Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**

 
| **x**      | **Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                            |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                              |
| ** ** | **For the quarterly period ended  June 30, 2008**                                                                                                                                                                                                                                            |
|       |                                                                                                                                                                                                                                                                                              |
| **or**     |
|       |                                                                                                                                                                                                                                                                                              |
| **o**      | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                           |
| ** ** | ** **                                                                                                                                                                                                                                                                                        |
| ** ** | **For the transition period  from                     to                     ** |

 

**CommissionFile Number: 001-33288**

 

**HAYNESINTERNATIONAL, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **06-1185400**                    |
|-----------------------------------------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (IRS Employer Identification No.) |
|                                                            |       |                              |
| **1020  West Park Avenue, Kokomo, Indiana**                     | ** ** | **46904-9013**                    |
| (Address of  principal executive offices)                       |       | (Zip Code)                        |

 

**(765)456-6000**

(Registrant’stelephone number, including area code)

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See definition of “largeaccelerated filler” and “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. 

 
| Large  accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x  (Do not check if a smaller reporting company) |   | Smaller  reporting company o |
|----------------------------|--------|----------------------|--------|-------------------------------------------------------------------------|--------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act.)  Yes o  Nox

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.  Yesx  No o

 

Asof August 1, 2008, the registrant had 11,953,766 shares of Common Stock,$.001 par value, outstanding.

 

 

 

----

Table of Contents

 

**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q**

**TABLE OFCONTENTS**

 
| ** **       | ** **                                                                                                                 | ** ** | **Page**   |
|------------------|----------------------------------------------------------------------------------------------------------------------------|------------|------------|
| **PART I**  | **FINANCIAL  INFORMATION**                                                                                                 | ** ** | ** ** |
| ** **       | ** **                                                                                                                 | ** ** | ** ** |
| Item 1.          | Unaudited  Condensed Financial Statements                                                                                  |       |       |
|             |                                                                                                                       |       |       |
|             | Haynes  International, Inc. and Subsidiaries:                                                                         |       |       |
|             |                                                                                                                       |       |       |
|             | Unaudited Consolidated Balance Sheets as of  September 30, 2007 and June 30, 2008                                |       | 1          |
|             |                                                                                                                       |       |       |
|             | Unaudited Consolidated Statements of Operations for  the Three and Nine Months Ended June 30, 2007 and 2008           |       | 2          |
|             |                                                                                                                       |       |       |
|             | Unaudited Consolidated Statements of Comprehensive  Income for the Three and Nine Months Ended June 30, 2007 and 2008 |       | 3          |
|             |                                                                                                                       |       |       |
|             | Unaudited Consolidated Statements of Cash Flows for  the Nine Months Ended June 30, 2007 and 2008                     |       | 4          |
|             |                                                                                                                       |       |       |
|             | Notes to Consolidated Financial Statements                                                                                 |       | 5          |
|             |                                                                                                                       |       |       |
| Item 2.          | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                |       | 13         |
|             |                                                                                                                       |       |       |
| Item 3.          | Quantitative  and Qualitative Disclosures About Market Risk                                                                |       | 29         |
|             |                                                                                                                       |       |       |
| Item 4.          | Controls and  Procedures                                                                                                   |       | 30         |
|             |                                                                                                                       |       |       |
| **PART II** | **OTHER INFORMATION**                                                                                                      | ** ** | ** ** |
| ** **       | ** **                                                                                                                 | ** ** | ** ** |
| Item 6.          | Exhibits                                                                                                                   |       | 31         |
|             |                                                                                                                       |       |       |
|             | Signatures                                                                                                                 |       | 32         |
|             |                                                                                                                       |       |       |
|             | Index  to Exhibits                                                                                                         |       | 33         |

 

----

Table of Contents

 

**PART I      FINANCIALINFORMATION**

Item 1.     Unaudited Condensed Financial Statements

 

**HAYNES INTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(inthousands, except share and per share data)**

 
| ** **                                                                                                                                                                         | ** ** | **September 30,  2007** | ** ** | **June 30,  2008** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| **ASSETS**                                                                                                                                                                         |       |                         |       |                    |       |
| Current assets:                                                                                                                                                                    |       |                         |       |                    |       |
| Cash and cash  equivalents                                                                                                                                                         |       | $                            | 5,717      |                    | $          | 9,857 |   |
| Restricted cash -  current portion                                                                                                                                                 |       | 110                          |       | 110                     |       |
| Accounts  receivable, less allowance for doubtful accounts of $1,339 and $1,481,  respectively                                                                                     |       | 106,414                      |       | 95,557                  |       |
| Inventories, net                                                                                                                                                                   |       | 286,302                      |       | 321,946                 |       |
| Income taxes  receivable                                                                                                                                                           |       | 1,760                        |       | 2,060                   |       |
| Deferred income  taxes                                                                                                                                                             |       | 10,801                       |       | 10,039                  |       |
| Other current  assets                                                                                                                                                              |       | 1,457                        |       | 3,368                   |       |
| Total current  assets                                                                                                                                                              |       | 412,561                      |       | 442,937                 |       |
|                                                                                                                                                                               |       |                         |       |                    |       |
| Property, plant  and equipment (at cost)                                                                                                                                           |       | 117,181                      |       | 133,404                 |       |
| Accumulated  depreciation                                                                                                                                                          |       | (19,321                      | )          | (26,194                 | )          |
| Net property,  plant and equipment                                                                                                                                                 |       | 97,860                       |       | 107,210                 |       |
|                                                                                                                                                                               |       |                         |       |                    |       |
| Deferred income  taxes - long term portion                                                                                                                                         |       | 22,738                       |       | 19,358                  |       |
| Prepayments and  deferred charges, net                                                                                                                                             |       | 3,702                        |       | 2,864                   |       |
| Restricted cash -  long term portion                                                                                                                                               |       | 330                          |       | 220                     |       |
| Goodwill                                                                                                                                                                           |       | 41,252                       |       | 43,737                  |       |
| Other intangible  assets                                                                                                                                                           |       | 8,526                        |       | 8,202                   |       |
| Total assets                                                                                                                                                                       |       | $                            | 586,969    |                    | $          | 624,528 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                     |       |                         |       |                    |       |
| Current  liabilities:                                                                                                                                                              |       |                         |       |                    |       |
| Accounts payable  and accrued expenses                                                                                                                                             |       | $                            | 60,443     |                    | $          | 71,139 |   |
| Accrued pension  and postretirement benefits                                                                                                                                       |       | 14,647                       |       | 20,518                  |       |
| Revolving credit  facilities                                                                                                                                                       |       | 35,549                       |       | 22,347                  |       |
| Deferred revenue  - current portion                                                                                                                                                |       | 2,500                        |       | 2,500                   |       |
| Current  maturities of long-term obligations                                                                                                                                       |       | 110                          |       | 110                     |       |
| Total current  liabilities                                                                                                                                                         |       | 113,249                      |       | 116,614                 |       |
|                                                                                                                                                                               |       |                         |       |                    |       |
| Long-term  obligations (less current portion)                                                                                                                                      |       | 3,074                        |       | 3,123                   |       |
| Deferred revenue  (less current portion)                                                                                                                                           |       | 45,329                       |       | 43,454                  |       |
| Non-current  income taxes payable                                                                                                                                                  |       | —                       |       | 2,591                   |       |
| Accrued pension  and postretirement benefits                                                                                                                                       |       | 108,940                      |       | 85,959                  |       |
| Total  liabilities                                                                                                                                                                 |       | 270,592                      |       | 251,741                 |       |
|                                                                                                                                                                               |       |                         |       |                    |       |
| Stockholders’  equity:                                                                                                                                                        |       |                         |       |                    |       |
| Common stock,  $0.001 par value (40,000,000 shares authorized, 11,807,237 and 11,953,766  issued and outstanding at September 30, 2007 and June 30, 2008,  respectively) |       | 12                           |       | 12                      |       |
| Preferred stock,  $0.001 par value (20,000,000 shares authorized, 0 shares issued and  outstanding)                                                                                |       | —                       |       | —                  |       |
| Additional  paid-in capital                                                                                                                                                        |       | 218,504                      |       | 224,501                 |       |
| Accumulated  earnings                                                                                                                                                              |       | 93,880                       |       | 139,523                 |       |
| Accumulated  other comprehensive income                                                                                                                                            |       | 3,981                        |       | 8,751                   |       |
| Total  stockholders’ equity                                                                                                                                                   |       | 316,377                      |       | 372,787                 |       |
| Total  liabilities and stockholders’ equity                                                                                                                                   |       | $                            | 586,969    |                    | $          | 624,528 |   |

 

The accompanying notesare an integral part of these financial statements.

 

1

----

Table of Contents

 

**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

**(inthousands, except share and per share data)**

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | **June 30,**                | ** ** | **June 30,**               | ** ** |
| ** **                                   | ** ** | **2007**                         | ** ** | **2008**                        | ** ** | **2007** | ** ** | **2008** | ** ** |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Net revenues                                 |       | $                                | 141,087    |                            | $          | 166,340 |   | $ | 398,886 |   | $ | 476,188 |   |
| Cost of sales                                |       | 104,148                          |       | 126,223                         |       | 287,993 |   | 365,946 |   |
| Gross profit                                 |       | 36,939                           |       | 40,117                          |       | 110,893 |   | 110,242 |   |
| Selling, general  and administrative expense |       | 10,871                           |       | 11,007                          |       | 29,152 |   | 31,059 |   |
| Research and  technical expense              |       | 747                              |       | 819                             |       | 2,225 |   | 2,566 |   |
| Operating income                             |       | 25,321                           |       | 28,291                          |       | 79,516 |   | 76,617 |   |
| Interest  expense, net                       |       | 263                              |       | 22                              |       | 3,338 |   | 802 |   |
| Income before  income taxes                  |       | 25,058                           |       | 28,269                          |       | 76,178 |   | 75,815 |   |
| Provision for  income taxes                  |       | 7,317                            |       | 10,705                          |       | 27,849 |   | 29,345 |   |
| Net income                                   |       | $                                | 17,741     |                            | $          | 17,564 |   | $ | 48,329 |   | $ | 46,470 |   |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Net income per  share:                       |       |                             |       |                            |       |   |   |   |   |
| Basic                                        |       | $                                | 1.52       |                            | $          | 1.47 |   | $ | 4.55 |   | $ | 3.91 |   |
| Diluted                                      |       | $                                | 1.49       |                            | $          | 1.46 |   | $ | 4.40 |   | $ | 3.87 |   |
| Weighted average  shares outstanding:        |       |                             |       |                            |       |   |   |   |   |
| Basic                                        |       | 11,650,000                       |       | 11,921,541                      |       | 10,616,484 |   | 11,882,929 |   |
| Diluted                                      |       | 11,913,310                       |       | 12,045,253                      |       | 10,981,509 |   | 12,013,792 |   |
|                                              |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notesare an integral part of these financial statements.

 

2

----

Table of Contents

 

**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**(Unaudited)**

**(inthousands)**

 
| ** **                               | ** ** | **Three Months Ended  June 30** | ** **   | **Nine Months Ended   June 30** | ** ** |
|------------------------------------------|------------|------------------------------------------------|--------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                       | ** **   | **2008**                                            | ** ** | **2007** | ** ** | **2008** | ** ** |
| Net income                          |       | $                                              |  17,741 |                                                | $          |  17,564 |   | $ |  48,329 |   | $ |  46,470 |   |
|                                     |       |                                           |         |                                                |       |   |   |   |   |
| Other  comprehensive income, net of tax: |       |                                           |         |                                                |       |   |   |   |   |
|                                     |       |                                           |         |                                                |       |   |   |   |   |
| Pension  curtailment                     |       | —                                         |         | —                                              |       | — |   | 2,701 |   |
|                                     |       |                                           |         |                                                |       |   |   |   |   |
| Foreign currency  translation adjustment |       | 589                                            |         | (207                                                | )          | 2,276 |   | 2,069 |   |
|                                     |       |                                           |         |                                                |       |   |   |   |   |
| Comprehensive  income                    |       | $                                              | 18,330       |                                                | $          | 17,357 |   | $ | 50,605 |   | $ | 51,240 |   |

 

The accompanying notesare an integral part of these financial statements.

 

3

----

Table of Contents

 

**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(inthousands)**

 
| ** **                                                                         | ** **                              | **Nine Months Ended   June 30,** | ** ** |
|------------------------------------------------------------------------------------|-----------------------------------------|------------------------------------------------------|------------|
| ** **                                                                         | ** **                              | **2007**                                             | ** ** | **2008** | ** ** |
| Cash flows from  operating activities:                                             |                                    |                                                 |       |   |   |
| Net income                                                                         |                                    | $                                                    | 48,329     |   | $ | 46,470 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |                                    |                                                 |       |   |   |
| Depreciation                                                                       |                                    | 5,474                                                |       | 6,561 |   |
| Amortization                                                                       |                                    | 843                                                  |       | 824 |   |
| Stock  compensation expense                                                        |                                    | 2,359                                                |       | 1,216 |   |
| Excess tax  benefit from option exercises                                          |                                    | (7,888                                               | )          | (2,842 | ) |
| Deferred revenue                                                                   |                                    | 50,000                                               |       | — |   |
| Deferred revenue  - portion recognized                                             |                                    | (1,546                                               | )          | (1,875 | ) |
| Deferred income  taxes                                                             |                                    | 2,775                                                |       | 1,767 |   |
| Loss on disposal  of property                                                      |                                    | 51                                                   |       | 223 |   |
| Change in assets  and liabilities:                                                 |                                    |                                                 |       |   |   |
| Accounts receivable                                                                |                                    | (4,412                                               | )          | 11,587 |   |
| Inventories                                                                        |                                    | (102,540                                             | )          | (33,595 | ) |
| Other assets                                                                       |                                    | (2,695                                               | )          | (934 | ) |
| Accounts payable  and accrued expenses                                             |                                    | 33,693                                               |       | 8,953 |   |
| Income taxes                                                                       |                                    | 1,727                                                |       | 4,715 |   |
| Accrued pension  and postretirement benefits                                       |                                    | (3,242                                               | )          | (12,578 | ) |
| Net cash  provided by operating activities                                         |                                    | 22,473                                               |       | 30,492 |   |
|                                                                               |                                    |                                                 |       |   |   |
| Cash flows from  investing activities:                                             |                                    |                                                 |       |   |   |
| Additions to  property, plant and equipment                                        |                                    | (11,132                                              | )          | (15,041 | ) |
| Asian  distribution expansion and acquisition                                      |                                    | —                                               |       | (3,000 | ) |
| Change in  restricted cash                                                         |                                    | 110                                                  |       | 110 |   |
| Net cash used in  investing activities                                             |                                    | (11,022                                              | )          | (17,931 | ) |
|                                                                               |                                    |                                                 |       |   |   |
| Cash flows from  financing activities:                                             |                                    |                                                 |       |   |   |
| Net decrease in  revolving credit facility                                         |                                    | (99,032                                              | )          | (13,202 | ) |
| Proceeds from  equity offering, net                                                |                                    | 72,753                                               |       | — |   |
| Proceeds from  exercise of stock options                                           |                                    | 6,083                                                |       | 1,939 |   |
| Excess tax  benefit from option exercises                                          |                                    | 7,888                                                |       | 2,842 |   |
| Payments on  long-term obligations                                                 |                                    | (123                                                 | )          | (139 | ) |
| Net cash used in  financing activities                                             |                                    | (12,431                                              | )          | (8,560 | ) |
|                                                                               |                                    |                                                 |       |   |   |
| Effect of  exchange rates on cash                                                  |                                    | 224                                                  |       | 139 |   |
| Increase  (decrease) in cash and cash equivalents                                  |                                    | (756                                                 | )          | 4,140 |   |
|                                                                               |                                    |                                                 |       |   |   |
| Cash and cash  equivalents, beginning of period                                    |                                    | 6,182                                                |       | 5,717 |   |
| Cash and cash  equivalents, end of period                                          |                                    | $                                                    | 5,426      |   | $ | 9,857 |   |
|                                                                               |                                    |                                                 |       |   |   |
| Supplemental  disclosures of cash flow information:                                |                                    |                                                 |       |   |   |
| Cash paid during  period for:                                                      | Interest (net of  capitalized interest) |                                                 | $          | 3,198 |   | $ | 972 |   |
|                                                                               | Income taxes                            |                                                 | $          | 23,818 |   | $ | 23,414 |   |

 

The accompanying notesare an integral part of these financial statements.

 

4

----

Table of Contents

 

**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**(inthousands, except share and per share data)**

 

## **Note1.**          Basis ofPresentation

 

*Interim Financial Statements*

* *

The accompanyingunaudited interim condensed consolidated financial statements are prepared inconformity with accounting principles generally accepted in the United Statesof America and such principles are applied on a basis consistent withinformation reflected in our Form 10-K for the year ended September 30,2007 filed with the Securities and Exchange Commission (“SEC”). Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted pursuant to the rules andregulations promulgated by the SEC. In the opinion of management, the interimfinancial information includes all adjustments and accruals, consisting only ofnormal recurring adjustments, which are necessary for a fair presentation ofresults for the respective interim periods. The results of operations for thethree and nine months ended June 30, 2008 are not necessarily indicativeof the results to be expected for the full fiscal year ending September 30,2008 or any interim period.

 

*Principles of Consolidation*

* *

The consolidatedfinancial statements include the accounts of Haynes International, Inc. andits wholly-owned subsidiaries (collectively, the “Company”). All significantintercompany transactions and balances are eliminated.

 

*Equity Offering*

* *

On March 23, 2007,the Company completed an equity offering, which resulted in the issuance of1,200,000 shares of its common stock at a price of $65.00 per share. The netproceeds to the Company after underwriting discounts, commissions and offeringexpenses were $72,753. As a part of the offering, certain employees anddirectors exercised 450,000 stock options and the payment of the exercise pricefor those stock options resulted in an additional $6,083 in proceeds to theCompany. These combined resulted in a total of 1,650,000 shares issued.

 

## **Note2.**          NewAccounting Pronouncements

 

In July 2006, the FASB issuedInterpretation No. 48, *Accounting forUncertainty in Income Taxes*(“FIN 48”).**FIN 48addresses the noncomparability in reporting tax assets and liabilitiesresulting from a lack of specific guidance in SFAS No. 109, *Accounting for Income Taxes,*on theuncertainty in income taxes recognized in an enterprise’s financial statements*. *Specifically, FIN 48 prescribes (a) aconsistent recognition threshold and (b) a measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return, and provides related guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. The impact of the adoption of FIN 48on October 1, 2007, was to****decreaseaccumulated earnings by $827, increase goodwill by $675, increase deferred taxassets by $3,316, and increase non-current income taxes payable by $4,818. Inconjunction with the adoption of FIN 48, we have classified uncertain taxpositions as non-current income tax liabilities unless they are expected to bepaid within 12 months of the balance sheet date. Income tax-related interestexpense is reported as a component of income tax expense and the relatedliability is included in non-current income taxes payable. As of October 1,2007, we recorded a liability of approximately $200 for the payment ofinterest.

 

As of October 1, 2007, we were open toexamination in the U.S. Federal tax jurisdiction for various years from 1994 to2007, in the U.K. for the years 2001-2007, in Switzerland for the years2002-2007, and in France for the years 2004-2007.  We are also open to examination in variousstate and local jurisdictions for various tax years, none of which wereindividually material.  In April 2008,an audit in the U.S. Federal tax jurisdiction was 

 

5

----

Tableof Contents

 

concluded,with no material change to our results of operations. As of June 30, 2008we were open to examination in the U.S. Federal tax jurisdiction for only 2007.

 

As of October 1, 2007,the total amount of unrecognized tax benefits was $4,818, of which $827 wouldaffect the effective tax rate, if recognized. The amount of unrecognized taxbenefits as of June 30, 2008 was $2,591, of which $883 would affect theeffective tax rate, if recognized.

 

The amount of unrecognized taxbenefits changed in the three months ended June 30, 2008 due tointernational tax positions being effectively settled and as a result of taxpositions taken on the Company’s September 30, 2007 tax returns. As aresult of these events, the unrecognized tax benefits decreased by $4,480 alongwith a decrease to deferred tax assets of $3,167, a decrease of goodwill of$675, and a decrease to income tax provision of $638.

 

In September 2006, theFASB issued FASB Statement No. 157, *Fair Value Measurement*(“SFAS 157”). SFAS 157 addresses standardizing the measurement offair value for companies who are required to use a fair value measure forrecognition or disclosure purposes. The FASB defines fair value as “the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.”  The statement is effective for fiscal years beginning after November 15,2007 and for interim periods within those fiscal years. The Company is requiredto adopt SFAS 157 beginning on October 1, 2008. The Company iscurrently evaluating the impact, if any, of SFAS 157 on its financialposition, results of operations and cash flows.

 

## **In February 2007,the FASB issued FASB Statement No. 159, *Establishingthe Fair Value Option for Financial Assets and Liabilities*(“SFAS159”)*,* to permit all entities to elect tomeasure eligible financial instruments at fair value. SFAS 159 applies tofiscal years beginning after November 15, 2007, with early adoptionpermitted for an entity that has also elected to apply the provisions of SFAS157, Fair Value Measurements. An entity is prohibited from retrospectivelyapplying SFAS 159, unless it chooses early adoption. The Company is currentlyevaluating the impact, if any, of SFAS 159 on its financial position, resultsof operations and cash flows.**

## ** **

In December 2007,the FASB issued FASB Statement No. 141 (revised 2007), *Business Combinations* (“FAS 141(R)”).  FAS 141(R) requires that the fair valueof the purchase price of an acquisition including the issuance of equitysecurities be determined on the acquisition date; requires that all assets,liabilities, noncontrolling interests, contingent consideration, contingencies,and in-process research and development costs of an acquired business berecorded at fair value at the acquisition date; requires that acquisition costsgenerally be expensed as incurred; requires that restructuring costs generallybe expensed in periods subsequent to the acquisition date; and requires thatchanges in deferred tax asset valuation allowances and acquired income tax uncertaintiesafter the measurement period impact income tax expense. FAS 141(R) alsoexpands disclosures related to business combinations. FAS 141(R) will beapplied prospectively to business combinations occurring after the beginning ofthe Company’s fiscal year 2010, except that business combinations consummatedprior to the effective date must apply FAS 141(R) income tax requirementsimmediately upon adoption. The Company is currently evaluating the impact ofFAS 141(R) on its financial position, results of operations and cashflows.

 

In December 2007,the FASB issued FASB Statement No. 160, *NoncontrollingInterests in Consolidated Financial Statements, an Amendment of ARB No. 51*(“FAS 160”). FAS 160 requires that noncontrolling interests be reported as a separatecomponent of equity, that net income attributable to the parent and to thenoncontrolling interest be separately identified in the consolidated statementof operations, that changes in a parent’s ownership interest be accounted foras equity transactions, and that, when a subsidiary is deconsolidated, anyretained noncontrolling equity investment in the former subsidiary and the gainor loss on the deconsolidation of the subsidiary be measured at fair value. FAS160 will be applied prospectively, except for presentation and disclosurerequirements which will be applied retrospectively, as of the beginning of theCompany’s fiscal year 2010. The Company does not currently have noncontrollinginterests, and therefore the adoption of FAS 160 is not expected to have animpact on the Company’s financial position, results of operations or cashflows.

 

6

----

Table of Contents

 

## **Note3.**          Inventories

 

The following is asummary of the major classes of inventories:

 
| ** **      | ** ** | **September 30, 2007** | ** ** | **June 30, 2008** | ** ** |
|-----------------|------------|----------------------------------|------------|-----------------------------|------------|
| Raw Materials   |       | $                                | 16,218     |                        | $          | 21,599 |   |
| Work-in-process |       | 162,266                          |       | 171,659                     |       |
| Finished Goods  |       | 106,419                          |       | 127,612                     |       |
| Other, net      |       | 1,399                            |       | 1,076                       |       |
|            |       | $                                | 286,302    |                        | $          | 321,946 |   |

## ** **

## **Note4.**          Income Taxes

## ** **

Income tax expense forthe three and nine months ended June 30, 2007 and 2008, differed from theU.S. federal statutory rate of 35% primarily due to state income taxes anddiffering tax rates on foreign earnings. The effective tax rate for the thirdquarter of fiscal 2008 was 37.9% compared to 29.2% in the same period of fiscal2007. The low effective rate last year in the third quarter of fiscal 2007 wasa result of the filing of amended tax returns during the quarter to claimfavorable items from extraterritorial income exclusion and foreign tax credits,which approximated $2,889.

 

**Note 5.****          Pension andPost-retirement Benefits**

** **

Components of netperiodic pension and post-retirement benefit cost for the three and nine monthsended June 30, are as follows:

 
| ** **                           | ** ** | **Three Months Ended June 30,** | ** ** | **Nine Months Ended June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                           | ** ** | **Pension Benefits**                           | ** ** | **Other Benefits**                            | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
| ** **                           | ** ** | **2007**                                            | ** ** | **2008**                                           | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| Service cost                         |       | $                                                   | 1,044      |                                               | $          | 708 |   | $ | 361 |   | $ | 361 |   | $ | 3,161 |   | $ | 2,123 |   | $ | 1,083 |   | $ | 1,083 |   |
| Interest cost                        |       | 2,430                                               |       | 2,684                                              |       | 1,115 |   | 1,115 |   | 7,361 |   | 8,056 |   | 3,345 |   | 3,345 |   |
| Expected return                      |       | (2,590                                              | )          | (2,852                                             | )          | — |   | — |   | (7,844 | ) | (8,554 | ) | — |   | — |   |
| Amortizations                        |       | —                                              |       | 202                                                |       | (1,032 | ) | (1,032 | ) | — |   | 606 |   | (3,096 | ) | (3,096 | ) |
| Curtailment gain                     |       | —                                              |       | —                                             |       | — |   | — |   | — |   | (3,659 | ) | — |   | — |   |
| Net periodic  benefit cost (benefit) |       | $                                                   | 844        |                                               | $          | 742 |   | $ | 444 |   | $ | 444 |   | $ | 2,678 |   | $ | (1,428 | ) | $ | 1,332 |   | $ | 1,332 |   |

 

The Company contributed$6,512 to the Company sponsored domestic pension plans, $3,035 to its otherpost-retirement benefit plans and $921 to the U.K. pension plan for the ninemonths ended June 30, 2008. The Company presently expects futurecontributions of $1,950 to its domestic pension plans, $1,565 to its other post-retirementbenefit plans and $306 to the U.K. pension plans for the remainder of fiscal2008. The Pension Protection Act of 2006 requires funding over a seven yearperiod to achieve 100% funded status.

 

***On October 2, 2007, the U.S. pensionplan was amended effective December 31, 2007 to freeze benefit accrualsfor all non-union employees in the U.S. and effective January 1, 2008, thepension multiplier used to calculate the employee’s monthly benefit wasincreased from 1.4% to 1.6%. In addition, the Company will make enhancedmatching contributions to its 401K plan equal to 60% of the non-union and unionplan participant’s salary deferrals, up to 6% of compensation. The Companyestimates the redesign of the pension plan, including previous actions to closethe plan to new non-union and union employees and the adjustment of themultiplier for non-union and union plan participants, will reduce fundingrequirements by $23,000 over the next six years. The offsetting estimatedincremental cost of the enhanced 401K match is $2,300 over the same six yearperiod. As a result of freezing the benefit accruals for all non-unionemployees in the U.S. in the first quarter of fiscal 2008, we recognized areduction of the projected benefit obligation of $8,191, an increase to othercomprehensive income (before tax) of $4,532 and a curtailment gain (before tax)of $3,659. The impact of the multiplier increase will be charged to pensionexpense over the estimated remaining lives of the participants.***

 

7

----

Tableof Contents

 

**Note 6. Environmental and Legal**

 

The Company is regularlyinvolved in litigation, both as a plaintiff and as a defendant, relating to itsbusiness and operations, including environmental and intellectual propertymatters. Future expenditures for environmental, intellectual property and otherlegal matters cannot be determined with any degree of certainty; however, basedon the facts presently known, management does not believe that such costs willhave a material effect on the Company’s financial position, results ofoperations or cash flows.

 

The Company believes thatany and all claims arising out of conduct or activities that occurred prior toMarch 29, 2004 are subject to dismissal. On March 29, 2004, the Company andcertain of its subsidiaries and affiliates filed voluntary petitions for reliefunder Chapter 11 of Title 11 of the United States Bankruptcy Code in the UnitedStates Bankruptcy Court for the Southern District of Indiana (the “BankruptcyCourt”). On August 16, 2004, the Bankruptcy Court entered its Findings of Fact,Conclusions of Law, and Order Under 11 U.S.C. 1129(a) and (b) and Fed. R.Bankr. P. 3020 Confirming the First Amended Joint Plan of Reorganization ofHaynes International, Inc. and its Affiliated Debtors and Debtors-in-Possessionas Further Modified (the “Confirmation Order”). The Confirmation Order andrelated Chapter 11 Plan, among other things, provide for the release anddischarge of prepetition claims and causes of action. The Confirmation Orderfurther provides for an injunction against the commencement of any actions withrespect to claims held prior to the Effective Date of the Plan. The EffectiveDate occurred on August 31, 2004. When appropriate, the Company pursues thedismissal of lawsuits premised upon claims or causes of action discharged inthe Confirmation Order and related Chapter 11 Plan. The success of thisstrategy is dependent upon a number of factors, including the respectivecourt’s interpretation of the Confirmation Order and the unique circumstancesof each case.

 

The Company is currently,and has in the past, been subject to claims involving personal injuriesallegedly relating to its products. For example, the Company is presentlyinvolved in two actions involving welding rod-related injuries, both of whichwere filed in California state court against numerous manufacturers, includingthe Company, in May 2006 and February 2007, respectively, alleging that thewelding-related products of the defendant manufacturers harmed the users ofsuch products through the inhalation of welding fumes containing manganese. TheCompany believes that it has defenses to these allegations and, that if theCompany were found liable, the cases would not have a material effect on itsfinancial position, results of operations or liquidity. In addition to thesecases, the Company has in the past been named a defendant in several otherlawsuits with similar facts, and has since been voluntarily dismissed from allof these lawsuits on the basis of the release and discharge of claims containedin the Confirmation Order. While the Company contests such lawsuits vigorously,and may have applicable insurance, there are several risks and uncertaintiesthat may affect its liability for claims relating to exposure to welding fumesand manganese. For instance, in recent cases, at least two courts (in cases notinvolving the Company) have refused to dismiss claims relating to inhalation ofwelding fumes containing manganese based upon a bankruptcy discharge order.Although the Company believes the facts of these cases are distinguishable fromthe facts of its cases, there can be no assurance that any or all claimsagainst the Company will be dismissed based upon the Confirmation Order,particularly claims premised, in part or in full, upon actual or allegedexposure on or after the date of the Confirmation Order. It is also possiblethat the Company will be named in additional suits alleging welding-rodinjuries. Should such litigation occur, it is possible that the aggregateclaims for damages, if the Company is found liable, could have a materialadverse effect on its financial condition, results of operations or liquidity.

 

The Company has receivedpermits from the Indiana Department of Environmental Management, or IDEM, toclose and to provide post-closure monitoring and care for certain areas at theKokomo facility previously used for the storage and disposal of wastes, some ofwhich are classified as hazardous under applicable regulations. Closurecertification was received in fiscal 1988 for the South Landfill at the Kokomofacility and post-closure monitoring and care is ongoing there. Closurecertification was received in fiscal 1999 for the North Landfill at the Kokomofacility and post-closure monitoring and care are permitted and ongoing there.In addition, at the request of IDEM, the Company has initiated an investigationof three additional areas at the Kokomo facility. The Company has also receivedpermits from the North Carolina Department of Environment and NaturalResources, or NCDENR to close and provide post-closure monitoring and care forthe hazardous waste lagoon at its Mountain Home, North Carolina facility. The lagoonarea has been closed and is currently undergoing post-closure monitoring andcare. The Company is required to monitor groundwater and to continuepost-closure maintenance 

 

8

----

Tableof Contents

 

of the former disposal areas at each site. As a result, the Company isaware of elevated levels of certain contaminants in the groundwater andadditional corrective actions by the Company could be required. In addition,groundwater monitoring has begun and is ongoing on two additional solid wastemanagement units. The Company is unable to estimate the costs of these or anyfurther corrective action at either site, if required. Accordingly, the Companyprovides no assurance that the costs of any future corrective action at theseor any other current former sites would not have a material effect on theCompany’s financial condition, results of operations or liquidity.Additionally, it is possible that the Company could be required to undertakeother corrective action commitments for any other solid waste management unitexisting or determined to exist at its facilities. As a condition of thepost-closure permits, the Company must provide and maintain assurances to IDEMand NCDENR of the Company’s capability to satisfy post-closure groundwatermonitoring and care requirements, including possible future corrective actionas necessary. The Company provides these required assurances through a statutoryfinancial assurance test as provided by Indiana and North Carolina law.

 

As of June 30, 2008 andSeptember 30, 2007, the Company has accrued $1,519 for post-closure monitoringand maintenance activities. In accordance with Statement of Position 96-1, *Environmental Remediation Liabilities*, accruals for thesecosts are calculated by estimating the cost to monitor and maintain eachpost-closure site and multiplying that amount by the number of years remainingin the 30 year post-closure monitoring period. At each fiscal year-end, orearlier if necessary, the Company evaluates the accuracy of the estimates forthese monitoring and maintenance costs for the upcoming fiscal year. Theaccrual was based upon the undiscounted amount of the obligation of $2,377 whichwas then discounted using an appropriate discount rate. The cost associatedwith closing the sites has been incurred in financial periods prior to thosepresented, with the remaining cost to be incurred in future periods relatedsolely to post-closure monitoring and maintenance. Based on historicalexperience, the Company estimates that the cost of post-closure monitoring andmaintenance will approximate $126 per year over the remaining obligationperiod.

 

**Note 7. Deferred Revenue**

 

On November 17, 2006, theCompany entered into a twenty-year agreement to provide conversion services toTitanium Metals Corporation (“TIMET”) for up to ten million pounds (with anoption for TIMET to request an additional ten million pounds) of titanium metalannually at prices established by the terms of the agreement. TIMET paid theCompany a $50.0 million up-front fee and will also pay the Company for itsprocessing services during the term of the agreement (20 years) at pricesestablished by the terms of the agreement. The cash received of $50.0 millionis being recognized in income on a straight-line basis over the 20-year term ofthe agreement. The portion not recognized in income will be shown as deferredrevenue on the consolidated balance sheet. The Company used the proceeds, netof expenses, of the $50 million up-front fee paid by TIMET to reduce thebalance of its U.S. revolving credit facility. Revenue of $1,546 and $1,875 hasbeen recognized related to this agreement, during the nine months ended June30, 2007 and 2008, respectively. Taxes will be paid on the up-front feeprimarily in the first quarter of fiscal 2009.

 

**Note 8. Intangible Assets and Goodwill**

 

Goodwill was created as aresult of the Company’s reorganization pursuant to Chapter 11 of the U.S.Bankruptcy Code and fresh start accounting. The Company adopted FASB StatementNo. 142, *Goodwill and Other Intangible Assets*(“SFAS 142”). Pursuant to SFAS 142, goodwill is not amortized and the value ofgoodwill is reviewed at least annually for impairment. If the carrying valueexceeds the fair value, impairment of goodwill may exist resulting in a chargeto earnings to the extent of goodwill impairment. Goodwill was also created inJune 2008 related to the acquisition of assets and related agreements enteredinto with HW Limited and its affiliated companies in Hong Kong and China,including the acquisition of office equipment and non-compete agreements. Theasset acquisition and related agreements increased fixed assets by $15,increased non-compete agreements by $500 and increased goodwill by $2,485.

 

The Company also haspatents, trademarks and other intangibles. As the patents have a finite life,they are amortized over lives ranging from two to fourteen years. As thetrademarks have an indefinite life, the Company tests them for impairment atleast annually. If the carrying value exceeds the fair value (determined bycalculating a fair value based upon a discounted cash flow of an assumedroyalty rate), impairment of the trademark may exist resulting in a charge toearnings to the extent of impairment. The Company has non-compete agreementswith lives 

 

9

----

Tableof Contents

 

of twoto seven years. Amortization of the patents, non-competes and other intangibleswas $843, and $824 for the nine months ended June 30, 2007 and 2008,respectively.

 

Goodwill and trademarks weretested for impairment on August 31, 2007 with no impairment recognizedbecause the fair values exceeded the carrying values. Goodwill increased $2,485during the nine months ended June 30, 2008 due to the acquisition ofassets described above.

 

The following represents asummary of intangible assets and goodwill at September 30, 2007 and June 30,2008:

 
| **September 30, 2007** | ** ** | **Gross Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Carrying  Amount** | ** ** |
|----------------------------------|------------|-----------------------|------------|-------------------------------|------------|----------------------|------------|
| Goodwill                         |       | $                     | 41,252     |                          | $          | —               |       | $ | 41,252 |   |
| Patents                          |       | 8,667                 |       | (4,712                        | )          | 3,955                |       |
| Trademarks                       |       | 3,800                 |       | —                        |       | 3,800                |       |
| Non-compete                      |       | 840                   |       | (266                          | )          | 574                  |       |
| Other                            |       | 465                   |       | (268                          | )          | 197                  |       |
|                             |       | $                     | 55,024     |                          | $          | (5,246               | )          | $ | 49,778 |   |

 
| **June 30, 2008** | ** ** | **Gross Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Carrying  Amount** | ** ** |
|-----------------------------|------------|-----------------------|------------|-------------------------------|------------|----------------------|------------|
| Goodwill                    |       | $                     | 43,737     |                          | $          | —               |       | $ | 43,737 |   |
| Patents                     |       | 8,667                 |       | (5,288                        | )          | 3,379                |       |
| Trademarks                  |       | 3,800                 |       | —                        |       | 3,800                |       |
| Non-compete                 |       | 1,340                 |       | (418                          | )          | 922                  |       |
| Other                       |       | 465                   |       | (364                          | )          | 101                  |       |
|                        |       | $                     | 58,009     |                          | $          | (6,070               | )          | $ | 51,939 |   |

 
| **Estimate of Aggregate Amortization Expense:** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|------------|------------|
| **Year Ended September 30,**                         | ** ** | ** ** | ** ** |
| 2008 (remainder  of fiscal year)                                    |       | $          | 294        |   |
| 2009                                                                |       | 816        |       |
| 2010                                                                |       | 376        |       |
| 2011                                                                |       | 363        |       |
| 2012                                                                |       | 288        |       |
|                                                                     |            |            |            |  |

 

**Note 9.   Net IncomePer Share**

 

Basicand diluted net income per share were computed as follows:

 
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                            | ** ** | **June 30,**                | ** ** | **June 30,**               | ** ** |
| **(in thousands except share and per share data)** | ** ** | **2007**                         | ** ** | **2008**                        | ** ** | **2007** | ** ** | **2008** | ** ** |
| Numerator:                                                                            |       |                             |       |                            |       |   |   |   |   |
| Net Income                                                                            |       | $                                | 17,741     |                            | $          | 17,564 |   | $ | 48,329 |   | $ | 46,470 |   |
|                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Denominator:                                                                          |       |                             |       |                            |       |   |   |   |   |
|                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Weighted average  shares outstanding - Basic                                          |       | 11,650,000                       |       | 11,921,541                      |       | 10,616,484 |   | 11,882,929 |   |
| Effect of  dilutive stock options                                                     |       | 263,310                          |       | 123,712                         |       | 365,025 |   | 130,863 |   |
| Weighted average  shares outstanding - Diluted                                        |       | 11,913,310                       |       | 12,045,253                      |       | 10,981,509 |   | 12,013,792 |   |
|                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Basic net income  per share                                                           |       | $                                | 1.52       |                            | $          | 1.47 |   | $ | 4.55 |   | $ | 3.91 |   |
| Diluted net  income per share                                                         |       | $                                | 1.49       |                            | $          | 1.46 |   | $ | 4.40 |   | $ | 3.87 |   |
|                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Number of shares  excluded as their effect would be anti-dilutive                     |       | 126,000                          |       | 256,000                         |       | 84,000 |   | 214,333 |   |

 

10

----

Tableof Contents

 

Weighted average shares outstanding increased due tothe equity offering in the second quarter of fiscal 2007 and the exercise ofstock options. Anti-dilutive shares with respect to outstanding stock optionshave been excluded from the computation of diluted net income per share.

 

## **Note10.  Stock-Based Compensation**

 

The Company has two stock option plans thatauthorize the granting of non-qualified stock options to certain key employeesand non-employee directors for the purchase of a maximum of 1,500,000 shares ofthe Company’s common stock. The original option plan was adopted in August 2004pursuant to the plan of reorganization and provides for the grant of options topurchase up to 1,000,000 shares of the Company’s common stock. In January 2007,the Company’s Board of Directors adopted a second option plan that provides foroptions to purchase up to 500,000 shares of the Company’s common stock. Eachplan provides for the adjustment of the maximum number of shares for whichoptions may be granted in the event of a stock split, extraordinary dividend ordistribution or similar recapitalization event. Unless the CompensationCommittee determines otherwise, options granted under the option plans areexercisable for a period of ten years from the date of grant and vest 33 1/3%per year over three years from the grant date.

 

The fair value of theoption grants was estimated as of the date of the grant pursuant FASB StatementNo. 123 (R), *Share-Based Payment, a replacement of SFAS No. 123,Accounting For Stock-Based Compensation, and rescission of APB Opinion No. 25,Accounting for Stock Issued to Employees* (“SFAS 123(R)”)*,* using the Black-Scholes option pricing model with thefollowing assumptions:

 
| **Grant Date**      | ** ** | **Fair  Value** | ** **  | **Dividend  Yield** | ** ** | **Risk-free  Interest  Rate** | ** ** | **Expected  Volatility** | ** ** | **Expected  Life** | ** **   |
|--------------------------|------------|-----------------|-------------|---------------------|------------|-------------------------------|------------|--------------------------|------------|--------------------|--------------|
| March 30, 2007 |       | $               |  19.06 |                | 0          | %                             | 4.54       | %                        | 30.00      | %                  | 3 years |   |
| September 1,  2007       |       | $               | 21.42       |                | 0          | %                             | 4.16       | %                        | 30.00      | %                  | 3 years      |   |
| March 31, 2008           |       | $               | 16.41       |                | 0          | %                             | 1.88       | %                        | 42.00      | %                  | 3 years      |   |

 

On March 31, 2008,the Company granted 130,000 options at an exercise price of $54.00, the fairmarket value of the Company’s common stock on the day prior to the date of thegrant. During the first quarter of fiscal 2008, 98,073 options were exercisedwhich generated $1,255 cash to the Company and increased the shares of commonstock outstanding by 98,073 shares. During the second quarter of fiscal 2008,4,100 options were exercised which generated $52 cash to the Company andincreased the shares of common stock outstanding by 4,100 shares.  During the third quarter of fiscal 2008,44,356 options were exercised which generated $631 cash to the company andincreased shares of common stock outstanding by 44,356.

 

The stock-based employeecompensation expense for the three and nine months ended June 30, 2008 was$515 ($307 net of tax or $0.03 per fully diluted share) and $1,216 ($725 net oftax or $0.06 per fully diluted share), respectively, leaving remainingunrecognized compensation expense at June 30, 2008 of $3,676 to berecognized over a weighted average period vesting of 1.74 years. Thestock-based employee compensation expense for the three and nine months ended June 30,2007 was $933 ($556 net of tax or $0.05 per fully diluted share) and $2,359($1,404 net of tax or $0.13 per fully diluted share), respectively.

 

The following table summarizes the activity under the stock optionplans for the nine months ended June 30, 2008:

 
| ** **                              | ** ** | **Number  of  Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|-----------------------------------------|------------|------------------------|------------|----------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding at  September 30, 2007 |       | 503,763                |       | $                                      | 30.52      |                                                    |       |                                |       |   |
| Granted                                 |       | 130,000                |       | 54.00                                  |       |                                                    |       |                                |       |
| Forfeited                               |       | (5,000                 | )          | 72.93                                  |       |                                                    |       |                                |       |
| Exercised                               |       | (146,529               | )          | 12.33                                  |       |                                                    |       |                                |       |
| Outstanding at  June 30, 2008      |       | 482,234                |       | $                                      | 39.35      |                                                    | 8.00 Years |                                | $          | 9,653,037 |   |
| Vested or  expected to vest             |       | 482,234                |       | $                                      | 41.66      |                                                    | 8.00 Years |                                | $          | 9,653,037 |   |
| Exercisable at  June 30, 2008      |       | 228,223                |       | $                                      | 25.25      |                                                    | 6.79 Years |                                | $          | 7,371,471 |   |

 

11

----

Table ofContents

 
| ** **              | ** ** | **Outstanding**            | ** ** | **Exercisable**                     | ** ** |
|-------------------------|------------|----------------------------|------------|-------------------------------------|------------|
| **Grant Date**     | ** ** | **Number  of Shares** | ** ** | **Exercise  Price Per  Share** | ** ** | **Remaining  Contractual  Life in Years** | ** ** | **Number  of Shares** | ** ** | **Exercise Price  Per Share** | ** ** |
| August 31,  2004   |       | 157,899                    |       | $                                   | 12.80      |   | 6.17 |   | 157,899 |   | $ | 12.80 |   |
| May 5, 2005        |       | 8,334                      |       | 19.00                               |       | 6.83 |   | 8,334 |   | 19.00 |   |
| August 15,  2005   |       | 11,667                     |       | 20.25                               |       | 7.17 |   | — |   | 20.25 |   |
| October 1,  2005   |       | 5,000                      |       | 25.50                               |       | 7.25 |   | — |   | 25.50 |   |
| February 21,  2006 |       | 33,334                     |       | 29.25                               |       | 7.67 |   | 16,666 |   | 29.25 |   |
| March 31,  2006    |       | 10,000                     |       | 31.00                               |       | 7.75 |   | 5,000 |   | 31.00 |   |
| March 30,  2007    |       | 121,000                    |       | 72.93                               |       | 8.75 |   | 40,324 |   | 72.93 |   |
| September 1,  2007 |       | 5,000                      |       | 83.53                               |       | 9.17 |   | — |   | 83.53 |   |
| March 31,  2008    |       | 130,000                    |       | 54.00                               |       | 9.75 |   | — |   | 54.00 |   |
|                    |       | 482,234                    |       |                                |       |   |   | 228,223 |   |   |   |
|                         |            |                            |            |                                     |            |  |  |  |  |  |  |  |  |

 

12

----

Tableof Contents

 

**Item2.     Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

References to years or portions of years in Management’s Discussion andAnalysis of Financial Condition and Results of Operations refer to the Company’sfiscal years ended September 30, unless otherwise indicated*.*

 

*This discussion contains statements that constituteforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Thosestatements appear in a number of places in this discussion and may include, butare not limited to, statements regarding the intent, belief or current expectationsof the Company or its management with respect to, but are not limited to (i) theCompany’s strategic plans; (ii) any significant change in customer demandfor its products or in demand for its customers’ products; (iii) theCompany’s dependence on production levels at its Kokomo facility and itsability to make capital improvements at that facility, including the effects ofplanned equipment downtime; (iv) rapid increases in the cost of nickel,energy and other raw materials; (v) the Company’s ability to continue todevelop new commercially viable applications and products; (vi) theCompany’s ability to recruit and retain key employees; (vii) the Company’sability to comply, and the costs of compliance, with applicable environmentallaws and regulations; (viii) economic and market risks associated withforeign operations and U.S. and world economic and political conditions; and (ix) increasedcompetition in the Company’s markets from the Company’s competitors who produceboth high-performance alloys and stainless steel. Readers are cautioned thatany such forward-looking statements are not guarantees of future performanceand involve risks and uncertainties. Actual results may differ materially from those in the forward-lookingstatements as a result of various factors, many of which are beyond the controlof the Company.*

 

*The Company has based these forward-lookingstatements on its current expectations and projections about futureevents.  Although the Company believesthat the assumptions on which the forward-looking statements contained hereinare based are reasonable, any of those assumptions could prove to beinaccurate, and as a result, the forward-looking statements based upon thoseassumptions also could be incorrect. Risks and uncertainties, some of which are discussed in Item 1A. of Part 1to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30,2007, and in Part II, Item 1A of the Company’s Form 10-Q for thefiscal quarter ended March 31, 2008 may affect the accuracy offorward-looking statements.*

 

*The Company undertakes no obligation to publiclyupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise.*

 

**Overview**

 

**Business:** Haynes International, Inc. (“Haynes” or“the Company”) is one of the world’s largest producers of high-performancenickel- and cobalt-based alloys in sheet, coil and plate forms. The Company isfocused on developing, manufacturing, marketing and distributingtechnologically advanced, high-performance alloys, which are used primarily inthe aerospace, chemical processing and land-based gas turbine industries. Theglobal specialty alloy market consists of three primary sectors: stainlesssteel, general purpose nickel alloys and high-performance nickel- andcobalt-based alloys. Except for its stainless wire products, the Companycompetes exclusively in the high-performance nickel- and cobalt-based alloysector, which includes high temperature resistant alloys, or HTA products, andcorrosion resistant alloys, or CRA products. The Company believes it is one offour principal producers of high-performance alloys in sheet, coil and plateforms. The Company also produces its products as seamless and welded tubulars,and in bar, billet and wire forms.

 

The Company hasmanufacturing facilities in Kokomo, Indiana; Arcadia, Louisiana; and MountainHome, North Carolina. The Kokomo facility specializes in flat products, theArcadia facility specializes in tubular products and the Mountain Home facilityspecializes in high-performance alloy wire products. The Company sells itsproducts primarily through its direct sales organization, which includes 11service and/or sales centers in the United States, Europe, Asia and India. Allof these centers are Company-operated.

 

**Key Events****:** As the Company previously announced on April 4,2008, Francis Petro informed the Board of his intention to retire as theCompany’s President and Chief Executive Officer at the end of his existingemployment agreement on September 30, 2008 and to continue to serve as amember of the Board of Directors. The Board then 

 

13

----

Table of Contents

 

retained Spencer Stuart, an executive search firm, to conduct anational search for a new Chief Executive Officer. Mr. Petro continues toassist the Corporate Governance Committee in the search for his successor.

 

On June 2, 2008 theCompany announced the expansion of its relationship with HW Limited and itsaffiliated companies in Hong Kong and China for sales of Haynes productsthroughout Asia. Under the terms of the new long-term consulting agreement andthe related acquisition of assets, which became effective on June 1,Haynes’ sales and marketing presence in Asia will be greatly expanded. Thesales force of HW Limited’s Chinese affiliate will be integrated into theHaynes operations in China expanding Haynes’ direct sales organization by eightpeople, which Haynes believes will lead to a more effective organization. Inaddition to overseeing this expanded organization, HW Limited’s principal, Helen Wangwill promote Haynes’ products and services to customers in select markets inAsia, including China, Taiwan, South Korea, Singapore, Thailand, Laos,Malaysia, Vietnam, Indonesia, Cambodia, Philippines, Australia, and NewZealand. This consulting arrangement is one component of the Company’scontinued campaign to grow its market presence in China and the rest of Asia.The asset acquisition and related agreements increased fixed assets $15,increased non-compete agreement by $500 and increased goodwill by $2,485.

 

The installation of theequipment for the upgrade of the second annealing line was completed onschedule in the third quarter of fiscal 2008. Throughout July, start-up andcertification activities have been taking place and intermediate material hasbeen successfully processed on the upgraded equipment. It is expected that thefinal survey of the equipment will be completed in early August 2008.  This completes the process of debottleneckingthe sheet finishing operations and will enable the Company to take fulladvantage of previous capital improvements which improve operating performancein the form of increased capacity, reduced operating cost and improved workingcapital management.

 

**MarketConditions****:**  Generally, demand in the Company’s marketsremains strong and the Company saw improving results in both net revenue andgross profit margin as a percentage of net revenue in the third quarter offiscal 2008. Management believes that the improving results were positivelydriven by several strategies. First, with demand in all markets strong andcapacity limited, the Company carefully considers which types of projects topursue in a given market to ensure the best margins are obtained. The Company’sfocus is growing capacity, while continuing to sell the highest volumes intothe applications which provide the highest margins. This can be seenparticularly in the chemical processing and flue-gas desulphurization marketswhich can appear weak in certain quarters not always as a reflection of demandin the market, but as a result of the Company’s strategy to seek outhigher-volume, higher-margin forms and alloys for project business which can becyclical. In addition, the Company has continued to diversify its market base,expanding the industries served in the “Other Markets” category and alsodiversifying geographically, focusing on its presence in China and the rest ofAsia. Finally, the Company looks to expand volumes through its capitalupgrades. All of these strategies are intended to optimize returns andstrengthen financial results.

 

Aerospace demand continuesto be robust, as illustrated by the Company’s high level of sales in thismarket to date in fiscal 2008.  Haynes iswell positioned to continue meeting current levels of demand and theanticipated increased level of demand in the latter part of fiscal 2009.  Projects supporting this growth include thecompletion of upgrades to the Company’s cold rolling mill in fiscal 2007 andboth annealing lines in fiscal 2008 (which increased flat product finishingcapacity by five million pounds), the installation of a new pilger mill at theArcadia facility, also in fiscal 2008 (which increased capacity of seamless tubing),and continued expansion of the value-added operations in our service centers.The Company’s level of order entry and backlog also indicates that demand inthe aerospace market continues to be strong.

 

While pounds shipped in theland-based gas turbine market in the third quarter of fiscal 2008 were downslightly from the previous quarter, order entry and backlog continue to bestrong and the Company does not believe demand in this market has materiallyslowed. Management expects demand in the land-based gas turbine market tocontinue to be favorable, subject to world economic conditions, due to higheractivity in power generation, oil and gas production, and alternative powersystems application. Land-based gas turbines are favored in electric generatingfacilities due to low capital cost at installation, flexibility in use ofalternative fuels and fewer SO2 emissions than the traditional fossilfuel-fired facilities.

 

14

----

Tableof Contents

 

Although sales to thechemical processing industry were strong in the third quarter of fiscal 2008,the Company has seen some erosion in order entry in this market.  Althoughsome cyclicality as a result of project business is expected in this marketfrom quarter to quarter, historically the chemical processing industry slows asa result of an overall economic slowdown as seen in recent quarters.  Itremains to be seen whether the slower rate of order entry is the result of atemporary dip in project business or a longer-term trend resulting from theeconomic environment.

 

TheCompany also continues its efforts to expand volumes sold into the industrieswhich make up the “Other Markets” category. The industries in this categorycontinue to seek to upgrade overall quality, improve product performancethrough increased efficiency, prolong product life, and lower long-term costs.Companies in these industries are looking to achieve these goals through theuse of “Advanced Materials” which supports the increased use of highperformance alloys in an expanding number of applications and industries. Dueto non-repeating flue gas desulphurization projects, volume was lower in thethird quarter of fiscal 2008, but overall management continues to see strengthin the markets in this category.

 

**Competition and Gross Profit****:** Beginning at the end of the second quarterand continuing through the fourth quarter of fiscal 2007, the Companyexperienced a trend of increasing revenues and average selling price per pound,while gross profit as a percentage of net revenues declined. During the firstquarter of fiscal 2008, net revenue and average selling price per pound beganto decline along with further erosion in gross profit as a percentage of netrevenues. Compared to the first quarter of fiscal 2008, net revenue increasedin the second quarter, but average selling price per pound and gross profit asa percentage of net revenue continued to decline.  The decline in gross profit as a percentageof net revenue from the first quarter to the second quarter should be analyzedin light of the fact that the first quarter of fiscal 2008 included a one-timebenefit of $3.7 million related to the pension curtailment gain.  Adjusting for this gain, the gross profit asa percent of net revenue improved in the second quarter when compared to thefirst quarter. Although gross profit in the third quarter of fiscal 2008 islower than the same period in fiscal 2007, it showed improvement over thesecond quarter of fiscal 2008.  Webelieve this continued quarter to quarter improvement shows a trend ofincreasing net revenue and improving gross profit as a percentage of netrevenue, even as the average selling price declined as compared to the previousquarter.

 

The largest contributingfactor to gross profits which are lower as a percentage of revenue compared tothe same periods in fiscal 2007 is increased price competition. Starting in thethird quarter of fiscal 2007, the Company experienced increasing competitionfrom competitors who produce both stainless steel and high-performancealloys.  Due to a slowing stainless steelmarket, management believes these competitors increased their production levelsand sales activity in high-performance alloys to keep capacity in their millsas full as possible, while offering very competitive prices and deliverytimes.  As a result of this competition,the Company’s ability to raise prices on certain products was limited in thefive most recent fiscal quarters. Historically, the Company experienced similar price competition in the1990’s and in the early 2000’s, when demand in the stainless market weakened.

 

This competition shouldsoften as the stainless market improves, however, *American Metals Market* reported in April 2008 thatuncertainty as to the strengthening of the stainless market continues to exist.This could indicate that the recovery in the stainless market may take longerthan anticipated or that the stainless market may continue to deteriorate.  We believe, however, that we continue toimprove our ability to respond to the competition as a result of our increasedemphasis on service centers, our value-added services and our improving coststructure which has resulted from our capital expenditure program.  We also believe that with the completion ofthe upgrade to the second annealing line, the Company’s delivery-times andreliability will improve starting in the fourth fiscal quarter.

 

**Capital Spending****: **Beginning in fiscal 2006, the Company began making significantinvestments in order to increase capacity in its sheet finishing operations,including upgrades to its cold rolling mill and one of two annealing lines,which were completed in fiscal 2007.  Thefirst phase of upgrades to the second annealing line was completed in thesecond quarter of fiscal 2008, and the second phase of these upgrades wascompleted in the third quarter of fiscal 2008, with final testing and survey ofthe equipment in the fourth quarter. These upgrades to the sheet finishingoperations have increased the production capacity for high-performance alloysin sheet form from 9.0 million pounds per year to 14.0 million pounds per year.The Company’s objective is to produce and sell 23.5 million pounds ofhigh-performance alloys by no later than fiscal 2010 and possibly as early asfiscal 2009. With the completion of the upgrades to sheet finishing capacityand along with other capital upgrades since fiscal 2005, management is in theprocess of evaluating the positive impact of all these upgrades on totalhigh-performance alloy 

 

15

----

Table of Contents

 

capacity across all product forms.   It is believed that theupgrades may allow the Company to produce high-performance alloy volume inexcess of the original estimate of 23.5 million pounds. In addition, managementbelieves that completion of these upgrades will have a positive impact on grossprofit as a percentage of net revenue, which has been negatively impacted byproduction downtime as a result of planned equipment upgrades.

 

**QuarterlyMarket Information**

 

Set forth below is selecteddata relating to the Company’s backlog, the 30-day average nickel price perpound as reported by the London Metals Exchange, as well as a breakdown of netrevenues, shipments and average selling prices to the markets served by theCompany for the periods shown. These data should be read in conjunction withthe consolidated financial statements and related notes thereto and theremainder of the “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” included in this Form 10-Q.

 
| ** **                           | ** ** | **Quarter Ended**      | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** | **June 30,   2007** | ** ** | **September 30,  2007** | ** ** | **December 31,  2007** | ** ** | **March 31,  2008** | ** ** | **June 30,  2008** | ** ** |
| ***Backlog***(1)                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Dollars (in thousands)               |       | $                           | 206,859    |   | $ | 237,589 |   | $ | 258,867 |   | $ | 236,256 |   | $ | 247,775 |   | $ | 254,470 |   | $ | 252,598 |   |
| Pounds (in thousands)                |       | 7,575                       |       | 8,454 |   | 8,551 |   | 7,397 |   | 8,274 |   | 8,706 |   | 8,335 |   |
| Average selling price per pound      |       | $                           | 27.31      |   | $ | 28.10 |   | $ | 30.27 |   | $ | 31.94 |   | $ | 29.95 |   | $ | 29.23 |   | $ | 30.30 |   |
|                                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Average nickel price per pound*** |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| London Metals Exchange (2)           |       | $                           | 15.68      |   | $ | 21.01 |   | $ | 18.92 |   | $ | 13.40 |   | $ | 12.11 |   | $ | 14.16 |   | $ | 10.23 |   |

 

----

(1)     The Company defines backlog to include firmcommitments from customers for delivery of product at established prices.Approximately 30% of the orders in the backlog at any given time include pricesthat are subject to adjustment based on changes in raw material costs.Historically, approximately 75% of the backlog orders have shipped within sixmonths and approximately 90% have shipped within 12 months. The backloginformation does not reflect that portion of the business conducted at serviceand sales centers on a spot or “just-in-time” basis.

 

(2)     Represents the average price for a cash buyer asreported by the London Metals Exchange for the 30 days ending on the last dayof the period presented.

 
| ** **                                                | ** ** | **Quarter Ended**      | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** | **June 30,  2007** | ** ** | **September 30, 2007** | ** ** | **December 31,  2007** | ** ** | **March 31,  2008** | ** ** | **June 30,  2008** | ** ** |
| ***Net revenues*******(in thousands)                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerospace                                                 |       | $                           | 43,827     |   | $ | 48,232 |   | $ | 55,317 |   | $ | 63,796 |   | $ | 59,442 |   | $ | 63,472 |   | $ | 62,857 |   |
| Chemical  processing                                      |       | 38,778                      |       | 37,701 |   | 31,495 |   | 39,986 |   | 40,805 |   | 37,404 |   | 49,165 |   |
| Land-based gas  turbines                                  |       | 20,076                      |       | 27,993 |   | 26,812 |   | 28,120 |   | 25,505 |   | 33,506 |   | 31,004 |   |
| Other markets                                             |       | 15,671                      |       | 20,352 |   | 24,598 |   | 25,638 |   | 18,887 |   | 26,085 |   | 18,811 |   |
| Total product  revenue                                    |       | 118,352                     |       | 134,278 |   | 138,222 |   | 157,540 |   | 144,639 |   | 160,467 |   | 161,837 |   |
| Other revenue(1)                                          |       | 2,111                       |       | 3,058 |   | 2,865 |   | 3,410 |   | 1,438 |   | 3,304 |   | 4,503 |   |
| **Net  revenues**                                         |       | $                           | 120,463    |   | $ | 137,336 |   | $ | 141,087 |   | $ | 160,950 |   | $ | 146,077 |   | $ | 163,771 |   | $ | 166,340 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Pounds  by markets*********(in  thousands)             |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerospace                                                 |       | 1,780                       |       | 1,701 |   | 1,973 |   | 2,206 |   | 2,154 |   | 2,190 |   | 2,319 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Chemical  processing                                      |       | 1,479                       |       | 1,322 |   | 1,082 |   | 1,238 |   | 1,312 |   | 1,287 |   | 1,649 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Land-based gas  turbines                                  |       | 1,144                       |       | 1,382 |   | 1,256 |   | 1,311 |   | 1,060 |   | 1,742 |   | 1,519 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other markets(2)                                          |       | 1,053                       |       | 1,320 |   | 1,538 |   | 923 |   | 681 |   | 861 |   | 732 |   |
| ** **                                                |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total  shipments**                                      |       | 5,456                       |       | 5,725 |   | 5,849 |   | 5,678 |   | 5,207 |   | 6,080 |   | 6,219 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Average  selling price per pound***                    |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerospace                                                 |       | $                           | 24.62      |   | $ | 28.36 |   | $ | 28.04 |   | $ | 28.92 |   | $ | 27.60 |   | $ | 28.98 |   | $ | 27.11 |   |
| Chemical  processing                                      |       | 26.22                       |       | 28.52 |   | 29.11 |   | 32.30 |   | 31.10 |   | 29.06 |   | 29.82 |   |
| Land-based gas  turbines                                  |       | 17.55                       |       | 20.26 |   | 21.35 |   | 21.45 |   | 24.06 |   | 19.23 |   | 20.41 |   |
| Other markets                                             |       | 14.88                       |       | 15.42 |   | 15.99 |   | 27.78 |   | 27.73 |   | 30.30 |   | 25.70 |   |
| **Total  product**(excluding other revenue)               |       | 21.69                       |       | 23.45 |   | 23.63 |   | 27.75 |   | 27.78 |   | 26.39 |   | 26.03 |   |
| **Total  average selling price**(including other revenue) |       | 22.08                       |       | 23.99 |   | 24.12 |   | 28.35 |   | 28.05 |   | 26.94 |   | 26.75 |   |

 

16

----

Table of Contents

 

----

(1)     Other revenue consists of toll conversion, royaltyincome, and scrap sales.

 

(2)     The historical decrease in pounds in Other Marketsrelates primarily to the reduction in stainless steel wire pounds.

 

17

----

Table of Contents

 

**Results ofOperations for the Three Months Ended June 30, 2008 Compared to the ThreeMonths Ended June 30, 2007**

 

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

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                  | ** ** | **June 30,**                | ** ** | ** ** | **Change** | ** ** |   |
| **($ in thousands)**              | ** ** | **2007**                         | ** ** | ** ** | **2008**   | ** ** | ** ** | **Amount** | ** ** | **%** | ** ** |
| Net revenues                                |       | $                                | 141,087    |       | 100.0      | % |   | $ | 166,340 |   | 100.0 | % |   | $ | 25,253 |   | 17.9 | % |   |
| Cost of sales                               |       | 104,148                          |       | 73.8       | %          |   | 126,223 |   | 75.9 | % |   | 22,075 |   | 21.2 | % |   |
| Gross profit                                |       | 36,939                           |       | 26.2       | %          |   | 40,117 |   | 24.1 | % |   | 3,178 |   | 8.6 | % |   |
| Selling, general and administrative expense |       | 10,871                           |       | 7.7        | %          |   | 11,007 |   | 6.6 | % |   | 136 |   | 1.3 | % |   |
| Research and technical expense              |       | 747                              |       | 0.5        | %          |   | 819 |   | 0.5 | % |   | 72 |   | 9.6 | % |   |
| Operating income                            |       | 25,321                           |       | 18.0       | %          |   | 28,291 |   | 17.0 | % |   | 2,970 |   | 11.7 | % |   |
| Interest expense, net                       |       | 263                              |       | 0.2        | %          |   | 22 |   | 0.0 | % |   | (241 | ) | (91.6 | )% |   |
| Income before income taxes                  |       | 25,058                           |       | 17.8       | %          |   | 28,269 |   | 17.0 | % |   | 3,211 |   | 12.8 | % |   |
| Provision for income taxes                  |       | 7,317                            |       | 5.2        | %          |   | 10,705 |   | 6.4 | % |   | 3,388 |   | 46.3 | % |   |
| Net income                                  |       | $                                | 17,741     |       | 12.6       | % |   | $ | 17,564 |   | 10.6 | % |   | $ | (177 | ) | (1.0 | )% |   |
|                                             |            |                                  |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**By market**

 
| ** **                                                | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|------------|------------|------------|------------|
| ** **                                                | ** ** | **June 30,**                | ** ** | **Change** |
| ** **                                                | ** ** | **2007**                         | ** ** | **2008**   | ** ** | **Amount** | ** ** | **%** |
| ***Net revenues*********(in thousands)                    |       |                             |       |       |       |       |       |   |   |
| Aerospace                                                 |       | $                                | 55,317     |       | $          | 62,857     |       | $ | 7,540 |   | 13.6 | % |
| Chemical processing                                       |       | 31,495                           |       | 49,165     |       | 17,670     |       | 56.1 | % |
| Land-based gas turbines                                   |       | 26,812                           |       | 31,004     |       | 4,192      |       | 15.6 | % |
| Other markets                                             |       | 24,598                           |       | 18,811     |       | (5,787     | )          | (23.5 | )% |   |
| **Total product revenue**                                 |       | 138,222                          |       | 161,837    |       | 23,615     |       | 17.1 | % |
| Other revenue                                             |       | 2,865                            |       | 4,503      |       | 1,638      |       | 57.2 | % |   |
| **Net revenues**                                          |       | $                                | 141,087    |       | $          | 166,340    |       | $ | 25,253 |   | 17.9 | % |   |
|                                                      |       |                             |       |       |       |       |       |   |   |
| ***Pounds by markets*****(in thousands)                   |       |                             |       |       |       |       |       |   |   |
| Aerospace                                                 |       | 1,973                            |       | 2,319      |       | 346        |       | 17.5 | % |
| Chemical processing                                       |       | 1,082                            |       | 1,649      |       | 567        |       | 52.4 | % |
| Land-based gas turbines                                   |       | 1,256                            |       | 1,519      |       | 263        |       | 20.9 | % |
| Other markets                                             |       | 1,538                            |       | 732        |       | (806       | )          | (52.4 | )% |   |
| **Total shipments**                                       |       | 5,849                            |       | 6,219      |       | 370        |       | 6.3 | % |   |
|                                                      |       |                             |       |       |       |       |       |   |   |
| ***Average selling price per pound***                     |       |                             |       |       |       |       |       |   |   |
| Aerospace                                                 |       | $                                | 28.04      |       | $          | 27.11      |       | $ | (0.93 | ) | (3.3 | )% |
| Chemical processing                                       |       | 29.11                            |       | 29.82      |       | 0.71       |       | 2.4 | % |
| Land-based gas turbines                                   |       | 21.35                            |       | 20.41      |       | (0.94      | )          | (4.4 | )% |
| Other markets                                             |       | 15.99                            |       | 25.70      |       | 9.70       |       | 60.7 | % |
| **Total product**(excluding  other revenue)               |       | 23.63                            |       | 26.03      |       | 2.40       |       | 10.2 | % |
| **Total average selling price**(including  other revenue) |       | 24.12                            |       | 26.75      |       | 2.63       |       | 10.9 | % |
|                                                           |            |                                  |            |            |            |            |            |  |  |  |  |  |  |  |

 

18

----

Tableof Contents

 

*NetRevenues*.  Net revenues increased by $25.3 million, or17.9%, to $166.3 million in the third quarter of fiscal 2008 from $141.1million in the same period of fiscal 2007. Volume for all products increased by 6.3% to 6.2 million pounds in thethird quarter of fiscal 2008 from 5.8 million pounds in the same period offiscal 2007. Volume of high-performance alloys increased by 20.8% to 6.1million pounds in the third quarter of fiscal 2008 from 5.0 million pounds inthe same period of fiscal 2007. As a result of the Company’s strategy to focuson the production and sale of high-performance alloy wire, volume of stainlesssteel wire decreased to 0.1 million pounds in the third quarter of fiscal 2008from 0.8 million pounds in the same period of fiscal 2007. It is anticipatedthat there will continue to be a recurring amount of stainless steel wireproduced and sold into certain specialty markets.  The aggregate average selling price per poundincreased by 10.9% to $26.75 per pound in the third quarter of fiscal 2008 from$24.12 per pound in the same period of fiscal 2007 because of changes inproduct mix (including market, form and alloy), an increased level of servicecenter value-added business and changes in raw material prices.  Although nickel prices were lower in thethird quarter of fiscal 2008 than in the same period of fiscal 2007, the lowerprice of nickel was offset by increased prices for other raw materials that aresignificant in the manufacture of the Company’s products, such as molybdenum,cobalt and chromium. Management continues to believe that both pricing andvolume were unfavorably impacted by increased competition during thequarter.  The Company’s consolidatedbacklog decreased by $1.9 million, or 0.7%, to $252.6 million at June 30,2008 from $254.5 million at March 31, 2008.  Management continues to expect the demand forhigh-performance alloys to be positively driven by the continuation offavorable trends in the aerospace, chemical processing (including newconstruction and maintenance) and land-based gas turbine markets, subject toworld economic conditions. In addition, completion of the expansion of theCompany’s sheet finishing operations should continue to help the Company competemore effectively on lead time resulting in decreased pricing pressure.

 

Sales to the aerospacemarket increased by 13.6% to $62.9 million in the third quarter of fiscal 2008from $55.3 million in the same period of fiscal 2007, due to a 17.5% increase involume partially offset by a 3.3% decrease in the average selling price perpound.  Volume has improved due to marketdemand as reflected in the continued strength in the build rate for newaircraft.  The build rate for newaircraft continues to be driven by demand outside the U.S. and by demand fornewer, more fuel efficient aircraft. Third quarter aerospace volume of 2.3 million pounds is the highestvolume shipped in any of the past seven quarters.  The decrease in the average selling price perpound is due to changes in product mix (including form and alloy) when comparedto the product mix sold in the same period of fiscal 2007.

 

Sales to the chemicalprocessing market increased by 56.1% to $49.2 million in the third quarter offiscal 2008 from $31.5 million in the same period of fiscal 2007, due to a52.4% increase in volume combined with a 2.4% increase in the average sellingprice per pound.  Volume in this marketwas affected by the project oriented nature of the market where the comparisonsof volume shipped between quarters was affected by timing, quantity and ordersize of the project business which can also impact average selling price perpound. Third quarters chemical processing volume of 1.6 million pounds is thehighest volume shipped in any of the past seven quarters.  The increase in the average selling price perpound is due to changes in product mix (including form and alloy) when comparedto the product mix sold in the same period of fiscal 2007.

 

Sales to the land-based gasturbine market increased by 15.6% to $31.0 million for the third quarter offiscal 2008 from $26.8 million in the same period of fiscal 2007, due to anincrease of 20.9% in volume, partially offset by a 4.4% decrease in the averageselling price per pound.  Volume increasedas a result of higher billet volume for project related business in the thirdquarter of fiscal 2008 compared to the same period of fiscal 2007.  However, due to the comparatively loweraverage selling price of billet, the increased billet volume had a negativeimpact on average selling price.

 

Sales to other marketsdecreased by 23.5% to $18.8 million in the third quarter of fiscal 2008 from$24.6 million in the same period of fiscal 2007, due to a 52.4% decrease involume, which was partially offset by a 60.7% increase in average selling priceper pound.  The primary reason for theincrease in average selling price per pound and the reduction in total volumewas a decrease in the volume of stainless steel wire as a result of the Company’sstrategy to reduce production of stainless steel wire and focus on theproduction and sale of high-performance alloy wire.  Stainless steel wire volume decreased by82.8%, while volume of all forms of high-performance alloy sold to 

 

19

----

Tableof Contents

 

other markets also decreased 18.0% in the third quarter of fiscal 2008compared to the same period of fiscal 2007, primarily due to a large flue gasdesulphurization (“FGD”) project that was included in the third quarter offiscal 2007, which did not repeat in this year’s third quarter. FGD volume canbe affected by the project oriented nature of this market.  The increase in average selling price isprimarily due to the higher percentage of high-performance alloys which have ahigher average selling price than stainless steel.  Also contributing to the increase in averageselling price is the change in product mix (both form and alloy).

 

*Other Revenue. *Other revenue increased by 57.2% to $4.5 million in the third quarterof fiscal 2008 from $2.9 million for the same period of fiscal 2007.  The increase is due to higher activity intoll conversion, scrap sales and miscellaneous sales.

 

*Cost of Sales*.  Costof sales increased to $126.2 million, or 75.9% of net revenues, in the thirdquarter of fiscal 2008, compared to $104.1 million, or 73.8% of net revenues,in the same period of fiscal 2007.  Costof sales in the third quarter of fiscal 2008 grew as a result of increasedvolumes, increased manufacturing costs due to planned equipment outages andproduct mix due to an increase in the production and sale of higher-cost alloyand forms.  In the third quarter offiscal 2007, cost of sales was increased due to a one-time bonus accrual tounion employees upon ratification of the collective bargaining agreement of$2.2 million (or 1.6% of net revenue), which did not repeat in the thirdquarter of fiscal 2008. This decrease was, however, partially offset by higherwage rates for union employees and increased fringe benefit costs.  The increase in cost of sales as a percentageof net revenues (and the corresponding decline in gross profit as a percentageof net revenue) can also be attributed to the increased competition (whichlowered net revenue) and planned equipment outages, as discussed above under “Overview”.

 

*GrossProfit.*  Gross profit increased $3.2 million to $40.1million, or 24.1% of net revenues, in the third quarter of fiscal 2008,compared to $36.9 million, or 26.2% of net revenues, in the same period offiscal 2007 as a result of the above factors.

 

*Selling,General and Administrative Expenses*.  Selling, general andadministrative expenses increased $0.1 million or 1.3% to $11.0 million in thethird quarter of fiscal 2008 from $10.9 million in the same period of fiscal2007 primarily due to higher business activity causing commissions and salesexpenses to increase.  Selling, generaland administrative expenses as a percentage of net revenues decreased to 6.6%in the third quarter of fiscal 2008 compared to 7.7% for the same period offiscal 2007 due primarily to increased revenues.

 

*Researchand Technical Expense*.  Research and technical expense increased 9.6%to $0.82 million in the third quarter of fiscal 2008 from $0.75 million in thesame period of fiscal 2007 due to normal inflationary increases and increasedstaff levels required to support the transition of retiring employees.

 

*OperatingIncome*.  As a result of the above factors, operatingincome in the third quarter of fiscal 2008 was $28.3 million compared to $25.3million in the same period of fiscal 2007.

 

*InterestExpense*.  Interest expense decreased 91.6% to $0.02million in the third quarter of fiscal 2008 from $0.3 million in the sameperiod of fiscal 2007.  The decrease isfrom a lower average debt balance outstanding and a lower borrowing rate ofinterest.

 

*IncomeTaxes*.  Income tax expense increased to $10.7 millionin the third quarter of fiscal 2008 from $7.3 million in the same period offiscal 2007 primarily due to higher pretax income and a higher effective taxrate. The effective tax rate for the third quarter of fiscal 2008 was 37.9%compared to 29.2% in the same period of fiscal 2007.  The low effective tax rate last year in thethird quarter of fiscal 2007 was a result of the filing of amended tax returnsduring the quarter to claim favorable items from extraterritorial incomeexclusion and foreign tax credits, which approximated $2,889.

 

*Net Income*.  As aresult of the above factors, net income decreased by $0.1 million to $17.6million in the third quarter of fiscal 2008 from $17.7 million in the sameperiod of fiscal 2007.

 

20

----

Tableof Contents

 

**Nine months ended June 30, 2008 compared tonine months ended June 30, 2007**

 

##### **Results of Operations**

 
| ** **                                   | ** ** | **Nine Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|
| ** **                                   | ** ** | **June 30,**               | ** ** | ** ** | **Change** |
| **($ in thousands)**               | ** ** | **2007**                        | ** ** | ** ** | **2008**   | ** ** | ** ** | **Amount** | ** ** | **%** |
| Net revenues                                 |       | $                               | 398,886    |       | 100.0      | %          | $          | 476,188 |   | 100.0 | % | $ | 77,302 |   | 19.4 | % |
| Cost of sales                                |       | 287,993                         |       | 75.3       | %          |       | 365,946    |   | 76.8 | % |   | 77,953 |   | 27.1 | % |   |
| Gross profit                                 |       | 110,893                         |       | 27.8       | %          | 110,242    |       | 23.2 | % | (651 | ) | (0.6 | )% |
| Selling, general  and administrative expense |       | 29,152                          |       | 9.3        | %          | 31,059     |       | 6.5 | % | 1,907 |   | 6.5 | % |
| Research and  technical expense              |       | 2,225                           |       | 0.6        | %          |       | 2,566      |   | 0.5 | % |   | 341 |   | 15.3 | % |   |
| Operating income                             |       | 79,516                          |       | 14.8       | %          | 76,617     |       | 16.1 | % | (2,899 | ) | (3.6 | )% |
| Interest  expense, net                       |       | 3,338                           |       | 1.8        | %          |       | 802        |   | 0.2 | % |   | (2,536 | ) | 76.0 | % |   |
| Income before  income taxes                  |       | 76,178                          |       | 13.0       | %          | 75,815     |       | 15.9 | % | (363 | ) | (0.5 | )% |
| Provision for  income taxes                  |       | 27,849                          |       | 5.1        | %          |       | 29,345     |   | 6.2 | % |   | 1,496 |   | 5.4 | % |   |
| Net income                                   |       | $                               | 48,329     |       | 7.9        | %          |       | $ | 46,470 |   | 9.8 | % |   | $ | (1,859 | ) | (3.8 | )% |   |
|                                              |            |                                 |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**By market**

 
| ** **                                                 | ** ** | **Nine Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|
| ** **                                                 | ** ** | **June 30,**               | ** ** | **Change** | ** ** |
| ** **                                                 | ** ** | **2007**                        | ** ** | **2008**   | ** ** | **Amount** | ** ** | **%** | ** ** |
| ***Net revenues*********(in  thousands)                    |       |                            |       |       |       |       |       |   |   |
| Aerospace                                                  |       | $                               | 147,376    |       | $          | 185,771    |       | $ | 38,395 |   | 26.1 | % |
| Chemical  processing                                       |       | 107,974                         |       | 127,374    |       | 19,400     |       | 18.0 | % |
| Land-based gas  turbines                                   |       | 74,881                          |       | 90,015     |       | 15,134     |       | 20.2 | % |
| Other markets                                              |       | 60,621                          |       | 63,783     |       | 3,162      |       | 5.2 | % |
| **Total  product revenue**                                 |       | 390,852                         |       | 466,943    |       | 76,091     |       | 19.5 | % |
| Other revenue                                              |       | 8,034                           |       | 9,245      |       | 1,212      |       | 15.1 | % |
| **Net  revenues**                                          |       | $                               | 398,886    |       | $          | 476,188    |       | $ | 77,303 |   | 19.4 | % |
|                                                       |       |                            |       |       |       |       |       |   |   |
| ***Pounds  by markets***(in thousands)                     |       |                            |       |       |       |       |       |   |   |
| Aerospace                                                  |       | 5,454                           |       | 6,663      |       | 1,209      |       | 22.2 | % |
| Chemical  processing                                       |       | 3,883                           |       | 4,248      |       | 365        |       | 9.4 | % |
| Land-based gas  turbines                                   |       | 3,782                           |       | 4,321      |       | 539        |       | 14.3 | % |
| Other markets                                              |       | 3,911                           |       | 2,274      |       | (1,637     | )          | (41.9 | )% |
| **Total  shipments**                                       |       | 17,030                          |       | 17,506     |       | 476        |       | 2.8 | % |
|                                                       |       |                            |       |       |       |       |       |   |   |
| ***Average  selling price per pound***                     |       |                            |       |       |       |       |       |   |   |
| Aerospace                                                  |       | $                               | 27.02      |       | $          | 27.88      |       | $ | 0.86 |   | 3.2 | % |
| Chemical  processing                                       |       | 27.81                           |       | 29.98      |       | 2.18       |       | 7.8 | % |
| Land-based gas  turbines                                   |       | 19.80                           |       | 20.83      |       | 1.03       |       | 5.2 | % |
| Other markets                                              |       | 15.50                           |       | 28.05      |       | 12.55      |       | 81.0 | % |
| **Total  product**(excluding other revenue)                |       | 22.95                           |       | 26.67      |       | 3.72       |       | 16.2 | % |
| **Total  average selling price** (including other revenue) |       | 23.42                           |       | 27.20      |       | 3.78       |       | 16.1 | % |

 

*Net Revenues*.  Net revenues increased by $77.3 million, or19.4%, to $476.2 million for the first nine months of fiscal 2008 from $398.9million in the same period of fiscal 2007. Volume for all products increased by 2.8% to 17.5 million pounds for thefirst nine months of fiscal 2008 from 17.0 million pounds in the same period offiscal 2007. Volume of high-performance alloys increased by 14.2% to 17.1million pounds for the first nine months of fiscal 2008 from 15.0 millionpounds in the same period of fiscal 2007. As a result of the Company’s strategyto reduce production of stainless steel wire and increase production ofhigh-performance alloy wire, volume of stainless steel wire decreased to 0.4million pounds for the nine months of fiscal 2008 from 2.0 million pounds inthe same period of fiscal 2007. It is anticipated that there will continue tobe a recurring amount of stainless steel wire produced and sold into certainspecialty markets.  The aggregate averageselling price per pound increased by 16.1% to $27.20 per pound for the ninemonths of fiscal 2008 from $23.42 per pound in the same

 

21

----

Tableof Contents

 

period of fiscal 2007 because of changes in product mix (including market,form and alloy), an increased level of service center value-added business, andchanges in raw material prices.  Althoughnickel prices were lower for the nine months of fiscal 2008 than in the sameperiod of fiscal 2007, the lower price of nickel was offset by increased pricesfor other raw materials that are significant in the manufacture of the Company’sproducts, such as molybdenum, cobalt and chromium. As discussed above under “Overview”,increased competition unfavorably impacted both average selling price andvolume for the nine months of fiscal 2008. The Company’s consolidated backlog increased by $16.3 million, or 6.9%,to $252.6 million at June 30, 2008 from $236.3 million at September 30,2007.  Management continues to expect thedemand for high-performance alloys to be positively driven by the continuationof favorable trends in the aerospace, chemical processing (including newconstruction and maintenance) and land-based gas turbine markets, subject toworld economic conditions. In addition, completion of the expansion of theCompany’s sheet finishing operations should continue to help the Companycompete more effectively on lead time resulting in decreasing pricing pressure.

 

Sales to the aerospace market increased by 26.1% to$185.8 million for the first nine months of fiscal 2008 from $147.4 million inthe same period of fiscal 2007, due to a 3.2% increase in the average sellingprice per pound, combined with a 22.2% increase in volume.  The increase in the average selling price perpound is due primarily to changes in product mix (both alloy and form).  Product mix reflects a higher percentage ofspecialty alloy products and forms with a higher average selling price whencompared to the product mix sold in the same period of fiscal 2007.  Volume has improved due to market demand asreflected in the continued strength in the build rate for new aircraft.  The build rate for new aircraft continues tobe driven by demand outside the U.S. and by demand for newer, more fuelefficient aircraft.

 

Sales to the chemical processing market increased by18.0% to $127.4 million for the first nine months of fiscal 2008 from $108.0million in the same period of fiscal 2007, due to a 7.8% increase in theaverage selling price per pound, combined with a 9.4% increase in volume.  Volume in this market was affected by theproject oriented nature of the market. The comparisons of volume shipped andaverage selling price per pound between quarters was affected by timing andorder size of our customer’s projects business. Except for a dip in the thirdquarter of fiscal 2007, the volume per quarter has been relatively constantover the past seven quarters.  Theincrease in the average selling price is due to changes in product mix(including form and alloy) when compared to the product mix sold in the sameperiod of fiscal 2007.

 

Sales to the land-based gas turbine market increasedby 20.2% to $90.0 million for the first nine months of fiscal 2008 from $74.9million in the same period of fiscal 2007, due to an increase of 5.2% in theaverage selling price per pound, combined with a 14.3% increase in volume.  The increase in the average selling price isdue to improved market demand and changes in form and alloys compared to the sameperiod of fiscal 2007.  Volume increasedas a result of higher billet volume for the nine months of fiscal 2008 comparedto the same period of fiscal 2007.

 

Sales to other markets increased by 5.2% to $63.8million for the first nine months of fiscal 2008 from $60.6 million in the sameperiod of fiscal 2007, due to an 81.0% increase in average selling price perpound, which was partially offset by a 41.9% decrease in volume.   The primary reason for the increase inaverage selling price per pound and the reduction in total volume was a decreasein the volume of stainless steel wire as a result of the Company’s strategy toreduce production of stainless steel wire and focus on the production and saleof high-performance alloy wire. Stainless steel wire volume decreased by 81.2%, while volume ofhigh-performance alloys sold to other markets increased in high-performancealloys 0.7% for the first nine months of fiscal 2008 as compared to the sameperiod of fiscal 2007.  This small volumeincrease relates to FGD volume. Specifically, a large FGD project was included last year in the thirdquarter of fiscal 2007 did not repeat this year.  The increase in average selling price isprimarily due to the higher percentage of high-performance alloys which have ahigher average selling price than stainless steel.  Also contributing to the increase in averageselling price is the change in product mix (both form and alloy).

 

22

----

Tableof Contents

 

*Other Revenue. *Other revenue increased by15.1% to $9.2 million for the first nine months of fiscal 2008 from $8.0million for the same period of fiscal 2007. The increase is due to higher scrap and miscellaneous sales.

 

*Cost ofSales*.  Cost of salesincreased to $365.9 million, or 76.8% of net revenues, for the first ninemonths of fiscal 2008, compared to $288.0 million, or 75.3% of net revenues, inthe same period of fiscal 2007.  Cost ofsales increased as a result of increased volumes, increased manufacturing costsdue to planned equipment outages, and changes in product mix due to an increasein the production and sale of higher-cost alloy and forms. In the third quarterof fiscal 2007 cost of sales was increased due to a one-time bonus accrual tounion employees upon ratification of the collective bargaining agreement of$2.2 million (or 0.6% of net revenue), which did not repeat in the first ninemonths of fiscal 2008. This decrease was however, partially offset by higherwage rates for union employees and increased fringe benefit costs in fiscal2008.  Cost of sales in the first ninemonths of fiscal 2008 was also decreased by a $3.7 million (0.8% of netrevenue) pension curtailment gain, which was recorded due to an amendment tofreeze future pension benefit accruals for non-union employees in the U.S.  The overall increase in cost of sales as apercentage of net revenues (and the corresponding decline in gross profit as apercentage of net revenue) can also be attributed to the increased competition(which lowered net revenue) and planned and unplanned equipment outages, asdiscussed above under “Overview”.

 

*Gross Profit.*  Gross profit decreased to $110.2 million, or23.2% of net revenues, for the first nine months of fiscal 2008, from $110.9million, or 27.8% of net revenues, in the same period of fiscal 2007 as aresult of the above factors.

 

*Selling,General and Administrative Expenses*.  Selling, general and administrative expensesincreased $1.9 million to $31.1 million for the first nine months of fiscal2008 from $29.2 million for the same period of fiscal 2007 due to: (i) higherbusiness activity causing commissions and sales expenses to increase $2.4million, and (ii) the fiscal 2007 reduction in allowance for doubtfulaccounts of $0.6 million compared to the first nine months of fiscal 2008 toreflect the favorable write-off history. These increases were partially offset by a decrease in stockcompensation expense of $1.1 million. Selling, general and administrative expenses as a percentage of netrevenues decreased to 6.5% for the first nine months of fiscal 2008 compared to7.1% for the same period of fiscal 2007 due primarily to increased revenues.

 

*Researchand Technical Expense*. Research and technical expense increased $0.3 million to $2.6 millionfor the first nine months of fiscal 2008 from $2.2 million in the same periodof fiscal 2007 due to normal inflationary increases and increased staff levelsrequired to support the transition of retiring employees.

 

*OperatingIncome*.  As a result ofthe above factors, operating income for the first nine months of fiscal 2008was $76.6 million compared to $79.5 million in the same period of fiscal 2007.

 

*InterestExpense*.  Interestexpense decreased to $0.8 million for the first nine months of fiscal 2008 from$3.3 million for the same period of fiscal 2007.  The decrease is due to a lower average debtbalance outstanding resulting from: (i) the Company’s application ofproceeds from the equity offering that occurred near the end of the secondquarter of fiscal 2007, (ii) cash generated from operations, and (iii) proceedsfrom the exercise of stock options which were used to reduce the outstandingdebt balance.

 

*IncomeTaxes*.  Income taxexpense increased to $29.3 million for the first nine months of fiscal 2008from $27.8 million in the same period of fiscal 2007 primarily due to a highereffective tax rate. The effective tax rate for the first nine months of fiscal2008 was 38.7% compared to 36.6% in the same period of fiscal 2007.  The lower effective tax rate last year in thethird quarter of fiscal 2007 was a result of the filing of amended tax returnsduring the quarter to claim favorable items from extraterritorial incomeexclusion and foreign tax credits, which approximated $2,889.  It is expected that the effective tax ratefor fiscal 2008 will be between 38.0% and 39.0%.

 

*NetIncome*.  As a result ofthe above factors, net income decreased by $1.9 million, or 3.8% to $46.5million for the first nine months of fiscal 2008 from $48.3 million in the sameperiod of fiscal 2007.

 

23

----

Tableof Contents

 

**Liquidity and Capital Resources**

 

*Comparative cash flow analysis*

 

During the first nine months of fiscal 2008,the Company’s primary sources of cash were cash from operations,  borrowings under its U.S. revolving creditfacility with a group of lenders led by Wachovia Capital Finance Corporation(Central) (described below) and proceeds from the exercise of stock options(including related tax benefits).  At June 30,2008, Haynes had cash and cash equivalents of approximately $9.9 millioncompared to cash and cash equivalents of approximately $5.7 million at September 30,2007.

 

Net cash provided by operating activities was$30.5 million for the first nine months of fiscal 2008 compared to $22.5million in the same period of fiscal 2007. Several items contributed to the difference.  First, cash provided by operating activitiesfor the first nine months of fiscal 2007 included the proceeds of the $50.0million up-front payment received from Titanium Metals Corporation as a resultof the Conversion Services Agreement entered into in that period.  Second, inventory balances (net of foreigncurrency adjustments) at June 30, 2008 were $33.6 million higher than at September 30,2007, as a result of both planned outages and increased levels of inventoryrequired to support an increased sales level for the first nine months of fiscal2008 as compared to an increase of $102.5 million for the first nine months offiscal 2007. Third, cash generated from a decrease in accounts receivable was$11.6 million for the first nine months of fiscal 2008 as compared to a use ofcash of $4.4 million for the first nine months of fiscal 2007. Net cash used ininvesting activities was $17.9 million (which consist primarily of cash paidfor capital expenditures of $15.0 million and the Asian distribution expansionand acquisition of $3.0 million) for the first nine months of fiscal 2008compared to $11.0 for the first nine months of fiscal 2007, primarily as aresult of the ongoing capital expenditure program.  Net cash used by financing activitiesincluded a reduction in borrowings on the revolving credit facility of $13.2million as a result of cash generated from operations and proceeds from theexercise of stock options (including excess tax benefits) of $4.8 million.

 

*Future sources of liquidity*

 

The Company’s sources of cash for the remainder offiscal 2008 are expected to consist primarily of cash generated fromoperations, cash on hand, and borrowings under the U.S. revolving creditfacility.  The U.S. revolving creditfacility provides borrowings in a maximum amount of $120.0 million, subject to aborrowing base formula and certain reserves. At June 30, 2008, the Companyhad cash and cash equivalents of approximately $9.9 million, an outstandingbalance of $22.3 million on the U.S. revolving credit facility, and access toapproximately $97.7 million under the U.S. facility subject to borrowing baseand certain reserves. Management believes that the resources described abovewill be sufficient to fund planned capital expenditures and working capitalrequirements over the next twelve months.

 

U.S. revolving credit facility:  TheU.S. revolving credit facility provides for revolving loans in a maximum amountof $120.0 million. Borrowings under the U.S. revolving credit facility bearinterest at the Company’s option at either Wachovia Bank, National Association’s“prime rate,” plus up to 1.5% per annum, or the adjusted Eurodollar rate usedby the lender, plus up to 3.0% per annum. As of June 30, 2008, the U.S. revolving credit facility had anoutstanding balance of $22.3 million. During the first nine months of fiscal2008, the U.S. revolving credit facility bore interest at a weighted averageinterest rate of 5.61%.  In addition, theCompany must pay monthly in arrears a commitment fee of 0.375% per annum on theunused amount of the U.S. revolving credit facility total commitment. Forletters of credit, the Company must pay 2.5% per annum on the daily outstandingbalance of all issued letters of credit, plus customary fees for issuance,amendments, and processing. The Company is subject to certain covenants as toadjusted EBITDA and fixed charge coverage ratios and other customary covenants,including covenants restricting the incurrence of indebtedness, the granting ofliens, the sale of assets and the declaration of dividends and otherdistributions on the Company’s capital stock. As of June 30, 2008, the most recent required measurement dateunder the agreement, the Company was in compliance with these covenants.  The U.S. revolving credit facility matures onApril 12, 2009. Borrowings under the U.S. revolving credit facility arecollateralized by a pledge of substantially all of the U.S. assets of theCompany,

 

24

----

Tableof Contents

 

includingequity interests in its U.S. subsidiaries, but excluding its four-high Steckelrolling mill and related assets, which are pledged to TIMET. The U.S. revolvingcredit facility is also secured by a pledge of 65% of the equity interests ineach of the Company’s foreign subsidiaries.

 

U.K. revolving credit facility:  TheCompany’s U.K. subsidiary, Haynes International, Ltd., or Haynes U.K.,previously had an agreement with a U.K.-based lender providing for a $15.0million revolving credit facility. During April 2008, the term of the U.K.revolving credit facility ended. The Company replaced this facility with amulti-currency overdraft facility. The overdraft facility has a limit of 2million pound sterling (approximately $4.0 million). Haynes U.K. is required topay interest on overdrafts in an amount equal to the Bank’s Sterling Base Rate(in accordance with the terms facility), plus 1.1% per annum.  As of June 30, 2008, the overdraftfacility had an outstanding balance of zero.

 

*Future uses of liquidity*

 

TheCompany’s primary uses of cash over the next twelve months are expected toconsist of expenditures related to:

 

·                  fundingoperations;

 

·                  income taxpayments (including taxes related to the TIMET conversion services agreementexpected to be paid in first quarter of fiscal 2009 of approximately $18.3million);

 

·                  capitalspending to increase capacity and improve reliability and performance of theequipment;

 

·                  pension planfunding;

 

·                  reduction ofdebt; and

 

·                  interestpayments on outstanding indebtedness.

 

Plannedfiscal 2008 capital spending is targeted at $18.0 million, $15.0 million ofwhich was spent in the nine months ended June 30, 2008.  The main projects for fiscal 2008 includedthe upgrade of the second annealing line at the Kokomo, Indiana facility andthe installation of a new pilger mill at the Arcadia, Louisiana facility. Theupgrade on the annealing line was completed during the third quarter of fiscal2008. The first phase, during which the line was out of service, started in December 2007and was completed during the first week of February 2008, several daysahead of schedule. The second phase of the upgrade started in April 2008and finished in June 2008. Construction of the pilger mill has also beencompleted and the mill is operational. Management believes that with the completion of these capital projectsand the related improvements in reliability and performance of the equipment,the Company will experience an increased level of profitability, improvedworking capital management and an enhanced ability to recover from unplannedoutages.

 

TheCompany is also evaluating the desirability of possible additional capitalexpansion projects to capitalize on current market opportunities.  Additionally, acceleration of future capitalspending beyond what is currently planned may occur in order to accelerate therealization of the benefits such as improved working capital management,reduced manufacturing cost and increased capacity.  Consideration will also be given to potentialstrategic acquisitions similar to the November 2004 Branford Acquisition,which complemented the Company’s product line, reduced production costs andincreased capacity.

 

25

----

Tableof Contents

 

*Contractual Obligations*

 

The following table sets forth the Company’s contractualobligations for the periods indicated, as of June 30, 2008:

 
| ** **                                               | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)****Contractual Obligations**(1)(6) | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 years** | ** ** |
| ** **                                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt obligations  (including interest)(2)                |       | $                                         | 24,702     |   | $ | 24,702 |   | $ | — |   | $ | — |   | $ | — |   |
| Operating lease  obligations                             |       | 10,781                                    |       | 3,458 |   | 3,516 |   | 1,454 |   | 2,353 |   |
| Raw material  contracts                                  |       | 63,497                                    |       | 63,497 |   | — |   | — |   | — |   |
| Mill supplies  contracts                                 |       | 331                                       |       | 331 |   | — |   | — |   | — |   |
| Capital projects                                         |       | 13,926                                    |       | 13,926 |   | — |   | — |   | — |   |
| Pension plans(3)                                         |       | 46,278                                    |       | 15,918 |   | 20,250 |   | 10,110 |   | — |   |
| Other  post-retirement benefits(4)                       |       | 49,400                                    |       | 4,600 |   | 9,800 |   | 10,000 |   | 25,000 |   |
| Non-compete  obligations(5)                              |       | 330                                       |       | 110 |   | 220 |   | — |   | — |   |
| Total                                                    |       | $                                         | 209,245    |   | $ | 126,542 |   | $ | 33,786 |   | $ | 21,564 |   | $ | 27,353 |   |

 

----

| (1)    |   | Taxes are not included in the table. Payments for  taxes in fiscal 2008 are expected to be approximately $36.0 million  (excluding taxes related to the TIMET conversion services agreement which are  expected to be paid in first quarter of fiscal 2009 of approximately $18.3  million).                                                                                                                            |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (2)    |   | Interest is calculated annually using the principal  balance and current interest rates as of June 30, 2008.                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (3)    |   | The Company has a funding obligation to contribute  an additional $45,050 to the domestic pension plan arising from the Pension  Protection Act of 2006. These payments will be tax deductible. All benefit  payments under the domestic pension plan will come from the plan and not the  Company. The Company expects its U.K. subsidiary to contribute $1,228 over  the next twelve months to the U.K. Pension Plan. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (4)    |   | Represents expected post-retirement medical benefits  only.                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (5)    |   | Pursuant to an escrow agreement, as of April 11,  2005, the Company established an escrow account to satisfy its obligation to  make payments under a non compete agreement entered into as part of the  Branford Acquisition. This amount is reported as restricted cash.                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (6)    |   | We adopted the provisions of FIN No. 48, Accounting  for Uncertainty in Income Taxes, on October 1, 2007. The non-current income  taxes payable of $2,591 are not included in the table. It is not possible to  determine in which future period the tax liability might be paid out.                                                                                                                                   |

 

AtJune 30, 2008, the Company also had $0.03 million outstanding under aletter of credit. The letter of credit is outstanding in connection with abuilding lease obligation.

 

**New Accounting Pronouncements**

 

In September 2006, theFASB issued FASB Statement No. 157, *Fair Value Measurement*(“SFAS 157”). SFAS 157 addresses standardizing the measurement offair value for companies who are required to use a fair value measure forrecognition or disclosure purposes. The FASB defines fair value as “the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measure date.”  The statement is effective for fiscal years beginning after November 15,2007 and for interim periods within those fiscal years. The Company is requiredto adopt SFAS 157 beginning on October 1, 2008. The Company iscurrently evaluating the impact, if any, of SFAS 157 on the Company’sfinancial position, results of operations and cash flows.

 

In February 2007, the FASB issuedFASB Statement No. 159, *Establishing the Fair ValueOption for Financial Assets and Liabilities*(“SFAS 159”)*,* to permit all entities to choose to elect to measureeligible financial instruments at fair value. SFAS 159 applies to fiscal yearsbeginning after November 15, 2007, with early adoption permitted for anentity that has also elected to apply the provisions of SFAS 157, *Fair Value Measurements*. An entity is prohibited fromretrospectively applying SFAS 159, unless it chooses early adoption. Managementis currently evaluating the impact of SFAS 159 on the consolidated financialstatements.

 

In December 2007, the FASB issued FASB Statement No. 141(revised 2007), *Business Combinations* (“FAS141(R)”).  FAS 141(R) requires that the fair value of the purchase price of an acquisitionincluding the issuance of

 

26

----

Tableof Contents

 

equity securities be determined on the acquisition date; requires thatall assets, liabilities, noncontrolling interests, contingent consideration,contingencies, and in-process research and development costs of an acquiredbusiness be recorded at fair value at the acquisition date; requires thatacquisition costs generally be expensed as incurred; requires thatrestructuring costs generally be expensed in periods subsequent to theacquisition date; and requires that changes in deferred tax asset valuationallowances and acquired income tax uncertainties after the measurement periodimpact income tax expense. FAS 141(R) also expands disclosures related tobusiness combinations. FAS 141(R) will be applied prospectively tobusiness combinations occurring after the beginning of the Company’s fiscalyear 2010, except that business combinations consummated prior to the effectivedate must apply FAS 141(R) income tax requirements immediately uponadoption. The Company is currently evaluating the impact of FAS 141(R) onits financial position, results of operations, and cash flows.

 

In December 2007, the FASB issued FASB Statement No. 160,*Noncontrolling Interests in Consolidated FinancialStatements, an Amendment of ARB No. 51* (“FAS 160”). FAS 160requires that noncontrolling interests be reported as a separate component ofequity, that net income attributable to the parent and to the noncontrollinginterest be separately identified in the consolidated statement of operations,that changes in a parent’s ownership interest be accounted for as equitytransactions, and that, when a subsidiary is deconsolidated, any retainednoncontrolling equity investment in the former subsidiary and the gain or losson the deconsolidation of the subsidiary be measured at fair value. FAS 160will be applied prospectively, except for presentation and disclosurerequirements which will be applied retrospectively, as of the beginning of theCompany’s fiscal year 2010. The Company does not currently have noncontrollinginterests, and therefore the adoption of FAS 160 is not expected to have animpact on the Company’s financial position, results of operations, or cashflows.

 

**Critical Accounting Policies and Estimates**

 

*Overview*

 

Management’s Discussion and Analysis ofFinancial Condition and Results of Operations discusses the Company’sconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America.  The preparation of these financial statementsrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  On an on-going basis, management evaluatesits estimates and judgments, including those related to bad debts, inventories,income taxes, retirement benefits and environmental matters.  The process of determining significantestimates is fact specific and takes into account factors such as historicalexperience, current and expected economic conditions, product mix and in somecases, actuarial techniques, and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. The Company constantly reevaluates these significant factors and makesadjustments where facts and circumstances dictate.  Actual results may differ from theseestimates under different assumptions or conditions.

 

The Company’s accounting policies aremore fully described in the audited consolidated financial statements includedin the Company’s Annual Report on Form 10-K for the fiscal year ended September 30,2007, filed by the Company with the Securities and Exchange Commission.

 

*Revenue Recognition*

 

Revenue is recognized when title passes to thecustomer which is generally at the time of shipment (F.O.B. shipping point) orat a foreign port for certain export customers. Allowances for sales returnsare recorded as a component of net revenues in the periods in which the relatedsales are recognized. Management determines this allowance based on historicalexperience and have not had any history of returns that have exceeded recordedallowances.

 

27

----

Tableof Contents

 

*Pension and Post-RetirementBenefits*

 

The Company has defined benefit pension andpost-retirement plans covering most of its current and former employees.Significant elements in determining the assets or liabilities and relatedincome or expense for these plans are the expected return on plans assets (ifany), the discount rate used to value future payment streams, expected trendsin health care costs, and other actuarial assumptions. Annually, the Companyevaluates the significant assumptions to be used to value its pension andpost-retirement plan assets and liabilities based on current market conditionsand expectations of future costs. If actual results are less favorable thanthose projected by management, additional expense may be required in futureperiods. As a result of the 2004 Chapter 11 reorganization there were nochanges to the terms of these benefits.

 

*Impairment of Long-lived Assets,Goodwill and Other Intangible Assets*

 

The Company reviews long-lived assets for impairmentwhenever events or circumstances indicate that the carrying amount of an assetmay not be recoverable. Recoverability of long-lived assets to be held and usedis measured by a comparison of the carrying amount of the asset to theundiscounted future cash flows expected to be generated by the asset. If thecarrying amount of an asset exceeds its estimated future cash flows, an impairmentcharge is recognized in the amount by which the carrying amount exceeds thefair value of the asset. Assumptions and estimates with respect to estimatedfuture cash flows used in the evaluation of long-lived assets impairment aresubject to a high degree of judgment and complexity. The Company reviewsgoodwill for impairment annually or more frequently if events or circumstancesindicate that the carrying amount of goodwill may be impaired. Recoverabilityof goodwill is measured by a comparison of the carrying value to the fairvalue. If the carrying amount exceeds its fair value, an impairment charge isrecognized to the extent that the implied fair value exceeds its carryingvalue. The implied fair value of goodwill is the residual fair value, if any, afterallocating the fair value to all of the assets (recognized and unrecognized)and all of the liabilities. The fair value is generally determined using amarket value approach. The Company reviews the trademarks for impairmentannually or more frequently if events or circumstances indicate that thecarrying amount of trademarks may be impaired. If the carrying amount exceedsthe fair value (determined by calculating a fair value based upon a discountedcash flow of an assumed royalty rate), impairment of the trademark may existresulting in a charge to earnings to the extent of impairment. The Companyreviewed goodwill and trademarks for impairment as of August 31, 2007, andconcluded no impairment adjustment was necessary. No events or circumstanceshave occurred that would indicate the carrying value of goodwill or trademarksmay be impaired since its testing date.

 

*Share-Based Compensation*

 

The Company has two stock option plans that authorizethe granting of non-qualified stock options to certain key employees andnon-employee directors for the purchase of a maximum of 1,500,000 shares of theCompany’s common stock. The original option plan was adopted in 2004 pursuantto the plan of reorganization and provides the grant of options to purchase upto 1,000,000 shares of the Company’s common stock. In January 2007, theCompany’s Board of Directors adopted a new option plan that provides foroptions to purchase up to 500,000 shares of the Company’s common stock. Unlessthe Compensation Committee determines otherwise, options granted under theoption plans are exercisable for a period of ten years for the date of grantand vest 33 1/3% per year over three years from the grant date.

 

On October 1, 2005, the Company adopted FASBStatement No. 123 (R), *Share-Based Payment*,*a replacement of SFAS No. 123*, *Accounting for Stock-Based Compensation*, *and a rescission of APB Opinion No. 25*, *Accounting for Stock Issued to Employees*. The statementrequires compensation costs related to share-based payment transactions to berecognized in the financial statements. This statement applies to all awardsgranted after the effective date and to modifications, repurchases orcancellations of existing awards. Additionally, under the modified prospectivemethod of adoption, the Company recognizes compensation expense for the portionof outstanding awards on the adoption date for which the requisite serviceperiod has not yet been rendered based on the grant-date fair value of thoseawards calculated under SFAS No. 123 and 148 for pro forma disclosures.The amount of compensation cost will be measured based upon the grant date fairvalue. The fair value of the option grants is estimated on the date of grantusing the Black-Scholes option pricing model with assumptions on dividend yield,risk-free interest rate, expected volatilities, and expected lives of theoptions.

 

28

----

Tableof Contents

 

*Income Taxes*

 

The Company accounts for income taxes in accordancewith FASB Statement No. 109, *Accounting for IncomeTaxes* (“SFAS No. 109”), which requires deferred tax assets andliabilities be recognized using enacted tax rates for the effect of temporarydifferences between book and tax basis of recorded assets and liabilities. SFASNo. 109 also requires deferred tax assets be reduced by a valuationallowance if it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The determination of whether or not avaluation allowance is needed is based upon an evaluation of both positive andnegative evidence. In addition to the reorganization of the Company, theresults of operations have improved due to improved market conditions asevidenced by its increasing backlog. In its evaluation of the need for avaluation allowance, the Company assesses prudent and feasible tax planningstrategies. The ultimate amount of deferred tax assets realized could bedifferent from those recorded, as influenced by potential changes in enactedtax laws and the availability of future taxable income.

 

In July 2006, the FASB issued Interpretation No. 48,*Accounting for Uncertainty in Income Taxes* (“FIN 48”).**FIN 48 addresses the noncomparability in reporting tax assetsand liabilities resulting from a lack of specific guidance in SFAS No. 109,*Accounting for Income Taxes,*onthe uncertainty in income taxes recognized in an enterprise’s financialstatements*. *Specifically,FIN 48 prescribes (a) a consistent recognition threshold and (b) ameasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return, and providesrelated guidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition. The Company adopted FIN 48on October 1, 2007.

 

**Item 3.****           Quantitative andQualitative Disclosures about Market Risk**

 

Market risk is the potential loss arising from adversechanges in market rates and prices. The Company is exposed to various marketrisks, including changes in interest rates, foreign currency exchange rates andthe price of nickel, which is a commodity.

 

Changes in interest rates affect the Company’sinterest expense on variable rate debt. All of the Company’s outstanding debtwas variable rate debt at June 30, 2008. A hypothetical 10% increase inthe interest rate on variable rate debt would have resulted in additionalinterest expense of approximately $135,000 for the nine months ended June 30,2007 and approximately $97,000 for the nine months ended June 30, 2008.The Company has not entered into any derivative instruments to hedge theeffects of changes in interest rates.

 

The foreign currency exchange risk exists primarilybecause the three foreign subsidiaries maintain receivables and payablesdenominated in currencies other than their functional currency or the U.S.dollar. Each foreign subsidiary manages its own foreign currency exchange risk.The Company’s U.S. operations transact their foreign sales in U.S. dollars,thereby avoiding fluctuations in foreign exchange rates. Any U.S. dollarexposure aggregating more than $500,000 requires approval from the Company’sChief Financial Officer, Vice President of Finance. Most of the currencycontracts to buy U.S. dollars are with maturity dates less than nine months. AtJune 30, 2008, the Company had one foreign currency exchange contractoutstanding with an aggregate amount of approximately 300,000 Euros through July 25,2008 and the effect on the financial statements is immaterial.

 

Fluctuations in the price of nickel, our mostsignificant raw material, and other raw material costs (molybdenum, cobalt andchromium) subject the Company to commodity price risk. The Company manages itsexposure to this market risk through internally established policies andprocedures, including negotiating raw material escalators within product salesagreements, and continually monitoring and revising customer quote amounts toreflect the fluctuations in market prices for nickel and other raw materialprices. The Company does not use derivative instruments to manage this marketrisk. The Company monitors its underlying market risk exposure from a rapidchange in nickel and other raw material prices on an ongoing basis and believesthat it can modify or adapt its strategies as necessary. The Companyperiodically purchases raw material forward with certain suppliers. However,there is a risk that we may not be able to successfully offset a rapid increasein the cost of raw material in the future as we have been able to in the past.

 

29

----

Tableof Contents

 

#### **Item 4.**           Controls and Procedures

 

The Companyhas performed, under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, an evaluation of the effectiveness and the design and operation of theCompany’s disclosure controls and procedures (as defined by Exchange Act rules 13a-15(e) and15d-15(e)) pursuant to Rule 13a-15(b) of the Exchange Act as of the end of the period covered bythis report.  Based upon that evaluation,the Chief Executive Officer and the Chief Financial Officer concluded that theCompany’s disclosure controls and procedures were effective as of June 30,2008 in providing reasonable assurance that information required to bedisclosed by the Company in the reports that it files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the Securities and ExchangeCommission.

 

There have been no changes in our internal controlsover financial reporting during our most recent quarter that has materiallyaffected, or is reasonably likely to materially affect, our internal controlsover financial reporting.

 

30

----

Tableof Contents

 

**PART II  OTHER INFORMATION**

 

**Item 6.****           Exhibits**

 

Exhibits.  See Index to Exhibits.

 

31

----

Tableof Contents

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   | HAYNES INTERNATIONAL, INC.            |
|--------|---------------------------------------|
|   |                                  |
|   |                                  |
|   | */s/ Francis J. Petro*                |
|   | Francis J. Petro                      |
|   | President and Chief Executive Officer |
|   | Date: August 6, 2008             |
|   |                                  |
|   |                                  |
|   | */s/  Marcel Martin*                  |
|   | Marcel Martin                         |
|   | Vice President, Finance               |
|   | Chief Financial Officer               |
|   | Date: August 6, 2008             |

 

32

----

Tableof Contents

 

**INDEX TOEXHIBITS**

 
| **Number  Assigned In  Regulation  S-K****Item 601** | ** ** | ** ** | ** ** | **Description of Exhibit**                                                                                                                                                                                                          |
|------------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3)                                                  |       | 3.01       |       | Restated  Certificate of Incorporation of Haynes International, Inc. (incorporated by  reference to Exhibit 3.1 to the Haynes International, Inc. Registration  Statement on Form S-1, Registration No. 333-140194). |
|                                                 |       | 3.02       |       | Amended  and Restated By-laws of Haynes International, Inc. (incorporated by reference  to Exhibit 3.2 to the Haynes International, Inc. Registration Statement  on Form S-1, Registration No. 333-140194).          |
| (4)                                                  |       | 4.01       |       | Specimen  Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the  Haynes International, Inc. Registration Statement on Form S-1, Registration  No. 333-140194).                                                  |
|                                                 |       | 4.02       |       | Restated Certificate of  Incorporation of Haynes International, Inc. (incorporated by reference to  Exhibit 3.1 to the Haynes International, Inc. Registration Statement on Form  S-1, Registration No. 333-140194).                |
|                                                 |       | 4.03       |       | Amended and Restated  By-laws of Haynes International, Inc. (incorporated by reference to Exhibit  3.2 to the Haynes International, Inc. Registration Statement on Form S-1,  Registration No. 333-140194).                         |
| (31)                                                 |       | 31.01*     |       | Rule 13a-14(a)/15d-14(a)  Certification.                                                                                                                                                                                            |
|                                                 |       | 31.02*     |       | Rule 13a-14(a)/15d-14(a)  Certification.                                                                                                                                                                                            |
| (32)                                                 |       | 32.01*     |       | Section 1350  Certifications.                                                                                                                                                                                                       |

 

----

* Filed herewith

 

33

----