References to years or portions of years in Management's Discussion and Analysis of Financial Condition and Results of Operations refer to the Company's fiscal years ended September 30, unless otherwise indicated.

This Quarterly Report on Form 10-Q (this "Form 10-Q") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact, including statements regarding 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 year 2009 and beyond, overall volume and pricing trends, cost reduction strategies and their anticipated results, and capital expenditures. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward looking statements as a result of various factors, many of which are beyond the Company's control.

The Company has based these forward-looking statements on its current expectations and projections about future events. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate. As a result, the forward-looking statements based upon those assumptions also could be incorrect. Risks and uncertainties, some of which are discussed in Item 1A. of Part 1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2008, may affect the accuracy of forward looking statements.

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 Overview

Haynes 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 used primarily in the aerospace, chemical processing and land-based gas turbine industries. The global specialty alloy market consists of three primary sectors: stainless steel, 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 believes it is one of four principal producers of high-performance alloys in sheet, coil and plate forms. 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 high-performance alloy wire products. The Company sells its products primarily through its direct sales organization, which includes 11 service and/or sales centers in the United States, Europe, Asia and India. All of these centers are company-operated.

Significant Events

CEO Transition

The Company announced on April 4, 2008 that Francis Petro had informed the Board of his intention to retire as the Company's President and Chief Executive Officer at the end of his existing employment agreement on September 30, 2008.

On September 9, 2008, the Company announced that Mark Comerford was appointed as the new President and Chief Executive Officer of the Company reporting directly to the Board of Directors. Mr. Comerford assumed his new position effective upon Mr. Petro's retirement from the Company.

Before joining the Company, Mr. Comerford was President of Alloy Products at Brush Wellman Inc. Since 1998, Mr. Comerford served in various positions for Brush Wellman Inc. both in the U.S. and Asia. In addition to his considerable experience at Brush Wellman Inc., Mr. Comerford was previously employed at Carpenter Technology and American Brass in various metallurgical engineering, international and commercial management positions.

Extension of U.S. Revolving Credit Facility

Haynes and Wachovia Capital Finance Corporation (Central) ("Wachovia") entered into a Second Amended and Restated Loan and Security Agreement (the "Amended Agreement") with an effective date of November 18, 2008, which amended and restated the revolving credit facility between Haynes and Wachovia dated August 31, 2004. Among other items, the Amended Agreement extends the maturity date of the U.S. revolving credit facility to September 30, 2011, increases the margin included in the interest rate from 1.5% per annum to 2.25% per annum, permits the Company to pay dividends and repurchase common stock if certain financial metrics are met, and eliminates the EBITDA covenant. The maximum revolving loan amount under the Amended Agreement continues to be $120.0 million.

First Quarter of Fiscal 2009 Gross Profit Margin and Outlook for Remainder of Fiscal Year

First Quarter of Fiscal 2009 Gross Profit Margin

The Company experienced further gross profit margin compression in the first quarter of fiscal 2009. Gross profit margin in the first quarter of fiscal 2009 declined $15.6 million to $18.8 million from $34.4 million in the fourth quarter of fiscal 2008. The gross profit margin percent was 14.0% in the first quarter of fiscal 2009 compared to 21.4% in the fourth quarter of fiscal 2008. The reduction in gross profit margin of $15.6 million from the fourth quarter of fiscal 2008 to the first quarter of fiscal 2009 was due to (i) lower volume due primarily to decreased demand in the Company's end markets, (ii) a lower average selling price on a certain portion of the Company's products, (iii) higher per pound manufacturing costs due to the recognition of higher raw material cost from inventory, (iv) a higher percentage of specialty products as a percent of the total mix and (v) reduced absorption of fixed costs due to lower volume.

Due to the increasingly challenging economic environment, the volume between the fourth quarter of fiscal 2008 and the first quarter of fiscal 2009 declined by approximately 1.0 million pounds, or approximately 17%. The product mix in the quarters also changed significantly. Products shipped in the first quarter of fiscal 2009 included a higher percentage of specialty alloys, which are comprised of higher cost material and require a greater amount of processing compared to commodity alloys. In addition, in the first quarter of fiscal 2009, prices on specialty alloys declined. Gross profit margin in the first quarter was also negatively impacted by higher per pound manufacturing costs due to the recognition of higher raw material cost from inventory. The Company anticipates that the results for the second and third quarters of fiscal 2009 will continue to be unfavorably impacted by the recognition of higher cost material flowing through cost of goods sold, possibly to an even greater degree than in the first quarter of fiscal 2009. Following the third quarter, it is expected that gross profit margin will not be materially affected by this issue, provided that volume and prices stabilize.

Outlook for the Remainder of Fiscal 2009

General

For the remainder of fiscal 2009, the Company expects a slow-down in shipments as the credit crisis and global recession continue. While management believes the Company can maintain profitability for the fiscal year, it is expected that results will be significantly below those seen in recent years, and there will be continued weakness in order entry and pounds shipped over the balance of the year. In particular, continued declines in volume and pricing, combined with the continued impact of high cost inventories, could have a substantial impact on the Company's profitability in the second quarter.

The Company continues to adjust production schedules, reduce costs and manage cash flow while still moving forward with initiatives that are important to our long-term success. The Company intends to reduce inventory levels and to re-evaluate its capital spending.

As a result of the strategies implemented over the last five years, the Company believes it is well-positioned to deal with the challenges of the down turn. The equipment upgrades, the value-added capabilities and its favorable liquidity position gives the Company an advantage it has not had in past economic down turns.

Competition

The Company has experienced increasing competition since the third quarter of fiscal 2007 from competitors who produce both stainless steel and high-performance alloys. Due to continued slowness in the stainless steel market, management believes these competitors increased their production levels and sales activity in high-performance alloys to keep capacity in their mills as full as possible, while offering very competitive prices and delivery times. While competition should soften as the stainless market improves, based on the current economic environment there is significant uncertainty as to when that may occur and the possibility exists that the stainless market may continue to deteriorate. Although the Company continues to respond to the competition by increasing emphasis on service centers, offering value-added services, improving cost structure, and striving to improve delivery-times and reliability, continued deterioration in the economy is likely to lead to increasing levels of competition. Increased competition has required the Company to lower prices, which has contributed to the reduction in the Company's gross profit margin.

Backlog and Strength of Markets

A reduction in economic activity and the increasingly competitive environment manifests itself, in part, as a reduction in the Company's backlog. Backlog dollars declined by approximately 13% from September 30, 2008 to December 31, 2008, and backlog pounds declined by approximately 4% in that same period. Backlog dollars declined by approximately 20% from June 30, 2008 to December 31, 2008, and backlog pounds declined by approximately 13% in that same period.

The following table shows the progressive decline in backlog dollars by market from September 30, 2008 to December 31, 2008 and from June 30, 2008 to December 31, 2008.

                           Percent Decline      Percent Decline
                          9/30/08 - 12/31/08   6/30/08 - 12/31/08
Aerospace                                 19 %                 26 %
Chemical processing                       10 %                 29 %
Land-based gas turbines                   14 %                 21 %
Other markets                             17 %                 12 %

The major contributing factors to the decline in backlog in both periods were declining raw material costs, increased competition and decreasing activity in the Company's end markets, as discussed above. A reduction in backlog ultimately results in a reduction in revenue. Management expects that backlog, and therefore revenues, will continue to decline from last year and quarter over quarter for at least several more quarters.

Cost Reduction Measures

On January 16, 2009, the Company announced that it was taking actions to reduce costs by reducing its

worldwide workforce by 12% and implementing a salary freeze for salaried employees. As a result of these personnel reductions, the annualized savings to cost of sales is expected to be approximately $8.4 million, with an impact in fiscal 2009 of approximately $5.3 million, net of severance expense. The annualized savings to selling, general and administrative expense is expected to be approximately $1.1 million, with an impact in fiscal 2009 of approximately $0.7 million, net of severance expense.

Planned capital spending in fiscal 2009 was originally targeted at approximately $15.1 million. However, the Company is evaluating this planned spending and may postpone certain projects to the latter part of fiscal 2009 or possibly fiscal 2010. Projects are being evaluated to ensure that, if postponed, there will be no material unfavorable impact to operations either in the short- or long-term.

In addition, the Company continues to review and evaluate all discretionary spending in order to identify opportunities of both a short- and long-term nature. These efforts, in conjunction with the application of lean manufacturing techniques, are intended to result in reduced spending and improved operating efficiencies beyond those provided by the reduction in workforce.

Quarterly Market Information

Set forth below is selected data relating to the Company's backlog, the 30-day average nickel price per pound as reported by the London Metals Exchange, as well as a breakdown of net revenues, shipments and average selling prices to the markets served by the Company for the periods shown. This data should be read in conjunction with the consolidated financial statements and related notes thereto and the remainder of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-Q.

                                                        Quarter Ended
                                  December      March       June      September    December
                                  31, 2007    31, 2008    30, 2008     30, 2008    31, 2008
Backlog (1)
Dollars (in thousands)            $ 247,775   $ 254,470   $ 252,598   $  229,196   $ 199,667
Pounds (in thousands)                 8,274       8,706       8,335        7,575       7,287
Average selling price per pound   $   29.95   $   29.23   $   30.30   $    30.26   $   27.38

Average nickel price per pound
London Metals Exchange (2)        $   12.11   $   14.16   $   10.23   $     8.07   $    4.39

(2) Represents the average price for a cash buyer as reported by the London Metals Exchange for the 30 days ending on the last day of the period presented.

                                                         Quarter Ended
                                 December       March        June       September     December
                                 31, 2007     31, 2008     30, 2008      30, 2008     31, 2008
Net revenues (in thousands)
Aerospace                        $  59,442    $  63,472    $  62,857    $   61,501    $  49,721
Chemical processing                 40,805       37,404       49,165        38,718       30,883
Land-based gas turbines             25,505       33,506       31,004        34,102       32,145
Other markets                       18,887       26,085       18,811        22,809       19,166
Total product revenue              144,639      160,467      161,837       157,130      131,915
Other revenue                        1,438        3,304        4,503         3,688        2,389
Net revenues                     $ 146,077    $ 163,771    $ 166,340    $  160,818    $ 134,304

Shipments by markets (in
thousands of pounds)
Aerospace                            2,154        2,190        2,319         2,188        1,653
Chemical processing                  1,312        1,287        1,649         1,140          947
Land-based gas turbines              1,060        1,742        1,519         1,641        1,507
Other markets                          681          861          732           800          691
Total shipments                      5,207        6,080        6,219         5,769        4,798

Average selling price per
pound
Aerospace                        $   27.60    $   28.98    $   27.11    $    28.11    $   30.08
Chemical processing                  31.10        29.06        29.82         33.96        32.61
Land-based gas turbines              24.06        19.23        20.41         20.78        21.33
Other markets                        27.73        30.30        25.70         28.51        27.74
Total product (excluding
other revenue)                       27.78        26.39        26.03         27.24        27.49
Total average selling price
(including other revenue)            28.05        26.94        26.75         27.88        27.99

Results of Operations for the Three Months Ended December 31, 2008 Compared to the Three Months Ended December 31, 2007

The following table includes a breakdown of net revenues, shipments, and average selling prices to the markets served by Haynes for the periods shown.

                                   Three Months Ended
                                      December 31,                            Change
($ in thousands)             2007                     2008              Amount         %
Net revenues         $ 146,077       100.0 %  $ 134,304       100.0 %  $ (11,773 )      (8.1 )%
Cost of sales          111,872        76.6 %    115,554        86.0 %      3,682         3.3 %
Gross profit            34,205        23.4 %     18,750        14.0 %    (15,455 )     (45.2 )%
Selling, general
and
administrative
expense                  9,990         6.8 %     10,590         7.9 %        600         6.0 %
Research and
technical expense          908         0.6 %        825         0.6 %        (83 )      (9.1 )%
Operating income        23,307        16.0 %      7,335         5.5 %    (15,972 )     (68.5 )%
Interest income            (31 )       0.0 %        (20 )       0.0 %         11       (35.5 )%
Interest expense           494         0.3 %        356         0.3 %       (138 )     (27.9 )%
Income before
income taxes            22,844        15.6 %      6,999         5.2 %    (15,845 )     (69.4 )%
Provision for
income taxes             9,001         6.2 %      2,475         1.8 %     (6,526 )     (72.5 )%
Net income           $  13,843         9.5 %  $   4,524         3.4 %  $  (9,319 )     (67.3 )%




                                           Three Months Ended
                                              December 31,                 Change
By market                                   2007         2008        Amount         %
Net revenues (in thousands)
Aerospace                                $   59,442    $  49,721    $  (9,721 )     (16.4 )%
Chemical processing                          40,805       30,883       (9,922 )     (24.3 )%
Land-based gas turbines                      25,505       32,145        6,640        26.0 %
Other markets                                18,887       19,166          279         1.5 %
Total product revenue                       144,639      131,915      (12,724 )      (8.8 )%
Other revenue                                 1,438        2,389          951        66.1 %
Net revenues                             $  146,077    $ 134,304    $ (11,773 )      (8.1 )%

Pounds by markets (in thousands)
Aerospace                                     2,154        1,653         (501 )     (23.3 )%
Chemical processing                           1,312          947         (365 )     (27.8 )%
Land-based gas turbines                       1,060        1,507          447        42.2 %
Other markets                                   681          691           10         1.5 %
Total shipments                               5,207        4,798         (409 )      (7.9 )%

Average selling price per pound
Aerospace                                $    27.60    $   30.08    $    2.48         9.0 %
Chemical processing                           31.10        32.61         1.51         4.9 %
Land-based gas turbines                       24.06        21.33        (2.73 )     (11.3 )%
Other markets                                 27.73        27.74         0.01         0.0 %
Total product (excluding other
revenue)                                      27.78        27.49        (0.29 )      (1.0 )%
Total average selling price
(including other revenue)                     28.05        27.99        (0.06 )      (0.2 )%

Net Revenues. Net revenues decreased by $11.8 million, or 8.1%, to $134.3 million in the first quarter of fiscal 2009 from $146.1 million in the same period of fiscal 2008. Volume decreased by 7.9% to 4.8 million pounds in the first quarter of fiscal 2009 from 5.2 million pounds in the same period of fiscal 2008. The average selling price per pound decreased by 0.2% to $27.99 per pound in the first quarter of fiscal 2009 from $28.05 per pound in the same period of fiscal 2008. Volume and average selling price for fiscal 2008, including the first quarter, were impacted by a 2.0 million pound order for a single customer which is not being repeated in fiscal 2009. In the first quarter of fiscal 2008 the volume associated with this particular order was approximately 0.4 million pounds with a selling price approximately half of the consolidated average selling price for all products sold in the quarter. This volume was split between the aerospace and chemical processing markets on a two thirds, one third basis, respectively. As discussed above under "Overview", increased competition and the global economic recession unfavorably impacted both volume and average selling price in the first quarter of fiscal 2009. As discussed above, the Company's consolidated backlog decreased by $29.5 million, or 12.9%, to $199.7 million at December 31, 2008 from $229.2 million at September 30, 2008.

Sales to the aerospace market decreased by 16.4% to $49.7 million in the first quarter of fiscal 2009 from $59.4 million in the same period of fiscal 2008, due to a 23.3% decrease in volume partially offset with a 9.0% increase in the average selling price per pound. Volume declined due to slowing demand which is impacted by the global economic recession exacerbated by disruption to the aerospace supply chain from the fall 2008 work stoppage at Boeing. The increase in the average selling price per pound is due to changes in product mix. Product mix in the first quarter of fiscal 2009 reflects a higher percentage of specialty alloy products and forms with a higher average selling price when compared to the product mix sold in the same period of fiscal 2008.

Sales to the chemical processing market decreased by 24.3% to $30.9 million in the first quarter of fiscal 2009 from $40.8 million in the same period of fiscal 2008, due to an 27.8% decrease in volume, partially offset by a 4.9% increase in the average selling price per pound. The increase in the average selling price reflects a higher percentage of sales of specialty alloy product. Volume has declined due to a number of factors, the primary reason being the global economic recession. In addition, volume was affected by the project oriented nature of the market where the comparisons of volume shipped between quarters can be affected by timing, quantity and order size of the project business which also impacts average selling price per pound.

Sales to the land-based gas turbine market increased by 26.0% to $32.1 million for the first quarter of fiscal 2009 from $25.5 million in the same period of fiscal 2008, due to a 42.2% increase in volume, partially offset by a 11.3% decrease in the average selling price per pound. The decrease in the average selling price is due to the effect of a change in product mix (both form and alloy) and increased competition. The increase in volume reflects lower billet sales in the first quarter of fiscal 2008 due to timing of project business.

Sales to other markets increased by 1.5% to $19.2 million in the first quarter of fiscal 2009 from $18.9 million in the same period of fiscal 2008, due to a 1.5% increase in volume. Volume of stainless steel wire decreased by 79.1% as a result of the Company's strategy to reduce production of stainless steel wire and focus on the production and sale of high-performance alloy wire, while volume of all forms of high-performance alloy sold to other markets increased 33.6% in the first quarter of fiscal 2009 compared to the same period of fiscal 2008. The increased volume of high-performance alloy in the "other markets" category is primarily due to the Company's continuing effort to increase sales into markets such as flue gas desulphurization ("FGD") market, which fall into this category and to expand the number of other markets.

Other Revenue. Other revenue increased by 66.1% to $2.4 million in the first quarter of fiscal 2009 from $1.4 million for the same period of fiscal 2008. The increase is due to higher activity in toll conversion and miscellaneous sales.

Cost of Sales. Cost of sales increased to $115.6 million, and 86.0% of net revenues, in the first quarter of fiscal 2009, compared to $111.9 million, and 76.6% of net revenues, in the same period of fiscal 2008. Cost of sales in the first quarter of fiscal 2009 increased, as compared to the same quarter of the prior year, as a result of higher per pound manufacturing costs due to the recognition of higher raw material cost from inventory and a higher

percentage of specialty products as percent of the total mix. In addition, labor costs increased in the first quarter of fiscal 2009 compared to the same period in fiscal 2008 due to increased wage rates for union employees and increased fringe benefit costs. In the first quarter of fiscal 2008 cost of sales was reduced by a $3.7 million (2.5% of net revenue) pension curtailment gain, which was recorded due to an amendment to freeze future pension benefit accruals for non-union employees in the U.S. The increase in cost of sales as a percentage of net revenues (and the corresponding decline in gross profit) can be attributed to the increased cost of sales, and increased competition combined . . .