HAYNES INTERNATIONAL, INC. References to years or portions of years in Management's Discussion and Analysis of Financial Condition and Results of Operations refer to the Company's fiscal years endedSeptember 30 , unless otherwise indicated. This Quarterly Report on Form 10-Q (this "Form 10-Q") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements other than statements of historical fact, including statements regarding market and industry prospects and future results of operations or financial position, made in this Form 10-Q are forward-looking. In many cases, you can identify forward-looking statements by terminology, such as "may", "should", "expects", "intends", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of such terms and other comparable terminology. The forward-looking information may include, among other information, statements concerning the Company's outlook for fiscal 2022 and beyond, overall volume and pricing trends, cost reduction strategies and their anticipated impact on our results, capital expenditures, capital allocation strategies and their expected results, demand for our products and operations, dividends and the impact of COVID-19 on the economy and our business, including the measures taken by governmental authorities to address it, which may precipitate or exacerbate other risks and/or uncertainties. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, many of which are beyond the Company's control. The Company has based these forward-looking statements on its current expectations and projections about future events, including our expectations of the impact of the COVID-19 pandemic. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate. As a result, the forward-looking statements based upon those assumptions also could be incorrect. Risks and uncertainties may affect the accuracy of forward-looking statements. Some, but not all, of these risks are described in Item 1A. of Part 1 of the Company's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 .
The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Business OverviewHaynes International, Inc. ("Haynes" or "the Company") is one of the world's largest producers of high-performance nickel and cobalt based alloys in sheet, coil and plate forms. The Company is focused on developing, manufacturing, marketing and distributing technologically advanced, high-performance alloys, which are sold primarily in the aerospace, chemical processing and industrial gas turbine industries. The Company's products consist of high-temperature resistant alloys, or HTA products, and corrosion-resistant alloys, or CRA products. HTA products are used by manufacturers of equipment that is subjected to extremely high temperatures, such as jet engines, gas turbine engines, and industrial heating and heat treatment equipment. CRA products are used in applications that require resistance to very corrosive media found in chemical processing, power plant emissions control and hazardous waste treatment. Management believes Haynes is one of the principal producers of high-performance alloy flat products in sheet, coil and plate forms, and sales of these forms, in the aggregate, represented approximately 60% of net product revenues in fiscal 2021. The Company also produces its products as seamless and welded tubulars, which represented approximately 14% of fiscal 2021 net product revenue and in wire form which represented approximately 10% of fiscal 2021 net product revenue. The Company also produces its products in slab, bar and billet forms and sales of these forms in the aggregate represented approximately 16% of net product revenue in fiscal 2021. The Company has manufacturing facilities inKokomo, Indiana ;Arcadia, Louisiana ; and Mountain Home,North Carolina . TheKokomo facility specializes in flat products, theArcadia facility specializes in tubular products, and the Mountain Home facility specializes in wire products. The Company's products are sold primarily through its direct sales organization, which includes 11 service and/or sales centers inthe United States ,Europe andAsia . All of these centers are Company operated. COVID-19 Pandemic COVID-19 related disruptions negatively impacted the Company's financial and operating results in the second half of fiscal 2020 and the first half of fiscal 2021. The Company returned to profitability in the third quarter of fiscal 2021 and has continued to expand profitability in the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022. The Company expects continued increase in volume and profitability primarily driven by the expected continued recovery of the aerospace market. The aerospace supply chain in particular 17
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was most negatively impacted by the pandemic. Based upon published projections, the Company currently expects monthly aerospace revenues to return to pre-pandemic levels by the end of this fiscal year.
Dividends Paid and Declared In the first quarter of fiscal 2022, the Company declared and paid a regular quarterly cash dividend of$0.22 per outstanding share of the Company's common stock. The first quarter dividend was paid onDecember 15, 2021 to stockholders of record at the close of business onDecember 1, 2021 . The total dividend cash pay-out was approximately$2.8 million based on the number of shares outstanding. OnJanuary 27, 2022 , 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 payableMarch 15, 2022 to stockholders of record at the close of business onMarch 1, 2022 . Any future dividends will be at the discretion of the Board of Directors. Capital Spending
During the first three months of fiscal 2022, capital investment was
Share Repurchase Plan The Company purchased an additional 142,226 shares at a cost of$5.7 million during the first quarter of fiscal 2022 under its share repurchase plan implemented in the fourth quarter of fiscal 2021. Since adoption of the plan, the Company has repurchased 255,204 shares at a total cost of approximately$10.0 million . The Company discontinued the share repurchase plan at the end of the calendar year due to the 24.1% increase in the Company's backlog.
Pension and Postretirement Plans
The Company'sU.S. pension glide path strategy is in place with changes to the asset allocation including a customized liability-driven investing strategy which is intended to reduce interest rate risk and equity risk. The Company expects significantly reduced volatility going forward related to the pension funding percentage (theU.S. pension plan is currently approximately 93% funded) and reduced pension and postretirement expense (first quarter declined by$1.5 million and fiscal year 2022 expense is expected to decline by$6.0 million ). As of the end of the first quarter of fiscal 2022, theU.S. net pension liability was approximately$24.2M , a reduction of$81.0 million below the$105.2 million on the balance sheet at the beginning of fiscal 2021. Inclusive of the retiree healthcare liability andU.K. pension asset, the net liability decrease is$94.0 million since the beginning of fiscal year 2021. Volume and Pricing Volumes are typically sequentially lower in the first quarter of each fiscal year due to holidays, maintenance outages and customers managing their calendar year-end balance sheets. However, this trend was muted in the first quarter of fiscal 2022 with volume that was relatively flat. The Company experienced only a 2.2% decline due to a significant sequential increase in shipments to the aerospace market of 22.0% as well as increased shipments to the chemical processing industry (CPI) that were sequentially higher by 10.0%. Aerospace volumes continue to recover from the COVID-19 pandemic with fiscal 2022 first quarter volume at 1.9 million pounds. However, this level is still 27.5% below the pre-pandemic levels of the average quarter of fiscal 2019. The Company expects to return to fiscal 2019 quarterly shipment levels by the end of fiscal year 2022. Chemical processing volume increased sequentially driven by continued recovery from the pandemic and higher oil prices, which drive higher capital spending in the sector. These increases were offset by a 32.2% sequential decrease in industrial gas turbine (IGT) shipments and a 21.9% sequential decrease in other markets. The industrial gas turbine shipments were lower this quarter due to timing of certain customer orders and are expected to improve next quarter. Other markets decreased due to lower flue-gas desulphurization (FGD) volumes. As business conditions continue to improve in the aerospace, IGT and CPI markets, a reduction in FGD shipments is expected as the Company utilizes its manufacturing capacity to produce higher value products.
Year-over-year volumes increased 38.9%, with aerospace increasing 106.2% and CPI increasing 32.1% and IGT and Other markets relatively flat.
The Company has continued its strategy of increasing pricing and margins, recognizing the high-value, differentiated products and services the Company offers. The Company announced multiple price increases for non-contract business as market conditions improved combined with inflationary pressures. In addition, pricing for contract business is being negotiated as those contracts come due. Most customer long-term agreements have adjustors for consumer price index to help cover general inflationary items. The product average selling price per pound in the first quarter of fiscal 2022 was$24.50 , which increased 8.7% sequentially and 2.8% year-over-year due to the noted price increases, but average selling price per pound is also impacted by the product mix sold. 18 Table of Contents Set forth below are selected data relating to the Company's net revenues, gross profit, backlog, the 30-day average nickel price per pound as reported by the London Metals Exchange and a breakdown of net revenues, shipments and average selling prices to the markets served by the Company for the periods shown. The data should be read in conjunction with the consolidated financial statements and related notes thereto and the remainder of "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-Q.
Net Revenue and Gross Profit Margin Performance:
December 31, March 31, June 30, September 30, December 31,(dollars in thousands) 2020 2021 2021 2021 2021 Net Revenues$ 72,177 $ 82,063 $ 88,143 $ 95,278 $ 99,430 Gross Profit Margin $ 987$ 8,385 $ 13,658 $ 16,700 $ 17,777 Gross Profit Margin % 1.4 % 10.2 % 15.5 %
17.5 % 17.9 %
Gross margins continued to increase with a 17.9% gross margin this quarter compared to 17.5% last quarter and 1.4% in the first quarter of last year. The Company has implemented focus initiatives designed to increase pricing and reduce costs. These initiatives, combined with improved volumes compared to the same quarter last year, has driven growth in our gross margins and profitability at a much lower volume breakeven point with the current mix. The Company previously needed to sell more than 5 million pounds to be profitable. The past three quarters demonstrate the Company's successful reduction of its breakeven point by roughly 25% with the current mix. This quarter was profitable with 3.9 million pounds shipped, showing continued traction and momentum as volumes
recover.
Backlog
December 31, March 31, June 30, September 30, December 31,
2020 2021 2021 2021 2021
Backlog(1)
Dollars (in thousands) $ 145,143 $ 140,892 $ 150,915 $ 175,299 $ 217,477
Pounds (in thousands) 5,607 5,622 6,642 7,084 8,931Average selling price per pound $ 25.89$ 25.06 $ 22.72 $ 24.75 $ 24.35 Average nickel price per pound London Metals Exchange(2) $ 7.62$ 7.47 $ 8.14 $ 8.80 $ 9.10
Approximately 50% of the orders in the backlog include prices that are
subject to adjustment based on changes in raw material costs. Historically, (1) approximately 70% of the backlog orders have shipped within six months and
approximately 90% have shipped within 12 months. The backlog figures do not
reflect that portion of the business conducted at service and sales centers
on a spot or "just-in-time" basis.
Represents the average price for a cash buyer as reported by the
presented.
The Company experienced significant increases in order entry over the past quarter, including order entry levels for aerospace and chemical processing that the Company has not seen since fiscal 2019 and, in the case of industrial gas turbines, levels the Company has not experienced for many years. Backlog was$217.5 million atDecember 31, 2021 , an increase of$42.2 million , or 24.1%, from$175.3 million atSeptember 30, 2021 . Backlog pounds atDecember 31, 2021 increased during the first quarter of fiscal 2022 by 26.1% as compared toSeptember 30, 2021 . The average selling price of products in the Company's backlog decreased to$24.35 per pound atDecember 31, 2021 from$24.75 per pound atSeptember 30, 2021 , reflecting a change in product mix. 19 Table of Contents Quarterly Market Information December 31, March 31, June 30, September 30, December 31, 2020 2021 2021 2021 2021 Net revenues (in thousands) Aerospace$ 24,555 $ 30,601 $ 33,950 $ 38,966 $ 48,455 Chemical processing 15,256 15,068 17,010 15,813 17,450 Industrial gas turbines 13,967 16,436 17,835 18,534 14,598 Other markets 12,779 15,546 13,709 16,056 14,487 Total product revenue 66,557 77,651 82,504 89,369 94,990 Other revenue 5,620 4,412 5,639 5,909 4,440 Net revenues$ 72,177 $ 82,063 $ 88,143 $ 95,278 $ 99,430 Shipments by markets (in thousands of pounds) Aerospace 904 1,177 1,354 1,528 1,864 Chemical processing 601 682 814 722 794 Industrial gas turbines 798 1,064 1,147 1,178 799 Other markets 489 599 415 538 420 Total shipments 2,792 3,522 3,730 3,966 3,877 Average selling price per pound Aerospace $ 27.16$ 26.00 $ 25.07 $ 25.50 $ 26.00 Chemical processing 25.38 22.09 20.90 21.90 21.98 Industrial gas turbines 17.50 15.45 15.55 15.73 18.27 Other markets 26.13 25.95 33.03 29.84 34.49 Total product (product only; excluding other revenue) 23.84 22.05 22.12 22.53 24.50 Total average selling price (including other revenue) $ 25.85$ 23.30 $
23.63 $ 24.02 $ 25.65
20
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Results of Operations for the Three Months Ended
The following table sets forth certain financial information as a percentage of
net revenues for the periods indicated and compares such information between
periods.
Three Months Ended December 31, Change
2020 2021 Amount %
Net revenues $ 72,177 100.0 % $ 99,430 100.0 % $ 27,253 37.8 %
Cost of sales 71,190 98.6 % 81,653 82.1 % 10,463 14.7 %
Gross profit 987 1.4 % 17,777 17.9 % 16,790 1,701.1 %
Selling, general and
administrative expense 9,733 13.5 % 11,362 11.4 % 1,629 16.7 %
Research and technical expense 787 1.1 % 905 0.9 % 118 15.0 %
Operating income (loss) (9,533) (13.2) % 5,510 5.5 % 15,043 (157.8) %
Nonoperating retirement benefit
expense 359 0.5 % (1,088) (1.1) % (1,447) (403.1) %
Interest income (4) (0.0) % (8) (0.0) % (4) 100.0 %
Interest expense 304 0.4 % 300 0.3 % (4) (1.3) %
Income (loss) before income
taxes (10,192) (14.1) % 6,306 6.3 % 16,498 (161.9) %
Provision for (benefit from)
income taxes (2,165) (3.0) % 1,647 1.7 % 3,812 (176.1) %
Net income (loss) $ (8,027) (11.1) % $ 4,659 4.7 % $ 12,686 (158.0) %
The following table includes a breakdown of net revenues, shipments and average selling prices to the markets served by the Company for the periods shown.
Three Months Ended
December 31, Change
By market 2020 2021 Amount %
Net revenues (dollars in thousands)
Aerospace $ 24,555 $ 48,455 $ 23,900 97.3 %
Chemical processing 15,256 17,450 2,194 14.4 %
Industrial gas turbine 13,967 14,598 631 4.5 %
Other markets 12,779 14,487 1,708 13.4 %
Total product revenue 66,557 94,990 28,433 42.7 %
Other revenue 5,620 4,440 (1,180) (21.0) %
Net revenues $ 72,177 $ 99,430 $ 27,253 37.8 %
Pounds by market (in thousands)
Aerospace 904 1,864 960 106.2 %
Chemical processing 601 794 193 32.1 %
Industrial gas turbine 798 799 1 0.1 %
Other markets 489 420 (69) (14.1) %
Total shipments 2,792 3,877 1,085 38.9 %
Average selling price per pound
Aerospace $ 27.16 $ 26.00 $ (1.16) (4.3) %
Chemical processing 25.38 21.98 (3.40) (13.4) %
Industrial gas turbine 17.50 18.27 0.77 4.4 %
Other markets 26.13 34.49 8.36 32.0 %Total product (excluding other revenue) 23.84 24.50 0.66 2.8 % Total average selling price (including other revenue)$ 25.85 $ 25.65 $ (0.20) (0.8) %
Net Revenues. Net revenues were
Volume was 3.9 million pounds in the first quarter of fiscal 2022, an increase of 38.9% from 2.8 million pounds in the same period of fiscal 2021. The increase in pounds sold is due to the demand recovery and strong sales in the aerospace market, which increased by 106.2%, as well as the chemical processing market, which increased by 32.1%, from the first quarter of fiscal 2021. The product average selling price was$24.50 per pound in the first quarter of fiscal 2022, an increase of 2.8% from$23.84 per pound in the same period of fiscal 2021. The increase in product average selling price per pound largely reflects higher market 21 Table of Contents
prices of raw materials, which increased average selling price per pound by
approximately
Sales to the aerospace market were$48.5 million in the first quarter of fiscal 2022, an increase of 97.3% from$24.6 million in the same period of fiscal 2021, due to a 106.2% increase in volume, partially offset by a 4.3% decrease in average selling price per pound. The aerospace market has experienced increased demand as inventory throughout the aerospace supply chain begins to be replenished in response to the expected increase in engine build rates. Additionally, demand in the first quarter of fiscal 2021 was depressed by COVID-19 pandemic, that decreased demand for air travel resulting in decreased demand for new planes and maintenance parts. The decrease in average selling price per pound largely reflects a lower value product mix, increased competition and other pricing factors, which decreased average selling price per pound by approximately$2.87 , partially offset by higher market prices of raw materials, which increased average selling price per pound by approximately$1.71 . Sales to the chemical processing market were$17.5 million in the first quarter of fiscal 2022, an increase of 14.4% from$15.3 million in the same period of fiscal 2021, due to a 32.1% increase in volume, partially offset by a 13.4% decrease in average selling price per pound. Volume was higher as industrial activity increased with economies beginning to reopen from pandemic shutdowns as well as increases in oil prices resulting in expanded capital expenditures in the sector. The decrease in average selling price per pound reflects a lower value product mix, as well as pricing competition and other factors, which decreased average selling price per pound by approximately$5.59 , partially offset by higher market prices of raw materials, which increased average selling price per pound by approximately$2.19 . Sales to the industrial gas turbine market were$14.6 million in the first quarter of fiscal 2022, an increase of 4.5% from$14.0 million for the same period of fiscal 2021, due to a 4.4% increase in average selling price per pound and a 0.1% increase in volume. The increase in average selling price per pound reflects higher market prices of raw materials, which increased average selling price per pound by approximately$1.63 , partially offset by a lower-value product mix and pricing competition and other factors, which decreased average selling price per pound by approximately$0.86 . Sales to other markets were$14.5 million in the first quarter of fiscal 2022, an increase of 13.4% from$12.8 million in the same period of fiscal 2021, due to a 32.0% increase in average selling price per pound, partially offset by a decrease in volume of 14.1%. The decrease in volume was primarily attributable to lower shipments into the flue-gas desulphurization market which also contributed to an improved product mix. The average selling price per pound increase reflects a higher-value product mix and other pricing factors, which increased average selling price per pound by approximately$5.66 , as well as higher market prices of raw materials, which increased average selling price per pound by approximately$2.70 .
Other Revenue. Other revenue was
The decrease was due primarily to decreased toll conversion.
Cost of Sales. Cost of sales was$81.7 million , or 82.1% of net revenues, in the first quarter of fiscal 2022 compared to$71.2 million , or 98.6% of net revenues, in the same period of fiscal 2021. The decrease in costs as a percentage of revenues was primarily due to higher volumes sold which eliminated the requirement that fixed costs be directly expensed as was the case in the first quarter of fiscal 2021 which had$5.9 million of costs directly expensed to Cost of Sales. Gross Profit. As a result of the above factors, gross profit was$17.8 million for the first quarter of fiscal 2022, an increase of$16.8 million from the same period of fiscal 2021. Gross margin as a percentage of net revenue increased to 17.9% in the first quarter of fiscal 2022 as compared to 1.4% in the same period of fiscal 2021. The first quarter of fiscal 2021 was adversely impacted by the COVID-19 pandemic as volumes reduced significantly.
Selling, General and Administrative Expense. Selling, general and
administrative expense was
Selling, general and administrative expense as a percentage of net revenues decreased to 11.4% for the first quarter of fiscal 2022 compared to 13.5% for the same period of fiscal 2021. Higher incentive compensation expense and higher foreign exchange losses were the primary drivers of the increased expense in the first quarter of fiscal 2022. Additionally, temporary cost containment initiatives that were in place during the first quarter of fiscal 2021, in response to the COVID-19 pandemic, were subsequently ended, which contributed to the higher expense in the first quarter of fiscal 2022 as compared to the same period of fiscal 2021.
Research and Technical Expense. Research and technical expense was
Operating Income/(Loss). As a result of the above factors, operating income in the first quarter of fiscal 2022 was$5.5 million compared to operating loss of$(9.5) million in the same period of fiscal 2021. 22 Table of Contents Nonoperating retirement benefit expense. Nonoperating retirement benefit expense was a benefit of$1.1 million in the first quarter of fiscal 2022 compared to an expense of$0.4 million in the same period of fiscal 2021. The difference was primarily driven by a favorable actuarial valuation of theU.S. pension plan liability as ofSeptember 30, 2021 caused by a higher-than-expected return on plan assets coupled with a higher discount rate. The amortization of this favorable valuation is recorded as a benefit to Nonoperating retirement benefit expense. Income Taxes. Income tax expense was$1.6 million in the first quarter of fiscal 2022, a difference of$3.8 million from an income tax benefit of$2.2 million in the first quarter of fiscal 2021, driven primarily by a difference in income (loss) before income taxes of$16.5 million . Net Income/(Loss). As a result of the above factors, net income in the first quarter of fiscal 2022 was$4.7 million , compared to net loss of$(8.0) million in the same period of fiscal 2021. Working Capital Controllable working capital, which includes accounts receivable, inventory, accounts payable and accrued expenses, was$273.7 million atDecember 31, 2021 , an increase of$35.1 million , or 14.7%, from$238.7 million atSeptember 30, 2021 . The increase resulted primarily from inventory increasing by$23.0 million and accounts payable and accrued expenses decreasing by$13.2 million during the first three months of fiscal 2022, partially offset by accounts receivable decreasing by$1.1 million during the same period. The Company continued to build work-in-process inventory during the quarter in response to the rapidly growing backlog.
Liquidity and Capital Resources
Comparative cash flow analysis
The Company had cash and cash equivalents of$14.3 million atDecember 31 2021 , inclusive of$14.0 million that was held by foreign subsidiaries in various currencies, compared to$47.7 million atSeptember 30, 2021 . Additionally, the Company had$3.0 million of borrowings against the line of credit outstanding as ofDecember 31, 2021 . Net cash used in operating activities in the first three months of fiscal 2022 was$23.8 million compared to net cash provided by operating activities of$18.5 million in the first three months of fiscal 2021, a difference of$42.3 million . Cash used in operating activities in the first three months of fiscal 2022 was unfavorably impacted by several factors: (i) an increase in inventory of$22.7 million during the first three months of fiscal 2022 as compared to a decrease in inventory of$13.3 million during the same period of fiscal 2021; (ii) a decrease in accounts payable and accrued expenses of$13.2 million during the first three months of fiscal 2022 as compared to a decrease in accounts payable and accrued expenses of$1.2 million during the same period of fiscal 2021, and (iii) a decrease in accounts receivable of$1.2 million during the first three months of fiscal 2022 as compared to a decrease in accounts receivable of$11.7 million during the same period of fiscal 2021. This was partially offset by net income of$4.7 million in the first three months of fiscal 2022 as compared to net loss of$(8.0) million during the same period of fiscal 2021. Net cash used in investing activities was$3.3 million in the first three months of fiscal 2022, which was higher than cash used in investing activities of$1.1 million during the same period of fiscal 2021 due to higher additions to property, plant and equipment. Net cash used in financing activities was$6.4 million in the first three months of fiscal 2022, a difference of$2.3 million from cash used in financing activities of$4.1 million during the first three months of fiscal 2021, primarily driven by the share repurchases of$6.6 million as compared to$0.2 million during the same period of fiscal 2021, partially offset by net borrowing of$3.0 million against the revolving line of credit during the first three months of fiscal 2022. Dividends paid of$2.8 million during the first three months of fiscal 2022 were comparable to same period of fiscal 2021.
OnOctober 19, 2020 , the Company andJPMorgan Chase Bank, N.A . entered into a Credit Agreement (the "Credit Agreement") and related Pledge and Security Agreement with certain other lenders (the "Security Agreement", and, together with the Credit Agreement, the "Credit Documents"). The Credit Documents, which have a three-year term expiring inOctober 2023 , replaced the Third Amended and Restated Loan and Security Agreement and related agreements, dated as ofJuly 14, 2011 , as amended, previously entered into between the Company,Wells Fargo Capital Finance, LLC and certain other lenders. The Credit Agreement provides for revolving loans in the maximum amount of$100.0 million , subject to a borrowing base and certain reserves. The Credit Agreement 23
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permits an increase in the maximum revolving loan amount from$100.0 million up to an aggregate amount of$170.0 million at the request of the borrower if certain conditions are met. Borrowings under the Credit Agreement bear interest, at the Company's option, at either JPMorgan's "prime rate", plus 1.25% - 1.75% per annum, or the adjusted Eurodollar rate used by the lender, plus 2.25% - 2.75% per annum (with a LIBOR floor of 0.5%). EffectiveOctober 25, 2021 , the Credit Agreement replaced LIBOR with SOFR as the financial services industry and market participants are transitioning away from interbank offering rates. As ofDecember 31, 2021 , the Credit Agreement had a$3.0 million balance. As of the same date, management believes the Company was in compliance with all applicable financial covenants under the Credit Agreement. The Company must pay monthly, in arrears, a commitment fee of 0.425% per annum on the unused amount of theU.S. 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) 12.5% of the maximum credit revolving loan amount and (ii)$12.5 million . 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$3.5 million per fiscal quarter so long as the Company is not in default under the Credit Documents. As ofDecember 31, 2021 , the most recent required measurement date under the Credit Agreement, management believes the Company was in compliance with all applicable financial covenants under the Credit Agreement. The Company currently believes it is not at material risk of not meeting its financial covenants over the next twelve months. Borrowings under the Credit Agreement are collateralized by a pledge of substantially all of theU.S. assets of the Company, including the equity interests in itsU.S. subsidiaries, but excluding the four-high Steckel rolling mill and related assets, which are pledged toTitanium Metals Corporation ("TIMET") to secure the performance of the Company's obligations under a Conversion Services Agreement with TIMET (see discussion of TIMET at Note 8 in the Company's Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q). Borrowings under the Credit Documents are also secured by a pledge of a 100% equity interest in each of the Company's direct foreign
subsidiaries. Future uses of liquidity
The Company's sources of liquidity for the next twelve months are expected to consist primarily of cash generated from operations, cash on-hand and borrowings under theU.S. revolving credit facility. AtDecember 31, 2021 , the Company had cash of$14.3 million , an outstanding balance of$3.0 million on theU.S. revolving credit facility (described above) and total remaining availability of approximately$97.0 million , subject to a borrowing base formula and certain reserves. Management believes that the resources described above will be sufficient to fund planned capital expenditures, any regular quarterly dividends declared and working capital requirements over the next twelve months.
The Company's primary uses of cash over the next twelve months are expected to consist of expenditures related to:
? Funding operations; ? Capital spending;
? Dividends to stockholders; and
? Pension and postretirement plan contributions.
Capital investment in the first three months of fiscal 2022 was$3.3 million , and total forecasted capital spending in fiscal 2022 is expected to be$17.7 million . 24 Table of Contents Contractual Obligations
The following table sets forth the Company's contractual obligations for the
periods indicated, as of
Payments Due by Period
Less than More than
Contractual Obligations Total 1 year 1-3 Years 3-5 Years 5 years
(in thousands)
Credit facility fees(1) $ 3,910 $ 3,457 $ 453 $ - $ -
Operating lease obligations 3,109 1,682 1,358 69 -
Finance lease obligations 14,439 1,015 2,060 2,084 9,280
Raw material contracts (primarily
nickel) 35,092 35,092 - - -
Capital projects and other
commitments 4,716 4,716 - - -
Pension plan(2) 24,675 6,000 12,000 6,675 -
Non-qualified pension plans 599 95 190 190 124
Other postretirement benefits(3) 83,293 3,459 6,817 6,234 66,783
Environmental post-closure
monitoring 566 71 163 144 188
Total $ 170,399 $ 55,587 $ 23,041 $ 15,396 $ 76,375 (1) As of
obligation consists of unused line fees.
The Company has a funding obligation to contribute
under the domestic pension plan are provided by the plan and not the Company.
(3) Represents expected post-retirement benefits only based upon anticipated
timing of payments.
New Accounting Pronouncements
See Note 2. New Accounting Pronouncements in the Notes to Consolidated Financial Statements.
Critical Accounting Policies and Estimates
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Assumptions and estimates were based on the facts and circumstances known atDecember 31, 2021 . However, future events rarely develop exactly as forecasted and the best estimates routinely require adjustment. The accounting policies discussed in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 are considered by management to be the most important to an understanding of the financial statements because their application places the most significant demands on management's judgment and estimates about the effect of matters that are inherently uncertain. These policies are also discussed in Note 2 of the consolidated financial statements included in Item 8 of that report. For the quarter endedDecember 31, 2021 , there were no material changes to the critical accounting policies and estimates.
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