Haynes Int'l (HAYN) Announces Capital Allocation Strategy

Haynes International, Inc. (NASDAQ GM: HAYN) (the “Company”), a leading developer, manufacturer and marketer of technologically advanced high-performance alloys, today announced a multi-faceted capital allocation strategy which includes; 1) a share repurchase plan, 2) the recent adoption of a glide path for its U.S. pension plan to help secure improvements in funding percentage realized this fiscal year due to higher than expected return on plan assets combined with higher interest rates, and 3) a U.S. pension plan accelerated funding strategy with the intention of fully funding the plan in approximately three years.

“We believe that repurchasing our stock at current market prices represents an attractive capital allocation strategy for the Company. We feel this is a unique opportunity to repurchase shares well below the intrinsic value of the Company given the outlook of the markets we serve, particularly the anticipated recovery in commercial aerospace, combined with our gross margin expansion strategies,” said Mike Shor, President and Chief Executive Officer. “In addition, the excellent performance of our pension plan assets combined with favorable interest rate movement enabled our adoption of a glide path that is expected to help us secure a reduction of our current $100 million pension liability by potentially 50%. Finally, our intention is to fully fund the U.S. plan over the next three years. These steps represent significant actions to de-risk the plan and strive to eliminate the largest liability on our balance sheet. We believe all of these capital allocation strategies are an excellent use of the cash on the balance sheet that we believe will increase shareholder value.”

Further details of each strategy are as follows:

• 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 for a period of one year. The Board adopted the repurchase plan because it believes that repurchasing the Company’s stock at current market prices presents an attractive capital allocation strategy for the Company given the available options for the use of capital. Under the share repurchase plan, the Company is authorized to repurchase outstanding shares of its common stock in the open market or in privately negotiated transactions. The share repurchase plan may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the plan. The Company intends to make all repurchases and to administer the plan in accordance with applicable laws and regulatory guidelines, including Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
• Recent Adoption of Pension Plan Glide Path: On June 17, 2021 the Company adopted a glide path strategy that changed the pension plan asset allocation with the intention of securing the improvement in pension plan funding percentage from 68% at September 30, 2020 to an estimate of over 80% today. This improved funding was driven by better than expected return on plan assets combined with favorable movement of interest rates. If the valuation were done based upon current market conditions, we estimate the net pension liability on the balance sheet of approximately $100 million would be cut in half. In addition, this strategy includes a customized liability driven investment strategy that is expected to substantially reduce the plan’s future interest rate risk and an asset allocation designed to reduce the plan’s equity risk, both of which are expected to reduce the volatility of pension expense going forward.
• Accelerated Funding Strategy: The Company also intends to increase pension funding levels to further reduce the pension liability as we strive to be fully funded with a zero net liability, in approximately three years, depending on future valuations and market conditions. The Company intends to begin this strategy with additional funding, of $15 million, in plan contributions this year in addition to our current $6 million funding level ($21 million total). Additional future funding levels will be determined based upon market conditions and our financial position.

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