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.

Quarter over Quarter Gross Profit Margin Trend

Gross profit margin has declined quarter over quarter since the 3rd quarter of fiscal 2008. Gross profit margin in the third quarter of fiscal 2009 was a loss of $(8.2) million, compared to a profit of $7.0 million in the second quarter of fiscal 2009. The gross profit margin percentage was negative 8.3% in the third quarter of fiscal 2009 compared to a profit of 5.8% in the second quarter of fiscal 2009. The reduction in gross profit margin from

the second quarter of fiscal 2009 to the third quarter of fiscal 2009 was due to several factors. There was a reduction in revenue of $22.1 million between quarters, primarily as a result of a reduction in pounds shipped with the average selling price per pound declining slightly between quarters. Cost of goods sold per pound increased from the second quarter of fiscal 2009 to the third quarter of fiscal 2009 due to (i) reduced absorption of fixed manufacturing costs primarily due to lower production of sheet product,
(ii) higher per pound manufacturing costs due to continued recognition of higher cost raw material from inventory, and (iii) an increase in shipments of certain specialty and proprietary alloys as a percent of total pounds shipped. Also compressing margins is the continued impact on average selling price of the weak economic environment.

Higher per pound manufacturing costs due to the recognition of higher raw material costs from inventory impacted the first, second and third quarters of fiscal 2009. Gross profit margin in the fourth quarter is not expected to be materially affected by this issue, provided that volume and prices remain stable.

Outlook

General

The Company expects a continued low level of revenue as a result of the credit crisis and global recession for at least the reminder of fiscal 2009 and first six months of fiscal 2010. Management believes that the Company's performance through the next three quarters will range from break-even to a small loss in each quarter. It is expected that the weakest results in the next three quarters will occur in the first quarter of fiscal 2010, because typically this quarter is impacted by fewer ship days and extended customer shutdowns. Management expects results in the fourth quarter of fiscal 2009 and first half of fiscal 2010, to be negatively impacted by continued reduced absorption of fixed manufacturing cost, which inflates cost of goods sold, and the competitive environment, which puts downward pressure on prices. However, a portion of this reduced absorption is expected to be offset by lower spending from the cost saving initiatives undertaken in fiscal 2009 (discussed below in further detail).

The Company continues to adjust production schedules, reduce costs and manage cash flow, while still moving forward with initiatives that are important to its long-term success. The Company also reduced inventories substantially in the third quarter and intends to reduce inventory levels further. As a result of recent 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 downturn and ultimately manage the upturn more effectively than in prior periods.

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 26% from March 31, 2009 to June 30, 2009, and backlog pounds declined by approximately 20% in that same period while the backlog average selling price dropped by 8%. Backlog dollars declined by approximately 55% from June 30, 2008 to June 30, 2009 due to a decline in backlog pounds of approximately 46% and a reduction in backlog average selling price of approximately 16% in the period.

The major contributing factors to the decline in backlog for the periods noted were a reduction in pounds, resulting from decreased activity in the Company's end markets and increased price competition (discussed below). A reduction in backlog is indicative of a reduction in revenue in the future. Management expects that backlog, and therefore revenues, will continue to decline from last year and quarter over quarter, until stabilizing at some point in fiscal 2010. Based on order entry for the past five months, including July 2009, it appears that the backlog may stabilize by the end of calendar 2009.

Competition

The Company continued to experience strong price competition from competitors who produce both stainless steel and high-performance alloys in the third fiscal quarter due primarily to weakness in the stainless market.

Increased competition has required the Company to continue lowering prices, which has contributed to the reduction in the Company's gross profit margin and net income. There continues to be significant uncertainty as to when the stainless market will improve; however, some financial analysts are writing that the market could begin to see some improvement in the second half of calendar 2009. If that happens, pricing competition in the high-performance alloy industry should begin to ease. 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. However, continued weakness in the economy continues to generate intense competitive pricing pressure.

Cost Reduction Measures

On August 6, 2009, the Company reduced its worldwide workforce by 6%, temporarily reduced salaries between 5% and 15% for all salaried employees, and eliminated the cash bonus component of the fiscal 2009 management incentive plan. These measures follow actions on January 16, 2009 which reduced the Company's workforce by 12% and froze salaries for all remaining employees.

The annualized savings of the personnel reductions announced today are expected to be approximately $4.1 million, although these savings are not expected to have a material impact on the results of the fourth fiscal quarter. The severance expense of approximately $1.0 million associated with the current personnel reduction will be paid in the fourth fiscal quarter. Total personnel reductions in fiscal 2009 represent cost reductions of approximately $13.6 million on an annualized basis, of which approximately $7.1 million will be included in the results of fiscal 2009.

Planned capital spending in fiscal 2009 is expected to be between $10.0 to $12.0 million, compared to an original target of approximately $15.1 million. The Company evaluated planned spending, postponing certain projects and spending until such time as financial conditions improve. In light of the significant capital expenditures in recent years to upgrade operations, increase capacity and reduce unplanned downtime, management does not believe that the postponement of the current projects will have a material unfavorable impact on operations in the short- or long-term.

In addition to the actions noted, the Company continues to adjust its production schedules for all its manufacturing facilities, initiating planned furloughs and outages ranging from one day to one week in length in order to limit further personnel reductions while continuing to meet customer delivery requirements at these lower sales volumes. Cost savings associated with these measures will be dependent upon the level of volume, as well as product mix, but are anticipated to be approximately $6.0 million on an annualized basis.

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                                            September     December       March        June
                         31, 2007      March  31, 2008     June 30, 2008     30, 2008      31, 2008      31, 2009    30, 2009
Backlog (1)
Dollars (in
thousands)              $   247,775   $         254,470   $       252,598   $   229,196   $   199,667   $  153,039   $ 113,420
Pounds (in thousands)         8,274               8,706             8,335         7,575         7,287        5,557       4,468
Average selling price
per pound               $     29.95   $           29.23   $         30.30   $     30.26   $     27.38   $    27.54   $   25.39

Average nickel price
per pound
London Metals
Exchange (2)            $     12.11   $           14.16   $         10.23   $      8.07   $      4.39   $     4.40   $    6.79

(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                                            September     December       March        June
                         31, 2007      March  31, 2008     June 30, 2008     30, 2008      31, 2008      31, 2009    30, 2009
Net revenues (in
thousands)
Aerospace               $    59,442   $          63,472   $        62,857   $    61,501   $    49,721   $   45,200   $  34,959
Chemical processing          40,805              37,404            49,165        38,718        30,883       26,025      26,944
Land-based gas
turbines                     25,505              33,506            31,004        34,102        32,145       28,648      22,087
Other markets                18,887              26,085            18,811        22,809        19,166       17,562      11,529
Total product revenue       144,639             160,467           161,837       157,130       131,915      117,435      95,519
Other revenue                 1,438               3,304             4,503         3,688         2,389        2,978       2,806
Net revenues            $   146,077   $         163,771   $       166,340   $   160,818   $   134,304   $  120,413   $  98,325

Shipments by markets
(in thousands of
pounds)
Aerospace                     2,154               2,190             2,319         2,188         1,653        1,648       1,387
Chemical processing           1,312               1,287             1,649         1,140           947        1,170       1,077
Land-based gas
turbines                      1,060               1,742             1,519         1,641         1,507        1,680       1,405
Other markets                   681                 861               732           800           691          871         511
Total shipments               5,207               6,080             6,219         5,769         4,798        5,369       4,380

Average selling price
per pound
Aerospace               $     27.60   $           28.98   $         27.11   $     28.11   $     30.08   $    27.43   $   25.20
Chemical processing           31.10               29.06             29.82         33.96         32.61        22.24       25.02
Land-based gas
turbines                      24.06               19.23             20.41         20.78         21.33        17.05       15.72
Other markets                 27.73               30.30             25.70         28.51         27.74        20.16       22.56
Total product
(excluding other
revenue)                      27.78               26.39             26.03         27.24         27.49        21.87       21.81
Total average selling
price (including
other revenue)                28.05               26.94             26.75         27.88         27.99        22.43       22.45

Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008

Results of Operations



                                          Three Months Ended
                                               June 30,                           Change
($ in thousands)                     2008                   2009             Amount        %
Net revenues                  $ 166,340     100.0 %  $  98,325     100.0 %  $ (68,015 )   (40.9 )%
Cost of sales                   126,223      75.9 %    106,493     108.3 %    (19,730 )   (15.6 )%
Gross profit                     40,117      24.1 %     (8,168 )    (8.3 )%   (48,285 )  (120.4 )%
Selling, general and
administrative expense           11,007       6.6 %      8,837       9.0 %     (2,170 )   (19.7 )%
Research and technical
expense                             819       0.5 %        757       0.8 %        (62 )    (7.6 )%
Operating income (loss)          28,291      17.0 %    (17,762 )   (18.1 )%   (46,053 )  (162.8 )%
Interest income                     (92 )     0.0 %        (42 )     0.0 %        (50 )   (54.3 )%
Interest expense                    114       0.0 %         87       0.0 %        (27 )   (23.7 )%
Income (loss) before
income taxes                     28,269      17.0 %    (17,807 )   (18.1 )%   (46,076 )  (163.0 )%
Provision (benefit) for
income taxes                     10,705       6.4 %     (6,863 )    (7.0 )%   (17,568 )  (164.1 )%
Net income (loss)             $  17,564      10.6 %  $ (10,944 )   (11.1 )% $ (28,508 )  (162.3 )%

By market

                                    Three Months Ended
                                         June 30,                     Change
                                    2008           2009         Amount          %
Net revenues (in thousands)
Aerospace                        $    62,857    $   34,959    $  (27,898 )      (44.4 )%
Chemical processing                   49,165        26,944       (22,221 )      (45.2 )%
Land-based gas turbines               31,004        22,087        (8,917 )      (28.8 )%
Other markets                         18,811        11,529        (7,282 )      (38.7 )%
Total product revenue                161,837        95,519       (66,318 )      (41.0 )%
Other revenue                          4,503         2,806        (1,697 )      (37.7 )%
Net revenues                     $   166,340    $   98,325    $  (68,015 )      (40.9 )%

Pounds by markets (in
thousands)
Aerospace                              2,319         1,387          (932 )      (40.2 )%
Chemical processing                    1,649         1,077          (572 )      (34.7 )%
Land-based gas turbines                1,519         1,405          (114 )       (7.5 )%
Other markets                            732           511          (221 )      (30.2 )%
Total shipments                        6,219         4,380        (1,839 )      (29.6 )%

Average selling price per
pound
Aerospace                        $     27.11    $    25.20    $    (1.91 )       (7.0 )%
Chemical processing                    29.82         25.02         (4.80 )      (16.1 )%
Land-based gas turbines                20.41         15.72         (4.69 )      (23.0 )%
Other markets                          25.70         22.56         (3.14 )      (12.2 )%
Total product (excluding
other revenue)                         26.03         21.81         (4.22 )      (16.2 )%
Total average selling price
(including other revenue)              26.75         22.45         (4.30 )      (16.1 )%

Net Revenues. Net revenues were $98.3 million in the third quarter of fiscal 2009, a decrease of $68.0 million, or 40.9%, from $166.3 million in the same period of fiscal 2008. Volume was 4.4 million pounds in the third quarter of fiscal 2009 a decrease of 6.2 million pounds in the same period of fiscal 2008. Average selling price per pound was $22.45 in the third quarter of fiscal 2009, a decrease of 16.1% from the selling price per pound of $26.75 in the same period of fiscal 2008. Volume and average selling price for the third quarter of fiscal 2008 were impacted by a 2.0 million pound order for a single customer, which was not repeated in fiscal 2009. In the third quarter of fiscal 2008 the volume associated with this particular order was approximately 0.7 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 third quarter of fiscal 2009. Average selling price also declined due to the reduction in raw material costs. The Company's consolidated backlog decreased by $39.6 million, or 25.9%, to $113.4 million at June 30, 2009 from $153.0 million at March 31, 2009 due to a slow down in order entry activity.

Sales to the aerospace market was $35.0 million in the third quarter of fiscal 2009, a decrease of 44.4% from $62.9 million in the same period of fiscal 2008, due to a 40.2% decrease in volume and a 7.0% 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 was $26.9 million in the third quarter of fiscal 2009, a decrease of 45.2% from $49.2 million in the same period of fiscal 2008, due to a 34.7% decrease in volume, and a 16.1% decrease in the average selling price per pound. Volume declined due primarily to the 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 was $22.1 million for the third quarter of fiscal 2009, a decrease of 28.8% from $31.0 million in the same period of fiscal 2008, due to a 7.5% decrease in volume, and a 23.0% decrease in the average selling price per pound. The decrease in both volume and average selling price is due to the effect of the economic recession resulting in increased competition.

Sales to other markets was $11.5 million in the third quarter of fiscal 2009, a decrease of 38.7% from $18.8 million in the same period of fiscal 2008, due to a 30.2% decrease in volume, and a 12.2% decrease in the average selling price per pound. The decline in average selling price reflects the continuing increase in market competition in many of these markets.

Other Revenue. Other revenue was $2.8 million in the third quarter of fiscal 2009, a decrease of 37.7% from $4.5 million for the same period of fiscal 2008 as conversion business has declined in line with lower levels of business from our customers.

Cost of Sales. Cost of sales decreased to $106.5 million in the third quarter of fiscal 2009, compared to $126.2 million in the same period of fiscal 2008. Cost of sales was 108.3% of net revenues in the third quarter of fiscal 2009, compared to 75.9% in the same period of fiscal 2008. Cost of sales in the third 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, cost of sales per pound increased due to the recognition of higher raw material cost from inventory, reduced absorption of fixed manufacturing cost caused by lower production volumes in the third quarter of fiscal 2009 compared to the same period in fiscal 2008 and a higher percentage of specialty products as a percent of the total mix. 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 a loss of $(8.2) million, or (8.3)% of net revenues, in the third quarter of fiscal 2009, compared to profit of $40.1 million, or 24.1% 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 were $8.8 million in the third quarter of fiscal 2009, a decrease of 19.7% from $11.0 million in the same period of fiscal 2008 due to reductions in workforce and other spending reductions. Selling, general and administrative expenses increased to 9.0% of net revenues in the third quarter of fiscal 2009 compared to 6.6% for the same period of fiscal 2008 due primarily to a decreased level of revenues.

Research and Technical Expense. Research and technical expense remained relatively flat at $0.8 million in the third quarter of fiscal 2009 and $0.8 million in the same period of fiscal 2008.

Operating Income (Loss). As a result of the above factors, operating loss in the third quarter of fiscal 2009 was $(17.8) million compared to operating income of $28.3 million in the same period of fiscal 2008.

Interest Expense. Interest expense decreased 23.7% to $0.09 million in the third quarter of fiscal 2009 from $0.1 million in the same period of fiscal 2008. The decrease is attributable to a lower average debt balance during the third quarter of fiscal 2009 (zero revolver at June 30, 2009).

Income Taxes. Income tax expense decreased to a benefit of $(6.9) million in the third quarter of fiscal 2009 from an expense of $10.7 million in the same period of fiscal 2008 primarily due to a pretax loss. The effective tax rate for the third quarter of fiscal 2009 was 38.5% compared to 37.8% in the same period of fiscal 2008.

Net Income (Loss). As a result of the above factors, net income decreased by $28.5 million to a net loss of $(10.9) million in the third quarter of fiscal 2009 from net income of $17.6 million in the same period of fiscal 2008.

Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008



Results of Operations
. . .