UNITED STATES
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

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)

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

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

46904-9013
(Zip Code)

Registrant’s telephone number, including area code (765456-6000

Securities registered pursuant to Section 12(b) of the Act:

Tile of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $.001 per share

HAYN

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of July 30, 2020, the registrant had 12,556,921 shares of Common Stock, $.001 par value, outstanding.

Table of Contents

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

Item 1.

Unaudited Condensed Consolidated Financial Statements of Haynes International, Inc. and Subsidiaries

3

Consolidated Balance Sheets (Unaudited) as of September 30, 2019 and June 30, 2020

3

Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended June 30, 2019 and 2020

4

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended June 30, 2019 and 2020

5

Consolidated Statement of Stockholders Equity (Unaudited) for the Three and Nine Months Ended June 30, 2019 and 2020

6

Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 2019 and 2020

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II

OTHER INFORMATION

32

Item 1a.

Risk Factors COVID-19

32

Item 6.

Exhibits

33

Index to Exhibits

33

Signatures

34

2

Table of Contents

PART 1     FINANCIAL INFORMATION

Item 1.        Unaudited Condensed Consolidated Financial Statements

HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

    

September 30, 

    

June 30, 

 

2019

2020

 

ASSETS

Current assets:

Cash and cash equivalents

$

31,038

$

65,466

Accounts receivable, less allowance for doubtful accounts of $441 and $602 at September 30, 2019 and June 30, 2020, respectively

 

76,979

 

52,285

Inventories

 

258,802

 

263,885

Income taxes receivable

 

1,757

 

5,071

Other current assets

 

3,297

 

3,816

Total current assets

 

371,873

 

390,523

Property, plant and equipment, net

 

169,966

 

162,634

Deferred income taxes

 

34,132

 

31,669

Other assets

 

7,756

 

9,263

Goodwill

4,789

4,789

Other intangible assets, net

 

5,284

 

5,134

Total assets

$

593,800

$

604,012

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

34,497

$

19,986

Accrued expenses

 

18,833

 

17,710

Income taxes payable

 

 

279

Accrued pension and postretirement benefits

 

4,250

 

4,250

Revolving credit facilities

 

30,000

Deferred revenue—current portion

 

2,500

 

2,500

Total current liabilities

 

60,080

 

74,725

Long-term obligations (less current portion) (Note 15)

 

8,609

 

8,573

Deferred revenue (less current portion)

 

15,329

 

13,454

Deferred income taxes

2,016

2,052

Operating lease liabilities

1,984

Accrued pension benefits (less current portion)

 

101,812

 

96,879

Accrued postretirement benefits (less current portion)

109,679

111,221

Total liabilities

 

297,525

 

308,888

Commitments and contingencies (Note 7)

 

 

Stockholders’ equity:

Common stock, $0.001 par value (40,000,000 shares authorized, 12,566,969 and 12,615,830 shares issued and 12,513,500 and 12,556,921 shares outstanding at September 30, 2019 and June 30, 2020, respectively)

 

13

 

13

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

 

 

Additional paid-in capital

 

253,843

 

256,754

Accumulated earnings

 

125,296

 

129,408

Treasury stock, 53,469 shares at September 30, 2019 and 58,909 shares at June 30, 2020

 

(2,239)

 

(2,437)

Accumulated other comprehensive loss

 

(80,638)

 

(88,614)

Total stockholders’ equity

 

296,275

 

295,124

Total liabilities and stockholders’ equity

$

593,800

$

604,012

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

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

    

    

Three Months Ended June 30, 

Nine Months Ended June 30, 

    

2019

    

2020

    

2019

    

2020

    

Net revenues

$

126,032

$

80,576

$

360,575

$

300,592

    

Cost of sales

 

107,857

77,937

316,382

259,914

Gross profit

 

18,175

 

2,639

 

44,193

40,678

Selling, general and administrative expense

 

10,985

9,824

32,776

32,116

Research and technical expense

 

830

867

2,523

2,777

Operating income (loss)

 

6,360

 

(8,052)

8,894

5,785

Nonoperating retirement benefit expense

856

1,700

2,568

5,100

Interest income

 

(15)

(11)

(53)

(35)

Interest expense

 

231

417

756

964

Income before income taxes

 

5,288

 

(10,158)

 

5,623

(244)

Provision for income taxes

 

1,486

(2,061)

1,915

517

Net income (loss)

$

3,802

$

(8,097)

$

3,708

$

(761)

Net income (loss) per share:

Basic

$

0.30

$

(0.65)

$

0.29

$

(0.06)

Diluted

$

0.30

$

(0.65)

$

0.29

$

(0.06)

Weighted Average Common Shares Outstanding

Basic

12,450

12,475

12,443

12,470

Diluted

12,592

12,475

12,591

12,470

Dividends declared per common share

$

0.22

$

0.22

$

0.66

$

0.66

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

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

    

    

Three Months Ended June 30, 

Nine Months Ended June 30, 

    

2019

    

2020

    

2019

    

2020

    

Net income (loss)

$

3,802

$

(8,097)

$

3,708

$

(761)

Other comprehensive income (loss), net of tax:

Pension and postretirement

 

580

 

1,719

1,739

5,158

Foreign currency translation adjustment

 

(1,803)

 

(176)

(1,943)

149

Other comprehensive income (loss)

(1,223)

1,543

(204)

5,307

Comprehensive income

$

2,579

$

(6,554)

$

3,504

$

4,546

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

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share data)

Three Months Ended June 30, 2019

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Treasury

Comprehensive

Stockholders’

    

Shares

    

Par

    

Capital

    

Earnings

    

Stock

    

Income (Loss)

    

Equity

Balance March 31, 2019

 

12,515,480

$

13

252,425

$

120,977

$

(2,177)

$

(41,546)

$

329,692

Net income (loss)

3,802

 

3,802

Dividends paid and accrued ($0.22 per share)

(2,760)

 

(2,760)

Other comprehensive income (loss)

(1,223)

 

(1,223)

Purchase of treasury stock

 

(2,130)

(62)

 

(62)

Stock compensation

691

 

691

Balance June 30, 2019

 

12,513,350

$

13

$

253,116

$

122,019

$

(2,239)

$

(42,769)

$

330,140

Three Months Ended June 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Treasury

Comprehensive

Stockholders’

    

Shares

    

Par

    

Capital

    

Earnings

    

Stock

    

Income (Loss)

    

Equity

Balance March 31, 2020

 

12,556,921

$

13

$

255,896

$

140,297

$

(2,437)

$

(90,157)

$

303,612

Net income (loss)

(8,097)

 

(8,097)

Dividends paid and accrued ($0.22 per share)

(2,792)

 

(2,792)

Other comprehensive income (loss)

1,543

 

1,543

Issue restricted stock (less forfeitures)

 

Stock compensation

858

 

858

Balance June 30, 2020

 

12,556,921

$

13

$

256,754

$

129,408

$

(2,437)

$

(88,614)

$

295,124

Nine Months Ended June 30, 2019

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Treasury

Comprehensive

Stockholders’

    

Shares

    

Par

    

Capital

    

Earnings

    

Stock

    

Income (Loss)

    

Equity

Balance September 30, 2018

 

12,504,478

$

13

$

251,053

$

126,588

$

(1,869)

$

(42,565)

$

333,220

Net income (loss)

3,708

 

3,708

Dividends paid and accrued ($0.66 per share)

(8,277)

 

(8,277)

Other comprehensive income (loss)

(204)

 

(204)

Exercise of stock options

 

12,084

215

 

215

Issue restricted stock (less forfeitures)

 

8,144

Purchase of treasury stock

 

(11,356)

(370)

 

(370)

Stock compensation

1,848

 

1,848

Balance June 30, 2019

 

12,513,350

$

13

$

253,116

$

122,019

$

(2,239)

$

(42,769)

$

330,140

Nine Months Ended June 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Treasury

Comprehensive

Stockholders’

    

Shares

    

Par

    

Capital

    

Earnings

    

Stock

    

Income (Loss)

    

Equity

Balance September 30, 2019

 

12,513,500

$

13

$

253,843

$

125,296

$

(2,239)

$

(80,638)

$

296,275

Net income (loss)

(761)

 

(761)

Dividends paid and accrued ($0.66 per share)

(8,410)

 

(8,410)

Other comprehensive income (loss)

5,307

 

5,307

Exercise of stock options

 

12,400

422

 

422

Reclass due to adoption of ASU 2018-02

13,283

(13,283)

Issue restricted stock (less forfeitures)

 

36,461

Purchase of treasury stock

 

(5,440)

(198)

 

(198)

Stock compensation

2,489

 

2,489

Balance June 30, 2020

 

12,556,921

$

13

$

256,754

$

129,408

$

(2,437)

$

(88,614)

$

295,124

The accompanying notes are an integral part of these financial statements

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

    

Nine Months Ended June 30, 

    

2019

    

2020

    

Cash flows from operating activities:

Net income (loss)

$

3,708

$

(761)

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

Depreciation

 

14,090

 

14,588

Amortization

 

205

 

150

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

 

6,733

 

10,342

Change in long-term obligations

 

 

(21)

Stock compensation expense

 

1,848

 

2,489

Deferred revenue

 

(1,875)

 

(1,875)

Deferred income taxes

 

1,036

 

633

Loss on disposition of property

 

13

 

Change in assets and liabilities:

Accounts receivable

 

(5,044)

 

24,815

Inventories

 

2,470

 

(4,956)

Other assets

 

(409)

 

(20)

Accounts payable and accrued expenses

 

6,049

 

(15,929)

Income taxes

 

4,902

 

(3,041)

Accrued pension and postretirement benefits

 

(5,457)

 

(6,733)

Net cash provided by (used in) operating activities

 

28,269

 

19,681

Cash flows from investing activities:

Additions to property, plant and equipment

 

(7,316)

 

(7,142)

Net cash provided by (used in) investing activities

 

(7,316)

 

(7,142)

Cash flows from financing activities:

Revolving credit facility borrowings

16,600

 

30,000

Revolving credit facility repayments

(16,600)

 

Dividends paid

 

(8,258)

 

(8,285)

Proceeds from exercise of stock options

 

215

 

422

Payment for purchase of treasury stock

 

(370)

 

(198)

Payments on long-term obligation

(106)

(140)

Net cash provided by (used in) financing activities

 

(8,519)

 

21,799

Effect of exchange rates on cash

 

(191)

 

90

Increase (decrease) in cash and cash equivalents:

 

12,243

 

34,428

Cash, cash equivalents and restricted cash:

Beginning of period

 

9,802

 

31,038

End of period

$

22,045

$

65,466

Supplemental disclosures of cash flow information:

Interest (net of capitalized interest)

$

712

$

865

Income taxes paid (refunded), net

$

(4,028)

$

2,912

Capital expenditures incurred, but not yet paid

$

418

$

531

Dividends declared but not yet paid

$

19

$

124

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

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share and per share data)

Note 1.  Basis of Presentation

Interim Financial Statements

The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and such principles are applied on a basis consistent with information reflected in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the interim financial information includes all adjustments and accruals which are necessary for a fair presentation of results for the respective interim periods. The results of operations for the three and nine months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2020 or any interim period.

Principles of Consolidation

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

COVID-19 Pandemic

In March 2020, the World Health Organization characterized the coronavirus (“COVID-19”) a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.  The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy and our business.  Due to the widespread impact of the COVID-19 pandemic, the Company implemented a temporary shut-down of most of the Company’s production operations beginning the week of March 23, 2020, which impacted the last week of the second quarter.  The shut-down continued into the third quarter with operations resuming in mid-April in certain areas on a voluntary basis.  As a result of the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting form COVID-19, it is difficult to predict the overall impact of COVID-19 on the Company's business and financial results.    The Company believes that cash on hand, net cash provided by operations, and the entry into new financing arrangements prior to maturity of the current agreement in July 2021 will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.

Note 2.  Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  This new 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 new lease accounting requirements are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company adopted the provisions of ASU 2016-02 in the first quarter of fiscal year 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.  The adoption of the standard had no material impact on the Consolidated Financial Statements.  

The Company elected the package of practical expedients included in this guidance which allowed it to not reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and, (iii) the initial direct costs for existing leases.  The Company has elected the practical expedient to not separate lease components from non-lease components for all asset classes.  The Company will recognize lease expense for operating leases in the consolidated statements of operations on a straight-line basis over the lease term.  The Company also made a policy election to not recognize ROU asset and lease liabilities for short-term leases with an initial term of 12 months or less for all asset classes.  Leases with the option to extend their term are reflected

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in the lease term when it is reasonably certain that the Company will exercise such options.  The Company has expanded the disclosure of operating leases included in Note 16.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income (loss) to accumulated earnings for standard tax effects resulting from the Tax Cuts and Jobs Act.  This update is effective for fiscal years beginning after December 15, 2018.  The Company adopted the provisions of this standard in the first quarter of fiscal year 2020 which had an impact of increasing accumulated other comprehensive loss and increasing accumulated earnings by $13,283.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).  This new guidance removes and modifies disclosure requirements on fair value statements.  This update is effective for fiscal years beginning after December 15, 2019.  The Company is currently evaluating the impact, if any, on its disclosures in the Notes to Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-05, Financial Instruments – Credit Losses (Topic 326) which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology.  The new current expected credit loss (CECL) methodology does not have a minimum threshold for recognition of impairment losses, and entities will need to measure expected credit losses on assets that have a low risk of loss.  This update is effective for fiscal years beginning after December 15, 2019.  The Company is currently evaluating the impact, if any, on the Company’s Consolidated Financial Statements.

   

Note 3.  Revenues from Contracts with Customers

Contract Balances

As of September 30, 2019 and June 30, 2020, accounts receivable with customers were $77,420 and $52,887, respectively. Allowance for doubtful accounts as of September 30, 2019 and June 30, 2020 were $441 and $602, respectively, and are presented within accounts receivable, less allowance for doubtful accounts on the consolidated balance sheet.

Contract liabilities are recognized when the Company has received consideration from a customer to transfer goods or services at a future point in time when the Company performs under the purchase order or contract.  As of September 30, 2019 and June 30, 2020, no contract liabilities have been recorded except for $17,829 and $15,954, respectively, for the Titanium Metals Corporation agreement, as described in Note 8 to the Condensed Consolidated Financial Statements. 

Disaggregation of Revenue

Revenue is disaggregated by end-use markets.  The following table includes a breakdown of net revenues to the markets served by the Company for the three and nine months ended June 30, 2019 and 2020.

Three Months Ended

Nine Months Ended

June 30, 

June 30, 

    

2019

    

2020

    

2019

    

2020

Net revenues (dollars in thousands)

Aerospace

$

66,321

$

40,375

$

189,786

$

158,390

Chemical processing

 

21,197

 

12,143

 

61,878

 

44,687

Industrial gas turbine

 

15,870

 

13,673

 

43,638

 

44,137

Other markets

 

15,666

 

11,203

 

46,909

 

35,840

Total product revenue

 

119,054

 

77,394

 

342,211

 

283,054

Other revenue

 

6,978

 

3,182

 

18,364

 

17,538

Net revenues

$

126,032

$

80,576

$

360,575

$

300,592

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Note 4.  Inventories

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

September 30, 

June 30, 

 

    

2019

    

2020

    

 

Raw Materials

$

17,935

$

23,008

Work-in-process

 

138,859

 

125,178

Finished Goods

 

100,590

 

114,194

Other

 

1,418

 

1,505

$

258,802

$

263,885

Note 5.  Income Taxes

Income tax expense for the three and six months ended June 30, 2019 and 2020 differed from the U.S. federal statutory rate of 21.0%, primarily due to state income taxes, differing tax rates on foreign earnings and discrete tax items that impacted income tax expense in these periods.  The effective tax rate for the three months ended June 30, 2020 was 20.3% on $(10,158) of loss before income taxes compared to 28.1% on income before income taxes of $5,288 for the three months ended June 30, 2019.  Income tax expense in the three months ended June 30, 2020 was unfavorably impacted by a valuation allowance in the amount of $980 on deferred tax assets related to tax credits that are not expected to be realized before expiration.  The effective tax rate for the nine months ended June 30, 2020 was 211.9% on $(244) of loss before income taxes compared to 34.1% on income before income taxes of $5,623 for the nine months ended June 30, 2019.  Income tax expense in the first nine months of fiscal 2019 was unfavorably impacted by the forfeiture of unexercised stock options, which resulted in approximately $300 of additional tax expense.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law.  The CARES Act contains significant business tax provisions, including modifications to the rules limiting the deductibility of net operating losses (NOLs), expensing of qualified improvement property (OIP) and business interest in IRC Sections 172(a) and 163(j), respectively.  The effects of the new legislation are recognized upon enactment, which (for U.S. federal legislation) is the date the President signs a bill into law.  There was not significant impact to income tax expense for the three and nine months ended June 30, 2020 relating to the CARES Act.  

   

Note 6.  Pension and Post-retirement Benefits

Components of net periodic pension and post-retirement benefit cost for the three and nine months ended June 30, 2019 and 2020 were as follows:

Three Months Ended June 30, 

Nine Months Ended June 30, 

Pension Benefits

Other Benefits

Pension Benefits

Other Benefits

    

2019

    

2020

    

2019

    

2020

    

2019

    

2020

    

2019

    

2020

 

Service cost

$

1,309

$

1,386

$

79

$

354

$

3,929

$

4,159

$

237

$

1,062

Interest cost

 

2,567

 

2,148

 

1,088

 

874

 

7,700

 

6,444

 

3,264

2,620

Expected return

 

(3,561)

 

(3,639)

 

 

 

(10,708)

 

(10,907)