Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

| **x**                                                                                                                                                                                                                                     | **Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                | ** **                                                                                               |
| **For the quarterly period ended March 31,  2010**                                                                                                                                                                                   |
| ** **                                                                                                                                                                                                                                | ** **                                                                                               |
| **or**                                                                                                                                                                                                                                    |
| ** **                                                                                                                                                                                                                                | ** **                                                                                               |
| **o**                                                                                                                                                                                                                                     | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934** |
| ** **                                                                                                                                                                                                                                | ** **                                                                                               |
| **For the transition period from                   to                  ** |

 

**Commission File Number:    001-33288**

 

**HAYNES INTERNATIONAL, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                     | ** ** | **06-1185400**                     |
|----------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of |       | (IRS Employer  Identification No.) |
| incorporation or organization)   |       |                               |

 

| **1020  West Park Avenue, Kokomo, Indiana** | ** ** | **46904-9013** |
|---------------------------------------------|------------|----------------|
| (Address of  principal executive offices)   |       | (Zip Code)     |

 

**(765) 456-6000**

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Website, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).   Yes o   No o

 

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

 

| Large  accelerated filer o |   | Accelerated  filer  x        |
|---------------------------------|--------|-----------------------------------|
|                            |   |                              |
| Non-accelerated  filer o   |   | Smaller  reporting company o |

 

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

 

As of May 1, 2010, the registrant had12,144,079 shares of Common Stock, $.001 par value, outstanding.

 

 

 

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Table of Contents

 

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

**TABLE OFCONTENTS**

 
|             | ** **                                                                                                                        | **Page**   |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| **PART I**  | **FINANCIAL INFORMATION**                                                                                                         | ** ** |
| Item 1.          | Unaudited Condensed  Consolidated Financial Statements                                                                            |       |
|             | Haynes International, Inc. and Subsidiaries:                                                                                 |       |
|             | Unaudited  Consolidated Balance Sheets as of September 30, 2009 and March 31,  2010                                     | 1          |
|             | Unaudited Consolidated Statements of Operations for  the Three and Six Months Ended March 31, 2009 and 2010                  | 2          |
|             | Unaudited Consolidated Statements of Comprehensive  Income (Loss) for the Three and Six Months Ended March 31, 2009 and 2010 | 3          |
|             | Unaudited Consolidated Statements of Cash Flows for  the Six Months Ended March 31, 2009 and 2010                            | 4          |
|             | Notes to Consolidated Financial Statements                                                                                        | 5          |
| Item 2.          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                       | 15         |
| Item 3.          | Quantitative  and Qualitative Disclosures About Market Risk                                                                       | 28         |
| Item 4.          | Controls and  Procedures                                                                                                          | 29         |
|             |                                                                                                                              |       |
| **PART II** | **OTHER INFORMATION**                                                                                                             |       |
| Item 4.          | Submission of  Matters to a Vote of Security Holders                                                                              | 30         |
| Item  6.         | Exhibits                                                                                                                          | 30         |
|             | Signatures                                                                                                                        | 31         |
|             | Index to  Exhibits                                                                                                                | 32         |

 

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Table of Contents

 

**PART 1         FINANCIAL INFORMATION**

Item 1.     Financial Statements

 

**HAYNES INTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

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

 
| ** **                                                                                                                                                                                | ** ** | **September 30,  2009** | ** ** | **March 31,  2010** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| **ASSETS**                                                                                                                                                                                |       |                         |       |                     |       |
| Current assets:                                                                                                                                                                           |       |                         |       |                     |       |
| Cash and cash equivalents                                                                                                                                                                 |       | $                            | 105,095    |                     | $          | 91,754 |   |
| Restricted cash—current portion                                                                                                                                                      |       | 110                          |       | 110                      |       |
| Accounts receivable, less allowance for doubtful  accounts of $1,310 and $1,129, respectively                                                                                        |       | 47,473                       |       | 53,904                   |       |
| Inventories                                                                                                                                                                               |       | 182,771                      |       | 204,524                  |       |
| Income taxes receivable                                                                                                                                                                   |       | 24,348                       |       | 15,781                   |       |
| Deferred income taxes                                                                                                                                                                     |       | 9,035                        |       | 9,310                    |       |
| Other current assets                                                                                                                                                                      |       | 645                          |       | 2,088                    |       |
| Total current assets                                                                                                                                                                      |       | 369,477                      |       | 377,471                  |       |
| Property, plant and equipment, net                                                                                                                                                        |       | 105,820                      |       | 107,401                  |       |
| Deferred income taxes—long term portion                                                                                                                                              |       | 58,843                       |       | 58,867                   |       |
| Prepayments and deferred charges                                                                                                                                                          |       | 2,670                        |       | 2,848                    |       |
| Restricted cash—long term portion                                                                                                                                                    |       | 110                          |       | —                   |       |
| Intangible assets, net                                                                                                                                                                    |       | 7,230                        |       | 6,951                    |       |
| Total assets                                                                                                                                                                              |       | $                            | 544,150    |                     | $          | 553,538 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                             |       |                         |       |                     |       |
| Current liabilities:                                                                                                                                                                      |       |                         |       |                     |       |
| Accounts payable                                                                                                                                                                          |       | $                            | 29,249     |                     | $          | 49,507 |   |
| Accrued expenses                                                                                                                                                                          |       | 10,312                       |       | 11,721                   |       |
| Accrued pension and postretirement benefits                                                                                                                                               |       | 20,215                       |       | 19,265                   |       |
| Revolving credit facilities                                                                                                                                                               |       | —                       |       | —                   |       |
| Deferred revenue – current portion                                                                                                                                                   |       | 2,500                        |       | 2,500                    |       |
| Current maturities of long-term obligations                                                                                                                                               |       | 110                          |       | 105                      |       |
| Total current liabilities                                                                                                                                                                 |       | 62,386                       |       | 83,098                   |       |
| Long-term obligations (less current portion)                                                                                                                                              |       | 1,482                        |       | 1,382                    |       |
| Deferred revenue (less current portion)                                                                                                                                                   |       | 40,329                       |       | 39,079                   |       |
| Non-current income taxes payable                                                                                                                                                          |       | 292                          |       | 292                      |       |
| Accrued pension and postretirement benefits                                                                                                                                               |       | 160,862                      |       | 157,492                  |       |
| Total liabilities                                                                                                                                                                         |       | 265,351                      |       | 281,343                  |       |
| Commitments and contingencies (Note 6)                                                                                                                                                    |       | —                       |       | —                   |       |
| Stockholders’ equity:                                                                                                                                                                |       |                         |       |                     |       |
| Common stock, $0.001 par value (40,000,000 shares authorized,  12,101,829 and 12,144,079 shares issued and outstanding at September 30,  2009 and March 31, 2010, respectively) |       | 12                           |       | 12                       |       |
| Preferred stock, $0.001 par value (20,000,000 shares authorized, 0  shares issued and outstanding)                                                                                        |       | —                       |       | —                   |       |
| Additional paid-in capital                                                                                                                                                                |       | 227,734                      |       | 228,480                  |       |
| Accumulated earnings                                                                                                                                                                      |       | 103,509                      |       | 98,330                   |       |
| Accumulated other comprehensive loss                                                                                                                                                      |       | (52,456                      | )          | (54,627                  | )          |
| Total stockholders’ equity                                                                                                                                                           |       | 278,799                      |       | 272,195                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                           |       | $                            | 544,150    |                     | $          | 553,538 |   |

 

The accompanying notesare an integral part of these financial statements.

 

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**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

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

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                   | ** ** | **March 31,**     | ** ** | **March 31,**   | ** ** |
| ** **                                   | ** ** | **2009**               | ** ** | **2010**             | ** ** | **2009** | ** ** | **2010** | ** ** |
|                                         |       |                   |       |                 |       |   |   |   |   |
| Net  revenues                                |       | $                      | 120,413    |                 | $          | 94,619 |   | $ | 254,717 |   | $ | 175,627 |   |
| Cost  of sales                               |       | 113,416                |       | 84,429               |       | 228,970 |   | 158,592 |   |
| Gross  profit                                |       | 6,997                  |       | 10,190               |       | 25,747 |   | 17,035 |   |
| Selling,  general and administrative expense |       | 8,292                  |       | 7,977                |       | 18,882 |   | 16,163 |   |
| Research  and technical expense              |       | 814                    |       | 712                  |       | 1,639 |   | 1,361 |   |
| Impairment  of goodwill                      |       | 43,737                 |       | —               |       | 43,737 |   | — |   |
| Operating  income (loss)                     |       | (45,846                | )          | 1,501                |       | (38,511 | ) | (489 | ) |
| Interest  income                             |       | (8                     | )          | (69                  | )          | (28 | ) | (114 | ) |
| Interest  expense                            |       | 123                    |       | 39                   |       | 479 |   | 87 |   |
| Income  (loss) before income taxes           |       | (45,961                | )          | 1,531                |       | (38,962 | ) | (462 | ) |
| Provision  for (benefit from) income taxes   |       | (3,072                 | )          | 575                  |       | (597 | ) | (132 | ) |
| Net  income (loss)                           |       | $                      | (42,889    | )                    | $          | 956 |   | $ | (38,365 | ) | $ | (330 | ) |
| Net  income (loss) per share:                |       |                   |       |                 |       |   |   |   |   |
| Basic                                        |       | $                      | (3.58      | )                    | $          | 0.08 |   | $ | (3.20 | ) | $ | (0.03 | ) |
| Diluted                                      |       | $                      | (3.58      | )                    | $          | 0.08 |   | $ | (3.20 | ) | $ | (0.03 | ) |
| Weighted  average shares outstanding:        |       |                   |       |                 |       |   |   |   |   |
| Basic                                        |       | 11,984,623             |       | 12,049,779           |       | 11,984,623 |   | 12,049,779 |   |
| Diluted                                      |       | 11,984,623             |       | 12,157,971           |       | 11,984,623 |   | 12,049,779 |   |

 

The accompanying notesare an integral part of these financial statements.

 

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**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)**

**(Unaudited)**

**(inthousands)**

** **
| ** **                                         | ** ** | **Three Months Ended  March 31** | ** ** | **Six Months Ended  March 31** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                         | ** ** | **2009**                              | ** ** | **2010**                            | ** ** | **2009** | ** ** | **2010** | ** ** |
| Net income (loss)                                  |       | $                                     | (42,889    | )                                   | $          | 956 |   | $ | (38,365 | ) | $ | (330 | ) |
| **Other comprehensive income (loss), net of tax:** | ** ** | ** **                            | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Foreign  currency translation adjustment           |       | (1,326                                | )          | (2,303                              | )          | (5,732 | ) | (2,171 | ) |
| Comprehensive  income (loss)                       |       | $                                     | (44,215    | )                                   | $          | (1,347 | ) | $ | (44,097 | ) | $ | (2,501 | ) |

 

The accompanying notesare an integral part of these financial statements.

 

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**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(inthousands)**

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Six Months Ended********March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **2009**                                   | ** ** | **2010** | ** ** |
| **Cash flows from operating activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                       |       |   |   |
| Net  loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | $                                          | (38,365    | ) | $ | (330 | ) |
| Adjustments  to reconcile net loss to net cash provided by (used in) operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                                       |       |   |   |
| Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | 4,964                                      |       | 5,619 |   |
| Amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | 528                                        |       | 279 |   |
| Impairment  of goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | 43,737                                     |       | — |   |
| Stock  compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 588                                        |       | 746 |   |
| Deferred  revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | (1,251                                     | )          | (1,250 | ) |
| Deferred  income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 590                                        |       | (322 | ) |
| Loss  on disposal of property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | 29                                         |       | 157 |   |
| Change  in assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                       |       |   |   |
| Accounts  receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 20,863                                     |       | (7,505 | ) |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 55,866                                     |       | (23,387 | ) |
| Other  assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | 589                                        |       | (1,690 | ) |
| Accounts  payable and accrued expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | (17,573                                    | )          | 22,062 |   |
| Income  taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | (19,804                                    | )          | 8,582 |   |
| Accrued  pension and postretirement benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | (7,591                                     | )          | (4,232 | ) |
| Net  cash provided by (used in) operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 43,170                                     |       | (1,271 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                                       |       |   |   |
| **Cash flows from investing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                       |       |   |   |
| Additions  to property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | (6,118                                     | )          | (7,042 | ) |
| Change  in restricted cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 110                                        |       | 110 |   |
| Net  cash used in investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | (6,008                                     | )          | (6,932 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                                       |       |   |   |
| **Cash flows from financing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                       |       |   |   |
| Dividends  paid                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | —                                     |       | (4,849 | ) |
| Net  decrease in revolving credit facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | (11,812                                    | )          | — |   |
| Payment  for debt issuance costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | (316                                       | )          | — |   |
| Changes  in long-term obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | (1,335                                     | )          | (105 | ) |
| Net  cash used in financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | (13,463                                    | )          | (4,954 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                                       |       |   |   |
| Effect  of exchange rates on cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | (381                                       | )          | (184 | ) |
| Increase  (decrease) in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 23,318                                     |       | (13,341 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                                       |       |   |   |
| Cash  and cash equivalents, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 7,058                                      |       | 105,095 |   |
| Cash  and cash equivalents, end of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | $                                          | 30,376     |   | $ | 91,754 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                                       |       |   |   |
| Supplemental  disclosures of cash flow information:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| Cash  paid during period for:        Interest (net of capitalized interest)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | $                                          | 453        |   | $ | 32 |   |
|                                                                                                                                                                                         Income taxes |       | $                                          | 19,945     |   | $ | 297 |   |

 

The accompanying notesare an integral part of these financial statements.

 

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**HAYNESINTERNATIONAL, INC. and SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

 

**Note 1.   Basis of Presentation**

 

*InterimFinancial Statements*

 

The accompanying unaudited condensed interim consolidated financialstatements are prepared in conformity with accounting principles generallyaccepted in the United States of America and such principles are applied on abasis consistent with information reflected in our Form 10-K for the yearended September 30, 2009 filed with the Securities and Exchange Commission(“SEC”). Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted pursuant to the rules and regulations promulgated by the SECrelated to interim financial statements. In the opinion of management, theinterim financial information includes all adjustments and accruals, consistingonly of normal recurring adjustments, which are necessary for a fairpresentation of results for the respective interim periods. The results ofoperations for the three and six months ended March 31, 2010 are notnecessarily indicative of the results to be expected for the full fiscal yearending September 30, 2010 or any interim period.

 

*Principles of Consolidation*

 

Theconsolidated financial statements include the accounts of Haynes International, Inc.and its wholly-owned subsidiaries (collectively, the “Company”). Allsignificant intercompany transactions and balances are eliminated.

 

**Note 2.   New Accounting Pronouncements**

 

InDecember 2007, the Financial Accounting Standards Board (FASB) issued FASBStatement No. 141 (revised 2007), *Business Combinations*(“SFAS 141(R)”), which was primarily codified into Topic 805 (*Business Combinations*) in the Accounting StandardsCodification, or ASC.  This guidancerequires that the fair value of the purchase price of an acquisition includingthe issuance of equity securities be determined on the acquisition date;requires that all assets, liabilities, noncontrolling interests, contingentconsideration, contingencies, and in-process research and development costs ofan acquired business be recorded at fair value at the acquisition date;requires that acquisition costs generally be expensed as incurred; requiresthat restructuring 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. This guidance also expands disclosures related tobusiness combinations and will be applied prospectively to businesscombinations occurring after the beginning of the Company’s fiscal year 2010,except that business combinations consummated prior to the effective date mustapply SFAS 141(R) income tax requirements immediately upon adoption. TheCompany is currently evaluating the impact of SFAS 141(R) related tofuture acquisitions, if any, on its financial position, results of operationsand cash flows.

 

InApril 2008, the FASB issued FASB Staff Position No. 142-3, *Determination of the Useful Life of Intangible Assets*, whichis primarily codified into Topic 250 (*Intangibles-Goodwill andOther*) in the ASC. This guidance amends the factors that should beconsidered in developing renewal or extension assumptions used to determine theuseful life of a recognized intangible asset under SFAS 142. The intent ofthis FSP is to improve the consistency between the useful life of a recognizedintangible asset under SFAS 142 and the period of expected cash flows usedto measure the fair value of the asset under SFAS 141R, and otherU.S. GAAP. This FSP is effective for financial statements issued forfiscal years beginning after December 15, 2008, and interim periods withinthose fiscal years, and early adoption is prohibited. Accordingly, this FSP waseffective for the Company on October 1, 2009 and it had no impact on theCompany’s consolidated financial statements.

 

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InDecember 2008, the FASB issued FASB Staff Position No. 132(R)-1, *Employers’ Disclosures about Postretirement Benefit Plan Assets*,which was primarily codified into Topic 715 (*CompensationRetirement Benefits*) in the ASC. The guidance requires disclosuresof the objectives of postretirement benefit plan assets, investment policiesand strategies, categories of plan assets, fair value measurements of planassets, and significant concentrations of risk. This guidance was effective forfiscal years and interim periods beginning after December 15, 2009. Theadoption of this guidance is expected to increase the Company’s disclosures,but it is not expected to have an impact on the Company’s consolidatedfinancial statements.

 

**Note 3.   Inventories**

 

Thefollowing is a summary of the major classes of inventories:

 
| ** **      | ** ** | **September 30,  2009** | ** ** | **March 31,   2010** | ** ** |
|-----------------|------------|------------------------------|------------|---------------------------|------------|
| Raw Materials   |       | $                            | 13,321     |                      | $          | 17,399 |   |
| Work-in-process |       | 87,322                       |       | 106,841                   |       |
| Finished Goods  |       | 81,228                       |       | 79,330                    |       |
| Other           |       | 900                          |       | 954                       |       |
|            |       | $                            | 182,771    |                      | $          | 204,524 |   |

 

**Note 4.   Income Taxes**

 

Incometax expense for the three and six months ended March 31, 2009 and 2010,differed from the U.S. federal statutory rate of 35% primarily due to stateincome taxes, differing tax rates on foreign earnings and the impact ofpermanent items with a pretax loss. The effective tax rate for the three monthsended March 31, 2010 was 37.6% compared to 6.7% in the same period offiscal 2009. The effective tax rate for the six months ended March 31,2010 was 28.6% compared to 1.5% in the same period of fiscal 2009. The increasein the effective tax rate is primarily attributable to the goodwill impairmentcharge in fiscal 2009.

** **

**Note 5.   Pension and Post-retirement Benefits**

** **

Components of net periodicpension and post-retirement benefit cost for the three and six months endedMarch 31, 2009 and 2010 are as follows:

 
| ** **                | ** ** | **Three  Months Ended March 31,** | ** ** | **Six  Months Ended March 31,** | ** ** |
|---------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                | ** ** | **Pension  Benefits**                  | ** ** | **Other  Benefits**                  | ** ** | **Pension  Benefits** | ** ** | **Other  Benefits** | ** ** |
| ** **                | ** ** | **2009**                               | ** ** | **2010**                             | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** | **2010** | ** ** |
| Service cost              |       | $                                      | 614        |                                 | $          | 899 |   | $ | 332 |   | $ | 51 |   | $ | 1,249 |   | $ | 1,798 |   | $ | 664 |   | $ | 103 |   |
| Interest cost             |       | 2,905                                  |       | 2,809                                |       | 1,231 |   | 1,205 |   | 5,904 |   | 5,673 |   | 2,462 |   | 2,410 |   |
| Expected return           |       | (2,404                                 | )          | (2,566                               | )          | — |   | — |   | (4,914 | ) | (5,185 | ) | — |   | — |   |
| Amortizations             |       | 203                                    |       | 1,437                                |       | (1,326 | ) | (949 | ) | 404 |   | 2,883 |   | (2,653 | ) | (1,899 | ) |
| Net periodic benefit cost |       | $                                      | 1,318      |                                 | $          | 2,579 |   | $ | 237 |   | $ | 307 |   | $ | 2,643 |   | $ | 5,169 |   | $ | 473 |   | $ | 614 |   |

 

TheCompany contributed $7,150 to Company sponsored domestic pension plans, $2,429to its other post-retirement benefit plans and $477 to the U.K. pension planfor the six months ended March 31, 2010. The Company presently expects future contributions of $7,050 to itsdomestic pension plans, $2,371 to its other post-retirement benefit plans and$483 to the U.K. pension plan for the remainder of fiscal 2010. The PensionProtection Act of 2006 requires funding over a seven-year period to achieve100% funded status.

 

**Note 6. Legal, Environmental and Other Contingencies**

 

TheCompany is regularly involved in litigation, both as a plaintiff and as adefendant, relating to its business and operations, including environmental andintellectual property matters. Future expenditures for environmental,intellectual property and other legal matters cannot be determined with anydegree of certainty; however, based on

 

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thefacts presently known, management does not believe that such costs will have a materialeffect on the Company’s financial position, results of operations or cashflows.

 

TheCompany believes that any and all claims arising out of conduct or activitiesthat occurred prior to March 29, 2004 are subject to dismissal. On March 29,2004, the Company and certain of its subsidiaries and affiliates filedvoluntary petitions for relief under Chapter 11 of Title 11 of the UnitedStates Bankruptcy Code in the United States Bankruptcy Court for the SouthernDistrict of Indiana (the “Bankruptcy Court”). On August 16, 2004, theBankruptcy Court entered its Findings of Fact, Conclusions of Law, and OrderUnder 11 U.S.C. 1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the FirstAmended Joint Plan of Reorganization of Haynes International, Inc. and itsAffiliated Debtors and Debtors-in-Possession as Further Modified (the“Confirmation Order”). The Confirmation Order and related Chapter 11 Plan,among other things, provide for the release and discharge of prepetition claimsand causes of action. The Confirmation Order further provides for an injunctionagainst the commencement of any actions with respect to claims held prior tothe Effective Date of the Plan. The Effective Date occurred on August 31, 2004.When appropriate, the Company pursues the dismissal of lawsuits premised uponclaims or causes of action discharged in the Confirmation Order and relatedChapter 11 Plan. The success of this strategy is dependent upon a number offactors, including the respective court’s interpretation of the ConfirmationOrder and the unique circumstances of each case.

 

TheCompany is currently, and has in the past, been subject to claims involvingpersonal injuries allegedly relating to its products. For example, the Companyis presently involved in two actions involving welding rod-related injuries,filed against numerous manufacturers, including the Company, in December 2008in the Federal MDL Court in Ohio and in California State Court in February2007, respectively, alleging that the welding-related products of the defendantmanufacturers harmed the users of such products through the inhalation ofwelding 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, including 53 filed in the state of California, alleging that its welding-relatedproducts harmed the users of such products through the inhalation of weldingfumes containing manganese. The Company has since been voluntarily dismissedfrom all of these lawsuits on the basis of the release and discharge of claimscontained in the Confirmation Order. While the Company contests such lawsuitsvigorously, there are several risks and uncertainties that may affect itsliability for claims relating to exposure to welding fumes and manganese. Forinstance, in recent cases, at least two courts (in cases not involving Haynes)have refused to dismiss claims relating to inhalation of welding fumescontaining manganese based upon a bankruptcy discharge order. Although theCompany believes the facts of these cases are distinguishable from the facts ofits cases, there can be no assurance that any or all claims against the Companywill be dismissed based upon the Confirmation Order, particularly claimspremised, in part or in full, upon actual or alleged exposure on or after thedate of the Confirmation Order. It is also possible that the Company will benamed in additional suits alleging welding-rod injuries. Should such litigationoccur, although the Company may have applicable insurance, it is possible thatthe aggregate claims for damages, if the Company is found liable, could have amaterial adverse effect on its financial condition, results of operations orliquidity.

 

TheCompany has received permits from the Indiana Department of EnvironmentalManagement, or IDEM, to close and to provide post-closure monitoring and carefor certain areas at the Kokomo facility previously used for the storage anddisposal of wastes, some of which are classified as hazardous under applicableregulations. Closure certification was received in fiscal 1988 for the SouthLandfill at the Kokomo facility and post-closure monitoring and care is ongoingthere. Closure certification was received in fiscal 1999 for the North Landfillat the Kokomo facility and post-closure monitoring and care are permitted andongoing there.  In fiscal 2007, IDEMissued a single post-closure permit applicable to both the North and SouthLandfills, which contain monitoring and post-closure care requirements.  In addition, IDEM required that a ResourceConservation and Recovery Act, or RCRA, Facility Investigation, or RFI, beconducted in order to further evaluate one area of concern and one solid wastemanagement unit.  The RFI commenced infiscal 2008 and is ongoing.

 

TheCompany has also received permits from the North Carolina Department ofEnvironment and Natural Resources, or NCDENR, to close and provide post-closuremonitoring and care for the hazardous waste lagoon at its Mountain Home, NorthCarolina facility. The lagoon area has been closed and is currently undergoingpost-closure monitoring and care. The Company is required to monitorgroundwater and to continue post-closure

 

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maintenance of the former disposal areas ateach site. As a result, the Company is aware of elevated levels of certaincontaminants in the groundwater and additional corrective actions by theCompany could be required.

 

Asof March 31, 2010 and September 30, 2009, the Company has accrued $1,516 forpost-closure monitoring and maintenance activities. In accordance withStatement of Position 96-1, Environmental Remediation Liabilities, which wasprimarily codified into Topic 410-30 (Asset Retirement and Environmental Obligations)in the ASC, accruals for these costs are calculated by estimating the cost tomonitor and maintain each post-closure site and multiplying that amount by thenumber of years remaining in the 30 year post-closure monitoring periodreferred to above. At each fiscal year-end, or earlier if necessary, theCompany evaluates the accuracy of the estimates for these monitoring andmaintenance costs for the upcoming fiscal year. The accrual was based upon theundiscounted amount of the obligation of $2,123 which was then discounted usingan appropriate discount rate. The cost associated with closing the sites hasbeen incurred in financial periods prior to those presented, with the remainingcost to be incurred in future periods related solely to post-closure monitoringand maintenance. Based on historical experience, the Company estimates that thecost of post-closure monitoring and maintenance will approximate $134 per yearover the remaining obligation period.

 

Alleligible hourly employees at the Kokomo plant and Lebanon, Indiana servicecenter (approximately 48.3% of the workforce or 454 people in the aggregate asof September 30, 2009), are covered by a collective bargaining agreementwhich will expire in June 2010.  TheCompany intends to renegotiate the agreement prior to its expiration.

 

**Note7.  Deferred Revenue**

 

OnNovember 17, 2006, the Company entered into a twenty-year agreement toprovide conversion services to Titanium Metals Corporation (“TIMET”) for up toten million pounds of titanium metal annually. TIMET paid the Company a $50,000up-front fee and will also pay the Company for its processing services duringthe term of the agreement (20 years) at prices established by the terms of theagreement.  TIMET may exercise an optionto have ten million additional pounds of titanium converted annually, providedthat it offers to loan up to $12,000 to the Company for certain capitalexpenditures which may be required to expand capacity.  In addition to the volume commitment, theCompany has granted TIMET a security interest on its four-high steckel rollingmill, along with rights of access if the Company enters into bankruptcy ordefaults on any financing arrangements. The Company has agreed not to manufacture titanium products (other thancold reduced titanium tubing).  TheCompany has also agreed not to provide titanium conversion services to anyentity other than TIMET for the term of the Conversion Services Agreement.  The agreement contains certain defaultprovisions which could result in contract termination and damages, includingthe Company being required to return the unearned portion of the upfrontfee.  The cash received of $50,000 isrecognized in income on a straight-line basis over the 20-year term of theagreement. The portion of the upfront fee not recognized in income is shown asdeferred revenue on the consolidated balance sheet.  Taxes were paid on the up-front fee primarilyin the first quarter of fiscal 2009.

 

**Note 8.    Intangible Assets andGoodwill**

 

Goodwill wascreated primarily as a result of the Company’s reorganization pursuant toChapter 11 of the U.S. Bankruptcy Code and fresh start accounting. TheCompany has adopted SFAS No. 142, *Goodwill and OtherIntangible*Assets (“SFAS 142”) which was primarily codified intoTopic 350 *(Intangibles - Goodwill and Other)* inthe ASC. Pursuant to SFAS 142, goodwill is not amortized and the value ofgoodwill is reviewed at least annually for impairment. If the carrying value ofgoodwill exceeds its fair value, impairment of goodwill may exist resulting ina charge to earnings to the extent of goodwill impairment.  The Company estimated fair value using acombination of a market value approach using quoted market prices and an incomeapproach using discounted cash flow projections.

 

Due to uncertaintysurrounding the global economy and volatility in the Company’s stock price, theCompany concluded a triggering event had occurred indicating potentialimpairment and performed an impairment test as of December 31, 2008 of itsgoodwill. No impairment was recognized at December 31, 2008 because thefair value exceeded the carrying values.

 

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During the second quarterof fiscal 2009, the Company determined that the weakening of the U.S. economyand the global credit crisis resulted in a reduction of the Company’s marketcapitalization below its total stockholder’s equity value for a sustainedperiod of time, which is an indication that goodwill may be impaired.  As a result, the Company performed an interimstep one goodwill impairment analysis as of February 28, 2009 whichindicated impairment.  In connection withthe second step of the goodwill impairment test, the Company compared theimplied fair value of the reporting unit goodwill to the carrying value of thatgoodwill and determined that the carrying value of the Company’s one reportingunit exceeded its fair value.  As aresult, the Company recorded a non-cash charge of $43,737 for goodwillimpairment in the second quarter of fiscal 2009, which was primarilynon-deductible for tax purposes.

 

The Company alsohas patents, trademarks and other intangibles. As the patents have a definitelife, 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 the impairment. The Company has non-competeagreements with lives of 5 to 7 years. Amortization of the patents, non-competesand other intangibles was $528 and $279 for the six months ended March 31,2009 and 2010, respectively.

 

The following represents a summary of intangible assets at September 30,2009 and March 31, 2010:

 
| **September 30, 2009** | ** ** | **Gross********Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Carrying  Amount** | ** ** |
|-----------------------------|------------|-------------------------|------------|-------------------------------|------------|----------------------|------------|
| Patents                     |       | $                       | 8,667      |                          | $          | (6,040               | )          | $ | 2,627 |   |
| Trademarks                  |       | 3,800                   |       | —                        |       | 3,800                |       |
| Non-compete                 |       | 1,340                   |       | (758                          | )          | 582                  |       |
| Other                       |       | 316                     |       | (95                           | )          | 221                  |       |
| ** **                  |       | $                       | 14,123     |                          | $          | (6,893               | )          | $ | 7,230 |   |

 
| **March 31, 2010** | ** ** | **Gross********Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Carrying  Amount** | ** ** |
|-------------------------|------------|-------------------------|------------|-------------------------------|------------|----------------------|------------|
| Patents                 |       | $                       | 8,667      |                          | $          | (6,186               | )          | $ | 2,481 |   |
| Trademarks              |       | 3,800                   |       | —                        |       | 3,800                |       |
| Non-compete             |       | 1,090                   |       | (586                          | )          | 504                  |       |
| Other                   |       | 316                     |       | (150                          | )          | 166                  |       |
| ** **              |       | $                       | 13,873     |                          | $          | (6,922               | )          | $ | 6,951 |   |

 

**Estimate of Aggregate Amortization Expense:**

 
| **Year Ended  September 30,** |   |   |   |   |   |   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| 2010 (remainder of fiscal year)    |   |   |   | $      | 278    |   |   |   |
| 2011                               |   |   |   | 545    |   |   |   |
| 2012                               |   |   |   | 359    |   |   |   |
| 2013                               |   |   |   | 350    |   |   |   |
| 2014                               |   |   |   | 350    |   |   |   |
|                                    |        |        |        |        |        |        |        |  |

 

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**Note9.   Net Income (Loss) Per Share**

 

Basicand diluted net income (loss) per share were computed as follows:

 
| ** **                                                                           | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                                                           | ** ** | **March 31,**      | ** ** | **March 31,**         | ** ** |
| **(in thousands except share  and per share data)**         | ** ** | **2009**                | ** ** | **2010**                   | ** ** | **2009** | ** ** | **2010** | ** ** |
| Numerator:                                                                           |       |                    |       |                       |       |   |   |   |   |
| Net Income (loss)                                                                    |       | $                       | (42,889    | )                          | $          | 956 |   | $ | (38,365 | ) | $ | (330 | ) |
| Denominator:                                                                         |       |                    |       |                       |       |   |   |   |   |
| Weighted average shares outstanding - Basic                                          |       | 11,984,623              |       | 12,049,779                 |       | 11,984,623 |   | 12,049,779 |   |
| Effect of dilutive stock options                                                     |       | 47,310                  |       | 56,192                     |       | 53,843 |   | 53,805 |   |
| Effect of dilutive restricted stock                                                  |       | 21,000                  |       | 52,000                     |       | 21,000 |   | 52,000 |   |
| Adjustment for net loss                                                              |       | (68,310                 | )          | —                     |       | (74,843 | ) | (105,805 | ) |
| Weighted average shares outstanding - Diluted                                        |       | 11,984,623              |       | 12,157,971                 |       | 11,984,623 |   | 12,049,779 |   |
|                                                                                 |       |                    |       |                       |       |   |   |   |   |
| Basic net income (loss) per share                                                    |       | $                       | (3.58      | )                          | $          | 0.08 |   | $ | (3.20 | ) | $ | (0.03 | ) |
| Diluted net income (loss) per share                                                  |       | $                       | (3.58      | )                          | $          | 0.08 |   | $ | (3.20 | ) | $ | (0.03 | ) |
|                                                                                 |       |                    |       |                       |       |   |   |   |   |
| Number of stock option shares excluded as theireffect would  be anti-dilutive        |       | 334,043                 |       | 219,132                    |       | 307,189 |   | 213,316 |   |
| Number of restricted stock shares excluded as their performance goal  is not yet met |       | 32,800                  |       | 42,300                     |       | 32,800 |   | 42,300 |   |

 

Anti-dilutiveshares with respect to outstanding stock options have been properly excludedfrom the computation of diluted net income (loss) per share.  Restricted stock with performance goalsissued to certain key employees is not included in the computation as theperformance goal is deemed not yet achieved. Restricted stock issued to non-employee directors and certain keyemployees with no performance goal is included in the computation only when theCompany has net income.

 

**Note 10.  Stock-Based Compensation**

 

**Restricted Stock Plan**

 

On February 23, 2009, the Company adopted a restricted stock planthat reserved 400,000 shares of common stock for issuance.  Grants of restricted stock are rights toacquire shares of the Company’s common stock, which vest in accordance with theterms and conditions established by the Compensation Committee.  The Compensation Committee may setrestrictions on certain grants based on the achievement of specific performancegoals and vesting of grants to participants will also be time-based.

 

Restricted stock grants are subject to forfeiture if employment orservice terminates prior to the vesting period or if the performance goal isnot met, if applicable.  The Company willassess, on an ongoing basis, the probability of whether the performancecriteria will be achieved. The Company will recognize compensation expense overthe performance period if it is deemed probable that the goal will be achieved.The fair value of the Company’s restricted stock is determined based upon theclosing price of the Company’s common stock on the grant date. The planprovides for the adjustment of the number of shares covered by an outstandinggrant and the maximum number of shares for which restricted stock may begranted in the event of a stock split, extraordinary dividend or distributionor similar recapitalization event. Outstanding shares of restricted stock are entitled to receive dividendson shares of common stock.

 

On January 8, 2010, the Company granted 46,000 shares ofrestricted stock to certain key employees and non-employee directors. Theshares of restricted stock granted to employees will vest on the thirdanniversary of their grant date, provided that (a) the recipient is stillan employee with the Company and (b) for a portion of the grant, theCompany has met a three year net income performance goal. The shares ofrestricted stock granted to 

 

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directorswill vest on the earlier of (a) the third anniversary of the date of grantor (b) the failure of such non-employee director to be re-elected at anannual meeting of the stockholders of the Company as a result of suchnon-employee director being excluded from the nominations for any reason otherthan cause. The fair value of the grant was $34.00 per share, the closing priceof the Company’s common stock on the day of the grant.

 

The stock-based compensation expense for restricted stock for the threemonths ended March 31, 2009 and 2010 was $0 and $162, respectively, andfor the six months ended March 31, 2009 and 2010 was $0 and $192,respectively. The following table summarizes the activity under the restrictedstock plan for the six months ended March 31, 2010:

 
| ** **                          | ** ** | **Number of   Shares** | ** ** | **Weighted Average Fair  Value Per Share At********Grant Date** | ** ** |
|-------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------|------------|
| Unvested at September 30, 2009 |       | 52,050                 |       | $                                                               | 17.82      |   |
| Granted                             |       | 46,000                 |       | 34.00                                                           |       |
| Forfeited / Canceled                |       | (3,750                 | )          | 17.82                                                           |       |
| Vested                              |       | —                 |       |                                                            |       |
| Unvested at March 31, 2010     |       | 94,300                 |       | $                                                               | 25.71      |   |
| Expected to vest                    |       | 67,000                 |       | $                                                               | 28.93      |   |

 

The remaining unrecognized compensation expense at March 31, 2010was $1,683 to be recognized over a weighted average period of 2.68 years.

 

**Stock Option Plans**

 

The Company hastwo stock option plans that authorize the granting of non-qualified stockoptions to certain key employees and non-employee directors for the purchase ofa maximum of 1,500,000 shares of the Company’s common stock. The originaloption plan was adopted in August 2004 pursuant to the plan ofreorganization and provides for the grant of options to purchase up to1,000,000 shares of the Company’s common stock. In January 2007, theCompany’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.

 

Thefair value of option grants was estimated as of the date of the grant pursuantto FASB No. 123(R), *Share-Based Payment*,which was primarily codified into Topic 718 *(Compensation — StockCompensation*) in the ASC*.* The Companyhas elected to use the Black-Scholes option pricing model, which incorporatesvarious assumptions including volatility, expected life, risk-free interestrates, expected forfeitures and dividend yields. The volatility is based onhistorical volatility of the Company’s common stock over the most recent periodcommensurate with the estimated expected term of the stock option granted. TheCompany uses historical volatility because management believes such volatilityis representative of prospective trends. The expected term of an award is basedon historical exercise data. The risk-free interest rate assumption is basedupon observed interest rates appropriate for the expected term of the awards.The expected forfeiture rate is based upon historical experience. The dividendyield assumption is based on the Company’s history and expectation regardingdividend payouts at the time of the grant. Valuation of future grants under the Black-Scholes model will include adividend yield. The following assumptions were used for grants in fiscal year2010:

 
| **Grant Date**       | ** ** | **Fair Value** | ** ** | **Dividend   Yield** | ** ** | **Risk-Free   Interest Rate** | ** ** | **Expected   Volatility** | ** ** | **Expected Life** | ** ** |
|----------------------|------------|----------------|------------|----------------------|------------|-------------------------------|------------|---------------------------|------------|-------------------|------------|
| January 8, 2010 |       | $              | 17.93      |                 | 2.35       | %                             | 1.62       | %                         | 89         | %                 | 3  years   |   |
|                      |            |                |            |                      |            |                               |            |                           |            |                   |            |  |

 

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OnJanuary 8, 2010, the Company granted 37,000 options to certain employeesat an exercise price of $34.00 per share, the fair market value of theCompany’s common stock the day of the grant. During the first six months offiscal 2010, no options were exercised.

 

Thestock-based employee compensation expense for stock options for the threemonths ended March 31, 2009 and 2010 was $134 and $224, respectively, andfor the six months ended March 31, 2009 and 2010 was $588 and $554,respectively.  The remaining unrecognizedcompensation expense at March 31, 2010 was $1,486 to be recognized over aweighted average vesting period of 0.79 years.

 

The following tablesummarizes the activity under the stock option plans for the six months ended March 31,2010:

 
| ** **                             | ** ** | **Number of   Shares** | ** ** | **Aggregate   Intrinsic   Value********(000s)** | ** ** | **Weighted   Average   Exercise   Prices** | ** ** | **Weighted   Average   Remaining   Contractual Life** | ** ** |
|----------------------------------------|------------|------------------------|------------|-------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------|------------|
| Outstanding at September 30, 2009 |       | 394,737                |       |                                            |       | $                                          | 40.20      |                                                  |       |   |
| Granted                                |       | 37,000                 |       |                                            |       | $                                          | 34.00      |                                                  |       |   |
| Exercised                              |       | —                 |       |                                            |       |                                       |       |                                                  |       |
| Canceled                               |       | (26,584                | )          |                                            |       |                                       |       |                                                  |       |
| Outstanding at March 31, 2010     |       | 405,153                |       | $                                               | 3,294      |                                       | $          | 38.98                                                 |       | 7.12  yrs. |   |
| Vested or expected to vest             |       | 395,168                |       | $                                               | 3,294      |                                       | $          | 38.98                                                 |       | 7.12  yrs. |   |
| Exercisable at March 31, 2010     |       | 290,908                |       | $                                               | 2,622      |                                       | $          | 40.28                                                 |       | 6.41  yrs. |   |

 
| **Grant Date**    | ** ** | **Exercise   Price Per   Share** | ** ** | **Remaining  Contractual  Life in Years** | ** ** | **Outstanding   Number of   Shares** | ** ** | **Exercisable   Number of  Shares** | ** ** |
|------------------------|------------|----------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------|------------|
| August 31, 2004   |       | $                                | 12.80      |                                                | 4.42       |                                 | 86,886     |                                     | 86,886     |   |
| May 5, 2005       |       | 19.00                            |       | 5.08                                                |       | 8,334                                |       | 8,334                                    |       |
| February 21, 2006 |       | 29.25                            |       | 5.92                                                |       | 25,001                               |       | 25,001                                   |       |
| March 31, 2006    |       | 31.00                            |       | 6.00                                                |       | 10,000                               |       | 10,000                                   |       |
| March 30, 2007    |       | 72.93                            |       | 7.00                                                |       | 74,166                               |       | 74,166                                   |       |
| March 31, 2008    |       | 54.00                            |       | 8.00                                                |       | 91,666                               |       | 62,492                                   |       |
| October 1, 2008   |       | 46.83                            |       | 8.50                                                |       | 20,000                               |       | 6,666                                    |       |
| March 31, 2009    |       | 17.82                            |       | 9.00                                                |       | 52,100                               |       | 17,363                                   |       |
| January 8, 2010   |       | 34.00                            |       | 9.75                                                |       | 37,000                               |       | —                                   |       |
|                   |       |                             |       |                                                |       | 405,153                              |       | 290,908                                  |       |
|                        |            |                                  |            |                                                     |            |                                      |            |                                          |            |  |

 

**Note11.    Dividend**

 

Inthe second quarter of fiscal 2010, the Company declared and paid a regularquarterly cash dividend of $0.20 per outstanding share of the Company’s commonstock.  The dividend was paid March 15,2010 to stockholders of record at the close of business on March 1, 2010.The dividend cash pay-out was $2,429 for the quarter based on sharesoutstanding. Dividends paid year-to-date for fiscal 2010 are $4,849.

 

TheCompany announced that the Board of Directors declared a regular quarterly cashdividend of $0.20 per outstanding share of the Company’s  common stock. The dividend is payable June 15,2010 to stockholders of record at the close of business on June 1, 2010.

 

**Note12.  Commodity Contracts**

 

OnJune 11, 2009, to mitigate the volatility of the natural gas markets, theCompany entered into a commodity swap-cash settlement agreement with JPMorganChase Bank.  The Company has agreed to afixed natural gas price on a total of 300,000 MMBTU, at a settlement rate of50,000 MMBTU per month for a period spanning October 2009 to March 2010.  As of March 31, 2010, 300,000 MMBTU hadbeen settled for a net realized hedging loss of $269.

 

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| ** **          | ** ** | ** **                       | ** ** | ** **                  | ** ** | ** **         | ** ** | **Gain or (loss) Recognized in Income (Loss)** | ** **     |
|---------------------|------------|----------------------------------|------------|-----------------------------|------------|--------------------|------------|------------------------------------------------------------------------------|----------------|
| ** **          | ** ** | **Fair Value**              | ** ** | **Statement of ** | ** ** | ** **         | ** ** | ** **                                                                   | ** **     |
| ** **          | ** ** | **Balance Sheet**** ** | ** ** | **September 30,**      | ** ** | **March 31,** | ** ** | **Operations **                                                         | ** **     | **Six Months Ended**** ****March 31,** | ** ** |
| ** **          | ** ** | **Location**                     | ** ** | **2009**                    | ** ** | **2010**           | ** ** | **Location**                                                                 | ** **     | **2009** | ** ** | **2010** | ** ** |
| Commodity Contracts |       | Accts  Receivable                |       | $                           | 51         |               | —     |                                                                         | Cost  of Sales | ** ** | **—** |   | $ | 185 |   |
|                |       | Accounts Payable                 |       | $                           | (134       | )                  | —     |                                                                         |           |   |   |   |   |   |
|                     |            |                                  |            |                             |            |                    |            |                                                                              |                |  |  |  |  |  |  |

 

**Note13.  Fair Value Measurements**

 

On October 1, 2008, the Company adopted the provisions of SFAS No. 157,*  Fair Value Measurements* , asamended by FSP FAS 157-3, for assets and liabilities measured at fair value ona recurring basis, which was primarily codified into FASB ASC 820-10 (*Fair Value Measurements and Disclosures)* in the ASC.  This standard does not apply to non-financialassets and non-financial liabilities, except those that are recognized ordisclosed in the financial statements at fair value at least annually until October 1,2009.  FASB ASC 820-10 establishes aframework for measuring fair value, clarifies the definition of fair valuewithin that framework and expands disclosures about the use of fair valuemeasurements.  Fair value is defined asthe price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date. A fair value measurement assumes that the transaction to sellthe asset or transfer the liability occurs in the principal market for theasset or liability or, in the absence of a principal market, the mostadvantageous market for the asset or liability.

 

FASB ASC 820-10 specifies a hierarchy of valuation techniques basedupon whether the inputs to those valuation techniques reflect assumptions thatother market participants would use based upon market data obtained fromindependent sources (observable inputs) or reflect the Company’s ownassumptions of market participant valuation (unobservable inputs). Valuationtechniques used to measure fair value under FASB ASC 820-10 must maximize theuse of observable inputs and minimize the use of unobservable inputs. The fairvalue hierarchy that prioritizes the use of inputs used in valuation techniquesinto the following three levels:

 
| · |   | Level 1 — Quoted prices in active markets that are unadjusted and  accessible at the measurement date for identical, unrestricted assets or  liabilities;                                                                                                                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |   | Level 2 — Quoted prices for identical assets and liabilities in  markets that are not active, quoted prices for similar assets and liabilities  in active markets or financial instruments for which significant inputs are  observable, either directly or indirectly; and |
| · |   | Level 3 — Prices or valuations that require inputs that are both  significant to the fair value measurement and unobservable.                                                                                                                                               |

 

When available, the Company uses unadjusted quoted market prices tomeasure fair value and classifies such items within Level 1. If quoted marketprices are not available, fair value is based upon internally-developed modelsthat use, where possible, current market-based or independently-sourced marketparameters such as interest rates and currency rates. Items valued usinginternally-generated models are classified according to the lowest level inputor value driver that is significant to the valuation. If quoted market pricesare not available, the valuation model used depends on the specific asset orliability being valued.

 

Pursuant to this guidance*,*the Company measures and reports the commodity swap-cash settlement agreementfor natural gas (refer to Note 12 for more information) at fair value.

 

The following table represents the Company’s fair value hierarchy forits financial assets and liabilities (cash equivalents and commodity contracts)measured at fair value on a recurring basis as of September 30, 2009 and March 31,2010:

 

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| ** **                                | ** ** | **Fair Value Measurements at Reporting Date Using:** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|
| **September 30, 2009**               | ** ** | **Level 1**                                          | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Assets:**                               |       |                                                 |       |   |   |   |   |   |   |
| Cash and money market funds               |       | $                                                    | 105,095    |   | $ | — |   | $ | — |   | $ | 105,095 |   |
| Commodity contracts (accounts receivable) |       | —                                               |       | 51 |   | — |   | 51 |   |
| Total assets                              |       | $                                                    | 105,095    |   | $ | 51 |   | $ | — |   | $ | 105,146 |   |
| **Liabilities:**                          |       |                                                 |       |   |   |   |   |   |   |
| Commodity contracts (accounts payable)    |       | —                                               |       | 134 |   | — |   | 134 |   |
| Total liabilities                         |       | $                                                    | —     |   | $ | 134 |   | $ | — |   | $ | 134 |   |

 
| ** **                  | ** ** | **Fair Value Measurements at Reporting Date Using:** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|
| **March 31, 2010**     | ** ** | **Level 1**                                          | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Assets:**                 |       |                                                 |       |   |   |   |   |   |   |
| Cash and money market funds |       | $                                                    | 91,754     |   | $ | — |   | $ | — |   | $ | 91,754 |   |
| Total assets                |       | $                                                    | 91,754     |   | $ | — |   | $ | — |   | $ | 91,754 |   |
| **Liabilities:**            |       |                                                 |       |   |   |   |   |   |   |
| Total liabilities           |       | $                                                    | —     |   | $ | — |   | $ | — |   | $ | — |   |

 

TheCompany had no Level 3 assets or liabilities as of September 30, 2009 or March 31,2010.

 

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** **

**Item 2.     Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

References to years orportions of years in Management’s Discussion and Analysis of FinancialCondition and Results of Operations refer to the Company’s fiscal years ended September 30,unless otherwise indicated*.*

 

*ThisQuarterly Report on Form 10-Q (this “Form 10-Q”) contains statementsthat constitute “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995, Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934. Thosestatements appear in a number of places in this Form 10-Q and may include,but are not limited to, statements regarding the intent, belief or currentexpectations of the Company or its management with respect to strategic plans;revenues; financial results; backlog balances; trends in the industries thatconsume the Company’s products; global economic and political conditions;production levels at the Company’s Kokomo, Indiana facility; commercializationof the Company’s production capacity; the Company’s ability to develop newproducts; and labor agreement negotiations. Readers are cautioned that any such forward-looking statements are notguarantees of future performance and involve risks and uncertainties. Actualresults may differ materially from those in the forward-looking statements as aresult of various factors, many of which are beyond the Company’s control.*

 

*TheCompany has based these forward-looking statements on its current expectationsand projections about future events.  Although the Company believes thatthe assumptions on which the forward-looking statements contained herein arebased are reasonable, any of those assumptions could prove to be inaccurate. Asa result, the forward-looking statements based upon those assumptions alsocould be incorrect.  Risks and uncertainties, some of which are discussedin Item 1A. of Part 1 to the Company’s Annual Report on Form 10-K forthe fiscal year ended September 30, 2009, may affect the accuracy offorward-looking statements.*

 

*TheCompany undertakes no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.*

 

**Business Overview**

 

Haynes International, Inc.(“Haynes” or “the Company”) is one of the world’s largest producers ofhigh-performance nickel- and cobalt-based alloys in sheet, coil and plateforms. The Company is focused on developing, manufacturing, marketing anddistributing technologically advanced, high-performance alloys, which are soldprimarily in the aerospace, chemical processing and land-based gas turbineindustries. The Company’s products consist of high temperature resistantalloys, or HTA products, and corrosion resistant alloys, or CRA products.  HTA products are used by manufacturers ofequipment that is subjected to extremely high temperatures, such as jet enginesfor the aerospace market, gas turbine engines used for power generation andwaste incineration, and industrial heating equipment.  CRA products are used in applications thatrequire resistance to very corrosive media found in chemical processing, powerplant emissions control and hazardous waste treatment.  The Company believes it is one of fourprincipal producers of high-performance alloys in sheet, coil and plate forms.The Company also produces its products as seamless and welded tubulars, and inslab, 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 wire products.  TheCompany markets its products primarily through its direct sales organization,which includes 12 service and/or sales centers in the United States, Europe,Asia and India. All of these centers are company-operated.

 

**Dividend**

 

In the second quarter of fiscal 2010, the Companydeclared and paid a regular quarterly cash dividend of $0.20 per outstandingshare of the Company’s common stock.  Thedividend was paid March 15, 2010 to stockholders of record at the close ofbusiness on March 1, 2010. The aggregate dividend cash pay-out was $2.5million for the quarter based on shares outstanding. Dividends paidyear-to-date for fiscal 2010 total $4.8 million.

 

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The Board of Directors has declared a regularquarterly cash dividend of $0.20 per outstanding share of the Company’s commonstock. The dividend is payable June 15, 2010 to stockholders of record atthe close of business on June 1, 2010. The aggregate cash pay-out based oncurrent shares outstanding will be approximately $2.5 million this quarter, orapproximately $10.0 million on an annualized basis.

 

**Outlook**

 

*General*

 

Management expects that net revenues and volume inthe third and fourth quarters of fiscal 2010 will be at or above the levels ofthe second quarter of fiscal 2010.  Bothmarket demand and the mix of products being sold have improved since the fourthquarter of fiscal 2009.  Uncertainty inthe marketplace continues; however, the Company’s backlog reflects clear signsthat end markets are beginning to improve.

 

Management also expects that net income in the thirdand fourth quarters will improve from the second fiscal quarter.  Results for each quarter will continue to beunfavorably impacted by reduced absorption of fixed manufacturing costs due toless than optimal volumes.  In addition,the market environment continues to place downward pressure on prices. Theunfavorable effect of both these items should continue to decline as thebusiness environment improves.

 

*Backlog*

 

Increasing order entry activity contributed toimprovement in backlog at March 31, 2010 as compared to December 31,2009.  Backlog dollars were $124.6 million at March 31, 2010, anincrease of approximately 12.8% from $110.4 million at December 31,2009.  This increase is the result of an 18.1% increase in backlog pounds,which was partially offset by a 4.5% decline in backlog average sellingprice.  Management expects the backlog volumes and pricing to improvemodestly through the third and fourth quarters of fiscal 2010.

 

*Competition and Pricing*

 

Although volumes andpricing improved in the second quarter of fiscal 2010, the Company continued toexperience intense price competition in the marketplace. This competitioncontinues to require the Company to aggressively price orders, which hasnegatively impacted the Company’s gross profit margin and net income. However,the impact of the price competition was less severe in the second quarter offiscal 2010 than in the first quarter of fiscal 2010 or in fiscal 2009 andprices slightly improved sequentially. If market conditions continue toimprove, pricing competition in the high-performance alloy industry may beginto ease further in future quarters.  TheCompany continues to respond to this competition by increasing emphasis onservice centers, offering value-added services, improving its cost structure,and striving to improve delivery-times and reliability.

 

Although the Company hasseen an aggregate increase of 5.4% in average selling price between the firstand second quarters of fiscal 2010, this increase is more reflective of ahigher priced mix of alloys, forms and markets rather than improvement indemand.  Management expects that theimpact associated with the December 2009 price increase, if any, willbegin to appear beginning in the third and fourth quarters of fiscal 2010.

 

**Quarter over Quarter Gross Profit Margin Trend**

 

Gross profit margin andgross profit margin percentage continued to improve in the second quarter offiscal 2010 after declining each quarter starting in the third quarter offiscal 2008 through the third quarter of fiscal 2009.  Since the fourth quarter of fiscal 2009, bothgross profit margin and gross profit margin percentage have increasedsequentially compared to the prior quarter.

 

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| ** **                  | ** ** | **Trend of Gross Profit Margin and********Gross Profit Margin Percentage for Fiscal 2009 and 2010** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | **Quarter Ended**                                                                                   | ** ** |
| **(dollars  in thousands)** | ** ** | **December 31,********2008**                                                                   | ** ** | **March 31,********2009** | ** ** | **June 30,********2009** | ** ** | **September 30,********2009** | ** ** | **December 31,********2009** | ** ** | **March 31,********2010** | ** ** |
| Net Revenues                |       | $                                                                                                   | 134,304    |   | $ | 120,413 |   | $ | 98,325 |   | $ | 85,591 |   | $ | 81,008 |   | $ | 94,619 |   |
| Gross Profit Margin         |       | $                                                                                                   | 18,750     |   | $ | 6,997 |   | $ | (8,168 | ) | $ | 4,904 |   | $ | 6,848 |   | $ | 10,190 |   |
| Gross Profit Margin %       |       | 13.9                                                                                                | %          | 5.8 | % | (8.3 | )% | 5.7 | % | 8.5 | % | 10.8 | % |

 

The improvement in grossprofit margin and gross profit margin percentage since the fourth quarter offiscal 2009 is primarily due to a combination of rising volume, improvedproduct mix, improved cost structure of the Company and a modestly improvingmarket environment.  Rising volumes are areflection of increased transactional business, particularly in the aerospacemarket, due to the significant destocking of the last two years. The Company’sland-based gas turbine market appears to be strengthening, initially in thebacklog which has increased over 34.0% since September 30, 2009 and morerecently by increasingly higher revenues and volumes during fiscal year 2010.The “Other” market category also reflects both improvement since September 30,2009 in revenue, due to higher volume and improved pricing as a result of alloyand market mix. These improvements were slightly offset by declines in volumesin the chemical processing industry.

 

Since the fourth quarter offiscal 2009, cost of goods sold per pound has improved as a result of reducedper pound manufacturing costs resulting primarily from (i) a significantreduction in the amount of higher cost raw material from inventory, whichimpacted cost of goods sold in fiscal 2009, (ii) manufacturing staffingreductions started in the second quarter of fiscal 2009 which continued throughthe fourth quarter of fiscal 2009, (iii) operating efficienciesattributable to equipment upgrades, particularly in the sheet finishingoperations and (iv) continued implementation of lean manufacturingtechniques.  In summary, the modest improvementin market conditions in most of our markets and improved cost structure haveresulted in an improving gross profit margin beginning in the fourth quarter offiscal 2009.

 

**Quarterly Market Information**

 

Set forth below are 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,********2008** | ** ** | **March 31,********2009** | ** ** | **June 30,********2009** | ** ** | **September 30,********2009** | ** ** | **December 31,********2009** | ** ** | **March 31,  2010** | ** ** |
| **Backlog**(1)                     |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Dollars (in thousands)             |       | $                                 | 199,667    |   | $ | 153,039 |   | $ | 113,420 |   | $ | 106,680 |   | $ | 110,406 |   | $ | 124,571 |   |
| Pounds (in thousands)              |       | 7,287                             |       | 5,557 |   | 4,468 |   | 4,544 |   | 4,915 |   | 5,805 |   |
| Average selling price per pound    |       | $                                 | 27.40      |   | $ | 27.54 |   | $ | 25.39 |   | $ | 23.48 |   | $ | 22.46 |   | $ | 21.46 |   |
| ** **                         |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| **Average nickel price per pound** |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| London Metals Exchange(2)          |       | $                                 | 4.39       |   | $ | 4.40 |   | $ | 6.79 |   | $ | 7.93 |   | $ | 7.75 |   | $ | 10.19 |   |

 

----

(1)             The Company defines backlogto include firm commitments from customers for delivery of product atestablished prices. Approximately 30% of the orders in the backlog at any giventime include prices that are subject to adjustment based on changes in rawmaterial costs. Historically, approximately 75% of the backlog orders haveshipped within six months and approximately 90% have shipped within 12 months.The backlog figures do not reflect that portion of the business conducted atservice and sales centers on a spot or “just-in-time” basis.

 

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

 

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| ** **                                                 | ** ** | **Market Activity Per Quarter Ended** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                 | ** ** | **December 31,  2008**           | ** ** | **March  31, 2009** | ** ** | **June 30,  2009** | ** ** | **September 30,  2009** | ** ** | **December 31,  2009** | ** ** | **March 31,  2010** | ** ** |
| **Net revenues******(in thousands)                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerospace                                                  |       | $                                     | 49,721     |   | $ | 45,200 |   | $ | 34,959 |   | $ | 30,158 |   | $ | 28,375 |   | $ | 33,495 |   |
| Chemical processing                                        |       | 30,883                                |       | 26,025 |   | 26,944 |   | 25,803 |   | 20,828 |   | 18,333 |   |
| Land-based gas turbines                                    |       | 32,145                                |       | 28,648 |   | 22,087 |   | 14,821 |   | 14,966 |   | 20,028 |   |
| Other markets                                              |       | 19,166                                |       | 17,562 |   | 11,529 |   | 11,152 |   | 13,080 |   | 19,426 |   |
| Total product revenue                                      |       | 131,915                               |       | 117,435 |   | 95,519 |   | 81,934 |   | 77,249 |   | 91,282 |   |
| Other revenue                                              |       | 2,389                                 |       | 2,978 |   | 2,806 |   | 3,657 |   | 3,759 |   | 3,337 |   |
| **Net revenues**                                           |       | $                                     | 134,304    |   | $ | 120,413 |   | $ | 98,325 |   | $ | 85,591 |   | $ | 81,008 |   | $ | 94,619 |   |
|                                                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Shipments by markets** (in thousands  of pounds)         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Aerospace                                                  |       | 1,653                                 |       | 1,648 |   | 1,387 |   | 1,261 |   | 1,221 |   | 1,435 |   |
| Chemical processing                                        |       | 947                                   |       | 1,170 |   | 1,077 |   | 1,337 |   | 1,155 |   | 811 |   |
| Land-based gas turbines                                    |       | 1,507                                 |       | 1,680 |   | 1,405 |   | 872 |   | 946 |   | 1,291 |   |
| Other markets                                              |       | 691                                   |       | 871 |   | 511 |   | 467 |   | 605 |   | 867 |   |
| **Total shipments**                                        |       | 4,798                                 |       | 5,369 |   | 4,380 |   | 3,937 |   | 3,927 |   | 4,404 |   |
|                                                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Average selling price per pound**                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Aerospace                                                  |       | $                                     | 30.08      |   | $ | 27.43 |   | $ | 25.20 |   | $ | 23.92 |   | $ | 23.24 |   | $ | 23.34 |   |
| Chemical processing                                        |       | 32.61                                 |       | 22.24 |   | 25.02 |   | 19.30 |   | 18.03 |   | 22.61 |   |
| Land-based gas turbines                                    |       | 21.33                                 |       | 17.05 |   | 15.72 |   | 17.00 |   | 15.82 |   | 15.51 |   |
| Other markets                                              |       | 27.74                                 |       | 20.16 |   | 22.56 |   | 23.88 |   | 21.62 |   | 22.41 |   |
| **Total product** (excluding  other revenue)               |       | 27.49                                 |       | 21.87 |   | 21.81 |   | 20.81 |   | 19.67 |   | 20.73 |   |
| **Total  average selling price** (including other revenue) |       | 27.99                                 |       | 22.43 |   | 22.45 |   | 21.74 |   | 20.63 |   | 21.48 |   |

 

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**Resultsof Operations for the Three Months Ended March 31, 2010 Compared to theThree Months Ended March 31, 2009**

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **                                  | ** ** | **March 31,**     | ** ** | **Change** | ** ** |
| **($ in  thousands)**                  | ** ** | **2009**               | ** ** | **2010**   | ** ** | **Amount** | ** ** | **%** | ** ** |
| Net revenues                                |       | $                      | 120,413    |       | 100.0      | %          | $          | 94,619 |   | 100.0 | % | $ | (25,794 | ) | (21.4 | )% |
| Cost of sales                               |       | 113,416                |       | 94.2       | %          | 84,429     |       | 89.2 | % | (28,987 | ) | (25.6 | )% |
| Gross profit                                |       | 6,997                  |       | 5.8        | %          | 10,190     |       | 10.8 | % | 3,193 |   | 45.6 | % |
| Selling, general and administrative expense |       | 8,292                  |       | 6.9        | %          | 7,977      |       | 8.4 | % | (315 | ) | (3.8 | )% |
| Research and technicalexpense               |       | 814                    |       | 0.7        | %          | 712        |       | 0.8 | % | (102 | ) | (12.5 | )% |
| Impairment of Goodwill                      |       | 43,737                 |       | 36.3       | %          | 0          |       | 0.0 | % | (43,737 | ) | (100.0 | )% |
| Operating income (loss)                     |       | (45,846                | )          | (38.1      | )%         | 1,501      |       | 1.6 | % | 47,347 |   | (103.3 | )% |
| Interest income                             |       | (8                     | )          | 0.0        | %          | (69        | )          | (0.1 | )% | (61 | ) | 762.5 | % |
| Interest expense                            |       | 123                    |       | 0.1        | %          | 39         |       | 0.0 | % | (84 | ) | (68.3 | )% |
| Income (loss) before income taxes           |       | (45,961                | )          | (38.2      | )%         | 1,531      |       | 1.6 | % | 47,492 |   | (103.3 | )% |
| Provision for (benefit from) income taxes   |       | (3,072                 | )          | (2.6       | )%         | 575        |       | 0.6 | % | 3,647 |   | (118.7 | )% |
| Net income (loss)                           |       | $                      | (42,889    | )          | (35.6      | )%         | $          | 956 |   | 1.0 | % | $ | 43,845 |   | (102.2 | )% |

 

***Thefollowing table includes a breakdown of net revenues, shipments, and averageselling prices to the markets served by Haynes for the periods shown.***

 
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|-----------------------------|------------|------------|------------|------------|------------|
| ** **                                                 | ** ** | **March 31,**          | ** ** | **Change** | ** ** |
| **By market**                                              | ** ** | **2009**                    | ** ** | **2010**   | ** ** | **Amount** | ** ** | **%** | ** ** |
| **Net revenues******(in thousands)                         |       |                        |       |       |       |       |       |   |   |   |   |   |
| Aerospace                                                  |       | $                           | 45,200     |       | $          | 33,495     |       | $ | (11,705 | ) | (25.9 | )% |
| Chemical processing                                        |       | 26,025                      |       | 18,333     |       | (7,692     | )          | (29.6 | )% |
| Land-based gas turbines                                    |       | 28,648                      |       | 20,028     |       | (8,620     | )          | (30.1 | )% |
| Other markets                                              |       | 17,562                      |       | 19,426     |       | 1,864      |       | 10.6 | % |
| **Total product revenue**                                  |       | 117,435                     |       | 91,282     |       | (26,153    | )          | (22.3 | )% |
| Other revenue                                              |       | 2,978                       |       | 3,337      |       | 360        |       | 12.1 | % |
| **Net revenues**                                           |       | $                           | 120,413    |       | $          | 94,619     |       | $ | (25,793 | ) | (21.4 | )% |
|                                                       |       |                        |       |       |       |       |       |   |   |
| **Pounds  by markets********(in thousands)                 |       |                        |       |       |       |       |       |   |   |
| Aerospace                                                  |       | 1,648                       |       | 1,435      |       | (213       | )          | (12.9 | )% |
| Chemical processing                                        |       | 1,170                       |       | 811        |       | (359       | )          | (30.7 | )% |
| Land-based gas turbines                                    |       | 1,680                       |       | 1,291      |       | (389       | )          | (23.2 | )% |
| Other markets                                              |       | 871                         |       | 867        |       | (4         | )          | (0.5 | )% |
| **Total shipments**                                        |       | 5,369                       |       | 4,404      |       | (965       | )          | (18.0 | )% |
|                                                       |       |                        |       |       |       |       |       |   |   |
| **Average  selling price per pound**                       |       |                        |       |       |       |       |       |   |   |
| Aerospace                                                  |       | $                           | 27.43      |       | $          | 23.34      |       | $ | (4.09 | ) | (14.9 | )% |
| Chemical processing                                        |       | 22.24                       |       | 22.61      |       | 0.37       |       | 1.7 | % |
| Land-based gas turbines                                    |       | 17.05                       |       | 15.51      |       | (1.54      | )          | (9.0 | )% |
| Other markets                                              |       | 20.16                       |       | 22.41      |       | 2.25       |       | 11.2 | % |
| **Total product**(excluding other revenue)                 |       | 21.87                       |       | 20.73      |       | (1.14      | )          | (5.2 | )% |
| **Total average selling price** (including  other revenue) |       | 22.43                       |       | 21.48      |       | (0.95      | )          | (4.2 | )% |

 

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*Net R*evenues.** Netrevenues were $94.6 million in the second quarter of fiscal 2010, a decrease of21.4% from $120.4 million in the same period of fiscal 2009 due to a decreasein volume and average selling price per pound.  Volume was 4.4 million pounds inthe second quarter of fiscal 2010, a decrease of 18.0% from 5.4 million poundsin the same period of fiscal 2009.  Theaggregate average selling price was $21.48 per pound in the second quarter offiscal 2010, a decrease of 4.2% from $22.43 per pound in the same period offiscal 2009.  As discussed above under“Outlook”, competition and weakness in customer demand in the Company’s primarymarkets continued to unfavorably impact both average selling price and volumein the second quarter of fiscal 2010, as compared to the previous year’s secondquarter. The Company’s consolidated backlog was $124.6 million at March 31,2010, an increase of 12.8% from $110.4 million at December 31, 2009. Thisincrease reflects the combination of an 18.1% increase in backlog poundspartially offset by a 4.5% decrease in backlog average selling price.

 

Sales to the aerospacemarket were $33.5 million in the second quarter of fiscal 2010, a decrease of25.9% from $45.2 million in the same period of fiscal 2009, due to a 14.9%decrease in the average selling price per pound combined with a 12.9% decreasein volume. Volume decreased due to reduced market demand as a result of areduction in air traffic and leaning out of the aero engine supply chain.

 

Sales to the chemicalprocessing market were $18.3 million in the second quarter of fiscal 2010, adecrease of 29.6% from $26.0 million in the same period of fiscal 2009, due toa 30.7% decrease in volume partially offset by a 1.7% increase in average sellingprice.  Volume was affected by thereduction in major plant retrofits and in new chemical processing facilitybuilds as a result of the slow economic environment and restrictive creditmarkets. However, the reduction in project business favorably impacted averageselling price because large projects are typically competitively bid, whichoften results in a lower average selling price than transactional business.

 

Sales to the land-basedgas turbine market were $20.0 million in the second quarter of fiscal 2010, adecrease of 30.1% from $28.6 million for the same period of fiscal 2009, due toa decrease of 9.0% in the average selling price per pound combined with a 23.2%decrease in volume. The decrease in both volume and average selling price isdue to reduced original equipment manufacturer activity and increased pricecompetition.

 

Sales to other marketswere $19.4 million in the second quarter of fiscal 2010, an increase of 10.6%from $17.6 million in the same period of fiscal 2009, due to a 11.2% increasein average selling price per pound partially offset by a 0.5% decrease involume.  The increase in average sellingprice is due to a combination of decreased sales volume into the automotive andheat treat markets, which are typically more competitive markets with a loweraverage selling price, versus a corresponding increase in sales volume into theenergy market, particularly solar and nuclear, which typically have higheraverage selling prices due to alloy mix and value added work.

 

*Other Revenue.***Other revenue was $3.3 million in the second quarter offiscal 2010, an increase of 12.1% from $3.0 million in the same period offiscal 2009. The increase in revenue is due to increased conversion sales.

 

*Cost of Sales.* Cost ofsales was $84.4 million, or 89.2% of net revenues, in the second quarter offiscal 2010 compared to $113.4 million, or 94.2% of net revenues, in the sameperiod of fiscal 2009. Cost of sales in the second quarter of fiscal 2010decreased by $29.0 million as compared to the same period of fiscal 2009 due tolower volume, lower material costs, as well as reduced spending and workforcereductions from fiscal 2009.  Thisdecrease was partially offset by reduced absorption of fixed manufacturing costcaused by lower production volumes, particularly that of sheet product. Alsooffsetting the decrease in cost of sales as a percentage of net revenue in thesecond quarter of fiscal 2010 compared to the same period of fiscal 2009 wasthe increased price competition and weaker demand, which reduced net revenue.

 

*Selling, General and Administrative Expense.* Selling,general and administrative expense was $8.0 million for the second quarter offiscal 2010, a decrease of $0.3 million, or 3.8%, from $8.3 million in the sameperiod of fiscal 2009 due primarily to: (i) lower business activitycausing commissions and sales expenses to decline, and (ii) significantworkforce reductions in the second and fourth quarters of fiscal 2009.  Selling, general and administrative expensesas a percentage of net revenues increased to 8.4% for the second quarter offiscal 2010 compared to 6.9% for the same period of fiscal 2009 due primarilyto reduced revenues.

 

*Research and TechnicalExpense.* Research and technical expense was $0.7 million, or0.8% of revenue, for the second quarter of fiscal 2010, a decrease of $0.1million from $0.8 million, or 0.7% of net revenues, in the

 

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same period of fiscal2009, due to the reductions in workforce during the second and fourth quartersof fiscal 2009.

 

*Impairment of Goodwill*.  An impairment charge of $43.7 million wasrecorded in the second quarter of fiscal 2009 due to weakening of the U.S.economy and the global credit crisis resulting in a reduction of the Company’smarket capitalization below its total stockholder’s equity value for a sustainedperiod of time.  Please see Note 8 in theNotes to Consolidated Financial Statements contained elsewhere in this Form 10-Qfor additional information.

 

*Operating Income (Loss).* As a resultof the above factors, operating income in the second quarter of fiscal 2010 was$1.5 million compared to an operating loss of $(45.8) million in the sameperiod of fiscal 2009.

 

*Income Taxes.* Incometaxes were an expense of $0.6 million in the second quarter of fiscal 2010, anincrease of $3.6 million from a benefit of $3.1 million in the same period offiscal 2009, due to pretax income.  Theeffective tax rate for the second quarter of fiscal 2010 was 37.6%, compared to6.7% in the same period of fiscal 2009 primarily due to the impairment ofgoodwill in fiscal 2009 and higher U.S. taxable income in fiscal 2010.

 

*Net Income (Loss).* As a result of the above factors, netincome in the second quarter of fiscal 2010 was $1.0 million, an increase of$43.8 million from a net loss of $(42.9) million in the same period offiscal 2009.

 

##### **Resultsof Operations for the Six Months Ended March 31, 2010 Compared to the SixMonths Ended March 31, 2009**

 
| ** **                                   | ** ** | **Six  Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|------------|------------|------------|------------|
| ** **                                   | ** ** | **March 31,**    | ** ** | **Change** | ** ** |
| **($ in thousands)**                    | ** ** | **2009**              | ** ** | **2010**   | ** ** | **Amount** | ** ** | **%** | ** ** |
| Net revenues                                 |       | $                     | 254,717    |       | 100.0      | %          | $          | 175,627 |   | 100.0 | % | $ | (79,090 | ) | (31.1 | )% |
| Cost of sales                                |       | 228,970               |       | 89.9       | %          | 158,592    |       | 90.3 | % | (70,378 | ) | (30.7 | )% |
| Gross profit                                 |       | 25,747                |       | 10.1       | %          | 17,035     |       | 9.7 | % | (8,712 | ) | (33.8 | )% |
| Selling, general  and administrative expense |       | 18,882                |       | 7.4        | %          | 16,163     |       | 9.2 | % | (2,719 | ) | (14.4 | )% |
| Research and  technical expense              |       | 1,639                 |       | 0.6        | %          | 1,361      |       | 0.8 | % | (278 | ) | (17.0 | )% |
| Impairment of  goodwill                      |       | 43,737                |       | 17.2       | %          | 0          |       | 0.0 | % | (43,737 | ) | (100.0 | )% |
| Operating income  (loss)                     |       | (38,511               | )          | (15.1      | )%         | (489       | )          | (0.3 | )% | 38,022 |   | (98.7 | )% |
| Interest income                              |       | (28                   | )          | 0.0        | %          | (114       | )          | (0.1 | )% | (86 | ) | (307.1 | )% |
| Interest expense                             |       | 479                   |       | 0.2        | %          | 87         |       | 0.0 | % | (392 | ) | (81.8 | )% |
| Income (loss)  before income taxes           |       | (38,962               | )          | (15.2      | )%         | (462       | )          | (0.3 | )% | 38,500 |   | (98.8 | )% |
| Provision  (benefit) for income taxes        |       | (597                  | )          | (0.2       | )%         | (132       | )          | (0.1 | )% | 465 |   | (77.9 | )% |
| Net income (loss)                            |       | $                     | (38,365    | )          | (15.0      | )%         | $          | (330 | ) | (0.2 | )% | $ | 38,035 |   | (99.1 | )% |

 

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***The following table includes a breakdownof net revenues, shipments, and average selling prices to the markets served byHaynes for the periods shown.***

 
| ** **                                                 | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                                 | ** ** | **March 31,**        | ** ** | **Change** | ** ** |
| **By market**                                              | ** ** | **2009**             | ** ** | **2010**   | ** ** | **Amount** | ** ** | **%** | ** ** |
| ***Net revenues*******(in thousands)                       |       |                 |       |       |       |   |   |   |   |
| Aerospace                                                  |       | $                    | 94,921     |       | $          | 61,870 |   | $ | (33,051 | ) | (34.8 | )% |
| Chemical  processing                                       |       | 56,908               |       | 39,161     |       | (17,747 | ) | (31.2 | )% |
| Land-based gas  turbines                                   |       | 60,793               |       | 34,994     |       | (25,799 | ) | (42.4 | )% |
| Other markets                                              |       | 36,728               |       | 32,506     |       | (4,222 | ) | (11.5 | )% |
| **Total  product revenue**                                 |       | 249,350              |       | 168,531    |       | (80,819 | ) | (32.4 | )% |
| Other revenue                                              |       | 5,367                |       | 7,096      |       | 1,729 |   | 32.2 | % |
| **Net  revenues**                                          |       | $                    | 254,717    |       | $          | 175,627 |   | $ | (79,090 | ) | (31.1 | )% |
|                                                       |       |                 |       |       |       |   |   |   |   |
| ***Pounds by markets*** (in thousands)                     |       |                 |       |       |       |   |   |   |   |
| Aerospace                                                  |       | 3,301                |       | 2,656      |       | (645 | ) | (19.5 | )% |
| Chemical  processing                                       |       | 2,117                |       | 1,966      |       | (151 | ) | (7.1 | )% |
| Land-based gas  turbines                                   |       | 3,187                |       | 2,237      |       | (950 | ) | (29.8 | )% |
| Other markets                                              |       | 1,562                |       | 1,472      |       | (90 | ) | (5.8 | )% |
| **Total  shipments**                                       |       | 10,167               |       | 8,331      |       | (1,836 | ) | (18.1 | )% |
|                                                       |       |                 |       |       |       |   |   |   |   |
| ***Average selling price per pound***                      |       |                 |       |       |       |   |   |   |   |
| Aerospace                                                  |       | $                    | 28.76      |       | $          | 23.29 |   | $ | (5.47 | ) | (19.0 | )% |
| Chemical processing                                        |       | 26.88                |       | 19.92      |       | (6.96 | ) | (25.9 | )% |
| Land-based gas  turbines                                   |       | 19.08                |       | 15.64      |       | (3.44 | ) | (18.0 | )% |
| Other markets                                              |       | 23.51                |       | 22.08      |       | (1.43 | ) | (6.1 | )% |
| **Total  product**(excluding other revenue)                |       | 24.53                |       | 20.23      |       | (4.30 | ) | (17.5 | )% |
| **Total  average selling price** (including other revenue) |       | 25.05                |       | 21.08      |       | (3.97 | ) | (15.8 | )% |

 

*Net R*evenues.** Netrevenues were $175.6 million in the first six months of fiscal 2010, a decreaseof 31.1% from $254.7 million in the same period of fiscal 2009 due to adecrease in volume and average selling price per pound.   Volume was 8.3 million pounds in the firstsix months of fiscal 2010, a decrease of 18.1% from 10.2 million pounds in thesame period of fiscal 2009.  The aggregateaverage selling price was $21.08 per pound in the first six months of fiscal2010, a decrease of 15.8% from $25.05 per pound in the same period of fiscal2009.  As discussed above under “Outlook”,increased competition and weakness in customer demand unfavorably impacted bothaverage selling price and volume in the first six months of fiscal 2010 in theCompany’s markets as compared to the same period of the previous year. TheCompany’s consolidated backlog was $124.6 million at March 31, 2010, anincrease of 16.8% from $106.7 million at September 30, 2009.  This increase reflects the combination of a27.8% increase in backlog pounds partially offset by a 8.6% decrease in backlogaverage selling price.

 

Salesto the aerospace market were $61.9 million in the first six months of fiscal2010, a decrease of 34.8% from $94.9 million in the same period of fiscal 2009,due to a 19.0% decrease in the average selling price per pound combined with a19.5% decrease in volume. Volume decreased due to slowing market demand asreflected in the reduction in air traffic and leaning out of the aero enginesupply chain.

 

Salesto the chemical processing market were $39.2 million in the first six months offiscal 2010, a decrease of 31.2% from $56.9 million in the same period offiscal 2009, due to a 25.9% decrease in the average selling price per pound andby a 7.1% decrease in volume.  Volumedeclined due to a number of factors, including the weak economic environment,reduction in new chemical processing facilities due to the restrictive creditenvironment and increased competition.

 

Salesto the land-based gas turbine market were $35.0 million in the first six monthsof fiscal 2010, a decrease of 42.4% from $60.8 million for the same period offiscal 2009, due to a decrease of 18.0% in the 

 

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average selling priceper pound combined with a 29.8% decrease in volume. The decrease in both volumeand average selling price is due to reduced original equipment manufactureractivity and increased price competition.

 

Salesto other markets were $32.5 million in the first six months of fiscal 2010, adecrease of 11.5% from $36.7 million in the same period of fiscal 2009, due toa 6.1% decrease in average selling price per pound combined with a 5.8%decrease in volume.  The decline involume and average selling price reflects the economic slowdown and thecontinued increase in competition in many of these markets.

 

*Other Revenue.***Other revenue was $7.1 million in the first six months offiscal 2010, an increase of 32.2% from $5.4 million in the same period offiscal 2009. The increase is due primarily to higher scrap and miscellaneoussales.

 

*Cost of Sales.* Cost ofsales was $158.6 million, or 90.3% of net revenues, in the first six months offiscal 2010 compared to $229.0 million, or 89.9% of net revenues, in the sameperiod of fiscal 2009. Cost of sales in the first six months of fiscal 2010decreased by $70.4 million as compared to the same period of fiscal 2009 due tolower volume, lower material costs, reduced spending and workforcereductions.  This decrease was partiallyoffset by reduced absorption of fixed manufacturing costs caused by lowerproduction volumes, particularly that of sheet product.  Cost of sales as a percentage of net revenuesincreased in the first six months of fiscal 2010 as compared to the same periodof fiscal 2009 due to increased price competition and weaker demand, whichreduced net revenues.

 

*Selling, General andAdministrative Expense.* Selling, general and administrativeexpense was $16.2 million for the first six months of fiscal 2010, a decreaseof $2.7 million, or 14.4%, from $18.9 million in the same period of fiscal 2009due primarily to lower business activity causing commissions and sales expensesto decline and significant workforce reductions in the second and fourthquarters of fiscal 2009.  Selling,general and administrative expenses as a percentage of net revenues increasedto 9.2% for the first six months of fiscal 2010 compared to 7.4% for the sameperiod of fiscal 2009 due primarily to reduced revenues.

 

*Research and TechnicalExpense.* Research and technical expense was $1.4million, or 0.8% of revenue, for the first six months of fiscal 2010, adecrease of $0.3 million from $1.6 million, or 0.6% of net revenues, inthe same period of fiscal 2009, due to the reductions in workforce during thesecond and fourth quarters of fiscal 2009.

 

*Impairment of Goodwill*.  An impairment charge of $43.7 million wasrecorded in the second quarter of fiscal 2009 due to weakening of the U.S.economy and the global credit crisis resulting in a reduction of the Company’smarket capitalization below its total stockholder’s equity value for asustained period of time.  Please seeNote 8 in the Notes to Consolidated Financial Statements contained elsewhere inthis Form 10-Q for additional information

 

*Operating Income (Loss).* As a resultof the above factors, operating loss in the first six months of fiscal 2010 was$(0.5) million compared to operating loss of $(38.5) million in the same periodof fiscal 2009.

 

*Income Taxes.* Incometaxes was a benefit of $(0.1) million in the first six months of fiscal 2010,from $(0.6) million in the same period of fiscal 2009, due to a lower pretaxloss.  The effective tax rate for thefirst six months of fiscal 2010 was 28.6%, compared to 1.5% in the same periodof fiscal 2009. The change in the effective tax rate is primarily attributableto the impairment of goodwill and the impact of permanent items on near breakevenpretax income.

 

*Net Income (Loss).* As a result of the above factors, netloss in the first six months of fiscal 2010 was $(0.3) million, an increase of$38.0 million from a net loss of $(38.4) million in the same period offiscal 2009.

 

**Liquidityand Capital Resources**

 

*Comparative cash flow analysis*

 

During the first six monthsof fiscal 2010, the Company’s primary sources of cash were cash from operationsand cash on-hand.  At March 31,2010, the Company had cash and cash equivalents of approximately $91.8 millioncompared to cash and cash equivalents of approximately $105.1 million at September 30,2009.

 

Net cash used in operatingactivities was $1.3 million in the first six months of fiscal 2010 compared tonet cash provided by operating activities of $43.2 million in the same periodof fiscal 2009.  Several itemscontributed to the difference.  Cash usedby increased accounts receivable of $7.5 million was $28.4 million higher thancash 

 

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provided by accounts receivable in the same periodof fiscal 2009.  Cash used by increasedinventory balances (net of foreign currency fluctuation) of $23.4 million was $79.3million higher than cash provided by decreased inventory balances in the sameperiod of fiscal 2009.  Offsetting theabove items, cash generated from accounts payable and accrued expenses of $22.1million was $39.6 million higher than cash used in the same period of fiscal2009 and cash generated from income taxes of $8.5 million was $28.4 millionhigher than cash used by income taxes in the same period of fiscal 2009.  Net cash used in investing activities was $6.9million in the first six months of fiscal 2010 compared to $6.0 million in thefirst six months of fiscal 2009 primarily because of higher capitalexpenditures.  Net cash used in financingactivities in the first six months of fiscal 2010 included $4.8 million individend payments.

 

*Future sources of liquidity*

 

The Company’s sources of cash for fiscal 2010 areexpected to consist primarily of cash generated from operations, cash on-hand,and borrowings under the U.S. revolving credit facility.  The U.S. revolving credit facility providesborrowings in a maximum amount of $120.0 million, subject to a borrowing baseformula and certain reserves. At March 31, 2010, the Company had cash ofapproximately $91.8 million, an outstanding balance of zero on the U.S.revolving credit facility and access to a total of approximately $120.0 millionunder the U.S. revolving credit facility, subject to borrowing base and certainreserves. Management believes that the resources described above will besufficient to fund planned capital expenditures and working capitalrequirements over the next twelve months.

 

U.S. revolving credit facility:  Haynes and Wachovia Capital Finance Corporation (Central) (“Wachovia”)entered into a Second Amended and Restated Loan and Security Agreement (the“Amended Agreement”) with an effective date of November 18, 2008, which amendedand restated the revolving credit facility between Haynes and Wachovia datedAugust 31, 2004. Among other items, the Amended Agreement extends the maturitydate of the U.S. revolving credit facility to September 30, 2011, increases themargin included in the interest rate from 1.5% per annum to 2.25% per annum forLIBOR borrowings, permits the Company to pay dividends and repurchase commonstock if certain financial metrics are met, and eliminates the EBITDA covenant.The maximum revolving loan amount under the Amended Agreement continues to be$120.0 million. Borrowings under the U.S. revolving credit facility bearinterest at the Company’s option at either Wachovia Bank, NationalAssociation’s “prime rate,” plus up to 2.25% per annum, or the adjustedEurodollar rate used by the lender, plus up to 3.0% per annum.  As of March 31, 2010, the U.S. revolvingcredit facility had an outstanding balance of zero. During the six month periodended March 31, 2010 it bore interest at a weighted average interest rate of5.00%.  In addition, the Company must paymonthly in arrears a commitment fee of 0.375% per annum on the unused amount ofthe U.S. revolving credit facility total commitment.  For letters of credit, the Company must pay2.5% per annum on the daily outstanding balance of all issued letters ofcredit, plus customary fees for issuance, amendments, and processing. TheCompany is subject to certain covenants as to fixed charge coverage ratios andother customary covenants, including covenants restricting the incurrence ofindebtedness, the granting of liens, and the sale of assets and permits theCompany to pay dividends and repurchase common stock if certain metrics aremet.  As of March 31, 2010, the mostrecent required measurement date under the Amended Agreement, the Company wasin compliance with these covenants.  TheU.S. revolving credit facility matures on September 30, 2011. Borrowings underthe U.S. revolving credit facility are collateralized by a pledge ofsubstantially all of the U.S. assets of the Company, including equity interestsin its U.S. subsidiaries, but excluding its four-high Steckel rolling mill andrelated assets, which are pledged to TIMET. The U.S. revolving credit facilityis also secured by a pledge of 65% of the equity interests in each of theCompany’s foreign subsidiaries.

 

*Future uses of liquidity*

 

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

 

·     funding operations;

 

·     pension plan funding;

 

·     capital spending; and

 

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·     dividends to stockholders.

 

In fiscal 2010, capital spending is targeted atapproximately $15.0 million with approximately $7.0 million spent in the firstsix months of fiscal 2010.  The focus ofthe capital spending in fiscal 2010 is on recurring equipment requirements ofapproximately $9.0 million and approximately $6.0 million on the upgrade of thefour-high Steckel rolling mill.  In February 2010,the Company announced plans to spend approximately $85.0 million over the nextfive years on capital projects which focus on improving the capability of theCompany’s production assets. Included in the $85.0 million total spending isapproximately $10.0 million to be spent in fiscal 2011 to restructure,consolidate and enhance capabilities at its service center operations toimprove the return on assets invested in the service centers.  Additionally, the Company plans to spendapproximately $30.0 million (or $6.0 million per year) on upgrades to itsfour-high Steckel rolling mill and supporting equipment, and approximately$25.0 million (or $5.0 million per year) on other equipment purchases andupgrades.  These projects are expected toimprove quality, reduce operating costs, improve delivery performance anddecrease cycle time.  The Companyanticipates that it will continue to spend approximately $4.0 million per yearon routine capital maintenance projects over the same five-year period.  Management does not anticipate prolongedequipment outages as a result of upgrades in fiscal 2010.

 

*ContractualObligations*

 

The following table sets forth the Company’scontractual obligations for the periods indicated, as of March 31, 2010:

 

(in thousands)

 
| ** **                              | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|
| **Contractual Obligations****(1)** | ** ** | **Total**                  | ** ** | **Less than  1 year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 years** | ** ** |
|                                    |       |                       |       |   |   |   |   |   |   |   |   |
| Debt obligations                        |       | $                          | 765        |   | $ | 510 |   | $ | 255 |   | — |   | — |   |
| Operating lease obligations             |       | 12,138                     |       | 3,140 |   | 3,583 |   | $ | 2,221 |   | $ | 3,194 |   |
| Capital lease obligations               |       | 321                        |       | 33 |   | 66 |   | 66 |   | 156 |   |
| Raw material contracts                  |       | 61,577                     |       | 61,577 |   | — |   | — |   | — |   |
| Mill supplies contracts                 |       | 61                         |       | 61 |   | — |   | — |   | — |   |
| Capital projects                        |       | 4,347                      |       | 4,347 |   | — |   | — |   | — |   |
| Pension plan(2)                         |       | 70,530                     |       | 14,370 |   | 27,960 |   | 22,200 |   | 6,000 |   |
| FAS 87 NQ pension plan                  |       | 845                        |       | 95 |   | 190 |   | 190 |   | 370 |   |
| Other postretirement benefits(3)        |       | 49,800                     |       | 4,800 |   | 10,000 |   | 10,000 |   | 25,000 |   |
| Non-compete obligations(4)              |       | 110                        |       | 110 |   | — |   | — |   | — |   |
| Total                                   |       | $                          | 200,494    |   | $ | 89,043 |   | $ | 42,054 |   | $ | 34,677 |   | $ | 34,720 |   |

 

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(1)    Taxes are not included in thetable.  The Company adopted theprovisions of FIN No. 48, Accounting for Uncertainty in Income Taxes, on October 1,2007.  As of March 31, 2010, thenon-current income taxes payable was $292. It is not possible to determine in which period the tax liability mightbe paid out.

(2)    The Company has a fundingobligation to contribute $69,570 to the domestic pension plan arising from thePension Protection Act of 2006. These payments will be tax deductible. Allbenefit payments under the domestic pension plan are provided by the plan andnot the Company. The Company expects its U.K. subsidiary to contribute $960 infiscal 2010 to the U.K. Pension Plan.

(3)    Represents expectedpost-retirement benefits only based upon anticipated timing of payments.

(4)    Pursuant to an escrowagreement, as of April 11, 2005, the Company established an escrow accountto satisfy its obligation to make payments under a non-compete agreement enteredinto as part of the Branford Acquisition. This amount is reported as restrictedcash.

 

**NewAccounting Pronouncements**

 

In December 2007,the FASB issued FASB Statement No. 141 (revised 2007), *Business Combinations* (“SFAS 141(R)”) which was primarilycodified into Topic 805 (*Business Combinations*)in the Accounting Standards Codification, or ASC.  This guidance requires that the fair value ofthe 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 

 

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acquisition date; andrequires that changes in deferred tax asset valuation allowances and acquiredincome tax uncertainties after the measurement period impact income taxexpense. This guidance also expands disclosures related to businesscombinations and will be applied prospectively to business combinationsoccurring after the beginning of the Company’s fiscal year 2010, except thatbusiness combinations consummated prior to the effective date must apply SFAS141(R) income tax requirements immediately upon adoption. The Company iscurrently evaluating the impact of SFAS 141(R) related to futureacquisitions, if any, on its financial position, results of operations and cashflows.

 

In December 2008,the FASB issued FASB Staff Position No. 132(R)-1, *Employers’Disclosures about Postretirement Benefit Plan Assets*which wasprimarily codified into Topic 715 *(Compensation RetirementBenefits)* in the ASC.  Theguidance requires disclosures of the objectives of postretirement benefit planassets, investment policies and strategies, categories of plan assets, fairvalue measurements of plan assets, and significant concentrations of risk.  This guidance was effective for fiscal yearsand interim periods beginning after December 15, 2009.  The adoption of this guidance is expected toincrease our disclosures, but it is not expected to have an impact on ourconsolidated financial statements.

 

**Critical Accounting Policies and Estimates**

 

*Overview*

 

Management’sDiscussion and Analysis of Financial Condition and Results of Operationsdiscusses the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America. The preparation of these financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof 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 evaluates its estimates and judgments, including those related tobad debts, inventories, income taxes, asset impairments, retirement benefits,matters related to product liability lawsuits and environmental matters. Theprocess of determining significant estimates is fact specific and takes intoaccount factors such as historical experience, current and expected economicconditions, product mix, pension asset mix and, in some cases, actuarial techniques,and various other factors that are believed to be reasonable under thecircumstances. The results of this process form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readilyapparent from other sources. The Company routinely reevaluates thesesignificant factors and makes adjustments where facts and circumstancesdictate. Actual results may differ from these estimates under differentassumptions or conditions.

 

TheCompany’s accounting policies are more fully described in the auditedconsolidated financial statements included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended September 30, 2009, filed by the Company withthe Securities and Exchange Commission. The Company has identified certaincritical accounting policies, which are described below. The following listingof policies is not intended to be a comprehensive list of all of the Company’saccounting policies. In many cases, the accounting treatment of a particulartransaction is specifically dictated by generally accepted accountingprinciples, with no need for management’s judgment in their application. Thereare also areas in which management’s judgment in selecting any availablealternative would not produce a materially different result.

 

*Revenue Recognition*

* *

Revenueis recognized when collectability is reasonably assured and when title passesto the customer which is generally at the time of shipment (F.O.B. shippingpoint or at a foreign port for certain export customers). Allowances for salesreturns are recorded as a component of net revenues in the periods in which therelated sales are recognized. Management determines this allowance based onhistorical experience.  Should returnsincrease above historical experience, additional allowances may be required.

 

*Pension and Postretirement Benefits*

* *

The Company has definedbenefit pension and postretirement plans covering most of its current andformer employees. Significant elements in determining the assets or liabilitiesand related income or expense for these 

 

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plans are the expectedreturn on plan assets (if any), the discount rate used to value future paymentstreams, expected trends in health care costs, and other actuarial assumptions.Annually, the Company evaluates the significant assumptions to be used to valueits pension and postretirement plan assets and liabilities based on currentmarket conditions and expectations of future costs. If actual results are lessfavorable than those projected by management, additional expense may berequired in future periods.

 

The Company believes theexpected rate of return on plan assets of 8.5% is a reasonable assumption on along-term perspective based on its asset allocation of 58.0% equity, 41.0%fixed income and 1.0% other. The Company’s assumption for expected rate ofreturn for plan assets for equity, fixed income, and real estate/other are10.25%, 5.5% and 8.5%, respectively. This position is supported through areview of investment criteria, and consideration of historical returns over aseveral year period.

 

In the short-term,substantial decreases in plan assets will result in higher plan fundingcontribution levels and higher pension expenses.  A decrease of 25 basis points in the expectedlong-term rate of return on plan assets would result in an increase in annualpension expense of about $0.3 million. To the extent that the actual return on plan assets during the yearexceeds or falls short of the assumed long-term rate of return, an asset gainor loss is created.  Gains and losses aregenerally amortized over a 7-year period. As an example, each $1.0 million in asset loss created by unfavorableinvestment performance results in seven annual payments (contributions) ofapproximately $0.2 million depending upon the precise effective interest ratein the valuation and the timing of the contribution.

 

Salariedemployees hired after December 31, 2005 and hourly employees hired after June 30,2007 are not covered by the pension plan; however, they are eligible for anenhanced matching program of the defined contribution plan (401(k)). Effective December 31,2007, the U.S. pension plan was amended to freeze benefits for all non-unionemployees in the U.S.  Effective September 30,2009, the U.K. pension plan was amended to freeze benefits for fourteen membersof the plan.

 

*Impairment of Long-livedAssets 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, animpairment charge is recognized in the amount by which the carrying amount exceedsthe fair value of the asset. Assumptions and estimates with respect toestimated future cash flows used in the evaluation are subject to a high degreeof judgment and complexity.

 

*Share-BasedCompensation*

* *

*Restricted Stock Plan*

 

On February 23,2009, the Company adopted a restricted stock plan that reserved 400,000 sharesof common stock for issuance.  Grants ofrestricted stock are rights to acquire shares of the Company’s common stock,which vest in accordance with the terms and conditions established by theCompensation Committee.  The CompensationCommittee may set restrictions based on the achievement of specific performancegoals and vesting of grants to participants will also be time-based.

 

Restrictedstock grants are subject to forfeiture if employment or service terminatesprior to the vesting period or if the performance goal is not met.  The Company will assess, on an ongoing basis,the probability of whether the performance criteria will be achieved. TheCompany will recognize compensation expense over the performance period if itis deemed probable that the goal will be achieved. The fair value of theCompany’s restricted stock is determined based upon the closing price of theCompany’s common stock on the grant date. The plan provides for the adjustmentof the number of shares covered by an outstanding grant and the maximum numberof shares for which restricted stock may be granted in the event of a stocksplit, extraordinary dividend or distribution or similar recapitalizationevent.

 

*Stock Option Plans*

 

TheCompany has two stock option plans that authorize the granting of non-qualifiedstock options to certain key employees and non-employee directors for thepurchase of a maximum of 1,500,000 shares of the Company’s 

 

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common stock. Theoriginal option plan was adopted in August 2004 pursuant to the plan ofreorganization and provides for the grant of options to purchase up to1,000,000 shares of the Company’s common stock. In January 2007, theCompany’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.

 

On October 1,2005, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 123(R),*Share-Based Payment*, which was primarilycodified into Topic 718 *(Compensation — StockCompensation)* in the ASC.  Thestatement requires compensation costs related to share-based paymenttransactions to be recognized in the financial statements. This statementapplies to all awards granted after the effective date and to modifications,repurchases or cancellations of existing awards. Additionally, under themodified prospective method of adoption, the Company recognizes compensationexpense for the portion of outstanding awards on the adoption date for whichthe requisite service period has not yet been rendered based on the grant-datefair value of those awards. The amount of compensation cost is measured basedupon the grant date fair value. The fair value of the option grants isestimated on the date of grant using the Black-Scholes option pricing modelwith assumptions on dividend yield, risk-free interest rate, expectedvolatilities, expected forfeiture rate, and expected lives of the options.

 

*Income Taxes*

* *

The Company accounts forincome taxes in accordance with SFAS No. 109, *Accountingfor Income Taxes* (“SFAS No. 109”), which was primarily codifiedinto Topic 740 (*Income Taxes*) inthe ASC, which requires deferred tax assets and liabilities be recognized usingenacted tax rates for the effect of temporary differences between book and taxbasis of recorded assets and liabilities. This guidance also requires deferredtax assets be reduced by a valuation allowance if it is more likely than notthat some portion or all of the deferred tax assets will not be realized. Thedetermination of whether or not a valuation allowance is needed is based uponan evaluation of both positive and negative evidence. In its evaluation of theneed for a valuation allowance, the Company assesses prudent and feasible taxplanning strategies. The ultimate amount of deferred tax assets realized couldbe different from those recorded, as influenced by potential changes in enactedtax laws and the availability of future taxable income.

 

On October 1, 2007,the Company adopted FASB Interpretation No. 48 (“FIN 48”) *Accounting for Uncertainty in Income Taxes*, aninterpretation of SFAS 109, *Accounting for IncomeTaxes* which was primarily codified into Topic 740-10 (*Income Taxes > Overall)* in the ASC.  Thisguidance prescribes a recognition threshold and measurement attribute forfinancial statement recognition and measurement of tax positions taken orexpected to be taken in an income tax return.  It also provides guidancerelated to reversal of tax positions, balance sheet classification, interestand penalties, interim period accounting, disclosure and transition.

 

**Item 3.    Quantitative and Qualitative Disclosuresabout Market Risk**

 

Market risk is thepotential loss arising from adverse changes in market rates and prices. TheCompany is exposed to various market risks, including changes in interestrates, foreign currency exchange rates and the price of nickel and natural gas.

 

Changes ininterest rates affect the Company’s interest expense on variable rate debt.Interest charged on the Company’s credit facility is subject to a floatinginterest rate.  The Company’s outstandingvariable rate debt was zero at March 31, 2009 and 2010.  The Company has not entered into any derivativeinstruments to hedge the effects of changes in interest rates.

 

The foreigncurrency exchange risk exists primarily because the foreign subsidiariesmaintain receivables and payables denominated in currencies other than theirfunctional currency or the U.S. dollar. The foreign subsidiaries manage theirown foreign currency exchange risk. The U.S. operations transact their foreignsales in U.S. dollars, thereby avoiding fluctuations in foreign exchange rates.Any currency exchange rate exposure aggregating more than $500,000 requiresapproval from the Company’s Chief Financial Officer. The Company is notcurrently party to any currency contracts.

 

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Fluctuations inthe price of nickel, the Company’s most significant raw material, subject theCompany to commodity price risk. The Company manages its exposure to thismarket risk through internally established policies and procedures, includingnegotiating raw material escalators within product sales agreements, andcontinually monitoring and revising customer quote amounts to reflect thefluctuations in market prices for nickel. The Company does not presently use derivativeinstruments to manage this market risk, but may in the future. The Companymonitors its underlying market risk exposure from a rapid change in nickelprices on an ongoing basis and believes that it can modify or adapt itsstrategies as necessary. The Company periodically purchases raw materialforward with certain suppliers. However, there is a risk that the Company maynot be able to successfully offset a rapid increase in the cost of raw materialin the future.

 

On June 11,2009, to mitigate the volatility of the natural gas markets, the Companyentered into a commodity swap-cash settlement agreement with JP Morgan ChaseBank.  The Company has agreed to a fixednatural gas price on a total of 300,000 MMBTU, at a settlement rate of 50,000MMBTU per month for a period spanning October 2009 to March 2010.  As of March 31, 2010, 300,000 MMBTU hadbeen settled for a net realized hedging loss of $0.3 million.  The Company is not currently party to anycommodity swap — cash settlement agreements.

 

#### **Item4.    Controls and Procedures**

 

The Company hasperformed, 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 theend of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were effective as of March 31, 2010 in providing reasonableassurance that information required to be disclosed by the Company in the reportsthat it files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the Securities and Exchange Commission including to ensure thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is accumulated and communicated to theCompany’s management, including its principal executive and principal financialofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure.

 

There have been nochanges in our internal controls over financial reporting during our mostrecent quarter that has materially affected, or is reasonably likely tomaterially affect, our internal controls over financial reporting.

 

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**PART II  OTHER INFORMATION**

 

**Item4.  Submission of Matters to a Vote of Security Holders**

 

On February 22,2010, the Annual Meeting of Stockholders of the Company was held at the ConradIndianapolis Hotel. The following matters were voted on at the meeting:

 
| **MATTER**                                                                                                                                                                                 | ** ** | **VOTES CAST  FOR** | ** ** | **VOTES  AGAINST/  WITHHELD** | ** ** | **ABSTAIN AND  BROKER NON-  VOTES** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------------|------------|-----------------------------------------------|------------|
| Election of Directors:                                                                                                                                                                     |       |                     |       |                          |       |                                          |       |
| Paul J. Bohan                                                                                                                                                                              |       | 11,114,244               |       | 22,539                        |       | 487,263                                       |       |
| Donald C. Campion                                                                                                                                                                          |       | 11,072,510               |       | 64,273                        |       | 487,263                                       |       |
| Mark M. Comerford                                                                                                                                                                          |       | 11,114,344               |       | 22,439                        |       | 487,263                                       |       |
| John C. Corey                                                                                                                                                                              |       | 11,114,344               |       | 22,439                        |       | 487,263                                       |       |
| Robert H. Getz                                                                                                                                                                             |       | 11,073,349               |       | 63,434                        |       | 487,263                                       |       |
| Timothy J. McCarthy                                                                                                                                                                        |       | 11,073,249               |       | 63,534                        |       | 487,263                                       |       |
| William P. Wall                                                                                                                                                                            |       | 11,073,349               |       | 63,434                        |       | 487,263                                       |       |
| Ratification of the appointment of Deloitte &  Touche, LLP as Haynes’ independent registered public accounting firm for  the fiscal year ending September 30, 2010 |       | 11,432,913               |       | 191,133                       |       | 0                                             |       |

 

**Item 6.    Exhibits**

 

Exhibits. See Index to Exhibits.

 

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**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/  Mark Comerford*                  |
|     | Mark Comerford                         |
|     | President and Chief  Executive Officer |
|     | Date: May 6,  2010           |
|     |                                   |
|     |                                   |
| * * | */s/ Marcel Martin*                    |
|     | Marcel Martin                          |
|     | Vice President, Finance                |
|     | Chief Financial Officer                |
|     | Date: May 6,  2010           |

 

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**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 Bylaws 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 the Haynes  International, Inc. Quarterly Report on Form 10-Q for the quarter  ending December 31, 2009, filed February 8, 2010).                        |
|                                                 |       | 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.                                                                                                                                                                                                            |

 

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*      Filed herewith

 

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