
based upon the U.S. Pension plan’s target allocation. The return on assets is based on fair value of the plan assets and
their investment allocation at the beginning of the fiscal year. The Company also realizes that historical performance is no
guarantee of future performance.
In the short term, substantial decreases in plan assets will result in higher plan funding contribution levels and
higher pension expenses. A decrease of 25 basis points in the expected long-term rate of return on plan assets would result
in an increase in annual pension expense of about $0.5 million. To the extent that the actual return on plan assets during
the year exceeds or falls short of the assumed long-term rate of return, an asset gain or loss is created. For funding purposes,
gains and losses are generally amortized over a 6-year period.
Decreases in discount rates used to value future payment streams will result in higher liabilities for pension and
postretirement plans. A decrease of 25 basis points would result in $5.4 million higher liability for the U.S. pension plan
and $1.7 million higher liability for the postretirement plan. This increase in liability would also increase the accumulated
other comprehensive loss that would be amortized as higher pension and postretirement expense over an amortization
period of approximately 5.6 and 11.0 years, respectively.
Salaried employees hired after December 31, 2005 and hourly employees hired after June 30, 2007 are not
covered by the U.S. pension plan; however, they are eligible for an enhanced matching program of the defined contribution
plan (the Company’s 401(k) plan). Effective December 31, 2007, the U.S. pension plan was amended to freeze benefits
for all non-union employees in the U.S. Effective September 30, 2009, the U.K. pension plan was amended to freeze
benefits for employees in that plan.
Income Taxes
The Company accounts for deferred tax assets and liabilities using enacted tax rates for the effect of temporary
differences between book and tax basis of recorded assets and liabilities. A valuation allowance is required if it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The determination of whether or not
a valuation allowance is needed is based upon an evaluation of both positive and negative evidence.
In the process of completing an assessment of the need for a valuation allowance, we make judgments and
estimates with respect to future operating results, feasible tax planning strategies, timing of the reversal of deferred tax
assets and current market and industry factors. In order to determine the effective tax rate to apply to interim periods,
estimates and judgments are made (by taxable jurisdiction) as to the amount of taxable income that may be generated, the
availability of deductions and credits expected and the availability of net operating loss carryforwards or other tax attributes
to offset taxable income.
The ultimate amount of deferred tax assets realized could be different from those recorded, as influenced by
potential changes in enacted tax laws and the availability of future taxable income. A change in our effective tax rate by
1% would have had an impact of approximately $0.5 million to Net income for fiscal September 30, 2023.
Recently Issued Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements in Part
II, Item 8 in this Annual Report on Form 10-K for information regarding New Accounting Standards.
51
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices. The Company is exposed
to various market risks, including changes in interest rates, foreign currency exchange rates, the price of raw materials,
particularly nickel and cobalt, as well as the costs of supplies.
Changes in interest rates affect the Company’s interest expense on variable rate debt. All of the Company’s
revolving credit facility availability was at a variable rate at September 30, 2022 and 2023. The Company’s outstanding
variable rate debt was $74.7 million at September 30, 2022 and $114.8 million at September 30, 2023. The Company has
not entered into any derivative instruments to hedge the effects of changes in interest rates.
Foreign currency exchange risk exists primarily because the Company’s foreign subsidiaries maintain receivables
and payables denominated in currencies other than their functional currency. Foreign currency forward contracts are
entered into as a means to partially offset the impact of cash transactions occurring at the foreign affiliates in currencies
other than the entities’ functional currency. The U.S. operations transact their foreign sales in U.S. dollars, thereby
avoiding fluctuations in foreign exchange rates. The Company was not party to any currency contracts as of September
30, 2023.
Fluctuations in the price of nickel and cobalt, subject the Company to commodity price risk. The Company
manages its exposure to this market risk through internally established policies and procedures, including negotiating raw
material escalators within product sales agreements and continually monitoring and revising customer quote amounts to
reflect the fluctuations in market prices for nickel. The Company does not presently use derivative instruments to manage
this market risk but may in the future. The Company monitors its underlying market risk exposure from a rapid change in
nickel prices on an ongoing basis and believes that it can modify or adapt its strategies as necessary. The Company
periodically purchases raw material forward with certain suppliers. However, there is a risk that the Company may not be
able to successfully offset a rapid increase or decrease in the cost of raw material in the future.
52
Item 8. Financial Statements and Supplementary Data
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Haynes International, Inc. and Subsidiaries as of September 30, 2022
and 2023 and for the years ended September 30, 2021, September 30, 2022 and September 30, 2023
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
54
56
57
58
59
60
61
53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Haynes International, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Haynes International, Inc. and subsidiaries (the
"Company") as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2023, and the related
notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over
financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework
(2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
54
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
U.S. Pension and Postretirement Plans – Discount Rate - Refer to Notes 2 and 9 to the financial statements
Critical Audit Matter Description
The Company has a defined benefit pension plan (“pension”) and postretirement health care benefits (“OPEB”) in the
U.S. covering most of its current and former employees. As of September 30, 2023, the pension projected benefit
obligation was $217.4 million and the OPEB projected benefit obligation was $52.3 million. The actuarial determination
of the pension and OPEB projected benefit obligations on an annual basis requires management to make significant
assumptions related to the selection of the discount rates used in the calculation of the net present value of future pension
and OPEB benefits. The Company establishes the discount rates assumption for the U.S. pension and OPEB plans
utilizing the FTSE Pension Discount Curve and projected benefit payments.
Given the significance of the U.S. pension and OPEB projected benefit obligations and their sensitivity to a change in
the discount rates, management was required to make significant assumptions related to the selection of the discount
rates. Therefore, performing audit procedures to evaluate the reasonableness of the discount rates selected by
management for the U.S. pension and OPEB plans required a high degree of auditor judgment and an increased extent of
effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discount rates for the U.S. pension and OPEB plans selected by management
included the following, among others:
• We tested the effectiveness of internal controls over the valuation of the U.S. pension and OPEB projected
benefit obligations, including management's control over selection of the discount rates.
• With the assistance of our actuarial specialists:
o We evaluated the methodology utilized to select the discount rates for conformity with applicable
accounting guidance.
o We tested the source information underlying the determination of the discount rates, including the
methodology used to construct the yield curve and the mathematical accuracy of the calculation.
o We evaluated the reasonableness of the Company’s selection and use of the external published yield
curve used by management to determine the discount rates.
/s/ Deloitte & Touche LLP
Indianapolis, IN
November 16, 2023
We have served as the Company's auditor since fiscal year 1998.
55
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for credit losses of $428 and $459 at
September 30, 2022 and September 30, 2023, respectively
Inventories
Income taxes receivable
Other current assets
Total current assets
Property, plant and equipment, net
Deferred income taxes
Other assets
Goodwill
Other intangible assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Accrued pension and postretirement benefits
Deferred revenue—current portion
Total current liabilities
Revolving credit facilities - Long-term
Long-term obligations (less current portion)
Deferred revenue (less current portion)
Deferred income taxes
Operating lease liabilities
Accrued pension benefits (less current portion)
Accrued postretirement benefits (less current portion)
Total liabilities
Commitments and contingencies
Stockholders’ equity:
September 30,
September 30,
2022
2023
$
8,440 $
10,723
$
$
94,912
357,556
—
3,514
464,422
142,772
5,680
9,723
4,789
4,909
632,295 $
54,886 $
19,294
828
3,371
2,500
80,879
74,721
7,848
7,829
3,103
576
21,090
60,761
256,807
—
106,292
414,077
2,372
5,702
539,166
142,540
3,608
10,523
4,789
5,655
706,281
52,812
18,201
336
2,940
2,500
76,789
114,843
7,448
5,329
3,686
362
14,019
49,481
271,957
—
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 12,731,661 shares
outstanding at September 30, 2022 and September 30, 2023, respectively)
Preferred stock, $0.001 par value (20,000,000 shares authorized, 0 shares
issued and outstanding)
Additional paid-in capital
Accumulated earnings
Treasury stock, 375,032 shares at September 30, 2022 and 392,740 shares at
September 30, 2023
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
13
13
—
266,193
135,040
(14,666)
(11,092)
375,488
632,295 $
—
277,713
165,825
(15,600)
6,373
434,324
706,281
The accompanying notes are an integral part of these consolidated financial statements.
56
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net revenues
Cost of sales
Gross profit
Selling, general and administrative expense
Research and technical expense
Operating income (loss)
Nonoperating retirement benefit expense (income)
Interest income
Interest expense
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Weighted Average Common Shares Outstanding
Basic
Diluted
2023
2021
Year Ended
Year Ended
Year Ended
September 30, September 30, September 30,
2022
$ 337,661 $ 490,461 $ 589,956
480,196
109,760
48,028
4,126
57,606
(1,834)
(56)
7,594
51,902
9,927
41,975
297,931
39,730
43,470
3,403
(7,143)
1,470
(16)
1,186
(9,783)
(1,100)
(8,683) $
384,128
106,333
47,089
3,822
55,422
(4,655)
(18)
2,481
57,614
12,527
45,087 $
$
$
$
(0.71) $
(0.71) $
3.62 $
3.57 $
3.31
3.26
12,500
12,500
12,346
12,506
12,567
12,780
Dividends declared per common share
$
0.88 $
0.88 $
0.88
The accompanying notes are an integral part of these consolidated financial statements.
57
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income (loss)
Other comprehensive income (loss), net of tax:
Pension and postretirement
Foreign currency translation adjustment
Other comprehensive income (loss)
Comprehensive income
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2022
45,087 $
2021
(8,683) $
2023
41,975
$
59,006
3,254
62,260
$
53,577 $
13,066
(11,817)
1,249
46,336 $
10,736
6,729
17,465
59,440
The accompanying notes are an integral part of these consolidated financial statements.
58
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Common Stock
Additional
Paid-in
Accumulated Treasury
Accumulated
Other
Total
Comprehensive Stockholders’
Balance October 1, 2020
Net income (loss)
Dividends paid ($0.88 per share)
Other comprehensive income
Issue restricted stock (less
forfeitures)
Purchase of treasury stock
Stock compensation
Balance September 30, 2021
Net income
Dividends paid ($0.88 per share)
Other comprehensive income
Exercise of stock options
Issue restricted stock (less
forfeitures)
Purchase of treasury stock
Stock compensation
Balance September 30, 2022
Net income
Dividends paid and accrued ($0.88
per share)
Other comprehensive income
Exercise of stock options
Issue restricted stock (less
forfeitures)
Purchase of treasury stock
Stock compensation
Balance September 30, 2023
Shares
Par
Capital
Earnings
Stock
Income (Loss)
12,622,371 $ 13 $ 257,583 $ 120,943 $ (2,437) $
(74,601) $
(8,683)
(11,245)
62,260
76,498
(136,729)
4,474
(4,986)
12,562,140 $ 13 $ 262,057 $ 101,015 $ (7,423) $
(12,341) $
45,087
(11,062)
1,249
14,558
537
82,437
(179,394)
3,599
(7,243)
12,479,741 $ 13 $ 266,193 $ 135,040 $ (14,666) $
(11,092) $
41,975
(11,190)
218,576
8,230
17,465
51,052
(17,708)
3,290
(934)
12,731,661 $ 13 $ 277,713 $ 165,825 $ (15,600) $
6,373 $
Equity
301,501
(8,683)
(11,245)
62,260
—
(4,986)
4,474
343,321
45,087
(11,062)
1,249
537
—
(7,243)
3,599
375,488
41,975
(11,190)
17,465
8,230
—
(934)
3,290
434,324
The accompanying notes are an integral part of these consolidated financial statements.
59
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2022
2023
2021
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
$
(8,683) $
45,087 $
41,975
Depreciation
Amortization
Pension and post-retirement expense - U.S. and U.K.
Change in long-term obligations
Stock compensation expense
Deferred revenue
Deferred income taxes
Loss on disposition of property
Change in assets and liabilities:
Accounts receivable
Inventories
Other assets
Accounts payable and accrued expenses
Income taxes
Accrued pension and postretirement benefits
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities:
Revolving credit facility borrowings
Revolving credit facility repayments
Dividends paid
Proceeds from exercise of stock options
Payment for purchase of treasury stock
Payment for debt issuance cost
Payments on long-term obligations
Net cash provided by (used in) financing activities
Effect of exchange rates on cash
Increase (decrease) in cash and cash equivalents:
Cash and cash equivalents:
Beginning of period
End of period
Supplemental disclosures of cash flow information:
Interest (net of capitalized interest)
Income taxes paid, net
Capital expenditures incurred but not yet paid
Dividends declared but not yet paid
19,100
467
8,100
9
4,474
(2,500)
(2,436)
173
(6,159)
(777)
(4,926)
33,869
2,859
(20,305)
23,265
18,289
780
1,898
(136)
3,599
(2,500)
6,442
18
17,996
579
2,243
(108)
3,290
(2,500)
(608)
498
(42,710)
(116,780)
3,464
10,696
1,780
(9,408)
(79,481)
(8,159)
(50,440)
(3,106)
(8,465)
(2,848)
(7,064)
(16,717)
(5,949)
(5,949)
(15,114)
(15,114)
(16,397)
(16,397)
—
—
(11,175)
—
(4,986)
(997)
(285)
(17,443)
615
488
115,528
(40,807)
(11,072)
537
(7,243)
(103)
(278)
56,562
(1,253)
(39,286)
156,856
(116,734)
(11,192)
8,230
(934)
(1,325)
(315)
34,586
811
2,283
47,238
47,726
$
47,726 $
8,440 $
8,440
10,723
$
$
$
$
855 $
(1,580) $
666 $
210 $
1,206 $
3,671 $
242 $
199 $
6,810
13,202
1,442
198
The accompanying notes are an integral part of these consolidated financial statements.
60
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data and as otherwise noted)
Note 1. Background and Organization
Description of Business
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 64% of net product revenues in fiscal 2023. The Company also produces its products as
seamless and welded tubulars, which represented approximately 12% of fiscal 2023 net product revenues and in wire form,
which represented approximately 6% of fiscal 2023 net product revenues, and in slab, bar and billet forms, which, in the
aggregate, represented approximately 18% of fiscal 2023 net product revenues.
High-performance alloys are characterized by highly engineered, often proprietary, metallurgical formulations
primarily of nickel, cobalt and other metals with complex physical properties. The complexity of the manufacturing
process for high-performance alloys is reflected in the Company’s relatively high average selling price per pound,
compared to the average selling price of other metals, such as carbon steel sheet, stainless steel sheet and aluminum. The
high-performance alloy industry has significant barriers to entry such as the combination of (i) demanding end-user
specifications, (ii) a multi-stage manufacturing process and (iii) the technical sales, marketing and manufacturing expertise
required to develop and sell new applications.
COVID-19 Pandemic
COVID-19 related disruptions negatively impacted the Company’s financial and operating results in fiscal 2021.
In particular, the pandemic negatively impacted the aerospace supply chain; however, markets other than aerospace were
also depressed during that time period.
Note 2. Summary of Significant Accounting Policies
A.
Principles of Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Haynes International, Inc. and its wholly-owned
subsidiaries. All intercompany transactions and balances are eliminated. The Company has manufacturing facilities in
Kokomo, Indiana; Mountain Home, North Carolina; and Arcadia, Louisiana with service centers in LaPorte, Indiana;
LaMirada, California; Houston, Texas; Windsor, Connecticut; Openshaw, England; Lenzburg, Switzerland; Shanghai,
China; and sales offices in Paris, France; Singapore; Milan, Italy; and Tokyo, Japan.
B.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments, including investments with original maturities
of three months or less at acquisition, to be cash equivalents, the carrying value of which approximates fair value due to
the short maturity of these investments.
61
C.
Accounts Receivable
The Company maintains allowances for credit losses for estimated losses resulting from the inability of its
customers to make required payments. The Company markets its products to a diverse customer base, both in the United
States of America and overseas. Trade credit is extended based upon the Company’s evaluation of each customer’s ability
to perform its obligation, which is updated periodically.
D.
Revenue Recognition
The Company recognizes revenue when performance obligations under the terms of customer contracts are
satisfied which occurs when control of the goods has been transferred to the customer and services have been performed.
Allowances for sales returns are recorded as a component of net sales in the periods in which the related sales are
recognized. The Company determines this allowance based on historical experience. Additionally, the Company
recognizes revenue attributable to an up-front fee received from Titanium Metals Corporation (TIMET) as a result of a
twenty-year agreement entered into on November 17, 2006 to provide conversion services to TIMET. See Note 15,
Deferred Revenue for a description of accounting treatment relating to this up-front fee.
E.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories is determined using the
first-in, first-out (FIFO) method. The Company writes down its inventory for estimated obsolescence or unmarketable
inventory in an amount equal to the difference between the cost of inventory and the estimated market or scrap value, if
applicable, based upon assumptions about future demand and market conditions.
F.
Goodwill and Other Intangible Assets
The Company had goodwill, trademarks, customer relationships and other intangibles as of September 30, 2023.
As the customer relationships have a definite life, they are amortized over 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 future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the
fair value of the asset.
Goodwill and trademarks (indefinite lived) are tested for impairment at least annually as of January 31 for
goodwill and as of August 31 for trademarks (the annual impairment testing dates), or more frequently if impairment
indicators exist. If the carrying value of the trademarks exceeds the 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 was recognized in the years ended September 30, 2021, 2022 or
2023 because the fair value exceeded the carrying values in each of those years.
During fiscal 2021, 2022 and 2023, there were no changes in the carrying amount of goodwill.
62
Amortization of the customer relationships and other intangibles was $467, $780 and $579 for the years ended
September 30, 2021, 2022 and 2023, respectively. The following represents a summary of intangible assets at September
30, 2022 and 2023:
September 30, 2022
Trademarks
Customer relationships
Other
September 30, 2023
Trademarks
Customer relationships
Other
Estimated future Aggregate Amortization Expense:
Year Ending September 30,
2024
2025
2026
2027
2028
Thereafter
G.
Property, Plant and Equipment
Gross
Amount
$
Accumulated Carrying
Amortization Amount
— $
3,800 $
2,100
1,100
7,000 $
(1,128)
(963)
(2,091) $
3,800
972
137
4,909
$
Gross
Amount
$
$
3,800 $
2,100
1,080
6,980 $
Accumulated Carrying
Amortization Amount
— $
(1,257)
(68)
(1,325) $
3,800
843
1,012
5,655
$
396
393
390
318
113
245
Additions to property, plant and equipment are recorded at cost with depreciation calculated primarily by using
the straight-line method based on estimated economic useful lives, which are generally as follows:
Buildings and improvements
Machinery and equipment
Land improvements
40 years
5 — 14 years
20 years
Expenditures for maintenance and repairs and minor renewals are charged to expense; major renewals are
capitalized. Upon the retirement or sale of assets, the cost of the disposed assets and the related accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or charged to operations.
The Company records capitalized interest for long-term construction projects to capture the cost of capital
committed prior to the placed in service date as a part of the historical cost of acquiring the asset. Interest is not capitalized
when the balance on the revolver is zero.
The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. The reviews are conducted at the lowest identifiable level of cash
flows for the identified asset group. Recoverability of the asset group is measured by a comparison of the carrying amount
of the asset group to the undiscounted future cash flows expected to be generated by the asset group. If the carrying amount
of an asset group 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 group. No impairment was recognized during the years ended
September 30, 2021, 2022 or 2023.
63
H.
Environmental Remediation
When it is probable that a liability has been incurred or an asset of the Company has been impaired, a loss is
recognized assuming the amount of the loss can be reasonably estimated. The measurement of environmental liabilities by
the Company is based on currently available facts, present laws and regulations and current technology. Such estimates
take into consideration the expected costs of post-closure monitoring based on historical experience. Amounts accrued
for post-closure monitoring are presented in Note 18, Long-term Obligations.
I.
Pension and Postretirement Benefits
The Company has defined benefit pension and postretirement plans covering most of its current and former
employees. Significant elements in determining the assets or liabilities and related income or expense for these plans are
the expected return on plan assets, the discount rate used to value future payment streams, expected trends in health care
costs and other actuarial assumptions. Annually, the Company evaluates the significant assumptions to be used to value
its pension and postretirement plan assets and liabilities based on current market conditions and expectations of future
costs. If actual results are less favorable than those projected by management, additional expense may be required in future
periods. Salaried employees hired after December 31, 2005 and hourly employees hired after June 30, 2007 are not covered
by the pension plan; however, they are eligible for an enhanced matching program under the Company’s defined
contribution plan (its 401(k) plan). Effective December 31, 2007, the U.S. pension plan was amended to freeze benefits
for all non-union employees in the U.S. Effective September 30, 2009, the U.K. pension plan was amended to freeze
benefits for all employees in the plan. Effective January 1, 2007, a plan amendment of the postretirement medical plan
capped the Company’s liability related to retiree health care costs at $5,000 annually. Effective October 1, 2009, the U.S.
postretirement medical plan was closed for all non-union employees.
J.
Foreign Currency Exchange
The Company’s foreign operating entities’ financial statements are denominated in the functional currencies of
each respective country, which are the local currencies. All assets and liabilities are translated to U.S. dollars using
exchange rates in effect at the end of the year, and revenues and expenses are translated at the weighted average rate for
the year. Translation gains or losses are recorded as a separate component of comprehensive income (loss) and transaction
gains and losses are reflected in the consolidated statements of operations.
Gains and losses arising from the impact of foreign currency exchange rate fluctuations on transactions in
foreign currency are included in selling, general and administrative expense. The Company has entered into foreign
currency forward contracts (See Note 20, Foreign Currency Forward Contracts) with the purpose to reduce income
statement volatility resulting from transaction gains and losses.
K.
Research and Technical Costs
Research and technical costs related to the development of new products and processes are expensed as incurred.
Research and technical costs for the fiscal years ended September 30, 2021, 2022 and 2023 were $3,403, $3,822 and
$4,126, respectively.
L.
Income Taxes
The Company accounts for deferred tax assets and liabilities using enacted tax rates for the effect of temporary
differences between book and tax basis of recorded assets and liabilities. A valuation allowance is required if it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The determination of whether or not
a valuation allowance is needed is based upon an evaluation of both positive and negative evidence. In its evaluation of
the need for a valuation allowance, the Company utilizes prudent and feasible tax planning strategies. The ultimate amount
of deferred tax assets realized could be different from those recorded, as influenced by potential changes in enacted tax
laws and the availability of future taxable income. The Company records uncertain tax positions on the basis of a two-step
process whereby (1) it is determined whether it is more likely than not that the tax positions will be sustained based on the
technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold,
64
the Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate
settlement with the related tax authority (See Note 7, Income Taxes).
M.
Stock-based Compensation
As described in Note 12, the Company has incentive compensation plans that provide for the issuance of restricted
stock, restricted stock units, performance shares, stock options and stock appreciation rights to key employees and non-
employee directors. To date, the Company has only issued restricted stock, performance shares and stock options. The
stock-based compensation grants typically have a vesting period before the employee or director can take receipt of the
stock or becomes eligible to exercises stock options. Employees and directors earn and receive dividends from the
restricted stock during this vesting period and accumulated dividends related to performance shares are paid to the
employees at the time that the shares are received by the employee after the end of the vesting period. The Company
recognizes compensation expense under the fair-value based method as a component of operating expenses.
N.
Financial Instruments and Concentrations of Risk
The Company may periodically enter into forward currency exchange contracts to minimize the variability in the
Company’s operating results arising from foreign exchange rate movements. The Company does not engage in foreign
currency speculation. At September 30, 2022 and 2023, the Company had no foreign currency exchange contracts
outstanding. To date, all foreign currency contracts have been settled prior to the end of the month in which they were
initiated.
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and
cash equivalents and accounts receivable. At September 30, 2023, and periodically throughout fiscal 2023, the Company
maintained cash balances in excess of federally insured limits. The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value because of the relatively short maturity of these instruments.
During fiscal 2021, 2022 and 2023, the Company did not have sales to any group of affiliated customers that were
greater than 10% of net revenues. The Company generally does not require collateral with the exception of letters of credit
with certain foreign sales. Credit losses amounted to $74, $171 and $286 in fiscal 2021, 2022 and 2023, respectively. The
Company does not believe it is significantly vulnerable to the risk of near-term severe impact from business concentrations
with respect to customers, suppliers, products, markets or geographic areas.
O.
Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its
estimates and judgments, including those related to credit losses, inventories, income taxes, asset impairment, incremental
borrowing rates, retirement benefits and environmental matters. The process of determining significant estimates is fact
specific and takes into account factors such as historical experience, current and expected economic conditions, product
mix, pension asset mix and in some cases, actuarial techniques, and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The Company routinely reevaluates these significant factors
and makes adjustments where facts and circumstances dictate. Actual results may differ from these estimates under
different assumptions or conditions.
P.
Earnings 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
65
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.
Basic and diluted net income per share were computed as follows:
(in thousands, except share and per share data)
Numerator: Basic and Diluted
Net income (loss)
Dividends
Undistributed income (loss)
Percentage allocated to common shares (a)
Undistributed income (loss) allocated to common shares
Dividends paid on common shares outstanding
Net income (loss) available to common shares
Denominator: Basic and Diluted
Weighted average common shares outstanding
Adjustment for dilutive potential common shares
Weighted average shares outstanding - Diluted
Basic net income (loss) per share
Diluted net income (loss) per share
Years ended September 30,
2022
2021
2023
$
(8,683) $
(11,245)
(19,928)
100.0 %
(19,928)
11,098
(8,830)
45,087 $
(11,062)
34,025
99.0 %
33,699
10,955
44,654
41,975
(11,190)
30,785
99.2 %
30,544
11,103
41,647
12,499,609
—
12,499,609
12,346,025
159,475
12,505,500
12,566,843
213,435
12,780,278
$
$
(0.71) $
(0.71) $
3.62 $
3.57 $
3.31
3.26
Number of stock option shares excluded as their effect would be
anti-dilutive
Number of restricted stock shares excluded as their effect would be
anti-dilutive
Number of deferred restricted stock shares excluded as their effect
would be anti-dilutive
Number of performance share awards excluded as their effect would
be anti-dilutive
385,548
261,228
206,096
165,794
50,415
41,809
30,529
2,791
6,052
76,266
46,693
41,210
(a) Percentage allocated to common shares - weighted average
Common shares outstanding
Unvested participating shares
12,499,609
—
12,499,609
12,346,025
119,549
12,465,574
12,566,843
98,992
12,665,835
Q.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2020-04, Reference Rate Reform (Topic 848). This 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 were 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
The Company applies a five-step analysis to: (i) identify the contract with a customer; (ii) identify the
performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the
66
performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance
obligation. The Company’s revenue from contracts with customers is generated primarily from providing high-
performance alloys, manufactured to the specifications of its customers, along with conversion services to certain
customers.
Performance Obligations
Revenue is recognized when performance obligations under the terms of contracts with the customer are satisfied,
which occurs when control of the goods and services has been transferred to the customer. This predominately occurs
upon shipment or delivery of the product or when the service is performed.
The Company may occasionally have customer agreements involving production and shipment of goods that
would require revenue to be recognized over time due to there being no alternative use for the product without significant
economic loss and an enforceable right to payment including a normal profit margin from the customer in the event of
contract termination. As of September 30, 2022 and September 30, 2023, the Company did not have any customer
agreements that would require revenue to be recorded over time.
Each customer purchase order or contract for goods transferred represents a single performance obligation for
which revenue is recognized at either a point in time or over-time as described in the preceding paragraph. The standard
terms and conditions of a customer purchase order include limited warranties and the right of customers to have products
that do not meet specifications repaired or replaced, at the Company’s option. Such warranties do not represent a separate
performance obligation.
The customer agreement with TIMET (See Note 15) includes the performance obligation to provide conversion
services for up to ten million pounds of titanium metal annually over a 20-year period which ends in fiscal 2027. The
transaction price under this contract included a $50,000 up-front fee as well as conversion service fees based upon the
fulfillment of conversion services requested at the option of TIMET. The $50,000 fee is allocated to the obligation to
provide manufacturing capacity over time and, therefore, is recognized in income on a straight-line basis over the 20-year
term of that agreement. The fees for conversion services are based on quantity of service and are recognized as revenue
at the time the service is performed.
Transaction Price
Each customer purchase order or contract sets forth the transaction price for the products and services purchased
under that arrangement. Some customer arrangements may include variable consideration, such as volume rebates, which
generally depend upon the Company’s customers meeting specified performance criteria, such as a purchasing level over
a period of time. The Company exercises judgment to estimate the most likely amount of variable consideration at each
reporting date.
Revenue is measured as the amount of consideration expected to be received in exchange for the transfer of goods
or services to customers. Revenue is derived from product sales or conversion services, and is reported net of sales
discounts, rebates, incentives, returns and other allowances offered to customers, if applicable. Payment terms vary from
customer to customer depending upon credit worthiness, prior payment history and other credit considerations.
Amounts billed to customers for shipping and handling activities to fulfill the Company’s promise to transfer the
goods are included in revenues and costs incurred by the Company for the delivery of goods are classified as cost of sales
in the consolidated statements of operations. Shipping terms may vary for products shipped outside the United States
depending on the mode of transportation, the country where the material is shipped and any agreements made with the
customers.
Contract Balances
As of September 30, 2022 and September 30, 2023, accounts receivable with customers were $95,340 and
$106,751, respectively. Allowance for credit losses as of September 30, 2022 and September 30, 2023 were $428 and
67
$459, respectively, and are presented within accounts receivable, less allowance for credit losses on the Consolidated
Balance Sheets.
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 September 30, 2023, no contract liabilities have been recorded except for $10,329 and $7,829,
respectively, for the TIMET agreement and $700 and $810 for accrued product returns, respectively.
Practical Expedients
The Company has elected to use the practical expedient that permits the omission of disclosure for remaining
performance obligations which are expected to be satisfied within one year or less. Aside from the TIMET agreement, the
Company did not have any remaining performance obligations in excess of one year or any contracts that it did not have
the right to invoice as of September 30, 2023. The Company does not adjust for the time value of money as the majority
of its contracts have an original expected duration of one year or less; contracts that are greater than one year are related
to net revenues that are constrained until the subsequent sales occur.
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 fiscal years ended September 30, 2021, 2022 and 2023.
Net revenues (dollars in thousands)
Aerospace
Chemical processing
Industrial gas turbine
Other markets
Total product revenue
Other revenue
Net revenues
Year Ended
September 30,
2022
2021
$
$
128,072 $
63,147
66,772
58,090
316,081
21,580
337,661 $
230,001 $
91,665
91,878
53,706
467,250
23,211
490,461 $
2023
290,391
92,019
120,731
60,287
563,428
26,528
589,956
See Note 13 for revenue disaggregated by geography and product group.
Note 4. Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories is determined using the
FIFO method. The following is a summary of the major classes of inventories:
Raw Materials
Work-in-process
Finished Goods
Other
September 30,
2022
September 30,
2023
$
$
31,887 $
226,572
97,657
1,440
357,556 $
42,602
229,120
140,756
1,599
414,077
68
Note 5. Property, Plant and Equipment
The following is a summary of the major classes of property, plant and equipment:
September 30,
Land and land improvements
Buildings and improvements
Machinery and equipment
Construction in process
Less accumulated depreciation
$
2022
10,158 $
45,872
313,841
8,756
378,627
(235,855)
2023
10,418
46,931
321,676
16,704
395,729
(253,189)
$ 142,772 $ 142,540
As of September 30, 2022 and 2023, the Company had $132 and $131, respectively, of assets under a finance
lease for equipment related to the service center operation in Shanghai, China. Additionally, the Company had $5,643 and
$5,230 of assets under finance leases for two buildings at the LaPorte, Indiana service center as of September 30, 2022
and 2023, respectively.
Note 6. Accrued Expenses
The following is a summary of the major classes of accrued expenses:
Employee compensation
Taxes, other than income taxes
Accrued product returns
Utilities
Professional fees
Finance lease obligation, current
Management incentive compensation
Other
September 30,
2022
2023
$ 7,734 $ 8,329
2,900
810
1,171
428
302
2,289
1,972
$ 19,294 $ 18,201
2,897
700
1,383
966
265
3,609
1,740
69
Note 7. Income Taxes
The components of income (loss) before provision for income taxes and the provision for income taxes are as
follows:
Year Ended September 30,
2022
2021
2023
Income (loss) before income taxes:
U.S.
Foreign
Total
Provision for (benefit from) income taxes:
Current:
U.S. Federal
Foreign
State
Total
Deferred:
U.S. Federal
Foreign
State
Valuation allowance
Total
Total provision for (benefit from) income taxes
$ (11,417) $ 38,864 $ 37,538
14,364
$ (9,783) $ 57,614 $ 51,902
18,750
1,634
$
741 $ 2,031 $ 7,366
2,741
349
490
228
10,597
1,318
3,302
639
5,972
(2,986)
470
(317)
415
(2,418)
(1,509)
459
25
355
(670)
$ (1,100) $ 12,527 $ 9,927
5,931
120
(300)
804
6,555
The provision for income taxes applicable to results of operations differed from the U.S. federal statutory rate as
follows:
Year Ended September 30,
2022
2023
2021
Statutory federal tax rate
Tax provision for income taxes at the statutory rate
Foreign tax rate differentials
Provision for state taxes, net of federal taxes
U.S. tax on distributed and undistributed earnings of foreign subsidiaries
Foreign derived intangible income deduction
Tax credits
Federal and state tax rate change impact on deferred tax asset
Change in valuation allowance
Stock compensation
Other, net
Provision for (benefit from) income taxes at effective tax rate
Effective tax rate
21.00 % 21.00 % 21.00 %
$ (2,054)
(59)
(84)
198
—
(691)
790
415
138
247
$ (1,100)
$ 12,099
(307)
974
984
(966)
(702)
(206)
804
191
(344)
$ 12,527
$ 10,899
102
822
54
(693)
(724)
81
355
46
(1,015)
$ 9,927
11.2 %
21.7 %
19.1 %
During fiscal 2021, the Company’s effective tax rate was lower than the federal statutory rate primarily due to an
increase in the UK tax rate and decreases in the state tax rates and apportionment, both of which resulted in a decrease in
net deferred tax assets.
During fiscal 2022, the Company’s effective tax rate was higher than the federal statutory rate primarily due to a
provision for state taxes, net of federal taxes and an increased valuation allowance on tax credits that are not expected to
be able to be utilized before they expire.
70
During fiscal 2023, the Company’s effective tax rate was lower than the federal statutory rate primarily due to a
change in estimate on U.S. taxes owed on foreign income.
Deferred tax assets (liabilities) are comprised of the following:
Deferred tax assets:
Pension and postretirement benefits
TIMET Agreement
Inventories
Accrued compensation and benefits
Accrued expenses and other
Tax attributes
Other assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment, net
Intangible and other
Other liabilities
Total deferred tax liabilities
Net deferred tax assets (liabilities)
September 30,
2022
2023
$ 16,802 $ 12,045
1,801
4,341
1,451
2,526
5,596
1,077
(5,052)
$ 28,299 $ 23,785
2,396
3,225
2,096
2,600
5,625
250
(4,695)
$ (24,081) $ (22,056)
(1,511)
(296)
$ (25,722) $ (23,863)
(1,414)
(227)
$
2,577 $
(78)
As of September 30, 2023 the Company had state tax net operating loss carryforwards of $7,254, tax credits of
$5,832 and foreign net operating loss carryforwards of $1,984. Certain state tax attributes and other tax credit attributes
begin to expire in 2026 and 2024, respectively. The Company has recorded a valuation allowance against the foreign net
operating loss carryforwards of $445 and federal and state tax credits of $4,607 because management does not believe that
it is more likely than not that the amounts will be realized.
Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $83,063 at
September 30, 2023. The Company considers most of those earnings reinvested indefinitely and, accordingly, aside from
the one-time transition tax associated with the Tax Cuts and Jobs Act, no additional provision for U.S. income taxes has
been provided. For the Company’s foreign subsidiary in the U.K., Haynes International Ltd, as of September 30, 2023, the
Company considers this subsidiary’s earnings to be reinvested indefinitely except to the extent there is previously taxed
earnings and profit (PTEP), in which case, the Company might decide to repatriate cash via a dividend to the U.S. If such
funds were to be repatriated, there could be minor currency gains/losses that would be subject to tax and any distribution
could also be subject to applicable non-U.S. income and withholding taxes.
As of September 30, 2023, the Company was open to examination in the U.S. for the 2019 through 2023 tax years
and in various foreign jurisdictions from 2018 through 2023. The Company is also open to examination in various states
in the U.S., none of which were individually material.
As of September 30, 2022 and 2023, the Company had no uncertain tax positions.
Note 8. Debt
U.S. revolving credit facility
On June 20, 2023, the Company 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
71
No. 2 to Credit Agreement dated October 7, 2022 and by the Amendment, the “Credit Agreement”). The Amendment
increased the maximum amount available for revolving loans under the credit facility to $200,000, subject to a borrowing
base and certain reserves.
As of September 30, 2023, the amounts borrowed by the Company under the Credit Agreement totaled $114,843
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. The Amendment also extended the maturity date of the Credit Agreement
to 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. 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 September 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 its Conversion
Services Agreement with TIMET (see Note 15). 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.
The Company’s U.K. subsidiary (Haynes International Ltd.) has an overdraft facility of 1,333 Pounds Sterling
($1,633), all of which was available on September 30, 2023. The Company’s French subsidiary (Haynes
International, S.A.R.L.) has an overdraft banking facility of 240 Euro ($254), all of which was available on September 30,
2023. The Company’s Swiss subsidiary (Haynes International AG) has an overdraft banking facility of 1,200 Swiss Francs
($1,315), all of which was available on September 30, 2023.
Note 9. Pension Plan and Retirement Benefits
Defined Contribution Plans
The Company sponsors a defined contribution plan (its 401(k) plan) for substantially all U.S. employees. The
Company contributes an amount equal to 50% of an employee’s contribution to the plan up to a maximum contribution of
3% of the employee’s salary, except for all salaried employees and certain hourly employees (those hired after June 30,
2007 that are not eligible for the U.S. pension plan). For salary earned through June 30, 2023, the Company contributed
an amount equal to 60% of an employee’s contribution to the plan up to a maximum contribution of 6% of the employee’s
salary for these groups. Beginning on July 1, 2023, the Company contributes an annual amount equal to 60% of an
employee’s contribution to the plan up to a maximum contribution of 8% of the employee’s salary for these groups.
Expenses associated with this plan for the years ended September 30, 2021, 2022 and 2023 totaled $1,748, $2,016 and
$2,352, respectively.
The Company sponsors certain profit sharing plans for the benefit of employees meeting certain eligibility
requirements. There were no contributions to these plans for the years ended September 30, 2021, 2022 and 2023.
72
Defined Benefit Plans
The Company has non-contributory defined benefit pension plans which cover certain employees in the U.S. and
the U.K.
Benefits provided under the Company’s U.S. defined benefit pension plan are based on years of service and the
employee’s final compensation. The Company’s funding policy is to contribute annually an amount deductible for federal
income tax purposes based upon an actuarial cost method using actuarial and economic assumptions designed to achieve
adequate funding of benefit obligations.
The Company has non-qualified pensions for a few former executives of the Company. Non-qualified pension
plan expense for the years ended September 30, 2021, 2022 and 2023 was $37, $3 and $57, respectively. Accrued liabilities
in the amount of $530 and $492 for these benefits are included in accrued pension and postretirement benefits liability at
September 30, 2022 and 2023, respectively.
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits
for retired employees. Certain employees, depending on date of hire, become eligible for health care, and substantially all
employees become eligible for life insurance, if they reach normal retirement age while working for the Company. The
Company’s liability related to total retiree health care costs is limited to $5,000 annually.
The Company made contributions of $21,000, $6,000, and $6,000 to fund its domestic Company-sponsored
pension plan for the years ended September 30, 2021, 2022 and 2023, respectively. The Company’s U.K. subsidiary made
contributions of $0 for each of the years ended September 30, 2021, 2022 and 2023, respectively, to the U.K. pension plan.
The Company uses a September 30 measurement date for its plans. As of the September 30, 2023 measurement
date, the projected benefit obligation for the U.S pension plan and the U.K. pension plan was $217,393 and $7,397,
respectively. The status of employee pension benefit plans and other postretirement benefit plans is summarized below:
Change in Benefit Obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Administrative expenses
Projected benefit obligation at end of year
Change in Plan Assets:
Fair value of plan assets at beginning of year
Actual return on assets
Employer contributions
Benefits paid
Administrative expenses
Fair value of plan assets at end of year
Funded Status of Plan:
Unfunded status
Defined Benefit
Pension Plans
Year Ended
September 30,
Postretirement
Health Care Benefits
Year Ended
September 30,
2022
2023
2022
2023
$ 315,466 $ 231,275
2,689
11,548
(5,236)
(14,615)
(871)
$ 231,275 $ 224,790
4,728
7,936
(81,225)
(15,223)
(407)
$ 82,964 $ 64,037
1,389
3,199
(14,171)
(2,128)
—
$ 64,037 $ 52,326
1,825
2,234
(20,343)
(2,643)
—
$ 297,703 $ 218,321
11,136
6,000
(14,615)
(871)
$ 218,321 $ 219,971
(69,752)
6,000
(15,223)
(407)
$
— $
—
2,643
(2,643)
—
— $
—
—
2,128
(2,128)
—
—
$
$ (12,954) $ (4,819)
$ (64,037) $ (52,326)
73
The actuarial gains incurred during the fiscal years ended September 30, 2022 and 2023 for the Defined Benefit
Pension Plans were driven by an increase in the discount rate applied against future expected benefit payments which
resulted in a decrease in the defined benefit obligation.
The actuarial gains incurred during the fiscal years ended September 30, 2022 and 2023, for the Postretirement
Health Care Plan were primarily driven by an increase in the discount rate applied against future expected health care
benefit payments, which resulted in a decrease in the defined benefit obligation.
Amounts recognized in the consolidated balance sheets are as follows:
Defined Benefit
Pension Plans
September 30,
Postretirement
Health Care Benefits
September 30,
Non-Qualified
Pension Plans
September 30,
All Plans
Combined
September 30,
2022
2023
2022
2023
2022
2023
2022
2023
Accrued pension and postretirement benefits:
Current
Non-current
Accrued pension and postretirement benefits
Accumulated other comprehensive (income) loss:
$
— $
(2,940)
(54,697)
$ (12,954) $ (4,819) $ (64,037) $ (52,326) $ (530) $ (492) $ (77,521) $ (57,637)
— $ (3,276) $ (2,845) $ (95) $ (95) $
(3,371) $
(74,150)
(4,819)
(49,481)
(60,761)
(12,954)
(397)
(435)
Net (income) loss
Prior service cost
22,496
1,365
20,663
1,130
(30,807)
—
(42,699)
—
—
—
—
—
(8,311)
1,365
(22,036)
1,130
Total accumulated other comprehensive (income)
loss
$ 23,861 $ 21,793 $ (30,807) $ (42,699) $
— $
— $
(6,946) $ (20,906)
The non-current portion of the defined benefit pension plan portion of accrued pension and postretirement benefits
amounted to $12,954 and $4,819 in fiscal 2022 and 2023, respectively. These amounts included the U.K. pension plan
net pension asset of $7,702 and $8,803, respectively, which was included in Other assets on the Consolidated Balance
Sheets as well as the U.S. pension plan accrued pension liability of $20,655 and $13,622, respectively, which were recorded
in accrued pension benefit (less current portion) on the Consolidated Balance Sheet.
The accumulated benefit obligation for the pension plans was $227,915 and $216,287 at September 30, 2022 and
2023, respectively.
The cost of the Company’s postretirement benefits is accrued over the years that employees provide service to
the date of their full eligibility for such benefits. The Company’s policy is to fund the cost of claims on an annual basis.
The components of net periodic pension cost and postretirement health care benefit cost are as follows:
Defined Benefit Pension Plans
Year Ended September 30,
2022
4,728 $
7,936
(14,818)
233
—
2021
5,628 $
7,481
(16,356)
239
7,721
4,713 $ (1,921) $
2023
2,689
11,548
(14,570)
236
31
(66)
$
$
Service cost
Interest cost
Expected return on assets
Amortization of prior service cost
Recognized actuarial loss
Net periodic cost
74
Service cost
Interest cost
Recognized actuarial loss
Net periodic cost
Assumptions
2021
Postretirement
Health Care Benefits
Year Ended September 30,
2022
$ 1,095 $ 1,825 $ 1,389
3,199
(2,279)
$ 3,387 $ 3,819 $ 2,309
2,292
—
2,234
(240)
2023
A 5.0% annual rate of increase for the costs of covered health care benefits for ages under 65 and a 5.0% annual
rate of increase for ages over 65 were assumed for 2022 and increased to 7.0% for the under 65 and over 65 age groups in
2023, 6.5% in 2024, 6.0% in 2025, 5.5% in 2026 and 5.0% in the years thereafter.
The actuarial present value of the projected pension benefit obligation and postretirement health care benefit
obligation for the plans at September 30, 2022 and 2023 were determined based on the following assumptions:
Discount rate (postretirement health care)(1)
Discount rate (U.S. pension plan)(1)
Discount rate (U.K. pension plan)
Rate of compensation increase (U.S. pension plan only)
September 30, September 30,
2022
2023
5.13 %
5.13 %
5.90 %
2.50 %
5.63 %
5.63 %
5.70 %
3.50 %
(1)
The discount rate for the postretirement health care plan and the U.S. pension plan are derived using the FTSE
Pension Discount Curve and projected benefit payments.
Defined Benefit
Pension and
Postretirement Health
Care Plans
Year Ended
September 30,
2022
2021
Discount rate (postretirement health care plan)
Discount rate (U.S. pension plan)
Discount rate (U.K. pension plan)
Expected return on plan assets (U.S. pension plan)
Expected return on plan assets (U.K. pension plan)
Rate of compensation increase (U.S. pension plan only)
Plan Assets and Investment Strategy
2.50 % 2.75 %
2.25 % 2.63 %
1.50 % 2.00 %
7.25 % 5.25 %
2.00 % 3.00 %
2.50 % 2.50 %
2023
5.13 %
5.13 %
5.90 %
6.88 %
5.50 %
2.50 %
The Company’s pension plan assets by level within the fair value hierarchy at September 30, 2022 and 2023 are
presented in the table below. The pension plan assets were accounted for at fair value. A financial instrument’s
categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. Investments in U.S and International equities, and Fixed Income securities are held in mutual funds and
common / collective funds which are valued using net asset value (NAV) provided by the administrator of the fund, and
individual fixed income securities which consists of Level 1 and Level 2 assets. As of September 30, 2023, the fixed
75
income portfolio consisted of 301 issuances of fixed income securities from 238 issuers. For more information on a
description of the fair value hierarchy, see Note 16.
September 30, 2022
U.S. Pension Plan Assets:
U.S. corporate and government bonds
U.S. common stock mutual funds
Common /collective funds
Bonds
Short-term money market
U.S. common stock
International equity
Total U.S.
U.K. Plan Assets:
Equities
Bonds
Other
Total U.K.
Total pension plan assets
U.S. Pension Plan Assets:
U.S. corporate and government bonds
U.S. common stock mutual funds
International equity
Total U.S.
U.K. Plan Assets:
Bonds
Short-term money market
Total U.K.
Total pension plan assets
Level 1
Active
Markets for
Identical
Assets
Level 2
Other
Observable
Inputs
$ 15,926 $ 158,582 $
NAV
Total
— $
— $ 16,471
— $ 174,508
16,471
—
—
—
—
—
—
6,847
5,390
$ 15,926 $ 158,582 $ 28,708 $ 203,216
—
—
6,847
5,390
—
—
—
—
$
— $
—
—
— $
5,135
— $ 5,135 $
8,006
—
—
1,964
$
— $ 15,105 $ 15,105
$ 15,926 $ 158,582 $ 43,813 $ 218,321
8,006
1,964
September 30, 2023
Level 1
Active
Markets for
Identical
Assets
Level 2
Other
Observable
Inputs
NAV
Total
$ 26,647 $ 154,686 $
— $ 181,333
17,900
4,538
$ 26,647 $ 154,686 $ 22,438 $ 203,771
17,900
4,538
—
—
—
—
—
5,508
10,692
10,692
—
—
5,508
—
$
— $ 10,692 $ 16,200
$ 32,155 $ 154,686 $ 33,130 $ 219,971
5,508 $
The primary financial objectives of the plans are to maintain asset funding as a percentage of the benefit
obligations. The U.S. pension plan utilized a customized liability driven investment (LDI) strategy, which is designed to
match the risk and duration of the fixed income assets in the portfolio with that of the obligation.
It is the policy of the U.S. pension plan to invest assets with an allocation to equities as shown below based on a
matrix which determines the allocation between equities and fixed income based on the funding percentage of the plan.
The balance of the assets is maintained in fixed income investments, and in cash holdings, to the extent permitted by the
plan documents.
76
Target asset classes as a percent of total assets as of September 30, 2023:
Asset Class
Equity
Fixed Income
Real Estate and Other
Target(1)
11 %
89 %
— %
(1)
The Company adjusts the target allocation based on the fair value of pension assets as a percentage of the
projected pension obligation.
In choosing the assumption for the expected long-term rate of return on U.S. pension plan assets, the Company
takes into account the plan’s target asset allocation as well as capital market assumptions relating to the asset classes. The
Company believes that its assumption regarding the long-term rate of return on plan assets is reasonable, and comparable
to the asset return assumptions of other companies, given the target allocation of the plan assets. Note that over very long
historical periods, the realized return on plan assets has met or exceeded the expected rate of return. Also note that in
recognition of the variability of future market returns, it is reasonable to consider a modest range around the expected
future return, and there exists the potential for the use of a lower, or higher, expected rate of return in the future.
The U.K. pension plan assets follow a more conservative investment objective due to the higher funding status
of the plan.
Contributions and Benefit Payments
The Company has not yet determined the amounts to contribute to its domestic pension plans, domestic other
postretirement benefit plans and the U.K. pension plan in fiscal 2024.
Pension and postretirement health care benefits, which include expected future service, are expected to be paid
out of the respective plans as follows:
Fiscal Year Ending September 30
2024
2025
2026
2027
2028
2029 - 2033 (in total)
Note 10. Legal, Environmental and Other Contingencies
Legal
Postretirement
Health Care
Pension
$ 16,001 $
16,308
16,623
16,953
17,002
86,225
3,988
4,021
4,124
4,063
4,101
21,333
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.
77
The Company is required to, among other things, monitor groundwater and to continue post-closure maintenance
of the former disposal areas at each site. As a result, the Company is aware of elevated levels of certain contaminants in
the groundwater, and additional 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 September 30, 2023, the Company has accrued $355 for post-closure monitoring and maintenance
activities, of which $266 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 September 30, 2023.
Expected maturities of post-closure monitoring and maintenance activities (discounted)
Year Ending September 30,
2025
2026
2027
2028
2029 and thereafter
Note 11. Stockholder’s Equity
Dividends
$
$
62
60
63
65
16
266
During fiscal years 2021, 2022, and 2023, the Company paid dividends of $11,175, $11,072 and $11,192,
respectively.
Treasury Stock
Treasury stock activity for fiscal years 2021, 2022 and 2023 was as follows:
Number of shares at beginning of year
Repurchases of common stock to satisfy employee payroll taxes
Repurchases of common stock from share repurchase plan
Number of shares at end of year
Year Ended
September 30,
Year Ended
September 30,
Year Ended
September 30,
2021
58,909
23,751
112,978
195,638
2022
195,638
37,002
142,392
375,032
2023
375,032
17,708
—
392,740
78
Share Repurchase Plan
On July 28, 2021, the Board of Directors authorized the use of up to $20 million of available cash to purchase
shares of the Company's common stock through July 27, 2022. The Board adopted the repurchase plan because it believed
that repurchasing the Company’s stock at current market prices presented an attractive capital allocation strategy for the
Company given the available options for the use of capital. The authorization of the repurchase plan has expired and no
new authorization has been put in place.
During fiscal 2021, the Company repurchased 112,978 shares at an average price per share of $37.57 with an
aggregate purchase price of $4,245 under a Rule 10b5-1 agreement and in fiscal 2022, the Company repurchased 142,392
shares at an average price per share of $40.09 with an aggregate purchase price of $5,709 under the 10b5-1 agreement.
The Company repurchased 17,708 shares in fiscal 2023 with an aggregate purchase price of $934 in order to
satisfy payroll taxes related to employee stock-based compensation plans.
Note 12. Stock-based Compensation
Restricted Stock Plan
On March 1, 2016, the Company adopted the 2016 Incentive Compensation Plan which provided for grants of
restricted stock, restricted stock units and performance shares, among other awards. Up to 275,000 shares of restricted
stock, restricted stock units and performance shares could be granted in the aggregate under this plan. Following the
adoption of the 2016 Incentive Compensation Plan, the Company ceased granting awards from its 2009 restricted stock
plan, although awards remain outstanding thereunder. On January 24, 2020, the Company adopted the 2020 Incentive
Compensation Plan which provides for grants of restricted stock, restricted stock units and performance shares, among
other awards. Up to 250,000 shares of restricted stock, restricted stock units and performance shares were authorized to
be granted in the aggregate under this plan. On February 25, 2022, the 2020 Incentive Compensation Plan was amended
to allow for an aggregate of 575,000 authorized shares of restricted stock, restricted stock units and performance shares to
be granted under this plan. Following the adoption of the 2020 Incentive Compensation Plan, the Company ceased
granting awards from the 2016 Incentive Compensation Plan, although awards remain outstanding thereunder.
Grants of restricted stock are comprised of shares of the Company’s common stock subject to transfer restrictions,
which vest in accordance with the terms and conditions established by the Compensation Committee. The Compensation
Committee may set vesting requirements based on the achievement of specific performance goals or the passage of time.
Employees and directors earn and receive dividends from the restricted stock during this vesting period.
Restricted shares are subject to forfeiture if employment or service terminates prior to the vesting date or if any
applicable performance goals are not met. The Company will assess, on an ongoing basis, the probability of whether the
performance criteria will be achieved. The Company will recognize compensation expense over the performance period if
it is deemed probable that the goals will be achieved. The fair value of the Company’s restricted stock is determined based
upon the closing price of the Company’s common stock on the trading day immediately preceding the grant date. The
Company’s plans provide for the adjustment of the number of shares covered by an outstanding grant and the maximum
number of shares for which restricted stock may be granted in the event of a stock split, extraordinary dividend or
distribution or similar recapitalization event.
The shares of time-based restricted stock granted to employees vest on the third anniversary of their grant date if
the recipient is still an employee of the Company on such date. The shares of restricted stock granted to non-employee
directors will vest on the earlier of (a) the first anniversary of the date of grant or (b) the failure of such non-employee
director to be re-elected at an annual meeting of the stockholders of the Company as a result of such non-employee director
being excluded from the nominations for any reason other than cause.
79
The following table summarizes the activity under the 2016 Incentive Compensation Plan and the 2020 Incentive
Compensation Plan with respect to restricted stock for the year ended September 30, 2023:
Unvested at September 30, 2022
Granted
Forfeited / Canceled
Vested
Unvested at September 30, 2023
Expected to vest
Weighted
Average Fair
Number of Value At
Shares
96,536 $
30,159 $
(510) $
(36,342) $
89,843 $
89,843 $
Grant Date
33.23
49.23
30.11
36.82
37.17
37.17
Compensation expense related to restricted stock for the years ended September 30, 2021, 2022 and 2023 was
$2,024, $1,474, and $1,257, respectively. The remaining unrecognized compensation expense related to restricted stock at
September 30, 2023 was $1,451, to be recognized over a weighted average period of 1.17 years. During fiscal 2023, the
Company repurchased 17,708 shares of stock from employees at an average purchase price of $52.72 to satisfy required
withholding taxes upon vesting of restricted stock-based compensation.
Deferred Restricted Stock
On November 20, 2017, the Company adopted a deferred compensation plan that allows directors and officers
the option to defer receipt of cash and stock compensation. Beginning in fiscal 2018, the Company has granted shares of
restricted stock from the 2016 Incentive Compensation Plans and 2020 Incentive Compensation Plans with respect to
which elections have been made by certain individuals to defer receipt to a future period. Such shares vest in accordance
with the parameters of the 2016 Incentive Compensation Plan and the 2020 Incentive Compensation Plan, as applicable;
however, receipt of the shares and any corresponding dividends are deferred until the end of the deferral period. In the
event the deferred shares are forfeited prior to the vesting date, deferred dividends pertaining to those shares will also be
forfeited. During the deferral period, the participants who elected to defer shares will not have voting rights with respect
to those shares.
The following table summarizes the activity under the 2016 Incentive Compensation Plan and the 2020 Incentive
Compensation Plan with respect to deferred restricted stock for the year ended September 30, 2023.
Unvested and deferred at September 30, 2022
Granted
Vested and deferred
Unvested and deferred at September 30, 2023
Vested and deferred at September 30, 2023
Weighted
Average Fair
Number of
Shares
Value At
Grant Date
3,801 $
8,974 $
(3,801) $
8,974 $
21,351 $
44.07
49.19
44.07
49.19
31.32
Compensation expense related to deferred restricted stock for the years ended September 30, 2021, 2022 and
2023 was $188, $168 and $378, respectively. The remaining unrecognized compensation expense related to restricted
stock at September 30, 2023 was $91, to be recognized over a weighted average period of 0.21 years.
Performance Shares
In November 2020, the Company granted to certain employees a target numbers of performance shares under the
2016 Incentive Compensation Plan. The number of performance shares that will ultimately be earned, as well as the
number of shares that will be distributed in settling those earned performance shares, if any, will not be determined until
80
the end of the performance period. Performance shares earned will depend on the calculated total stockholder return of
the Company at the end of the three-year period commencing from the beginning of the fiscal year in which the award was
granted as compared to the total stockholder return of the Company’s peer group, as defined by the Compensation
Committee for this purpose. The fair value of the performance shares is estimated as of the date of the grant using a Monte
Carlo simulation model.
The following table summarizes the activity under the 2016 Incentive Compensation Plan and 2020 Incentive
Compensation Plan with respect to performance shares for the year ended September 30, 2023.
Unvested at September 30, 2022
Granted
Vested
Forfeited / Canceled
Unvested at September 30, 2023
Weighted
Average Fair
Number of
Shares
76,420 $
19,555 $
(25,226) $
— $
70,749 $
Value At
Grant Date
41.37
69.39
42.83
0.00
48.60
Compensation expense related to the performance shares for the years ended September 30, 2021, 2022 and 2023
was $1,082, $1,021 and $1,224, respectively. The remaining unrecognized compensation expense related to performance
shares at September 30, 2023 was $1,376, to be recognized over a weighted average period of 1.53 years.
Stock Option Plans
The Company’s 2020 Incentive Compensation Plan and its previous stock option plans authorize, or formerly
authorized, the granting of non-qualified stock options and stock appreciation rights to certain key employees and non-
employee directors for the purchase of shares of the Company’s common stock. For the 2020 Incentive Compensation
Plan, the maximum number of shares that may be granted subject to options was originally 350,000, which number was
subsequently amended on February 25, 2022 and increased to 400,000. Following the adoption of the 2020 Incentive
Compensation Plan, the Company ceased granting awards from its previous incentive compensation plans, although
awards remain outstanding from previous plans. Each plan provides for the adjustment of the maximum number of shares
for which options may be granted in the event of a stock split, extraordinary dividend or distribution or similar
recapitalization event. Unless the Compensation Committee determines otherwise, options are exercisable for a period of
ten years from the date of grant and vest 331/3% per year over three years from the grant date. The amount of compensation
expense recognized in the financial statements is measured based upon the grant date fair value.
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 2021, 2022 and 2023:
Grant Date
June 16, 2023
February 7, 2023
November 22, 2022
November 23, 2021
November 24, 2020
Fair
Value
Dividend Risk-free
Expected Expected
Yield
Interest Rate
Volatility
Life
$
$
$
$
$
20.82
22.70
20.52
15.02
5.91
1.70 %
1.65 %
1.80 %
2.00 %
3.89 %
3.91 %
3.81 %
3.97 %
1.22 %
0.39 %
48 % 5 years
51 % 5 years
51 % 5 years
45 % 5 years
43 % 5 years
81
The stock-based employee compensation expense for stock options for the years ended September 30, 2021, 2022
and 2023 was $1,180, $937 and $650, respectively. The remaining unrecognized compensation expense at September 30,
2023 was $686, to be recognized over a weighted average vesting period of 1.08 years.
The following table summarizes the activity under the stock option plans for the year ended September 30, 2023:
Outstanding at September 30, 2022
Granted
Exercised
Forfeited/Surrendered
Outstanding at September 30, 2023
Vested or expected to vest
Exercisable at September 30, 2023
Note 13. Segment Reporting
Aggregate
Intrinsic
Value
(000s)
Weighted
Average
Life
Remaining
Contractual
Weighted
Average
Exercise
Prices
34.75
49.08
37.90
47.96
33.96 6.26 yrs.
34.07 6.20 yrs.
33.23 5.80 yrs.
$
$
$
$
6,346 $
6,046 $
5,313 $
Number of
Shares
697,220
32,985
(218,576)
(13,081)
498,548 $
479,274 $
399,672 $
The Company operates in one business segment: the design, manufacture, marketing and distribution of
technologically advanced, high-performance alloys for use in the aerospace, industrial gas turbine, chemical processing
and other industries. The Company has operations in the United States, Europe and China, which are summarized below.
Sales between geographic areas are made at negotiated selling prices. Revenues from external customers are attributed to
the geographic areas presented based on the destination of product shipments.
Year Ended September 30,
2022
2023
2021
Net Revenue by Geography:
United States
Europe
China
Other
Net Revenues
Net Revenue by Product Group:
High-temperature resistant alloys
Corrosive-resistant alloys
Net revenues
Long-lived Assets by Geography
United States
Europe
China
Total long-lived assets
$ 179,127 $ 278,473 $ 344,381
135,403
27,097
83,075
$ 337,661 $ 490,461 $ 589,956
116,599
33,910
61,479
85,555
30,668
42,311
$ 253,246 $ 387,464 $ 501,463
88,493
$ 337,661 $ 490,461 $ 589,956
102,997
84,415
September 30,
2022
2023
$ 135,698 $ 134,596
7,799
145
$ 142,772 $ 142,540
6,921
153
82
Note 14. Valuation and Qualifying Accounts
Allowance for credit losses:
September 30, 2021
September 30, 2022
September 30, 2023
(1)
Uncollectible accounts written off net of recoveries.
Note 15. Deferred Revenue
Balance at Charges
Beginning (credits) to
of Period
Expense
Balance at
End of
Deductions(1) Period
545
553
428
74
171
286
(66)
(296)
(255)
553
428
459
On November 17, 2006, the Company entered into a 20-year agreement to provide conversion services to
Titanium Metals Corporation (TIMET) for up to 10 million pounds of titanium metal annually. TIMET paid the Company
a $50,000 up-front fee and will also pay the Company for its processing services during the term of the agreement
(20 years) at prices established by the terms of the agreement. TIMET may exercise an option to have ten million additional
pounds of titanium converted annually, provided that it offers to loan up to $12,000 to the Company for certain capital
expenditures which may be required to expand capacity. In addition to the volume commitment, the Company has granted
TIMET a first priority security interest in its four-high Steckel rolling mill, along with rights of access if the Company
enters into bankruptcy or defaults on any financing arrangements. The Company has agreed not to manufacture titanium
products (other than cold reduced titanium tubing). The Company has also agreed not to provide titanium hot-rolling
conversion services to any entity other than TIMET for the term of the Conversion Services Agreement. The Conversion
Services 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 Conversion Services Agreement. If an event of default occurred and
was not cured within any applicable grace period, the Company would recognize the impact of the liquidated damages in
the period of default and re-evaluate revenue recognition under the Conversion Services Agreement for future periods.
The portion of the up-front fee not recognized in income is shown as deferred revenue on the Consolidated Balance Sheets.
Note 16. 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
83
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).
The fair value of Cash and Cash Equivalents is determined using Level 1 information.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured
at fair value on a recurring basis as of September 30, 2022 and 2023:
September 30, 2022 Fair Value Measurements
at Reporting Date Using:
Level 3 NAV
Level 2
Total
Level 1
Assets:
Pension plan assets
Total fair value
Assets:
Pension plan assets
Total fair value
$ 15,926 $ 158,582 $ — $ 43,813 $ 218,321
$ 15,926 $ 158,582 $ — $ 43,813 $ 218,321
September 30, 2023 Fair Value Measurements
at Reporting Date Using:
Level 1
Level 2
Level 3 NAV
Total
$ 32,155 $ 154,686 $ — $ 33,130 $ 219,971
$ 32,155 $ 154,686 $ — $ 33,130 $ 219,971
The Company had no other financial assets or liabilities measured at fair value on a recurring basis as of
September 30, 2022 or 2023.
84
Note 17. Comprehensive Income (Loss) and Changes in Accumulated Other Comprehensive Income (Loss) by
Component
Comprehensive income (loss) includes changes in equity that result from transactions and economic events from
non-owner sources. Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss)
items, including pension and foreign currency translation adjustments, net of tax when applicable.
Comprehensive Income (Loss)
2021
Pre-tax Tax
Net income (loss)
Other comprehensive income
(loss):
Year Ended September 30,
2022
Pre-tax Tax
Net
$ 45,087
2023
Pre-tax Tax
Net
$ 41,975
Net
$ (8,683)
Pension and postretirement:
Net gain (loss) arising
during period
Amortization of prior
service cost
Amortization of (gain) loss
Foreign currency translation
adjustment
Other comprehensive income
(loss)
Total comprehensive income
(loss)
$ 68,941
(16,044)
52,897
$ 16,991
(3,924)
13,067
$ 16,008
(3,700)
12,308
228
7,735
(52)
(1,802)
176
5,933
239
(240)
(56)
56
183
(184)
233
(2,279)
(55)
529
178
(1,750)
3,254
—
3,254
(11,817)
—
(11,817)
6,729
—
6,729
$ 80,158 $ (17,898)
62,260
$
5,173 $ (3,924)
1,249
$ 20,691 $ (3,226)
17,465
$ 53,577
$ 46,336
$ 59,440
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) as of
September 30, 2021
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income
(loss)
Amortization of Pension and Postretirement Plan items (1)
Actuarial losses (1)
Tax benefit
Net current-period other comprehensive income (loss)
Accumulated other comprehensive income (loss) as of
September 30, 2022
Accumulated other comprehensive income (loss) as of
September 30, 2022
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income
(loss)
Amortization of Pension and Postretirement Plan items (1)
Actuarial losses (1)
Tax benefit
Net current-period other comprehensive income (loss)
Accumulated other comprehensive income (loss) as of
September 30, 2023
Year Ended September 30, 2022
Pension
Plan
Postretirement
Plan
Foreign
Exchange
Total
$
(14,791) $
(2,557)
9,017 $
15,624
(6,567) $
(11,817)
(12,341)
1,250
239
—
(56)
(2,374)
—
(240)
56
15,440
—
—
—
(11,817)
239
(240)
—
1,249
$
(17,165) $
24,457 $
(18,384) $
(11,092)
Year Ended September 30, 2023
Pension
Plan
Postretirement
Plan
Foreign
Exchange
Total
$
(17,165) $
1,401
24,457 $
10,907
(18,384) $
6,729
(11,092)
19,037
233
—
(55)
1,579
—
(2,279)
529
9,157
—
—
—
6,729
233
(2,279)
474
17,465
$
(15,586) $
33,614 $
(11,655) $
6,373
85
(1)
These accumulated other comprehensive income components are included in the computation of net periodic
pension cost.
Note 18. Long-term Obligations
The following table sets for the components of Long-term obligations as of September 30, 2022 and 2023.
Finance lease obligations
Environmental post-closure monitoring and maintenance activities
Long-term disability
Deferred dividends
Less amounts due within one year
Long-term obligations (less current portion)
Note 19. Leases
September 30,
September 30,
2022
2023
$
$
7,384 $
407
210
199
(352)
7,848 $
7,118
355
189
198
(412)
7,448
On October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). This guidance requires that a
lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with
the result being the recognition of a right-of-use asset and a lease liability. The Company adopted the provisions of ASU
2016-02 in the first quarter of fiscal 2020 using the modified retrospective transition method, which did not require the
Company to adjust comparative periods. The Company’s right-of-use assets (“ROU”) and lease liabilities are recognized
on the lease commencement date in an amount that represents the present value of future lease payments. ROU assets are
included in Other assets, and the related lease obligation is included in Operating lease liabilities on the Consolidated
Balance Sheets.
Nature of the Leases
The Company has operating and finance leases for buildings, equipment (e.g. trucks and forklifts), vehicles, and
computer equipment. Leasing arrangements require fixed payments and also include an amount that is probable to be owed
under residual value guarantees, if applicable. Some lease payments also include payments related to purchase or
termination options when the lessee is reasonably certain to exercise the option or is not reasonably certain not to exercise
the option, respectively. The leases have remaining terms of 1 to 15 years.
For all leases with an initial expected term of more than 12 months, the Company recorded, at the adoption date
of ASC 842 or lease commencement date for leases entered into after the adoption date, a lease liability, which is the
lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and an ROU asset, which
is an asset that represents the lessee’s right to use, or to control the use of, a specified asset for the lease term. The Company
utilizes its collateralized incremental borrowing rate commensurate to the lease term as the discount rate for its leases,
unless the Company can specifically determine the lessor’s implicit rate.
On January 1, 2015, the Company entered into a finance lease agreement for the building that houses the assets
and operations of LaPorte Custom Metal Processing (LCMP). The leased asset and obligation are recorded at the present
value of the minimum lease payments. The asset is included in Property, plant and equipment, net on the Consolidated
Balance Sheets and is depreciated over the 20-year lease term. The long term component of the finance lease obligation
is included in Long-term obligations.
The Company entered into a 20-year “build-to-suit” lease for a building that houses the assets and operations of
the service center located in LaPorte, Indiana that was relocated from Lebanon, Indiana. During the first quarter of fiscal
2017, the Company took occupancy of the building. The Company retained substantially all of the construction risk and
was deemed to be the owner of the facility for accounting purposes, even though it is not the legal owner. Construction
86
costs incurred relative to the buildout of the facility of approximately $4,100 are included in Property, plant and equipment,
net on the Consolidated Balance Sheets and depreciated over the 20-year lease term. The Company accounts for the related
build-to-suit liability as a financing obligation.
Significant Judgments and Assumptions
Determination of Whether a Contract Contains a Lease
The Company determines whether a contract is or contains a lease at the inception of the contract. The contract is or
contains a lease if the contract conveys the right to control the use of identified assets for a period of time in exchange for
consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from
use of the property, plant, and equipment and have the right to direct its use.
Practical Expedients (Policy Elections)
The Company elected certain practical expedients and transition relief, including the short-term lease recognition
exemption, which excludes leases with a term of 12 months or less from recognition on the balance sheet, recognizing
lease components and non-lease components together as a single lease component, and the transition relief package which,
among other things, includes not reassessing the lease classification or whether a contract is or contains a lease.
The following table sets forth the components of the Company’s lease cost for the years ended September 30, 2022 and
2023.
Finance lease cost:
Amortization of ROU asset
Interest on lease liabilities
Total finance lease cost
Operating lease cost
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Total cash paid for amounts included in measurement of lease liabilities
Lease costs associated with short term leases are not material.
September 30, September 30,
2022
2023
$
$
$
$
430 $
784
1,214 $
430
759
1,189
1,100 $
1,173
784
1,100
228
2,112 $
759
1,173
265
2,197
87
The following table sets forth the Company’s ROU assets and lease liabilities as of September 30, 2022 and 2023.
Finance lease assets (included in Property, plant and equipment, net)
Operating ROU lease assets (included in Other assets)
Finance lease liabilities
Accrued expenses
Long-term obligations (less current portion)
Total Finance lease liabilities
Operating lease liabilities
September 30, September 30,
2022
5,643 $
1,085 $
2023
5,230
1,067
265 $
7,119
7,384 $
1,085 $
302
6,816
7,118
1,067
$
$
$
$
$
Operating lease payments due within one year are recorded in Accrued expenses on the Consolidated Balance Sheets.
Weighted average lease term (Years)
Finance leases
Operating leases
Weighted average discount rate
Finance leases
Operating leases
September 30,
2022
September 30,
2023
13.1
3.0
12.1
2.0
10.32 %
5.25 %
10.32 %
5.84 %
The following is a table of future minimum lease payments during each fiscal year under operating and finance leases and
the present value of the net minimum lease payments as of September 30, 2023.
Future minimum lease payments
2024
2025
2026
2027
2028
Thereafter
Total minimum lease payments
Less: amount representing interest
Present value of net minimum lease payments
Finance
Leases
Operating
Leases
$
$
1,032 $
1,037
1,044
1,049
1,050
7,357
12,569
(5,451)
7,118 $
718
276
126
62
—
—
1,182
(115)
1,067
88
Note 20. Foreign Currency Forward Contracts
The Company enters into foreign currency forward contracts with the purpose of reducing income statement
volatility resulting from foreign currency denominated transactions. The Company has not designated the contacts 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 September 30, 2021, 2022 and 2023, there are no
contracts that remain unsettled. As a result, there is no impact to the balance sheet as of September 30, 2022 or September
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.
2021
Year Ended
Year Ended
Year Ended
September 30, September 30, September 30,
2022
4,393 $
(6,066)
(1,673) $
2023
(2,538)
1,403
(1,135)
(42) $
(532)
(574) $
$
$
Foreign currency transactional gain (loss)
Foreign exchange forward contract gain (loss)
Net gain (loss) included in selling, general and administrative expense
89
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission,
including to ensure that information required to be disclosed by the Company that it files or submits under the Exchange
Act is accumulated and communicated to the Company’s management, including its principal executive and financial
officers, as appropriate to allow timely decisions regarding required disclosure. Pursuant to Rule 13a-15(b) of the
Exchange Act, 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 of the Company’s disclosure controls and procedures 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 September 30, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30,
2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company. With the participation
of the Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of
the Company’s internal control over financial reporting based on the framework and criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of The Treadway
Commission (2013). Based on the Company’s assessment, management has concluded that, as of September 30, 2023, the
Company’s internal control over financial reporting is effective based on those criteria.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance
with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
The Company’s effectiveness of internal control over financial reporting as of September 30, 2023 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its attestation report
which is included in Part II, Item 8 in this Annual Report on Form 10-K.
Michael L. Shor
President & Chief Executive Officer
November 16, 2023
Item 9B. Other Information
Daniel W. Maudlin
Vice President of Finance and Chief Financial Officer
November 16, 2023
During the fourth quarter of fiscal 2023, no members of our Board of Directors or officers (as defined in Rule
16a-1(f) of the Exchange Act) adopted, amended or terminated any contract, instruction or written plan for the purchase
90
or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1c of the Exchange Act or any
non-Rule 10b5-1 trading arrangement, as defined in the SEC rules..
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
91
Item 10. Directors, Executive Officers and Corporate Governance
Part III
The information included under the caption “Business—Information about our Executive Officers” in Part I, Item
1 in this Annual Report on Form 10-K, and under the captions “Election of Directors”, “Corporate Governance—Code of
Ethics”, “Corporate Governance—Corporate Governance Committee and Director Nominations”, “Corporate
Governance—Board Committee Structure”, “Corporate Governance—Family Relationships” and “Corporate
Governance—Independence of the Board of Directors and Committee Members” in the Proxy Statement to be issued in
connection with the 2024 meeting of the Company’s stockholders is incorporated herein by reference.
Item 11. Executive Compensation
The
information
the captions “Executive Compensation”, “Corporate Governance—
Compensation Committee Interlocks and Insider Participation” and “Corporate Governance—Director Compensation
Program” in the Proxy Statement to be issued in connection with the 2024 meeting of the Company’s stockholders is
incorporated herein by reference in response to this item.
included under
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information contained under the captions “Security Ownership of Certain Beneficial Owners” and “Security
Ownership of Management” in the Proxy Statement to be issued in connection with the 2024 meeting of the Company’s
stockholders is incorporated herein by reference in response to this item. For additional information regarding the
Company’s incentive compensation plans, see Note 12 in the Notes to Consolidated Financial Statements in Part II, Item
8 in this Annual Report on Form 10-K.
Equity Compensation Plan Information
The following table provides information as of September 30, 2023 regarding shares of the Company’s common
stock issuable pursuant to its stock option and restricted stock plans:
Number of
securities to
be issued upon
exercise
of outstanding
options,
Weighted-average
exercise price of
outstanding
options,
Number of securities
remaining available
for future
issuance under
equity
compensation
plans (excluding
securities reflected
in the
second column)
497,394 (2)
Plan Category
Equity compensation plans approved by security holders(1)
warrants and rights warrants and rights
33.96
498,548 $
(1)
(2)
For a description of the Company’s equity compensation plans, see Note 12 to the Consolidated Financial
Statements in Part II, Item 8 in this Annual Report on Form 10-K. The Company has no equity compensation
pursuant to which awards may be granted in the future that have not been approved by its stockholders.
Includes shares (i) 183,120 shares of stock options or stock appreciation rights and (ii) 314,274 shares of restricted
stock, restricted stock units, performance shares or performance units.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information contained under the caption “Corporate Governance—Independence of Board of Directors and
Committee Members” and under “Conflict of Interest and Related Person Transactions” in the Proxy Statement to be
92
issued in connection with the 2024 meeting of the Company’s stockholders is incorporated herein by reference in response
to this item.
Item 14. Principal Accountant Fees and Services
The information included under the caption “Ratification of the Appointment of Independent Registered Public
Accounting Firm” in the Proxy Statement to be issued in connection with the 2024 meeting of the Company’s stockholders
is incorporated herein by reference in response to this item.
93
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a)
Documents filed as part of this Report.
1.
Financial Statements:
The Consolidated Financial Statements of Haynes International, Inc. and its subsidiaries are set forth
under Part II, Item 8 in this Annual Report on Form 10-K.
2.
Financial Statement Schedules:
Financial Statement Schedules are omitted as they are not required, are not applicable or the information
is shown in the Notes to the Consolidated Financial Statements.
3.
Exhibits:
The following Index to Exhibits sets forth the exhibits filed or furnished as part of this Annual Report
on Form 10-K.
INDEX TO EXHIBITS
Exhibit
Number
3.1
to
to
the Haynes
the Haynes
to Exhibit 4.01
Description
Second Restated Certificate of Incorporation of Haynes International, Inc. (incorporated by reference to
Exhibit 3.1
International, Inc. Registration Statement on Form S-1, Registration
No. 333-140194).
Amended and Restated By-laws of Haynes International, Inc. (incorporated by reference to Exhibit 3.1 to the
Haynes International, Inc. Current Report on Form 8-K filed October 5, 2023).
Specimen Common Stock Certificate (incorporated by reference
International, Inc. Quarterly Report on Form 10-Q filed February 8, 2010).
Description of Registrant’s Securities (incorporated by reference to Exhibit 4.2 to the Haynes International,
Inc. Annual Report on Form 10-K filed November 18, 2021).
Form of Termination Benefits Agreements by and between Haynes International, Inc. and certain of its
employees, conformed to give effect to all amendments thereto through September 30, 2011 (incorporated by
reference to Exhibit 10.1 to the Haynes International, Inc. Annual Report on Form 10-K filed November 17,
2011).
Form of Director Indemnification Agreement between Haynes International, Inc. and certain of its directors
named in the schedule to the Exhibit (incorporated by reference to Exhibit 10.21 to the Haynes
International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).
Conversion Services Agreement by and between the Haynes International, Inc. and Titanium Metals
Corporation, dated November 17, 2006 (incorporated by reference to Exhibit 10.22 to the Haynes
International, Inc. Registration Statement on Form S-1, Registration No. 333-140194). Portions of this exhibit
have been omitted pursuant to a request for confidential treatment and filed separately with the Securities and
Exchange Commission.
Access and Security Agreement by and between the Haynes International, Inc. and Titanium Metals
Corporation, dated November 17, 2006 (incorporated by reference to Exhibit 10.23 to the Haynes
International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).
Summary of 2023 Management Incentive Plan (incorporated by reference to Item 5.02 of the Haynes
International, Inc. Form 8-K filed December 19, 2022).
Haynes International, Inc. 2016 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Haynes International, Inc. Current Report on Form 8-K filed March 7, 2016).
3.1
4.1
4.2
10.1+
10.2+
10.3
10.4
10.5+
10.6+
94
Exhibit
Number
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21
10.22
Description
Form of Restricted Stock Award Agreement between Haynes International, Inc. and certain of its directors,
issued pursuant to the Haynes International, Inc. 2016 Incentive Compensation Plan (incorporated by reference
to Exhibit 10.22 to the Haynes International, Inc. Annual Report on Form 10-K filed November 16, 2017).
Form of Performance Share Award Agreement between Haynes International, Inc. of certain of its officers,
issued pursuant to the Haynes International, Inc. 2016 Incentive Compensation Plan (incorporated by reference
to Exhibit 10.23 to the Haynes International, Inc. Annual Report on Form 10-K filed November 16, 2017).
Form of Non-Qualified Stock Option Agreement between Haynes International, Inc. and certain of its officers,
issued pursuant to the Haynes International, Inc. 2016 Incentive Compensation Plan (incorporated by reference
to Exhibit 10.24 to the Haynes International, Inc. Annual Report on Form 10-K filed November 16, 2017).
Form of Restricted Stock Award Agreement between Haynes International, Inc. and certain of its officers and
other employees, issued pursuant to the Haynes International, Inc. 2016 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.25 to the Haynes International, Inc. Annual Report on Form 10-K filed
November 16, 2017).
Form of Indemnification Agreement between the Haynes International, Inc. and certain of its officers
(incorporated by reference to Exhibit 10.24 to the Haynes International, Inc. Annual Report on Form 10K filed
November 15, 2018).
Executive Employment Agreement, effective as of September 1, 2018, by and between the Haynes
International, Inc. and Michael L. Shor (incorporated by reference to Exhibit 10.25 to the Haynes International,
Inc. Annual Report on Form 10-K filed November 15, 2018).
Amendment No. 1 to Executive Employment Agreement between Haynes International, Inc. and Michael L.
Shor (incorporated by reference to Exhibit 99.1 to the Haynes International, Inc. Current Report on Form 8-K
filed January 13, 2022).
Form of Amendment No 1 to Termination Benefits Agreements by and between Haynes International, Inc. and
its Named Executive Officers (incorporated by reference to Exhibit 99.2 to the Haynes International, Inc.
Current Report on Form 8-K filed January 13, 2022)
Haynes International, Inc. 2020 Incentive Compensation Plan (incorporated by reference to Exhibit 99.1 to
the Haynes International, Inc. Current Report on Form 8-K filed February 27, 2020).
Amendment No. 1 to Haynes International, Inc. 2020 Incentive Compensation Plan (incorporated by
reference to Appendix A to the Haynes International, Inc. Definitive Proxy Statement for its 2022 Annual
Meeting of Stockholders filed January 21, 2022).
Form of Restricted Stock Award Agreement between Haynes International, Inc. and certain of its directors,
issued pursuant to the Haynes International, Inc. 2020 Incentive Compensation Plan (incorporated by
reference to Exhibit 10.18 to the Haynes International, Inc. Annual Report on Form 10-K filed November 18,
2021).
Form of Performance Share Award Agreement between Haynes International, Inc. and certain of its officers,
issued pursuant to the Haynes International, Inc. 2020 Incentive Compensation Plan (incorporated by
reference to Exhibit 10.19 to the Haynes International, Inc. Annual Report on Form 10-K filed November 18,
2021).
Form of Non-Qualified Stock Option Agreement between Haynes International, Inc. and certain of its officers,
issued pursuant to the Haynes International, Inc. 202 Incentive Compensation Plan (incorporated by reference
to Exhibit 10.20 to the Haynes International, Inc. Annual Report on Form 10-K filed November 18, 2021).
Form of Restricted Stock Award Agreement between Haynes International, Inc. and certain of its officers and
other employees, issued pursuant to the Haynes International, Inc. 2020 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.21 to the Haynes International, Inc. Annual Report on Form 10-K filed
November 18, 2021).
Credit Agreement, dated as of October 19, 2020, by and among Haynes International, Inc., the Lenders party
thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1
to the Haynes International, Inc. Current Report on Form 8-K filed October 20, 2020).
Amendment No. 1 to the Credit Agreement, dated as of August 30, 2022, by and among Haynes International,
Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.1 to the Haynes International, Inc. Current Report on Form 8-K filed September 2,
2022).
95
Exhibit
Number
10.23
10.24
Description
Amendment No. 2 to the Credit Agreement, dated as of October 7, 2022, by and among Haynes International,
Inc., LaPorte Custom Metal Processing, LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.1 to the Haynes International, Inc. Current
Report on Form 8-K filed October 11, 2022).
Amendment No. 3 to the Credit Agreement, dated as of June 20, 2023, by and among Haynes International,
Inc., LaPorte Custom Metal Processing, LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.1 to the Haynes International, Inc. Current
Report on Form 8-K filed June 23, 2023).
21.1
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Haynes International, Inc.
Annual Report on Form 10-K filed November 15, 2018).
23.1* Consent of Deloitte & Touche LLP.
31.1* Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1** Section 1350 Certifications
97* Haynes International, Inc. Clawback Policy
101*
The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended September
30, 2023 formatted in Inline Extensible Business Reporting Language (iXBRL): (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; (vi) related notes; and (vii) the information set forth under “Item 9B, Other Information.”
104 * Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
**
+
Filed herewith.
Furnished herewith.
Denotes management contract or compensation plan, contract or arrangement.
Item 16. Form 10-K Summary
None.
96
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
HAYNES INTERNATIONAL, INC.
By:
/s/ MICHAEL L. SHOR
Michael L. Shor
President and Chief Executive Officer
Date: November 16, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ MICHAEL L. SHOR
Michael L. Shor
President and Chief Executive Officer; Director
(Principal Executive Officer)
November 16, 2023
/s/ DANIEL W. MAUDLIN
Daniel W. Maudlin
Vice President of Finance and Chief Financial
Officer (Principal Financial Officer)
November 16, 2023
/s/ DAVID S. VAN BIBBER
David S. Van Bibber
Controller and Chief Accounting Officer
(Principal Accounting Officer)
November 16, 2023
/s/ ROBERT H. GETZ
Robert H. Getz
/s/ DONALD C. CAMPION
Donald C. Campion
/s/ DAWNE S. HICKTON
Dawne S. Hickton
/s/ ALICIA B. MASSE
Alicia Masse
/s/ BRIAN R. SHELTON
Brian R. Shelton
/s/ LARRY O. SPENCER
Larry O. Spencer
Chairman of the Board, Director
November 16, 2023
November 16, 2023
November 16, 2023
November 16, 2023
November 16, 2023
November 16, 2023
Director
Director
Director
Director
Director
97