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 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

Reduction in Force

On January 16, 2009, the Company announced that is was taking actions to reduce costs by cutting its worldwide workforce by 12% and implementing a salary freeze of salaried employees. As a result of these

actions, the annualized savings to cost of goods sold is expected to be approximately $8.4 million, with an impact in fiscal 2009 of approximately $5.3 million, net of severance expense. In addition, 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.

Goodwill Impairment

As of March 31, 2009, a non-cash goodwill impairment charge of $43.7 million was recorded, of which only $2.3 million is deductible for tax purposes in future periods. As discussed in Note 8 of this Form 10-Q, $41.4 million of goodwill was created primarily as a result of the Company's reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code and fresh start accounting, and the impairment of this amount is non-deductible for tax purposes. While the goodwill impairment charge will reduce fiscal 2009 operating results under U.S. generally accepted accounting principles, the impairment is a non-cash charge and will not affect the Company's liquidity position, cash flows from operating activities, or compliance with its debt covenants, nor is the charge expected to have an impact on future operations. Please see Note 8 in the Notes to Consolidated Financial Statements contained elsewhere in this Form 10-Q for additional information.

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

Second Quarter of Fiscal 2009 Gross Profit Margin

Gross profit margin has declined quarter over quarter since the 3rd quarter of fiscal 2008. The gross profit margin in the second quarter of fiscal 2009 declined to $7.0 million, compared to $18.8 million in the first quarter of fiscal 2009 and $35.9 million in the second quarter of fiscal 2008. The gross profit margin percentage was 5.8% in the second quarter of fiscal 2009 compared to 14.0% in the first quarter of fiscal 2009 and 21.9% in the second quarter of fiscal 2008. The reduction in gross profit margin from the first quarter of fiscal 2009 to the second quarter of fiscal 2009 was due to several factors. First, there was a reduction in revenue of $13.8 million between quarters, primarily as a result of lower average selling price per pound for the Company's products between quarters. The average selling price per pound declined by $5.62, although the impact of this decline on net revenues was partially offset by higher volume between quarters. While average selling price per pound decreased by $5.62, the average costs of goods sold only declined by $2.96 per pound. Costs of goods sold did not decrease to the same extent as average selling price in the second quarter of fiscal 2009 as compared to the first quarter of fiscal 2009 due to (i) the impact on average selling price of continued price compression due to the economic environment, (ii) continued and increased recognition of higher cost raw material from inventory, and
(iii) reduced absorption of fixed manufacturing costs due to lower production of sheet product.

Higher per pound manufacturing costs due to the recognition of higher raw material costs from inventory, which also impacted the first quarter of fiscal 2009, had a more significant impact in the second quarter. The Company anticipates that the results for the third quarter of fiscal 2009 will continue to be unfavorably impacted by the recognition of higher cost material flowing through cost of goods sold, however, to a lesser degree than that of either the first or second 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 and order entry as a result of the credit crisis and global recession. While management believes the Company can achieve profitability for the fiscal year (excluding the goodwill impairment charge), it is expected that results will be significantly below those seen in recent years. In particular, management expects continued declines in volume and pricing to unfavorably impact the Company's financial results for the remainder of fiscal 2009 and into fiscal 2010. In addition, management expects third quarter results to be further negatively impacted by high-cost inventory and continued reduced absorption, which inflates cost of goods sold.

The Company continues to adjust production schedules and reduce costs (as disclosed below), and manage cash flow, while still moving forward with initiatives that are important to our long-term success. The Company also reduced inventories substantially in the second quarter and intends to reduce inventory levels further. As a result of the equipment upgrades, service center value-added capabilities and its favorable liquidity position the Company believes it is well-positioned to deal with the challenges of the down turn.

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. While competition should lessen from these competitors when 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 its 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 and net income.

Backlog

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 23% from December 31, 2008 to March 31, 2009, and backlog pounds declined by approximately 24% in that same period with the average selling price remaining essentially equal. Backlog dollars declined by approximately 39% from June 30, 2008 to March 31, 2009, while there was a decline in backlog pounds of approximately 33% and in average selling price of approximately 9% in the same period.

The major contributing factors to the decline in backlog for the periods noted were a reduction in pounds, decreasing activity in the Company's end markets, increased competition and declining raw material costs. A reduction in backlog is indicative of a reduction in revenue. Management expects that backlog, and therefore revenues, will continue to decline from last year and quarter over quarter, until it stabilizes at some point in fiscal 2010.

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, both of which have been achieved. As a result of these actions, 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. The full benefit of these cost reduction efforts will begin to be reflected in the third quarter of fiscal 2009. As a result of the Company's expectation of reduced activity in order entry and sales volume through the remainder of fiscal 2009, the Company is planning to further reduce employment cost and production hours. These reductions are in the planning stages, and the Company expects to begin implementation during the third fiscal quarter.

The Company continues to evaluate planned capital spending and expects to finish the year at or below the approximately $15.1 million budget originally targeted. In the first half of the fiscal year, the Company spent approximately $6.0 million on capital projects.

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. The Company will continue to take targeted action in all areas to align fixed and variable costs with demand levels and necessary levels of service.

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. These 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       March
                       31, 2007     31, 2008     30, 2008      30, 2008     31, 2008     31, 2009
Backlog (1)
Dollars (in
thousands)             $ 247,775    $ 254,470    $ 252,598    $  229,196    $ 199,667    $ 153,039
Pounds (in
thousands)                 8,274        8,706        8,335         7,575        7,287        5,557
Average selling
price per pound        $   29.95    $   29.23    $   30.30    $    30.26    $   27.38    $   27.54

Average nickel
price per pound
London Metals
Exchange (2)           $   12.11    $   14.16    $   10.23    $     8.07    $    4.39    $    4.40

(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.

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

                                                      Quarter Ended
                       December       March        June       September     December       March
                       31, 2007     31, 2008     30, 2008      30, 2008     31, 2008     31, 2009
Net revenues (in
thousands)
Aerospace              $  59,442    $  63,472    $  62,857    $   61,501    $  49,721    $  45,200
Chemical processing       40,805       37,404       49,165        38,718       30,883       26,025
Land-based gas
turbines                  25,505       33,506       31,004        34,102       32,145       28,648
Other markets             18,887       26,085       18,811        22,809       19,166       17,562
Total product
revenue                  144,639      160,467      161,837       157,130      131,915      117,435
Other revenue              1,438        3,304        4,503         3,688        2,389        2,978
Net revenues           $ 146,077    $ 163,771    $ 166,340    $  160,818    $ 134,304    $ 120,413

Shipments by markets (in thousands
of pounds)
Aerospace                  2,154        2,190        2,319         2,188        1,653        1,648
Chemical processing        1,312        1,287        1,649         1,140          947        1,170
Land-based gas
turbines                   1,060        1,742        1,519         1,641        1,507        1,680
Other markets                681          861          732           800          691          871
Total shipments            5,207        6,080        6,219         5,769        4,798        5,369

Average selling price per pound
Aerospace              $   27.60    $   28.98    $   27.11    $    28.11    $   30.08    $   27.43
Chemical processing        31.10        29.06        29.82         33.96        32.61        22.24
Land-based gas
turbines                   24.06        19.23        20.41         20.78        21.33        17.05
Other markets              27.73        30.30        25.70         28.51        27.74        20.16
Total product
(excluding other
revenue)                   27.78        26.39        26.03         27.24        27.49        21.87
Total average
selling price
(including other
revenue)                   28.05        26.94        26.75         27.88        27.99        22.43

Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008

Results of Operations

 ($ in thousands)



                                          Three Months Ended
                                              March 31,                           Change
                                     2008                   2009             Amount        %
Net revenues                  $ 163,771     100.0 %  $ 120,413     100.0 %  $ (43,358 )   (26.5 )%
Cost of sales                   127,851      78.1 %    113,416      94.2 %    (14,435 )   (11.3 )%
Gross profit                     35,920      21.9 %      6,997       5.8 %    (28,923 )   (80.5 )%
Selling, general and
administrative expense           10,062       6.1 %      8,292       6.9 %     (1,770 )   (17.6 )%
Research and technical
expense                             839       0.5 %        814       0.7 %        (25 )    (3.0 )%
Impairment of goodwill                -         -       43,737      36.3 %     43,737        NA
Operating income (loss)          25,019      15.3 %    (45,846 )   (38.1 )%   (70,865 )  (283.2 )%
Interest income                     (26 )       -           (8 )       -          (18 )   (69.2 )%
Interest expense                    343       0.2 %        123       0.1 %       (220 )   (64.1 )%
Income (loss) before
income taxes                     24,702      15.1 %    (45,961 )   (38.2 )%   (70,663 )  (286.1 )%
Provision (benefit) for
income taxes                      9,639       5.9 %     (3,072 )    (2.6 )%   (12,711 )  (131.9 )%
Net income (loss)             $  15,063       9.2 %  $ (42,889 )   (35.6 )%   (57,952 )  (384.7 )%

By market

                                         Three Months Ended
                                              March31,                   Change
                                          2008         2009        Amount         %
Net revenues (in thousands)
Aerospace                              $   63,472    $  45,200    $ (18,272 )     (28.8 )%
Chemical processing                        37,404       26,025      (11,379 )     (30.4 )%
Land-based gas turbines                    33,506       28,648       (4,858 )     (14.5 )%
Other markets                              26,085       17,562       (8,523 )     (32.7 )%
Total product revenue                     160,467      117,435      (43,032 )     (26.8 )%
Other revenue                               3,304        2,978         (326 )      (9.9 )%
Net revenues                           $  163,771    $ 120,413    $ (43,358 )     (26.5 )%

Pounds by markets (in thousands)
Aerospace                                   2,190        1,648         (542 )     (24.7 )%
Chemical processing                         1,287        1,170         (117 )      (9.1 )%
Land-based gas turbines                     1,742        1,680          (62 )      (3.6 )%
Other markets                                 861          871           10         1.2 %
Total shipments                             6,080        5,369         (711 )     (11.7 )%

Average selling price per pound
Aerospace                              $    28.98    $   27.43    $   (1.56 )      (5.4 )%
Chemical processing                         29.06        22.24        (6.82 )     (23.5 )%
Land-based gas turbines                     19.23        17.05        (2.18 )     (11.3 )%
Other markets                               30.30        20.16       (10.13 )     (33.4 )%
Total product (excluding other
revenue)                                    26.39        21.87        (4.52 )     (17.1 )%
Total average selling price
(including other revenue)                   26.94        22.43        (4.51 )     (16.7 )%

Net Revenues. Net revenues decreased by $43.4 million, or 26.5%, to $120.4 million in the second quarter of fiscal 2009 from $163.8 million in the same period of fiscal 2008. Volume decreased by 11.7% to 5.4 million pounds in the second quarter of fiscal 2009 from 6.1 million pounds in the same period of fiscal 2008. The average selling price per pound decreased by 16.7% to $22.43 per pound in the second quarter of fiscal 2009 from $26.94 per pound in the same period of fiscal 2008. Prior year volume and average selling price for fiscal 2008, were impacted by a 2.0 million pound order for a single customer which is not being repeated in fiscal 2009. In the second quarter of fiscal 2008 the volume associated with this particular order was approximately 0.5 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 second quarter of fiscal 2009. Average selling price also declined due to the reduction in raw material costs. The Company's consolidated backlog decreased by $46.7 million, or 23.4%, to $153.0 million at March 31, 2009 from $199.7 million at December 31, 2008 due to a slow down in order entry activity.

Sales to the aerospace market decreased by 28.8% to $45.2 million in the second quarter of fiscal 2009 from $63.5 million in the same period of fiscal 2008, due to a 24.7% decrease in volume and a 5.4% decrease in the average selling price per pound. Volume decreased due to slowing market demand as reflected in the build rate for new aircraft, caused by the global economic recession and exacerbated by disruption to the aerospace supply chain from the fall 2008 work stoppage at Boeing.

Sales to the chemical processing market decreased by 30.4% to $26.0 million in the second quarter of fiscal 2009 from $37.4 million in the same period of fiscal 2008, due to an 9.1% decrease in volume, and a 23.5% decrease in the average selling price per pound. Volume declined due to a number of factors, primarily impact of the global economic recession on construction and maintenance activity in the market and increased competition from stainless steel producers.

Sales to the land-based gas turbine market decreased by 14.5% to $28.6 million for the second quarter of fiscal 2009 from $33.5 million in the same period of fiscal 2008, due to a 3.6% decrease in volume, and an 11.3% decrease in the average selling price per pound. The decrease in both volume and average selling price is due to the effect of a change in product mix (both form and alloy) and increased competition.

Sales to other markets decreased by 32.7% to $17.6 million in the second quarter of fiscal 2009 from $26.1 million in the same period of fiscal 2008, due to a 33.4% decrease in average selling price partially offset by a 1.2% increase in volume. The decline in average price reflects the continuing increase in market competition in many of these markets.

Other Revenue. Other revenue decreased by 9.9% to $3.0 million in the second quarter of fiscal 2009 from $3.3 million for the same period of fiscal 2008.

Cost of Sales. Cost of sales decreased to $113.4 million in the second quarter of fiscal 2009, compared to $127.9 million in the same period of fiscal 2008. Cost of sales were 94.2% of net revenues in the second quarter of fiscal 2009, compared to 78.1% in the same period of fiscal 2008. Cost of sales in the second quarter of fiscal 2009 decreased in dollars as compared to the same quarter of the prior year, due to the lower volume between periods. However, per pound manufacturing costs increased due to the recognition of higher raw material cost from inventory, a higher percentage of specialty products as a percent of the total mix and reduced absorption of fixed manufacturing cost caused by lower production volumes in the second quarter of fiscal 2009 compared to the same period in fiscal 2008. This higher per pound cost and increased competition combined with weaker demand (which lowered net revenue and average selling prices), resulted in cost of sales being a higher percentage of net revenues as compared to the same period in fiscal 2008.

Gross Profit. Gross profit decreased to $7.0 million, or 5.8% of net revenues, in the second quarter of fiscal 2009, compared to $35.9 million, or 21.9% of net revenues, in the same period of fiscal 2008 as a result of the above factors.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 17.6% to $8.3 million in the second quarter of fiscal 2009 from $10.1 million in the same period of fiscal 2008 due to reductions in workforce and other spending reductions. Selling, general and administrative expenses increased to 6.9% of net revenues in the second quarter of fiscal 2009 compared to 6.1% for the same period of fiscal 2008 due primarily to a decreased level of revenues.

Research and Technical Expense. Research and technical expense decreased 3.0% to $0.8 million in the second quarter of fiscal 2009 from $0.8 million in the same period of fiscal 2008.

Impairment of Goodwill. An impairment charge of $43.7 million was recorded in the second quarter of fiscal 2009 due to weakening of the U.S. economy and the global credit crisis resulting in a reduction of the Company's market capitalization below its total shareholder's equity value for a sustained period . . .