**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




(Mark
      One)




x
            Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934





For
      the
      quarterly period ended March
      31, 2008





or




o
            Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934





For
      the
      transition period from  to





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 incorporation or
                organization)
            
            (IRS
                Employer Identification
                No.)






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







(765)
                456-6000(Registrant's
                telephone number,
                including area code)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x No
o





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


Large
      accelerated filer oAccelerated
      filer oNon-accelerated
      filer x Smaller
      reporting company o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.)


Yes o No
      x





Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court.


Yes x No o





As
      of May
      1, 2008, the registrant had 11,909,410 shares of Common Stock, $.001 par value,
      outstanding.










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


**TABLE
      OF CONTENTS**











**PART
                I**
            **FINANCIAL
                INFORMATION**
            **Page**Item
                1.
            Unaudited
                Condensed Financial StatementsHaynes
                International, Inc. and Subsidiaries:Unaudited
                Consolidated Balance Sheets as of
              September
                30, 2007 and March 31, 2008
            1Unaudited
                Consolidated Statements of Operations for the Three and Six Months
                Ended
                March 31, 2007 and 2008
            2Unaudited
                Consolidated Statements of Comprehensive Income for the Three and
                Six
                Months Ended March 31, 2007 and 2008
            3Unaudited
                Consolidated Statements of Cash Flows for the Six Months Ended March
                31,
                2007 and 2008
            4Notes
                to Consolidated Financial Statements
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            13Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            29Item
                4.
            Controls
                and Procedures
            30**PART
                II**
            **OTHER
                INFORMATION**Item
                1 A.
            Risk
                Factors
            31Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            31Item
                6.
            Exhibits
            31Signatures
              
              Index
                to Exhibits
            32
              
              33










**PART
      1** **FINANCIAL
      INFORMATION**


Item
      1.
      Financial Statements


**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**


**(in
      thousands, except share and per share data)**




**ASSETS**
            
            **September
                30,**
              **2007**
            
            **March
                31,**
              **2008**Current
                assets:Cash
                and cash equivalents
            
            $
            5,717
            
            $
            11,497Restricted
                cash - current portion
            
            
            110
            
            
            110Accounts
                receivable, less allowance for doubtfulaccounts
                of $1,339 and $1,251, respectively
            
            
            106,414
            
            
            102,988Inventories,
                net
            
            
            286,302
            
            
            304,225Income
                taxes receivable
            
            
            1,760
            
            
            920Deferred
                income taxes
            
            
            10,801
            
            
            12,827Other
                current assets
            
            
            1,457
            
            
            1,848Total
                current assets
            
            
            412,561
            
            
            434,415Property,
                plant and equipment (at cost)
            
            
            117,181
            
            
            127,211Accumulated
                depreciation
            
            
            (19,321
            )
            
            (24,091
            )Net
                property, plant and equipment
            
            
            97,860
            
            
            103,120Deferred
                income taxes - long term portion
            
            
            22,738
            
            
            23,953Prepayments
                and deferred charges, net
            
            
            3,702
            
            
            3,981Restricted
                cash - long term portion
            
            
            330
            
            
            220Goodwill
            
            
            41,252
            
            
            41,927Other
                intangible assets
            
            
            8,526
            
            
            7,984Total
                assets
            
            $
            586,969
            
            $
            615,600**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            60,443
            
            $
            60,477Accrued
                pension and postretirement benefits
            
            
            14,647
            
            
            15,008Revolving
                credit facilities
            
            
            35,549
            
            
            34,976Deferred
                revenue - current portion
            
            
            2,500
            
            
            2,500Current
                maturities of long-term obligations
            
            
            110
            
            
            110Total
                current liabilities
            
            
            113,249
            
            
            113,071Long-term
                obligations (less current portion)
            
            
            3,074
            
            
            3,160Deferred
                revenue (less current portion)
            
            
            45,329
            
            
            44,079Non-current
                income taxes payable
            
            
            -
            
            
            6,195Accrued
                pension and postretirement benefits
            
            
            108,940
            
            
            95,577Total
                liabilities
            
            
            270,592
            
            
            262,082Stockholders’
                equity:Common
                stock, $0.001 par value (40,000,000 shares
              authorized,
                11,807,237 and 11,909,410 issued and outstanding
              at
                September 30, 2007 and March 31, 2008, respectively)
            
            
            12
            
            
            12Preferred
                stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued
                and
                outstanding)
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            218,504
            
            
            222,589Accumulated
                earnings
            
            
            93,880
            
            
            121,959Accumulated
                other comprehensive income
            
            
            3,981
            
            
            8,958Total
                stockholders’ equity
            
            
            316,377
            
            
            353,518Total
                liabilities and stockholders’ equity
            
            $
            586,969
            
            $
            615,600




The
      accompanying notes are an integral part of these financial
      statements.


Page
          2 of
          34


**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**


**(in
      thousands, except share and per share data)**




**Three
                    Months Ended****March
                  31,**
              
              **Six
                    Months Ended****March
                  31,****2007**
              
              **2008**
              
              **2007**
              
              **2008**Net
                  revenues
              
              $
              137,336
              
              $
              163,771
              
              $
              257,799
              
              $
              309,848Cost
                  of sales
              
              
              97,003
              
              
              127,851
              
              
              183,845
              
              
              239,723Gross
                  profit
              
              
              40,333
              
              
              35,920
              
              
              73,954
              
              
              70,125Selling,
                  general and administrative expense
              
              
              8,861
              
              
              10,062
              
              
              18,281
              
              
              20,052Research
                  and technical expense
              
              
              781
              
              
              839
              
              
              1,478
              
              
              1,747Operating
                  income
              
              
              30,691
              
              
              25,019
              
              
              54,195
              
              
              48,326Interest
                  expense, net
              
              
              1,266
              
              
              317
              
              
              3,075
              
              
              780Income
                  before income taxes
              
              
              29,425
              
              
              24,702
              
              
              51,120
              
              
              47,546Provision
                  for income taxes
              
              
              12,021
              
              
              9,639
              
              
              20,532
              
              
              18,640Net
                  income
              
              $
              17,404
              
              $
              15,063
              
              $
              30,588
              
              $
              28,906Net
                  income per share:Basic
              
              $
              1.70
              
              $
              1.27
              
              $
              3.03
              
              $
              2.44Diluted
              
              $
              1.63
              
              $
              1.25
              
              $
              2.91
              
              $
              2.41Weighted
                  average shares outstanding:Basic
              
              
              10,220,000
              
              
              11,906,076
              
              
              10,110,000
              
              
              11,863,729Diluted
              
              
              10,652,773
              
              
              12,030,895
              
              
              10,525,883
              
              
              11,998,167





The
      accompanying notes are an integral part of these financial
      statements.




Page
          3 of
          34




**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME**


**(Unaudited)**


**(in
      thousands)**





**Three
                Months Ended**
              **March
                31**
            
            **Six
                Months Ended**
              **March
                31****2007**
            
            **2008**
            
            **2007**
            
            **2008**Net
                income
            
            $
            17,404
            
            $
            15,063
            
            $
            30,588
            
            $
            28,906Other
                comprehensive income, net of tax:Pension
                curtailment
            
            
            -
            
            
            -
            
            
            -
            
            
            2,701Foreign
                currency translation adjustment
            
            
            314
            
            
            2,475
            
            
            1,687
            
            
            2,276Comprehensive
                income
            
            $
            17,718
            
            $
            17,538
            
            $
            32,275
            
            $
            33,883




The
      accompanying notes are an integral part of these financial
      statements.




Page
          4 of
          34




**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**(in
      thousands)**




**Six
                  Months Ended**
                **March
                  31,****2007**
              
              **2008**Cash
                  flows from operating activities:Net
                  income
              
              $
              30,588
              
              $
              28,906Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              3,582
              
              
              4,415Amortization
              
              
              562
              
              
              542Stock
                  compensation expense
              
              
              1,426
              
              
              700Excess
                  tax benefit from option exercises
              
              
              (7,888
              )
              
              (2,077
              )Deferred
                  revenue
              
              
              50,000
              
              
              -Deferred
                  revenue - portion recognized
              
              
              (921
              )
              
              (1,250
              )Deferred
                  income taxes
              
              
              335
              
              
              (5,498
              )Loss
                  on disposal of property
              
              
              42
              
              
              230Change
                  in assets and liabilities:Accounts
                  receivable
              
              
              (4,391
              )
              
              4,336Inventories
              
              
              (53,180
              )
              
              (15,535
              )Other
                  assets
              
              
              (2,842
              )
              
              (495
              )Accounts
                  payable and accrued expenses
              
              
              20,466
              
              
              (1,515
              )Income
                  taxes
              
              
              312
              
              
              7,806Accrued
                  pension and postretirement benefits
              
              
              (634
              )
              
              (8,454
              )Net
                  cash provided by operating activities
              
              
              37,456
              
              
              12,111Cash
                  flows from investing activities:Additions
                  to property, plant and equipment
              
              
              (6,240
              )
              
              (9,356
              )Change
                  in restricted cash
              
              
              110
              
              
              110Net
                  cash used in investing activities
              
              
              (6,130
              )
              
              (9,246
              )Cash
                  flows from financing activities:Net
                  decrease in revolving credit
              
              
              (116,836
              )
              
              (573
              )Proceeds
                  from equity offering, net
              
              
              72,753
              
              
              -Proceeds
                  from exercise of stock options
              
              
              6,083
              
              
              1,308Excess
                  tax benefit from option exercises
              
              
              7,888
              
              
              2,077Payments
                  on long-term obligations
              
              
              (135
              )
              
              (148
              )Net
                  cash provided by (used in) financing activities
              
              
              (30,247
              )
              
              2,664Effect
                  of exchange rates on cash
              
              
              190
              
              
              251Increase
                  in cash and cash equivalents
              
              
              1,269
              
              
              5,780Cash
                  and cash equivalents, beginning of period
              
              
              6,182
              
              
              5,717Cash
                  and cash equivalents, end of period
              
              $
              7,451
              
              $
              11,497Supplemental
                  disclosures of cash flow information:Cash
                  paid during period for:Interest
                  (net of capitalized interest)
              
              $
              2,322
              
              $
              784Income taxes
              
              $
              19,878
              
              $
              16,370




The
      accompanying notes are an integral part of these financial statements.


Page
          5 of
          34


**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**


**(in
      thousands, except share and per share data)**





**Note
      1.**  **Basis
      of Presentation** ****





*Interim
      Financial Statements*





The
      accompanying unaudited condensed interim consolidated financial statements
      are
      prepared in conformity with accounting principles generally accepted in the
      United States of America and such principles are applied on a basis consistent
      with information reflected in our Form 10-K for the year ended September 30,
      2007 filed with the Securities and Exchange Commission (“SEC”). Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States of America have been condensed or omitted pursuant to the rules
      and regulations promulgated by the SEC. In the opinion of management, the
      interim financial information includes all adjustments and accruals, consisting
      only of normal recurring adjustments, which are necessary for a fair
      presentation of results for the respective interim periods. The results of
      operations for the three and six months ended March 31, 2008 are not necessarily
      indicative of the results to be expected for the full fiscal year ending
      September 30, 2008 or any interim period.





*Principles
      of Consolidation*





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





*Equity
      Offering*





On
      March
      23, 2007, the Company completed an equity offering, which resulted in the
      issuance of 1,200,000 shares of its common stock at a price of $65.00 per share.
      The net proceeds to the Company after underwriting discounts, commissions and
      offering expenses were $72,753. As a part of the offering, certain employees
      and
      directors exercised 450,000 stock options and the payment of the exercise price
      for those stock options resulted in an additional $6,083 in proceeds to the
      Company.





**Note
      2.**  **New
      Accounting Pronouncements**





In
      July
      2006, the FASB issued Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* ("FIN
      48"). ** FIN
      48
      addresses the noncomparability in reporting tax assets and liabilities resulting
      from a lack of specific guidance in SFAS No. 109, *Accounting
      for Income Taxes,* on
      the
      uncertainty in income taxes recognized in an enterprise’s financial
      statements *.* Specifically,
      FIN 48 prescribes (a) a consistent recognition threshold and (b) a measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return, and provides related
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosure, and transition. The impact of the adoption of
      FIN 48 on October 1, 2007, was to **** decrease
      accumulated earnings by $827, increase goodwill by $675, increase deferred
      tax
      assets by $3,316, and increase non-current income taxes payable by
      $4,818.




In
      conjunction with the adoption of FIN 48, we have classified uncertain tax
      positions as non-current income tax liabilities unless they are expected to
      be
      paid within 12 months of the balance sheet date. Income tax-related interest
      expense is reported as a component of income tax expense and the related
      liability is included in non-current income taxes payable. As of October 1,
      2007, we recorded a liability of approximately $200 for the payment of interest.
      The liability for the payment of interest did not materially change as of March
      31, 2008.




As
      of
      October 1, 2007, we were open to examination in the U.S. federal tax
      jurisdiction for various years from 1994 to 2007, in the U.K. for the years
      2001-2007, in Switzerland for the years 2002-2007, and in France for the years
      2004-2007. We are also open to examination in various state and local
      jurisdictions for various tax years, none of which were individually material.
      As of March 31, 2008 we were under audit in the U.S. federal tax jurisdiction.
      In April 2008, the federal audit was concluded, with no material change to
      our
      results of operations.




Page
          6 of
          34




As
      of
      October 1, 2007, the total amount of unrecognized tax benefits was $4,818,
      of
      which $827 would affect the effective tax rate, if recognized. The amount of
      unrecognized tax benefits as of March 31, 2008 was $6,195.




It
      is
      expected that the amount of unrecognized tax benefits will change in the next
      12
      months due to international tax positions being effectively settled and as
      a
      result of tax positions expected to be taken on the Company's September 30,
      2007
      tax returns. As a result of these events, we expect the unrecognized tax
      benefits to decrease by $4.3 million along with a decrease to deferred tax
      assets of $3.2 million, a decrease of goodwill of $0.7 million, and a decrease
      to income tax provision of $0.4 million.




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




In
      February 2007, the FASB issued FASB Statement No. 159, *Establishing
      the Fair Value Option for Financial Assets and Liabilities* (“SFAS
      159”) *,* to
      permit all entities to elect to measure eligible financial instruments at fair
      value. SFAS 159 applies to fiscal years beginning after November 15, 2007,
      with
      early adoption permitted for an entity that has also elected to apply the
      provisions of SFAS 157, Fair Value Measurements. An entity is prohibited from
      retrospectively applying SFAS 159, unless it chooses early adoption. The Company
      is currently evaluating the impact of SFAS 159 on its financial position,
      results of operations and cash flows.





In
      December 2007, the FASB issued FASB Statement No. 141 (revised 2007), *Business
      Combinations* ("FAS
      141(R)"). FAS 141(R) requires that the fair value of the purchase price of
      an
      acquisition including the issuance of equity securities 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 be recorded at fair value at the
      acquisition date; requires that acquisition costs generally be expensed as
      incurred; requires that restructuring costs generally be expensed in periods
      subsequent to the acquisition date; and requires that changes in deferred tax
      asset valuation allowances and acquired income tax uncertainties after the
      measurement period impact income tax expense. FAS 141(R) also expands
      disclosures related to business combinations. FAS 141(R) will be applied
      prospectively to business combinations occurring after the beginning of the
      Company's fiscal year 2010, except that business combinations consummated prior
      to the effective date must apply FAS 141(R) income tax requirements immediately
      upon adoption. The Company is currently evaluating the impact of FAS 141(R)
      on
      its financial position, results of operations and cash flows.





In
      December 2007, the FASB issued FASB Statement No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB No.
      51* ("FAS
      160"). FAS 160 requires that noncontrolling interests be reported as a separate
      component of equity, that net income attributable to the parent and to the
      noncontrolling interest be separately identified in the consolidated statement
      of operations, that changes in a parent's ownership interest be accounted for
      as
      equity transactions, and that, when a subsidiary is deconsolidated, any retained
      noncontrolling equity investment in the former subsidiary and the gain or loss
      on the deconsolidation of the subsidiary be measured at fair value. FAS 160
      will
      be applied prospectively, except for presentation and disclosure requirements
      which will be applied retrospectively, as of the beginning of the Company's
      fiscal year 2010. The Company does not currently have noncontrolling interests,
      and therefore the adoption of FAS 160 is not expected to have an impact on
      the
      Company's financial position, results of operations or cash flows.




Page
          7 of
          34





**Note
      3.**  **Inve** **ntories**





The
      following is a summary of the major classes of inventories:





September
                30, 2007
            
            March
                31, 2008Raw
                Materials
            
            $
            16,218
            
            $
            21,470Work-in-process
            
            
            162,266
            
            
            159,284Finished
                Goods
            
            
            106,419
            
            
            121,984Other,
                net
            
            
            1,399
            
            
            1,487$
            286,302
            
            $
            304,225




**Note
      4.**  **Income
      Taxes**





Income
      tax expense for the three and six months ended March 31, 2007 and 2008, differed
      from the U.S. federal statutory rate of 35% primarily due to state income taxes
      and differing tax rates on foreign earnings.





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





Components
      of net periodic pension and post-retirement benefit cost for the three and
      six
      months ended March 31, are as follows:




Three
                Months Ended March 31,
            
            Six
                Months Ended March 31,Pension
                Benefits
            
            Other
                Benefits
            
            Pension
                Benefits
            
            Other
                Benefits2007
            
            2008
            
            2007
            
            2008
            
            2007
            
            2008
            
            2007
            
            2008Service
                cost
            
            $
            1,127
            
            $
            709
            
            $
            295
            
            $
            361
            
            $
            2,117
            
            $
            1,415
            
            $
            722
            
            $
            722Interest
                cost
            
            
            2,625
            
            
            2,684
            
            
            911
            
            
            1,115
            
            
            4,931
            
            
            5,372
            
            
            2,230
            
            
            2,230Expected
                return
            
            
            (2,797
            )
            
            (2,851
            )
            
            --
            
            
            --
            
            
            (5,254
            )
            
            (5,702
            )
            
            --
            
            
            --Amortizations
            
            
            --
            
            
            203
            
            
            (843
            )
            
            (1,032
            )
            
            --
            
            
            404
            
            
            (2,064
            )
            
            (2,064
            )Curtailment
                gain
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (3,659
            )
            
            --
            
            
            --Net
                periodic benefit cost (benefit)
            
            $
            955
            
            $
            745
            
            $
            363
            
            $
            444
            
            $
            1,794
            
            $
            (2,170
            )
            $
            888
            
            $
            888





The
      Company contributed $4,460 to the Company sponsored domestic pension plans,
      $2,065 to its other post-retirement benefit plans and $614 to the U.K. pension
      plan for the six months ended March 31, 2008. The Company presently expects
      future contributions of $3,900 to its domestic pension plans, $2,535 to its
      other post-retirement benefit plans and $613 to the U.K. pension plans for
      the
      remainder of fiscal 2008. The Pension Protection Act of 2006 requires funding
      over a seven year period to achieve 100% funded status.





On
      October 2 ,
      2007,
      the U.S. pension plan was amended effective December 31, 2007 to freeze benefit
      accruals for all non-union employees in the U.S. and effective January 1, 2008,
      the pension multiplier used to calculate the employee's monthly benefit was
      increased from 1.4% to 1.6%. In addition, the Company will make enhanced
      matching contributions to its 401K plan equal to 60% of the non-union and union
      plan participant's salary deferrals, up to 6% of compensation. The Company
      estimates the redesign of the pension plan, including previous actions to close
      the plan to new non-union and union employees and the adjustment of the
      multiplier for non-union and union plan participants, will reduce funding
      requirements by $23,000 over the next six years. The offsetting estimated
      incremental cost of the enhanced 401K match is $2,300 over the same six year
      period. As a result of freezing the benefit accruals for all non-union employees
      in the U.S. in the first quarter of fiscal 2008, we recognized a reduction
      of
      the projected benefit obligation of $8,191, an increase to other comprehensive
      income (before tax) of $4,532 and a curtailment gain (before tax) of $3,659.
      The
      impact of the multiplier increase will be charged to pension expense over the
      estimated remaining lives of the participants.




**Note
      6. Environmental and Legal**





The
      Company is regularly involved in litigation, both as a plaintiff and as a
      defendant, relating to its business and operations, including environmental
      and
      intellectual property matters. Future expenditures for environmental,
      intellectual property and other legal matters cannot be determined with any
      degree of certainty; however, based on the facts presently known, management
      does not believe that such costs will have a material effect on the Company's
      financial position, results of operations or cash flows.




Page
          8 of
          34





The
      Company believes that any and all claims arising out of conduct or activities
      that occurred prior to March 29, 2004 are subject to dismissal. On March 29,
      2004, the Company and certain of its subsidiaries and affiliates filed voluntary
      petitions for relief under Chapter 11 of Title 11 of the United States
      Bankruptcy Code in the United States Bankruptcy Court for the Southern District
      of Indiana (the “Bankruptcy Court”). On August 16, 2004, the Bankruptcy Court
      entered its Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C.
      1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the First Amended Joint
      Plan of Reorganization of Haynes International, Inc. and its Affiliated 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 claims and causes of action. The
      Confirmation Order further provides for an injunction against the commencement
      of any actions with respect to claims held prior to the Effective Date of the
      Plan. The Effective Date occurred on August 31, 2004. When appropriate, the
      Company pursues the dismissal of lawsuits premised upon claims or causes of
      action discharged in the Confirmation Order and related Chapter 11 Plan. The
      success of this strategy is dependent upon a number of factors, including the
      respective court’s interpretation of the Confirmation Order and the unique
      circumstances of each case.





The
      Company is currently, and has in the past, been subject to claims involving
      personal injuries allegedly relating to its products. For example, the Company
      is presently involved in two actions involving welding rod-related injuries,
      both of which were filed in California state court against numerous
      manufacturers, including the Company, in May 2006 and February 2007,
      respectively, alleging that the welding-related products of the defendant
      manufacturers harmed the users of such products through the inhalation of
      welding fumes containing manganese. The Company believes that it has defenses
      to
      these allegations and, that if the Company were found liable, the cases would
      not have a material effect on its financial position, results of operations
      or
      liquidity. In addition to these cases, the Company has in the past been named
      a
      defendant in several other lawsuits, including 52 filed in the state of
      California, alleging that its welding-related products harmed the users of
      such
      products through the inhalation of welding fumes containing manganese. The
      Company has since been voluntarily dismissed from all of these lawsuits on
      the
      basis of the release and discharge of claims contained in the Confirmation
      Order. While the Company contests such lawsuits vigorously, and may have
      applicable insurance, there are several risks and uncertainties that may affect
      its liability for claims relating to exposure to welding fumes and manganese.
      For instance, in recent cases, at least two courts (in cases not involving
      Haynes) have refused to dismiss claims relating to inhalation of welding fumes
      containing manganese based upon a bankruptcy discharge order. Although the
      Company believes the facts of these cases are distinguishable from the facts
      of
      its cases, there can be no assurance that any or all claims against the Company
      will be dismissed based upon the Confirmation Order, particularly claims
      premised, in part or in full, upon actual or alleged exposure on or after the
      date of the Confirmation Order. It is also possible that the Company will be
      named in additional suits alleging welding-rod injuries. Should such litigation
      occur, it is possible that the aggregate claims for damages, if the Company
      is
      found liable, could have a material adverse effect on its financial condition,
      results of operations or liquidity.




The
      Company has received permits from the Indiana Department of Environmental
      Management, or IDEM, to close and to provide post-closure monitoring and care
      for certain areas at the Kokomo facility previously used for the storage and
      disposal of wastes, some of which are classified as hazardous under applicable
      regulations. Closure certification was received in fiscal 1988 for the South
      Landfill at the Kokomo facility and post-closure monitoring and care is ongoing
      there. Closure certification was received in fiscal 1999 for the North Landfill
      at the Kokomo facility and post-closure monitoring and care are permitted and
      ongoing there. In addition, at the request of IDEM, the Company has initiated
      an
      investigation of three additional areas at the Kokomo facility. The Company
      has
      also received permits from the North Carolina Department of Environment and
      Natural Resources, or NCDENR to close and provide post-closure monitoring and
      care for the hazardous waste lagoon at its Mountain Home, North Carolina
      facility. The lagoon area has been closed and is currently undergoing
      post-closure monitoring and care. The Company is required to monitor groundwater
      and to continue post-closure maintenance of the former disposal areas at each
      site. As a result, the Company is aware of elevated levels of certain
      contaminants in the groundwater and additional corrective actions by the Company
      could be required. In addition, groundwater monitoring has begun and is ongoing
      on two additional solid waste management units. The Company is unable to
      estimate the costs of these or any further corrective action at either site,
      if
      required. Accordingly, the Company can not assure you that the costs of any
      future corrective action at these or any other current former sites would not
      have a material effect on the Company’s financial condition, results of
      operations or liquidity. Additionally, it is possible that the Company could
      be
      required to undertake other corrective action commitments for any other solid
      waste management unit existing or determined to exist at its facilities. As
      a
      condition of the post-closure permits, the Company must provide and maintain
      assurances to IDEM and NCDENR of the Company’s capability to satisfy
      post-closure groundwater monitoring and care requirements, including possible
      future corrective action as necessary. The Company provides these required
      assurances through a statutory financial assurance test as provided by Indiana
      and North Carolina law.




Page
          9 of
          34




As
      of
      March 31, 2008 and September 30, 2007, the Company has accrued $1,519 for
      post-closure monitoring and maintenance activities. In accordance with SFAS
      143, *Accounting
      for Asset Retirement Obligations* ,
      accruals for these costs are calculated by estimating the cost to monitor and
      maintain each post-closure site and multiplying that amount by the number of
      years remaining in the 30 year post-closure monitoring period referred to above.
      At each fiscal year-end, or earlier if necessary, the Company evaluates the
      accuracy of the estimates for these monitoring and maintenance costs for the
      upcoming fiscal year. The accrual was based upon the undiscounted amount of
      the
      obligation of $2,377 which was then discounted using an appropriate discount
      rate. The cost associated with closing the sites has been incurred in financial
      periods prior to those presented, with the remaining cost to be incurred in
      future periods related solely to post-closure monitoring and maintenance. Based
      on historical experience, the Company estimates that the cost of post-closure
      monitoring and maintenance will approximate $126 per year over the remaining
      obligation period.





**Note
      7. Deferred Revenue**





On
      November 17, 2006, the Company entered into a twenty-year agreement to
      provide conversion services to Titanium Metals Corporation (“TIMET”) for up to
      ten million pounds (with an option for an additional ten million pounds) of
      titanium metal annually at prices established by the terms of the agreement.
      TIMET paid the Company a $50.0 million up-front fee and will also pay the
      Company for its processing services during the term of the agreement (20 years)
      at prices established by the terms of the agreement. The cash received of $50.0
      million will be recognized in income on a straight-line basis over the 20-year
      term of the agreement. The portion not recognized in income will be shown as
      deferred revenue on the consolidated balance sheet. The Company used the
      proceeds, net of expenses, of the $50 million up-front fee paid by TIMET to
      reduce the balance of its U.S. revolving credit facility. Revenue of $921 and
      $1,250 has been recognized related to this agreement, during the six months
      ended March 31, 2007 and 2008, respectively. Taxes will be paid on the up-front
      fee primarily in the first quarter of fiscal 2009.





**Note
      8. Intangible Assets and Goodwill**




Goodwill
      was created as a result of the Company’s reorganization pursuant to Chapter 11
      of the U.S. Bankruptcy Code and fresh start accounting. The Company adopted
      FASB Statement No. 142, *Goodwill
      and Other Intangible Assets* ("SFAS
      142"). Pursuant to SFAS 142, goodwill is not amortized and the value of goodwill
      is reviewed at least annually for impairment. If the carrying value exceeds
      the
      fair value, impairment of goodwill may exist resulting in a charge to earnings
      to the extent of goodwill impairment.




The
      Company also has patents, trademarks and other intangibles. As the patents
      have
      a finite life, they are amortized over lives ranging from two to fourteen years.
      As the trademarks have an indefinite life, the Company tests them for impairment
      at least annually. If the carrying value exceeds the fair value (determined
      by
      calculating a fair value based upon a discounted cash flow of an assumed royalty
      rate), impairment of the trademark may exist resulting in a charge to earnings
      to the extent of impairment. The Company has two non-compete agreements with
      lives of two and seven years. Amortization of the patents, non-competes and
      other intangibles was $562, and $542 for the six months ended March 31, 2007
      and
      2008, respectively.




Goodwill
      and trademarks were tested for impairment on August 31, 2007 with no impairment
      recognized because the fair values exceeded the carrying values. Goodwill
      increased $675 during the six months ended March 31, 2008 due to the adoption
      of
      FIN 48.




Page
          10
          of 34




The
      following represents a summary of intangible assets and goodwill at September
      30, 2007 and March 31, 2008:




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






March
                31, 2008
            
            Gross Amount
            
            Accumulated
              Amortization
            
            Carrying
              AmountGoodwill
            
            $
            41,927
            
            $
            —
            
            $
            41,927Patents
            
            
            8,667
            
            
            (5,096
            )
            
            3,571Trademarks
            
            
            3,800
            
            
            —
            
            
            3,800Non-compete
            
            
            840
            
            
            (360
            )
            
            480Other
            
            
            465
            
            
            (332
            )
            
            133$
            55,699
            
            $
            (5,788
            )
            $
            49,911







Estimate of Aggregate Amortization Expense:Year
                Ended September 30,2008
                (remainder of fiscal year)
            
            $
            5642009
            
            
            8162010
            
            
            3762011
            
            
            3632012
            
            
            288






**Note
      9. Net Income Per Share**




Basic
      and
      diluted net income per share were computed as follows:






**Three
                    Months Ended**
                
                **Six
                    Months Ended****March
                    31,**
                
                **March 31,****(in thousands except share
                    and per share data)**
                
                **2007**
                
                **2008**
                
                **2007**
                
                **2008**Numerator:Net
                    Income
                
                $
                17,404
                
                $
                15,063
                
                $
                30,588
                
                $
                28,906Denominator:Weighted
                    average shares outstanding - Basic
                
                
                10,220,000
                
                
                11,906,076
                
                
                10,110,000
                
                
                11,863,729Effect
                    of dilutive stock options
                
                
                432,773
                
                
                124,819
                
                
                415,883
                
                
                134,438Weighted
                    average shares outstanding - Diluted
                
                
                10,652,773
                
                
                12,030,895
                
                
                10,525,883
                
                
                11,998,167Basic
                    net income per share
                
                $
                1.70
                
                $
                1.27
                
                $
                3.03
                
                $
                2.44Diluted
                    net income per share
                
                $
                1.63
                
                $
                1.25
                
                $
                2.91
                
                $
                2.41Number
                    of shares excluded as their effect would be anti-dilutive
                
                
                126,000
                
                
                256,000
                
                
                63,000
                
                
                193,500




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




Page
          11
          of 34




**Note** **10.
      Stock-Based Compensation**





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




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


GrantDate
            
            FairValue
            
            DividendYield
            
            Risk-freeInterestRate
            
            ExpectedVolatility
            
            ExpectedLifeMarch
                30, 2007
            
            $
            19.06
            
            
            0
            %
            
            4.54
            %
            
            30.00
            %
            
            3
                yearsSeptember
                1, 2007
            
            $
            21.42
            
            
            0
            %
            
            4.16
            %
            
            30.00
            %
            
            3
                yearsMarch
                31, 2008
            
            $
            16.41
            
            
            0
            %
            
            1.88
            %
            
            42.00
            %
            
            3
                years




On
      March
      31, 2008, the Company granted 130,000 options at an exercise price of $54.00,
      the fair market value of the Company's common stock on the day prior to the
      date
      of the grant. During the first quarter of fiscal 2008, 98,073 options were
      exercised which generated $1,255 cash to the Company and increased the shares
      of
      common stock outstanding by 98,073 shares. During the second quarter of fiscal
      2008, 4,100 options were exercised which generated $52 cash to the Company
      and
      increased the shares of common stock outstanding by 4,100 shares.





The
      stock-based employee compensation expense for the three and six months ended
      March 31, 2008 was $350 ($209 net of tax or $0.02 per fully diluted share)
      and
      $700 ($417 net of tax or $0.03 per fully diluted share), respectively, leaving
      remaining unrecognized compensation expense at March 31, 2008 of $4,191 to
      be
      recognized over a weighted average period vesting of 1.98 years. The stock-based
      employee compensation expense for the three and six months ended March 31,
      2007
      was $733 ($437 net of tax or $0.04 per fully diluted share) and $1,426 ($863
      net
      of tax or $0.08 per fully diluted share), respectively.





The
      following table summarizes the activity under the stock option plans for the
      six
      months ended March 31, 2008:


Number
              of
              Shares
            
            Weighted
                Average Exercise
              Price
            
            Weighted
                Average Remaining
              Contractual
                Life
            
            Aggregate
                Intrinsic ValueOutstanding
                at September 30, 2007
            
            
            503,763
            
            $
            30.52Granted
            
            
            130,000
            
            
            54.00Forfeited
            
            
            (5,000
            )
            
            72.93Exercised
            
            
            (102,173
            )
            
            12.80Outstanding
                at March 31, 2008
            
            
            526,590
            
            $
            39.35
            
            
            8.10
                Years
            
            $
            10,504,893Vested
                or expected to vest
            
            
            526,590
            
            $
            39.35
            
            
            8.10
                Years
            
            $
            10,504,893Exercisable
                at March 31, 2008
            
            
            264,245
            
            $
            23.60
            
            
            6.96
                Years
            
            $
            8,266,092




Page
          12
          of 34






Outstanding
            
            ExercisableGrant
                Date
            
            Number
                of Shares
            
            Exercise
                Price Per Share
            
            Remaining
                Contractual Life in Years
            
            Number
                of Shares
            
            Exercise
                Price Per ShareAugust
                31, 2004
            
            
            197,255
            
            $
            12.80
            
            
            6.42
            
            
            197,255
            
            $
            12.80May
                5, 2005
            
            
            8,334
            
            
            19.00
            
            
            7.08
            
            
            -
            
            
            19.00August
                15, 2005
            
            
            11,667
            
            
            20.25
            
            
            7.42
            
            
            -
            
            
            20.25October
                1, 2005
            
            
            10,000
            
            
            25.50
            
            
            7.50
            
            
            5,000
            
            
            25.50February
                21, 2006
            
            
            33,334
            
            
            29.25
            
            
            7.92
            
            
            16,666
            
            
            29.25March
                31, 2006
            
            
            10,000
            
            
            31.00
            
            
            8.00
            
            
            5,000
            
            
            31.00March
                30, 2007
            
            
            121,000
            
            
            72.93
            
            
            9.00
            
            
            40,324
            
            
            72.93September
                1, 2007
            
            
            5,000
            
            
            83.53
            
            
            9.42
            
            
            -
            
            
            83.53March
                31, 2008
            
            
            130,000
            
            
            54.00
            
            
            10.0
            
            
            -
            
            
            54.00526,590
            
            
            
            
            
            
            
            
            264,245




**Note
      11. Subsequent Event**





The
      Company’s U.K. subsidiary, Haynes International, Ltd., or Haynes U.K.,
      previously had an agreement with a U.K.-based lender providing for a $15.0
      million revolving credit facility. During April 2008, the term of the U.K.
      revolving credit facility ended. The Company replaced this facility with a
      multi-currency overdraft facility. The overdraft facility has a limit of 2
      million pound sterling (approximately $4.0 million). Haynes U.K. is required
      to
      pay interest on overdrafts in an amount equal to the Bank's Sterling Base Rate
      (in accordance with the terms facility), plus 1.1% per annum. As of March 31,
      2008, the revolver had an outstanding balance of zero.




Page
          13
          of 34







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





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





*This
      discussion contains statements that constitute forward-looking statements within
      the meaning of the Private Securities Litigation Reform Act of 1995. Those
      statements appear in a number of places in this discussion and may include,
      but
      are not limited to, statements regarding the intent, belief or current
      expectations of the Company or its management with respect to, but are not
      limited to (i) the Company’s strategic plans; (ii) any significant change in
      customer demand for its products or in demand for its customers’ products; (iii)
      the Company’s dependence on production levels at its Kokomo facility and its
      ability to make capital improvements at that facility; (iv) rapid increases
      in
      the cost of nickel, energy and other raw materials; (v) the Company’s ability to
      continue to develop new commercially viable applications and products; (vi)
      the
      Company’s ability to recruit and retain key employees; (vii) the Company’s
      ability to comply, and the costs of compliance, with applicable environmental
      laws and regulations; and (viii) economic and market risks associated with
      foreign operations and U.S. and world economic and political conditions .
      Readers are cautioned that any such forward-looking statements are not
      guarantees of future performance and involve risks and uncertainties. Actual
      results may differ materially from those in the forward-looking statements
      as a
      result of various factors, many of which are beyond the control of the
      Company.*





*The
      Company has based these forward-looking statements on its current expectations
      and projections about future events. Although the Company believes that the
      assumptions on which the forward-looking statements contained herein are based
      are reasonable, any of those assumptions could prove to be inaccurate, and
      as a
      result, the forward-looking statements based upon those assumptions also could
      be incorrect. Risks and uncertainties, some of which are discussed in Item
      1A.
      of Part 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended
      September 30, 2007 and in Part II, Item 1A of this Form 10-Q may affect the
      accuracy of forward-looking statements.*





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





**Overview**





**Business:** Haynes
      International, Inc. ("Haynes" or "the Company") is one of the world’s largest
      producers of high-performance nickel- and cobalt-based alloys in sheet, coil
      and
      plate forms. The Company is focused on developing, manufacturing, marketing
      and
      distributing technologically advanced, high-performance alloys, which are used
      primarily in the aerospace, chemical processing and land-based gas turbine
      industries. The global specialty alloy market consists of three primary sectors:
      stainless steel, general purpose nickel alloys and high-performance nickel-
      and
      cobalt-based alloys. Except for its stainless wire products, the Company
      competes exclusively in the high-performance nickel- and cobalt-based alloy
      sector, which includes high temperature resistant alloys, or HTA products,
      and
      corrosion resistant alloys, or CRA products. The Company believes it is one
      of
      four principal producers of high-performance alloys in sheet, coil and plate
      forms. The Company also produces its products as seamless and welded tubulars,
      and in bar, billet and wire forms.





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





**Key
      Events** **:** The
      Company announced on April 4, 2008, that Francis Petro informed the Board of
      his
      intention to retire as the Company's President and Chief Executive Officer
      at
      the end of his existing employment agreement on September 30, 2008 and to
      continue to serve as a member of the Board of Directors. The Board has retained
      Spencer Stuart, an executive search firm, to conduct a national search for
      a new
      Chief Executive Officer. Mr. Petro is assisting the Corporate Governance
      Committee in the search for his successor.




Page
          14
          of 34





**Market
      Conditions** **:** Demand
      in the three traditional high-performance alloy markets which the Company serves
      continues to be strong. Demand for the Company’s products in the aerospace
      market continues to be robust, supported by the Company’s high level of sales in
      this market to date in fiscal 2008. Looking forward, *American
      Metals Market* indicated in an April 2008 article that demand for all raw materials (including
      high-performance nickel-based alloys) used in aerospace construction is
      forecasted to grow annually by 4.1% over the next twenty years from
      approximately 1.05 billion pounds of material in 2007 to 2.40 billion pounds
      per
      year in twenty years. Haynes is well positioned to continue meeting current
      levels of demand and the anticipated increased level of demand in the latter
      part of 2009. Projects supporting this growth include the completion of upgrades
      to the Company’s cold rolling mill in fiscal 2007 and both annealing lines in
      fiscal 2008 (which, when completed, is expected to increase flat product
      finishing capacity), the installation of a new pilger mill at the Arcadia
      facility, also in fiscal 2008 (increased capacity of titanium tubing), and
      continued expansion of the value added operations in our service
      centers.





The
      Company’s level of order entry also indicates that demand in both the land-based
      gas turbine market and the chemical processing market continues to be strong.
      The current and anticipated level of demand in these markets and in the
      aerospace markets continues to be reflected by growth in the Company’s
      backlog.





In
      addition to continued strength in the three traditional markets, growth in
      high-performance alloy volumes in "Other Markets" is reflective of both the
      Company's efforts to expand into the markets in this category, as well as
      efforts in these industries to upgrade overall quality, improve product
      performance through increased efficiency, prolong product life, and lower
      long-term costs. Companies in these markets are looking to all these things
      through the use of "Advanced Materials" which supports the increased use of
      high
      performance alloys in an expanding number of applications and industries.





**Competition** **:** Beginning at the end of the second quarter and continuing through the fourth
      quarter of fiscal 2007, the Company experienced a trend of increasing revenues
      and average selling price per pound, while gross profit as a percentage of
      net
      revenues declined. During the first quarter of fiscal 2008, net revenue and
      average selling price per pound began to decline along with further erosion
      in
      gross profit as a percentage of net revenues. Compared to the first quarter
      of
      fiscal 2008, net revenue increased in the second quarter, but average selling
      price per pound and gross profit as a percentage of revenue continued to
      decline. The decline in gross profit as a percentage of revenue from the prior
      quarter should be analyzed in light of the fact that the first quarter of fiscal
      2008 included a one-time benefit of $3.7 million related to the pension
      curtailment gain. Adjusting for this gain, the gross profit as a percent of
      net
      revenue has improved in the second quarter when compared to the first quarter.





The
      largest contributing factor to the continued decline in gross profit as a
      percentage of revenue since the second quarter of fiscal 2007 is increased
      price
      competition. Starting in the third quarter of fiscal 2007, the Company
      experienced increased competition from competitors who produce both stainless
      steel and high-performance alloys. Due to a slowing stainless steel market,
      management believes these competitors have increased their production levels
      and
      sales activity in high-performance alloys to keep capacity in their mills as
      full as possible, while offering very competitive prices and delivery times.
      As
      a result of this competition, the Company's ability to raise prices on certain
      products has been limited in the four most recent fiscal quarters. Historically,
      the Company experienced similar price competition in the 1990's and in the
      early
      2000's, when demand in the stainless market weakened.





This
      competition should soften upon improvements in the strength of the stainless
      market. Although *American
      Metals Market* reported
      in January 2008 that stainless producers believed that prospects appeared to
      be
      brightening in the stainless steel market for a 2008 recovery, the same
      publication reported in April 2008 that uncertainty as to the strengthening
      of
      the stainless market still exists. This could indicate that the recovery in
      the
      stainless market may take longer than anticipated. We believe, however, that
      we
      are in a better position to respond to the competition than we were in the
      past
      as a result of our increased emphasis on service centers, our value-added
      services and our improving cost structure which has resulted from our capital
      expenditure program. We also believe that the completion of the upgrade to
      the
      second annealing line in the third quarter of fiscal 2008 will improve the
      Company’s delivery-times and reliability. Furthermore, management believes that
      the Company will continue to improve the gross margin percentage through the
      third and fourth quarters of fiscal 2008.




Page
          15
          of 34





**Capital
      Spending** **:** As
      previously reported, another factor which has negatively impacted gross profit
      as a percentage of net revenue is the production downtime as a result of planned
      equipment upgrades. Beginning in fiscal 2006, the Company began making
      significant investments in order to increase capacity in its sheet finishing
      operations, including upgrades to its cold rolling mill and one of two annealing
      lines, which were completed in fiscal 2007. The first phase of upgrades to
      the
      second annealing line were completed in the second quarter of fiscal 2008,
      and
      the second phase of these upgrades is intended to be completed in the third
      quarter of fiscal 2008, which will complete the necessary upgrades to the sheet
      finishing operations required to increase production capacity for
      high-performance alloys in sheet form from 9.0 million pounds per year to 14.0
      million pounds per year. This is expected to result in total high-performance
      alloy production capacity of 23.5 million pounds per year. The Company believes
      it will achieve its objective of producing and selling 23.5 million pounds
      of
      high-performance alloys by fiscal 2010. Management anticipates continuing to
      invest in the Company's equipment. The Company spent approximately $9.4 million
      in the first six months of fiscal 2008 on capital improvements. Total planned
      fiscal 2008 capital spending is targeted at approximately $15.0 million, of
      which approximately $5.0 million is attributable to recurring capital
      maintenance projects.





**Quarterly
      Market Information**





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





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






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


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




Page
          16
          of 34






Quarter
                  EndedDecember
                  31, 2006
              
              March
                  31, 2007
              
              June
                  30,
                2007
              
              September
                  30, 2007
              
              December
                  31, 2007
              
              March
                  31, 2008***Net
                  revenues***(in thousands)Aerospace
              
              $
              43,827
              
              $
              48,232
              
              $
              55,317
              
              $
              63,796
              
              $
              59,442
              
              $
              63,472Chemical
                  processing
              
              
              38,778
              
              
              37,701
              
              
              31,495
              
              
              39,986
              
              
              40,805
              
              
              37,404Land-based
                  gas turbines
              
              
              20,076
              
              
              27,993
              
              
              26,812
              
              
              28,120
              
              
              25,505
              
              
              33,506Other
                  markets
              
              
              15,671
              
              
              20,352
              
              
              24,598
              
              
              25,638
              
              
              18,887
              
              
              26,085Total
                  product revenue
              
              
              118,352
              
              
              134,278
              
              
              138,222
              
              
              157,540
              
              
              144,639
              
              
              160,467Other
                  revenue(1)
              
              
              2,111
              
              
              3,058
              
              
              2,865
              
              
              3,410
              
              
              1,438
              
              
              3,304**Net
                  revenues**
              
              $
              120,463
              
              $
              137,336
              
              $
              141,087
              
              $
              160,950
              
              $
              146,077
              
              $
              163,771


***Pounds
                by markets***(in
                thousands)Aerospace
              
              
              1,780
              
              
              1,701
              
              
              1,973
              
              
              2,206
              
              
              2,154
              
              
              2,190Chemical
                  processing
              
              
              1,479
              
              
              1,322
              
              
              1,082
              
              
              1,238
              
              
              1,312
              
              
              1,287Land-based
                  gas turbines
              
              
              1,144
              
              
              1,382
              
              
              1,256
              
              
              1,311
              
              
              1,060
              
              
              1,742Other
                  markets(2)
              
              
              1,053
              
              
              1,320
              
              
              1,538
              
              
              923
              
              
              681
              
              
              861**Total
                  shipments**
              
              
              5,456
              
              
              5,725
              
              
              5,849
              
              
              5,678
              
              
              5,207
              
              
              6,080


***Average
                  selling price per pound***Aerospace
              
              $
              24.62
              
              $
              28.36
              
              $
              28.04
              
              $
              28.92
              
              $
              27.60
              
              $
              28.98Chemical
                  processing
              
              
              26.22
              
              
              28.52
              
              
              29.11
              
              
              32.30
              
              
              31.10
              
              
              29.06Land-based
                  gas turbines
              
              
              17.55
              
              
              20.26
              
              
              21.35
              
              
              21.45
              
              
              24.06
              
              
              19.23Other
                  markets
              
              
              14.88
              
              
              15.42
              
              
              15.99
              
              
              27.78
              
              
              27.73
              
              
              30.30**Total
                  product**(excluding
                  other revenue)
              
              
              21.69
              
              
              23.45
              
              
              23.63
              
              
              27.75
              
              
              27.78
              
              
              26.39**Total
                  average selling price**(including
                  other revenue)
              
              
              22.08
              
              
              23.99
              
              
              24.12
              
              
              28.35
              
              
              28.05
              
              
              26.94


(1)
              Other
                  revenue consists of toll conversion, royalty income, and scrap
                  sales.
 (2)
              The
                  historical decrease in pounds in Other Markets relates primarily
                  to the
                  reduction in stainless steel wire
                  pounds.
  Page
            17
            of 34


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




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




($
                  in thousands)
              
              Three
                  Months EndedMarch
                  31,
              
              Change2007
              
              2008
              
              Amount
              
              %Net
                  revenues
              
              $
              137,336
              
              
              100.0
              %
              $
              163,771
              
              
              100.0
              %
              $
              26,435
              
              
              19.2
              %Cost
                  of sales
              
              
              97,003
              
              
              70.6
              %
              
              127,851
              
              
              78.1
              %
              
              30,848
              
              
              31.8
              %Gross
                  profit
              
              
              40,333
              
              
              29.4
              %
              
              35,920
              
              
              21.9
              %
              
              (4,413
              )
              
              (10.9
              )%Selling,
                  general and administrative expense
              
              
              8,861
              
              
              6.5
              %
              
              10,062
              
              
              6.1
              %
              
              1,201
              
              
              13.6
              %Research
                  and technical expense
              
              
              781
              
              
              0.6
              %
              
              839
              
              
              0.5
              %
              
              58
              
              
              7.4
              %Operating
                  income
              
              
              30,691
              
              
              22.3
              %
              
              25,019
              
              
              15.3
              %
              
              (5,672
              )
              
              (18.4
              )%Interest
                  expense, net
              
              
              1,266
              
              
              0.9
              %
              
              317
              
              
              0.2
              %
              
              (949
              )
              
              (75.0
              )%Income
                  before income taxes
              
              
              29,425
              
              
              21.4
              %
              
              24,702
              
              
              15.1
              %
              
              (4,723
              )
              
              (16.1
              )%Provision
                  for income taxes
              
              
              12,021
              
              
              8.8
              %
              
              9,639
              
              
              5.9
              %
              
              (2,382
              )
              
              (19.8
              )%Net
                  income
              
              $
              17,404
              
              
              12.6
              %
              $
              15,063
              
              
              9.2
              %
              $
              (2,341
              )
              
              (13.5
              )%




**By
        market**




Three
                Months EndedMarch
                31,
            
            Change2007
            
            2008
            
            Amount
            
            **%*****Net
                revenues***(in thousands)Aerospace
            
            $
            48,232
            
            $
            63,472
            
            $
            15,240
            
            
            31.6
            %Chemical
                processing
            
            
            37,701
            
            
            37,404
            
            
            (297
            )
            
            (0.8
            )%Land-based
                gas turbines
            
            
            27,993
            
            
            33,506
            
            
            5,513
            
            
            19.7
            %Other
                markets
            
            
            20,352
            
            
            26,085
            
            
            5,733
            
            
            28.2
            %**Total
                product revenue**
            
            
            134,278
            
            
            160,467
            
            
            26,189
            
            
            19.5
            %Other
                revenue
            
            
            3,058
            
            
            3,304
            
            
            246
            
            
            8.0
            %**Net
                revenues**
            
            $
            137,336
            
            $
            163,771
            
            $
            26,435
            
            
            19.2
            %***Pounds
                by markets***(in
                thousands)Aerospace
            
            
            1,701
            
            
            2,190
            
            
            489
            
            
            28.7
            %Chemical
                processing
            
            
            1,322
            
            
            1,287
            
            
            (35
            )
            
            (2.6
            )%Land-based
                gas turbines
            
            
            1,382
            
            
            1,742
            
            
            360
            
            
            26.0
            %Other
                markets
            
            
            1,320
            
            
            861
            
            
            (459
            )
            
            (34.8
            )%**Total
                shipments**
            
            
            5,725
            
            
            6,080
            
            
            355
            
            
            6.2
            %***Average
                selling price per pound***Aerospace
            
            $
            28.36
            
            $
            28.98
            
            $
            0.63
            
            
            2.2
            %Chemical
                processing
            
            
            28.52
            
            
            29.06
            
            
            0.54
            
            
            1.9
            %Land-based
                gas turbines
            
            
            20.26
            
            
            19.23
            
            
            (1.02
            )
            
            (5.0
            )%Other
                markets
            
            
            15.42
            
            
            30.30
            
            
            14.88
            
            
            96.5
            %**Total
                product**(excluding
                other revenue)
            
            
            23.45
            
            
            26.39
            
            
            2.94
            
            
            12.5
            %**Total
                average selling price**(including other revenue)
            
            
            23.99
            
            
            26.94
            
            
            2.95
            
            
            12.3
            %




Page
          18
          of 34





*Net
      Revenues* .
      Net
      revenues increased by $26.4 million, or 19.2%, to $163.8 million in the second
      quarter of fiscal 2008 from $137.3 million in the same period of fiscal 2007.
      Volume for all products increased by 6.2% to 6.1 million pounds in the second
      quarter of fiscal 2008 from 5.7 million pounds in the same period of fiscal
      2007. Volume of high-performance alloys increased by 16.3% to 6.0 million pounds
      in the second quarter of fiscal 2008 from 5.2 million pounds in the same period
      of fiscal 2007. As a result of the Company’s strategy to focus on the production
      and sale of high-performance alloy wire, volume of stainless steel wire
      decreased to 0.1 million pounds in the second quarter of fiscal 2008 from 0.5
      million pounds in the same period of fiscal 2007. It is anticipated that there
      will continue to be a recurring amount of stainless steel wire produced and
      sold
      into certain specialty markets. The aggregate average selling price per pound
      increased by 12.3% to $26.94 per pound in the second quarter of fiscal 2008
      from
      $23.99 per pound in the same period of fiscal 2007 because of changes in product
      mix (including market, form and alloy), an increased level of service center
      value-added business (which also reflects a higher average cost per pound)
      and
      higher raw material prices. Although nickel prices were lower in the second
      quarter of fiscal 2008 than in the same period of fiscal 2007, prices rose
      for
      other raw materials which are significant in the manufacture of the Company's
      products, such as molybdenum, cobalt and chromium. As discussed above under
      "Overview", increased competition unfavorably impacted both average selling
      price and volume in the quarter. The Company’s consolidated backlog increased by
      $6.7 million, or 2.7%, to $254.5 million at March 31, 2008 from $247.8 million
      at December 31, 2007. Management continues to expect the demand for
      high-performance alloys to be positively driven by the continuation of favorable
      trends in the aerospace, chemical processing (including new construction and
      maintenance) and land-based gas turbine markets, subject to world economic
      conditions.





Sales
      to
      the aerospace market increased by 31.6% to $63.5 million in the second quarter
      of fiscal 2008 from $48.2 million in the same period of fiscal 2007, due to
      a
      2.2% increase in the average selling price per pound combined with a 28.7%
      increase in volume. The increase in the average selling price per pound is
      due
      to changes in product mix and the effect of passing through higher raw material
      costs to our customers. Product mix reflects a higher percentage of specialty
      alloy products and forms with a higher average selling price when compared
      to
      the product mix sold in the same period of fiscal 2007. Volume has improved
      due
      to market demand as reflected in the continued strength in the build rate for
      new aircraft. Management also believes that the prior year second quarter had
      decreased volumes due to the aerospace fabricators temporary response to
      fluctuating nickel prices during that time period which has not occurred to
      the
      same extent over the last three quarters.





Sales
      to
      the chemical processing market decreased by 0.8% to $37.4 million in the second
      quarter of fiscal 2008 from $37.7 million in the same period of fiscal 2007,
      due
      to a 2.6% decrease in volume, partially offset by a 1.9% increase in the average
      selling price per pound. Volume in this market can be affected by the project
      oriented nature of the market where the comparisons of volume shipped between
      quarters can be affected by timing, quantity and order size of the project
      business which can also impact average selling price per pound. Except for
      a dip
      in the third quarter of fiscal 2007 the volume per quarter has been relatively
      constant over the past five quarters. The increase in the average selling price
      reflects a higher percentage of sales of specialty alloy product and the
      Company's ability to pass through higher raw material costs to
      customers.





Sales
      to
      the land-based gas turbine market increased by 19.7% to $33.5 million for the
      second quarter of fiscal 2008 from $28.0 million in the same period of fiscal
      2007, due to an increase of 26.0% in volume, partially offset by a 5.0% decrease
      in the average selling price per pound. Volume increased as a result of higher
      billet volume in the second quarter of fiscal 2008 compared to the same period
      of fiscal 2007. However, due to the comparatively lower average selling price
      of
      billet, the increased billet volume had a negative impact on average selling
      price. The decrease in the average selling price is also due to the effect
      of a
      change in product mix (both form and alloy). Management expects the demand
      in
      the land-based gas turbine market to be favorable due to higher activity in
      power generation, oil and gas production, and alternative power systems
      application, subject to world economic conditions.




Page
          19
          of 34




Sales
      to
      other markets increased by 28.2% to $26.1 million in the second quarter of
      fiscal 2008 from $20.4 million in the same period of fiscal 2007, due to a
      96.5%
      increase in average selling price per pound, which was partially offset by
      a
      34.8% decrease in volume. The primary reason for the increase in average selling
      price per pound and the reduction in total volume was a decrease in the volume
      of stainless steel wire as a result of the Company’s strategy to reduce
      production of stainless steel wire and focus on the production and sale of
      high-performance alloy wire. Volume of stainless steel wire decreased by 90.8%,
      while volume of all forms of high-performance alloy sold to other markets
      increased 4.1% in the second quarter of fiscal 2008 compared to the same period
      of fiscal 2007. The increased volume of high-performance alloy in the “other
      markets” category is primarily due to the Company’s continuing effort to
      increase sales into markets such as flue gas desulphurization ("FGD"), which
      fall into this category and to expand the number of other markets. The increase
      in average selling price is primarily due to the higher percentage of
      high-performance alloys which have a higher average selling price compared
      to
      stainless steel. Also contributing to the increase in average selling price
      is
      the change in product mix (both form and alloy) and the Company's ability to
      pass through higher raw material costs to customers.





*Other
      Revenue.* Other
      revenue increased by 8.0% to $3.3 million in the second quarter of fiscal 2008
      from $3.1 million for the same period of fiscal 2007. The increase is due to
      higher activity in toll conversion, revenue recognized from the TIMET agreement,
      scrap sales and miscellaneous sales.





*Cost
      of Sales* . Cost
      of
      sales increased to $127.9 million, 78.1% of net revenues, in the second quarter
      of fiscal 2008, compared to $97.0 million, 70.6% of net revenues, in the same
      period of fiscal 2007. Cost of sales in the second quarter of fiscal 2008 grew
      as a result of increased volumes, increased manufacturing costs due to equipment
      outages, increased costs of certain raw materials, and product mix due to an
      increase in the production and sale of higher-cost alloy and forms. In addition,
      labor costs increased in the second quarter of fiscal 2008 compared to the
      same
      period in fiscal 2007 due to increased wage rates for union employees and
      increased fringe benefit costs. The increase in cost of sales as a percentage
      of
      net revenues (and the corresponding decline in gross profit as a percent of
      net
      revenue) can also be attributed to the increased competition (which lowered
      net
      revenue) and planned equipment outages, as discussed above under
      "Overview".





*Gross
      Profit.* Gross
      profit decreased to $35.9 million, 21.9% of net revenues, in the second quarter
      of fiscal 2008, compared to $40.3 million, 29.4% of net revenues, in the same
      period of fiscal 2007 as a result of the above factors.





*Selling,
      General and Administrative Expenses* .
      Selling, general and administrative expenses increased $1.2 million or 13.6%
      to
      $10.1 million in the second quarter of fiscal 2008 from $8.9 million in the
      same
      period of fiscal 2007 due to: (i) higher business activity causing commissions
      and sales expenses to increase $1.1 million, and (ii) the prior year (fiscal
      2007) reduction in allowance for doubtful accounts of $0.5 million to reflect
      the favorable write-off history. These increases were partially offset by a
      decrease in stock compensation expense of $0.4 million. Selling, general and
      administrative expenses as a percentage of net revenues decreased to 6.1% in
      the
      second quarter of fiscal 2008 compared to 6.5% for the same period of fiscal
      2007 due primarily to increased revenues.





*Research
      and Technical Expense* .
      Research and technical expense increased 7.4% to $0.84 million in the second
      quarter of fiscal 2008 from $0.78 million in the same period of fiscal 2007
      due
      to normal inflationary increases and increased staff levels required to support
      the transition of retiring employees.





*Operating
      Income* .
      As a
      result of the above factors, operating income in the second quarter of fiscal
      2008 was $25.0 million compared to $30.7 million in the same period of fiscal
      2007.





*Interest
      Expense* .
      Interest expense decreased 75.0% to $0.3 million in the second quarter of fiscal
      2008 from $1.3 million in the same period of fiscal 2007. The decrease is from
      a
      lower average debt balance outstanding resulting from: (i) the Company's
      application of proceeds from the equity offering that occurred near the end
      of
      the second quarter of fiscal 2007, (ii) cash generated from operations, and
      (iii) proceeds from the exercise of stock options which were used to reduce
      the
      outstanding debt balance.




Page
          20
          of 34





*Income
      Taxes* .
      Income
      tax expense decreased to $9.6 million in the second quarter of fiscal 2008
      from
      $12.0 million in the same period of fiscal 2007 primarily due to lower pretax
      income. The effective tax rate for the second quarter of fiscal 2008 was 39.0%
      compared to 40.9% in the same period of fiscal 2007. The decrease in the
      effective tax rate is primarily attributable to: (i) lower taxable income in
      the
      U.S. at a higher tax rate compared to foreign taxable income at a lower rate,
      (ii) a higher Internal Revenue Code Section 199 manufacturer’s deduction (which
      provides a deduction for manufacturing activities in the U.S.), and (iii) higher
      foreign tax credits available. It is expected that the effective tax rate for
      fiscal 2008 will be between 38.0% and 39.0%.





*Net
      Income* .
      As a
      result of the above factors, net income decreased by $2.3 million to $15.1
      million in the second quarter of fiscal 2008 from $17.4 million in the same
      period of fiscal 2007.




Page
          21
          of 34


**Six
      months ended March 31, 2008 compared to six months ended March 31,
      2007**





**Results
      of Operations**


($
                  in thousands)
 Six
                      Months Ended
                    March
                      31,
              
              
              Change2007
              
              
              2008
              
              
              Amount
              
              
              %Net
                  revenues
              
              $
              257,799
              
              
              100.0
              %
              $
              309,848
              
              
              100.0
              %
              $
              52,049
              
              
              20.2
              %Cost
                  of sales
              
              
              183,845
              
              
              71.3
              %
              
              239,723
              
              
              77.4
              %
              
              55,878
              
              
              30.4
              %Gross
                  profit
              
              
              73,954
              
              
              28.7
              %
              
              70,125
              
              
              22.6
              %
              
              (3,829
              )
              
              (5.2
              )%Selling,
                  general and administrative expense
              
              
              18,281
              
              
              7.1
              %
              
              20,052
              
              
              6.5
              %
              
              1,771
              
              
              9.7
              %Research
                  and technical expense
              
              
              1,478
              
              
              0.6
              %
              
              1,747
              
              
              0.5
              %
              
              269
              
              
              18.2
              %Operating
                  income
              
              
              54,195
              
              
              21.0
              %
              
              48,326
              
              
              15.6
              %
              
              (5,869
              )
              
              (10.8
              )%Interest
                  expense, net
              
              
              3,075
              
              
              1.2
              %
              
              780
              
              
              0.3
              %
              
              (2,295
              )
              
              (74.6
              )%Income
                  before income taxes
              
              
              51,120
              
              
              19.8
              %
              
              47,546
              
              
              15.3
              %
              
              (3,574
              )
              
              (7.0
              )%Provision
                  for income taxes
              
              
              20,532
              
              
              8.0
              %
              
              18,640
              
              
              6.0
              %
              
              (1,892
              )
              
              (9.2
              )%Net
                  income
              
              $
              30,588
              
              
              11.8
              %
              $
              28,906
              
              
              9.3
              %
              $
              (1,682
              )
              
              (5.5
              )%




**By
                market**
            
            Six
                Months Ended
              March
                31,
            
            Change2007
            
            2008
            
            Amount
            
            **%*****Net
                revenues***(in
                thousands)Aerospace
            
            $
            92,059
            
            $
            122,914
            
            $
            30,855
            
            
            33.5
            %Chemical
                processing
            
            
            76,479
            
            
            78,209
            
            
            1,730
            
            
            2.3
            %Land-based
                gas turbines
            
            
            48,069
            
            
            59,011
            
            
            10,942
            
            
            22.8
            %Other
                markets
            
            
            36,023
            
            
            44,972
            
            
            8,949
            
            
            24.8
            %**Total
                product revenue**
            
            
            252,630
            
            
            305,106
            
            
            52,476
            
            
            20.8
            %Other
                revenue
            
            
            5,169
            
            
            4,742
            
            
            (427
            )
            
            (8.3
            )%**Net
                revenues**
            
            $
            257,799
            
            $
            309,848
            
            $
            52,049
            
            
            20.2
            %***Pounds
                by markets*** (in thousands)Aerospace
            
            
            3,481
            
            
            4,344
            
            
            863
            
            
            24.8
            %Chemical
                processing
            
            
            2,801
            
            
            2,599
            
            
            (202
            )
            
            (7.2
            )%Land-based
                gas turbines
            
            
            2,526
            
            
            2,802
            
            
            276
            
            
            10.9
            %Other
                markets
            
            
            2,373
            
            
            1,542
            
            
            (831
            )
            
            (35.0
            )%**Total
                shipments**
            
            
            11,181
            
            
            11,287
            
            
            106
            
            
            0.9
            %**Average
                selling price per pound**Aerospace
            
            $
            26.45
            
            $
            28.30
            
            $
            1.85
            
            
            7.0
            %Chemical
                processing
            
            
            27.30
            
            
            30.09
            
            
            2.79
            
            
            10.2
            %Land-based
                gas turbines
            
            
            19.03
            
            
            21.06
            
            
            2.03
            
            
            10.7
            %Other
                markets
            
            
            15.18
            
            
            29.16
            
            
            13.98
            
            
            92.1
            %**Total
                product**(excluding
                other revenue)
            
            
            22.59
            
            
            27.03
            
            
            4.44
            
            
            19.7
            %**Total
                average selling price**(including other revenue)
            
            
            23.06
            
            
            27.45
            
            
            4.39
            
            
            19.1
            %





*Net
      Revenues* .
      Net
      revenues increased by $52.0 million, or 20.2%, to $309.8 million in the first
      six months of fiscal 2008 from $257.8 million in the same period of fiscal
      2007.
      Volume for all products increased by 0.9% to 11.3 million pounds in the first
      six months of fiscal 2008 from 11.2 million pounds in the same period of fiscal
      2007. Volume of high-performance alloys increased by 10.9% to 11.0 million
      pounds in the first six months of fiscal 2008 from 10.0 million pounds in the
      same period of fiscal 2007. As a result of the Company’s strategy to reduce
      production of stainless steel wire and increase production of high-performance
      alloy wire, volume of stainless steel wire decreased to 0.2 million pounds
      in
      the first six months of fiscal 2008 from 1.2 million pounds in the same period
      of fiscal 2007. It is anticipated that there will continue to be a recurring
      amount of stainless steel wire produced and sold into certain specialty markets.
      The aggregate average selling price per pound increased by 19.1% to $27.45
      per
      pound in the first six months of fiscal 2008 from $23.06 per pound in the same
      period of fiscal 2007 because of changes in product mix (including market,
      form
      and alloy), an increased level of service center value-added business (which
      also reflects a higher average cost per pound), and higher raw material prices.
      Although nickel prices were lower in the first six months of fiscal 2008 than
      in
      the same period of fiscal 2007, prices rose for other raw materials which are
      significant in the manufacture of the Company's products, such as molybdenum,
      cobalt and chromium. As discussed above under "Overview", increased competition
      unfavorably impacted both average selling price and volume in the first six
      months of fiscal 2008. The Company’s consolidated backlog increased by $18.2
      million, or 7.7%, to $254.5 million at March 31, 2008 from $236.3 million at
      September 30, 2007. Management continues to expect the demand for
      high-performance alloys to be positively driven by the continuation of favorable
      trends in the aerospace, chemical processing (including new construction and
      maintenance) and land-based gas turbine markets, subject to world economic
      conditions.




Page
          22
          of 34





Sales
      to
      the aerospace market increased by 33.5% to $122.9 million in the first six
      months of fiscal 2008 from $92.1 million in the same period of fiscal 2007,
      due
      to a 7.0% increase in the average selling price per pound, combined with a
      24.8%
      increase in volume. The increase in the average selling price per pound is
      due
      to changes in product mix and the effect of passing through higher raw material
      costs. Product mix reflects a higher percentage of specialty alloy products
      and
      forms with a higher average selling price when compared to the product mix
      sold
      in the same period of fiscal 2007. Volume has improved due to market demand
      as
      reflected in the continued strength in the build rate for new aircraft.
      Management also believes that the volumes sold to the aerospace market in the
      first six months of fiscal 2007 were negatively impacted by the aerospace
      fabricators temporary response to fluctuating nickel prices during that time
      period which has not occurred to the same extent over the last three
      quarters.





Sales
      to
      the chemical processing market increased by 2.3% to $78.2 million in the first
      six months of fiscal 2008 from $76.5 million in the same period of fiscal 2007,
      due to a 10.2% increase in the average selling price per pound, partially offset
      by a 7.2% decrease in volume. Volume in this market can be affected by the
      project oriented nature of the market. The comparisons of volume shipped and
      average selling price per pound between quarters can be affected by timing
      and
      order size of our customer's projects business. Except for a dip in the third
      quarter of fiscal 2007, the volume per quarter has been relatively constant
      over
      the past five quarters. The increase in the average selling price reflects
      a
      higher percentage of sales of specialty alloy product and the Company's ability
      to pass through higher raw material costs to customers.





Sales
      to
      the land-based gas turbine market increased by 22.8% to $59.0 million for the
      first six months of fiscal 2008 from $48.1 million in the same period of fiscal
      2007, due to an increase of 10.7% in the average selling price per pound and
      a
      10.9% increase in volume. The increase in the average selling price is due
      to
      improved market demand and the effect of passing through higher raw material
      cost to our customers. Volume increased as a result of higher billet volume
      in
      the first six months of fiscal 2008 compared to the same period of fiscal 2007.
      Management expects the demand in the land-based gas turbine market to be
      favorable due to higher activity in power generation, oil and gas production,
      and alternative power systems application, subject to world economic conditions.




Sales
      to
      other markets increased by 24.8% to $45.0 million in the first six months of
      fiscal 2008 from $36.0 million in the same period of fiscal 2007, due to a
      92.1%
      increase in average selling price per pound, which was partially offset by
      a
      35.0% decrease in volume. The primary reason for the increase in average selling
      price per pound and the reduction in total volume was a decrease in the volume
      of stainless steel wire as a result of the Company’s strategy to reduce
      production of stainless steel wire and focus on the production and sale of
      high-performance alloy wire. Volume of stainless steel wire decreased by 80.0%,
      while volume of high-performance alloys sold to other markets increased 12.5%
      in
      the first six months of fiscal 2008 as compared to the same period of fiscal
      2007. The increased volume of high-performance alloy in the “other markets”
category is primarily due to the Company’s continuing effort to increase sales
      into markets such as flue gas desulphurization, which fall into this category
      and to expand the number of other markets. The increase in average selling
      price
      is primarily due to the higher percentage of high-performance alloys which
      have
      a higher average selling price compared to stainless steel. Also contributing
      to
      the increase in average selling price is the change in product mix (both form
      and alloy) and the Company's ability to pass through higher raw material costs
      to customers.




Page
          23
          of 34





*Other
      Revenue.* Other
      revenue decreased by 8.3% to $4.7 million in the first six months of fiscal
      2008
      from $5.2 million for the same period of fiscal 2007. The decrease is due to
      lower scrap and miscellaneous sales.





*Cost
      of Sales* .
      Cost of
      sales increased to $239.7 million, 77.4% of net revenues, in the first six
      months of fiscal 2008, compared to $183.8 million, 71.3% of net revenues, in
      the
      same period of fiscal 2007. Cost of sales grew as a result of increased volumes,
      increased raw materials costs, increased manufacturing costs due to equipment
      outages, and product mix due to an increase in the production and sale of
      higher-cost alloy and forms. In addition, labor costs increased in the first
      six
      months of fiscal 2008 compared to the same period in fiscal 2007 due to
      increased wage rates for union employees and increased fringe benefit costs.
      These increases in cost of sales were partially offset by a $3.7 million (1.2%
      of net revenue) pension curtailment gain, which was recorded due to an amendment
      to freeze future pension benefit accruals for non-union employees in the U.S.
      The increase in cost of sales as a percentage of net revenues (and the
      corresponding decline in gross profit as a percent of net revenue) can also
      be
      attributed to the increased competition (which lowered net revenue) and planned
      and unplanned equipment outages, as discussed above under
      "Overview".





*Gross
      Profit.* Gross
      profit decreased to $70.1 million, 22.6% of net revenues, in the first six
      months of fiscal 2008, from $74.0 million, 28.7% of net revenues, in the same
      period of fiscal 2007 as a result of the above factors.





*Selling,
      General and Administrative Expenses* .
      Selling, general and administrative expenses increased $1.8 million to $20.1
      million in the first six months of fiscal 2008 from $18.3 million for the same
      period of fiscal 2007 due to: (i) higher business activity causing commissions
      and sales expenses to increase $2.1 million, and (ii) the prior year (fiscal
      2007) reduction in allowance for doubtful accounts of $0.4 million to reflect
      the favorable write-off history. These increases were partially offset by a
      decrease in stock compensation expense of $0.7 million. Selling, general and
      administrative expenses as a percentage of net revenues decreased to 6.5% in
      the
      first six months of fiscal 2008 compared to 7.1% for the same period of fiscal
      2007 due primarily to increased revenues.





*Research
      and Technical Expense* .
      Research and technical expense increased to $1.7 million in the first six months
      of fiscal 2008 from $1.5 million the same period of fiscal 2007 due to normal
      inflationary increases and also increased staff levels required to support
      the
      transition of retiring employees.





*Operating
      Income* .
      As a
      result of the above factors, operating income in the first six months of fiscal
      2008 was $48.3 million compared to $54.2 million in the same period of fiscal
      2007.





*Interest
      Expense* .
      Interest expense decreased to $0.8 million in the first six months of fiscal
      2008 from $3.1 million for the same period of fiscal 2007. The decrease is
      from
      a lower average debt balance outstanding resulting from: (i) the Company's
      application of proceeds from the equity offering that occurred near the end
      of
      the second quarter of fiscal 2007, (ii) cash generated from operations, and
      (iii) proceeds from the exercise of stock options which were used to reduce
      the
      outstanding debt balance.





*Income
      Taxes* .
      Income
      tax expense decreased to $18.6 million in the first six months of fiscal 2008
      from $20.5 million in the same period of fiscal 2007 primarily due to lower
      pretax income. The effective tax rate for the first six months of fiscal 2008
      was 39.2% compared to 40.2% in the same period of fiscal 2007. The decrease
      in
      the effective tax rate is primarily attributable to: (i) lower taxable income
      in
      the U.S. at a higher tax rate compared to foreign taxable income at a lower
      rate, (ii) a higher Internal Revenue Code Section 199 manufacturer’s deduction
      (which provides a deduction for manufacturing activities in the U.S.), and
      (iii)
      higher foreign tax credits available. It is expected that the effective tax
      rate
      for fiscal 2008 will be between 38.0% and 39.0%.





*Net
      Income* .
      As a
      result of the above factors, net income decreased by $1.7 million, or 5.5%
      to
      $28.9 million in the first six months of fiscal 2008 from $30.6 million in
      the
      same period of fiscal 2007.




Page
          24
          of 34




**Liquidity
      and Capital Resources**




*Comparative
      cash flow analysis*




During
      the first six months of fiscal 2008, the Company’s primary sources of cash were
      cash from operations, borrowings under its U.S. revolving credit facility with
      a
      group of lenders led by Wachovia Capital Finance Corporation (Central)
      (described below) and proceeds from the exercise of stock options (including
      related tax benefits). At March 31, 2008, Haynes had cash and cash equivalents
      of approximately $11.5 million compared to cash and cash equivalents of
      approximately $5.7 million at September 30, 2007.




Net
      cash
      provided by operating activities was $12.1 million in the first six months
      of
      fiscal 2008 compared to $37.5 million in the same period of fiscal 2007. Several
      items contributed to the difference. First, cash provided by operating
      activities in the first six months of fiscal 2007 included the proceeds of
      the
      $50.0 million up-front payment received from Titanium Metals Corporation as
      a
      result of the Conversion Services Agreement entered into in that period. Second,
      inventory balances (net of foreign currency adjustments) at March 31, 2008
      were
      $15.5 million higher than at September 30, 2007, as a result of both planned
      and
      unplanned outages and increased levels of inventory required to support an
      increased sales level in the first six months of fiscal 2008 as compared to
      the
      first six months of fiscal 2007. Third, cash generated from a decrease in
      accounts receivable was $4.3 million. Net cash used in investing activities
      was
      $9.2 million in the first six months of fiscal 2008 compared to $6.1 in the
      first six months of fiscal 2007, primarily as a result of the ongoing capital
      expenditure program. Net cash provided by financing activities included a
      reduction in borrowings on the revolving credit facility of $0.6 million as
      a
      result of cash generated from operations and proceeds from exercise of stock
      options (including excess tax benefits) of $3.4 million.




*Future
      sources of liquidity*





The
      Company’s sources of cash for the remainder of fiscal 2008 are expected 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 provides borrowings in a maximum amount of $120.0 million, subject
      to a
      borrowing base formula and certain reserves. At March 31, 2008, the Company
      had
      cash and cash equivalents of approximately $11.5 million, an outstanding balance
      of $35.0 million on the U.S. revolving credit facility, and access to
      approximately $85.0 million under the U.S. facility subject to borrowing base
      and certain reserves. Management believes that the resources described above
      will be sufficient to fund planned capital expenditures and working capital
      requirements over the next twelve months.




Page
          25
          of 34





U.S.
      revolving credit facility: The U.S.
      revolving credit facility provides for revolving loans in a maximum amount
      of
      $120.0 million. Borrowings under the U.S. revolving credit facility bear
      interest at the Company’s option at either Wachovia Bank, National Association’s
“prime rate,” plus up to 1.5% per annum, or the adjusted Eurodollar rate used by
      the lender, plus up to 3.0% per annum. As of March 31, 2008, the U.S. revolving
      credit facility had an outstanding balance of $35.0 million. During the first
      six months of fiscal 2008, the U.S. revolving credit facility bore interest
      at a
      weighted average interest rate of 6.25%. In addition, the Company must pay
      monthly in arrears a commitment fee of 0.375% per annum on the unused amount
      of
      the U.S. revolving credit facility total commitment. For letters of credit,
      the
      Company must pay 2.5% per annum on the daily outstanding balance of all issued
      letters of credit, plus customary fees for issuance, amendments, and processing.
      The Company is subject to certain covenants as to adjusted EBITDA and fixed
      charge coverage ratios and other customary covenants, including covenants
      restricting the incurrence of indebtedness, the granting of liens, the sale
      of
      assets and the declaration of dividends and other distributions on the Company’s
      capital stock. As of March 31, 2008, the most recent required measurement date
      under the agreement, the Company was in compliance with these covenants. The
      U.S. revolving credit facility matures on April 12, 2009. Borrowings under
      the
      U.S. revolving credit facility are collateralized by a pledge of substantially
      all of the U.S. assets of the Company, including equity interests in its U.S.
      subsidiaries, but excluding its four-high Steckel rolling mill and related
      assets, which are pledged to TIMET. The U.S. revolving credit facility is also
      secured by a pledge of 65% of the equity interests in each of the Company’s
      foreign subsidiaries.




U.K.
      revolving credit facility :
      The
      Company’s U.K. subsidiary, Haynes International, Ltd., or Haynes U.K.,
      previously had an agreement with a U.K.-based lender providing for a $15.0
      million revolving credit facility. During April 2008, the term of the U.K.
      revolving credit facility ended. The Company replaced this facility with a
      multi-currency overdraft facility. The overdraft facility has a limit of 2
      million pound sterling (approximately $4.0 million). Haynes U.K. is required
      to
      pay interest on overdrafts in an amount equal to the Bank's Sterling Base Rate
      (in accordance with the terms facility), plus 1.1% per annum. As of March 31,
      2008, the revolver had an outstanding balance of zero.




*Future
      uses of liquidity*




The
      Company’s primary uses of cash over the next twelve months are expected to
      consist of expenditures related to:




·
            funding
                operations;




·
            income
                tax payments;




·
            capital
                spending to increase capacity and improve reliability and performance
                of
                the equipment;




·
            pension
                plan funding;




·
            reduction
                of debt; and




·
            interest
                payments on outstanding
                indebtedness.




Planned
      fiscal 2008 capital spending is targeted at $15.0 million, $9.4 million of
      which
      was spent in the six months ended March 31, 2008. The main projects for fiscal
      2008 include continuing the upgrade of the second annealing line at the Kokomo,
      Indiana facility and the installation of a new pilger mill at the Arcadia,
      Louisiana facility. The upgrade on the annealing line is scheduled to be
      completed in two phases during fiscal 2008. The first phase, during which the
      line was out of service, started in December 2007 and was completed during
      the
      first week of February 2008, several days ahead of schedule. The second phase
      of
      the upgrade is scheduled to start in April 2008 and to finish in June 2008.
      The
      annealing line will again be out of service during this period. It is expected
      that, during this downtime, sheet production will decrease slightly from
      historical levels. In addition, it may be more difficult to recover quickly
      from
      unplanned outages during the period of planned downtime. Construction for the
      pilger mill installation is ongoing and it is anticipated that the mill will
      be
      operational by the end of May 2008. Management believes that the completion
      of
      these capital projects and the related improvements in reliability and
      performance of the equipment will have a positive effect on profitability,
      working capital management and our ability to recover more quickly from
      unplanned outages.




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




Page
          26
          of 34







*Contractual
      Obligations*





The
      following table sets forth the Company’s contractual obligations for the periods
      indicated, as of March 31, 2008:





(in
      thousands)




**Payments Due by Period****Contractual Obligations****(1)(6)**
            
            
            **Total**
            
            
            **Less than**
              **1 year**
            
            
            **1-3 Years**
            
            
            **3-5 Years**
            
            
            **More than**
              **5 years**Debt
                obligations (including interest)(2)
            
            $
            38,462
            
            $
            3,427
            
            $
            35,035
            
            $
            —
            
            $
            —Operating
                lease obligations
            
            
            11,509
            
            
            3,837
            
            
            4,019
            
            
            1,109
            
            
            2,544Raw
                material contracts
            
            
            77,337
            
            
            77,337
            
            
            —
            
            
            —
            
            
            —Mill
                supplies contracts
            
            
            331
            
            
            331
            
            
            —
            
            
            —
            
            
            —Capital
                projects
            
            
            9,420
            
            
            9,420
            
            
            —
            
            
            —
            
            
            —Pension
                plans(3)
            
            
            48,228
            
            
            10,408
            
            
            25,280
            
            
            12,540
            
            
            —Other
                post-retirement benefits(4)
            
            
            49,400
            
            
            4,600
            
            
            9,800
            
            
            10,000
            
            
            25,000Non-compete
                obligations(5)
            
            
            330
            
            
            110
            
            
            220
            
            
            —
            
            
            —Total
            
            $
            235,017
            
            $
            109,470
            
            $
            74,354
            
            $
            23,649
            
            $
            27,544







(1)
            Taxes
                are not included in the table. Payments for taxes in fiscal 2008
                are
                expected to be approximately $36.0 million (excluding taxes related
                to the
                TIMET conversion services agreement which are expected to be paid
                in first
                quarter of fiscal 2009 of approximately $18.3
                million).




(2)
            Interest
                is calculated annually using the principal balance and current interest
                rates as of March 31, 2008.


(3)
            The
                Company has a funding obligation to contribute an additional $47,000
                to
                the domestic pension plan arising from the Pension Protection Act
                of 2006.
                These payments will be tax deductible. All benefit payments under
                the
                domestic pension plan will come from the plan and not the Company.
                The
                Company expects its U.K. subsidiary to contribute $1,228 over the
                next
                twelve months to the U.K. Pension
                Plan.




(4)
            Represents
                expected post-retirement benefits only.


(5)
            Pursuant
                to an escrow agreement, as of April 11, 2005, the Company established
                an escrow account to satisfy its obligation to make payments under
                a
                non-compete agreement entered into as part of the Branford Acquisition.
                This amount is reported as restricted
                cash.




(6)
            We
                adopted the provisions of FIN No. 48,*Accounting
                for Uncertainty in Income Taxes*,
                on October 1, 2007. The non-current income taxes payable of $6,195
                are not
                included in the table. It is not possible to determine in which future
                period the tax liability might be paid
                out.




At
      March
      31, 2008, the Company also had $0.03 million outstanding under a letter of
      credit. The letter of credit is outstanding in connection with a building lease
      obligation.




**New
      Accounting Pronouncements**




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




In
      February 2007, the FASB issued FASB Statement No. 159, *Establishing
      the Fair Value Option for Financial Assets and Liabilities* (“SFAS
      159”) *,* to
      permit all entities to choose to elect to measure eligible financial instruments
      at fair value. SFAS 159 applies to fiscal years beginning after November 15,
      2007, with early adoption permitted for an entity that has also elected to
      apply
      the provisions of SFAS 157, *Fair
      Value Measurements* .
      An
      entity is prohibited from retrospectively applying SFAS 159, unless it chooses
      early adoption. Management is currently evaluating the impact of SFAS 159 on
      the
      consolidated financial statements.




Page
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In
      December 2007, the FASB issued FASB Statement No. 141 (revised 2007),
      (*Business Combinations*) ("FAS 141(R)"). FAS 141(R) requires that the
      fair value of the purchase price of an acquisition including the issuance of
      equity securities 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 be recorded at fair value at the acquisition date; requires that
      acquisition costs generally be expensed as incurred; requires that restructuring
      costs generally be expensed in periods subsequent to the acquisition date;
      and
      requires that changes in deferred tax asset valuation allowances and acquired
      income tax uncertainties after the measurement period impact income tax expense.
      FAS 141(R) also expands disclosures related to business combinations. FAS 141(R)
      will be applied prospectively to business combinations occurring after the
      beginning of the Company's fiscal year 2010, except that business combinations
      consummated prior to the effective date must apply FAS 141(R) income tax
      requirements immediately upon adoption. The Company is currently evaluating
      the
      impact of FAS 141(R) on its financial position, results of operations, and
      cash
      flows.





In
      December 2007, the FASB issued FASB Statement No. 160, (*Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB No. 51*)
      ("FAS 160"). FAS 160 requires that noncontrolling interests be reported as
      a
      separate component of equity, that net income attributable to the parent and
      to
      the noncontrolling interest be separately identified in the consolidated
      statement of operations, that changes in a parent's ownership interest be
      accounted for as equity transactions, and that, when a subsidiary is
      deconsolidated, any retained noncontrolling equity investment in the former
      subsidiary and the gain or loss on the deconsolidation of the subsidiary be
      measured at fair value. FAS 160 will be applied prospectively, except for
      presentation and disclosure requirements which will be applied retrospectively,
      as of the beginning of the Company's fiscal year 2010. The Company does not
      currently have noncontrolling interests, and therefore the adoption of FAS
      160
      is not expected to have an impact on the Company's financial position, results
      of operations, or cash flows.





**Critical
      Accounting Policies and Estimates**





*Overview*





Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      discusses the Company’s consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The preparation of these financial statements requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and the disclosure of contingent assets and liabilities
      at the date of the financial statements and the reported amounts of revenues
      and
      expenses during the reporting period. On an on-going basis, management evaluates
      its estimates and judgments, including those related to bad debts, inventories,
      income taxes, retirement benefits and environmental matters. The process of
      determining significant estimates is fact specific and takes into account
      factors such as historical experience, current and expected economic conditions,
      product mix and in some cases, actuarial techniques, and various other factors
      that are believed to be reasonable under the circumstances, the results of
      which
      form the basis for making judgments about the carrying values of assets and
      liabilities that are not readily apparent from other sources. The Company
      constantly reevaluates these significant factors and makes adjustments where
      facts and circumstances dictate. Actual results may differ from these estimates
      under different assumptions or conditions.





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





*Revenue
      Recognition*





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




Page
          28
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*Pension
      and Post-Retirement Benefits*





The
      Company has defined benefit pension and post-retirement plans covering most
      of
      its current and former employees. Significant elements in determining the assets
      or liabilities and related income or expense for these plans are the expected
      return on plans assets (if any), the discount rate used to value future payment
      streams, expected trends in health care costs, and other actuarial assumptions.
      Annually, the Company evaluates the significant assumptions to be used to value
      its pension and post-retirement plan assets and liabilities based on current
      market conditions and expectations of future costs. If actual results are less
      favorable than those projected by management, additional expense may be required
      in future periods. As a result of the 2004 Chapter 11 reorganization there
      were
      no changes to the terms of these benefits.





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





The
      Company reviews long-lived assets for impairment whenever events or
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability of long-lived assets to be held and used is measured
      by a comparison of the carrying amount of the asset to the undiscounted future
      cash flows expected to be generated by the asset. If the carrying amount of
      an
      asset exceeds its estimated future cash flows, an impairment charge is
      recognized in the amount by which the carrying amount exceeds the fair value
      of
      the asset. Assumptions and estimates with respect to estimated future cash
      flows
      used in the evaluation of long-lived assets impairment are subject to a high
      degree of judgment and complexity. The Company reviews goodwill for impairment
      annually or more frequently if events or circumstances indicate that the
      carrying amount of goodwill may be impaired. Recoverability of goodwill is
      measured by a comparison of the carrying value to the fair value. If the
      carrying amount exceeds its fair value, an impairment charge is recognized
      to
      the extent that the implied fair value exceeds its carrying value. The implied
      fair value of goodwill is the residual fair value, if any, after allocating
      the
      fair value to all of the assets (recognized and unrecognized) and all of the
      liabilities. The fair value is generally determined using a market value
      approach. The Company reviews the trademarks for impairment annually or more
      frequently if events or circumstances indicate that the carrying amount of
      trademarks may be impaired. If the carrying amount exceeds the fair value
      (determined by calculating a fair value based upon a discounted cash flow of
      an
      assumed royalty rate), impairment of the trademark may exist resulting in a
      charge to earnings to the extent of impairment. The Company reviewed goodwill
      and trademarks for impairment as of August 31, 2007, and concluded no impairment
      adjustment was necessary. No events or circumstances have occurred that would
      indicate the carrying value of goodwill or trademarks may be impaired since
      its
      testing date.





*Share-Based
      Compensation*





The
      Company has two stock option plans that authorize the granting of non-qualified
      stock options to certain key employees and non-employee directors for the
      purchase of a maximum of 1,500,000 shares of the Company’s common stock. The
      original option plan was adopted in 2004 pursuant to the plan of reorganization
      and provides the grant of options to purchase up to 1,000,000 shares of the
      Company’s common stock. In January 2007, the Company’s Board of Directors
      adopted a new option plan that provides for options to purchase up to 500,000
      shares of the Company’s common stock. Unless the Compensation Committee
      determines otherwise, options granted under the option plans are exercisable
      for
      a period of ten years for 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 FASB Statement No. 123 (R), *Share-Based
      Payment* , *a
      replacement of SFAS No. 123* , *Accounting
      for Stock-Based Compensation* , *and
      a
      rescission of APB Opinion No. 25* , *Accounting
      for Stock Issued to Employees* .
      The
      statement requires compensation costs related to share-based payment
      transactions to be recognized in the financial statements. This
      statement applies to all awards granted after the effective date and to
      modifications, repurchases or cancellations of existing awards. Additionally,
      under the modified prospective method of adoption, the Company recognizes
      compensation expense for the portion of outstanding awards on the adoption
      date
      for which the requisite service period has not yet been rendered based on the
      grant-date fair value of those awards calculated under SFAS No. 123 and 148
      for
      pro forma disclosures. The
      amount of compensation cost will be measured based upon the grant date fair
      value. The fair value of the option grants is estimated on the date of grant
      using the Black-Scholes option pricing model with assumptions on dividend yield,
      risk-free interest rate, expected volatilities, and expected lives of the
      options.




Page
          29
          of 34




*Income
      Taxes*





The
      Company accounts for income taxes in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes* (“SFAS
      No. 109”), which requires deferred tax assets and liabilities be recognized
      using enacted tax rates for the effect of temporary differences between book
      and
      tax basis of recorded assets and liabilities. SFAS No. 109 also requires
      deferred tax assets be reduced by a valuation allowance if it is more likely
      than not that some portion or all of the deferred tax assets will not be
      realized. The determination of whether or not a valuation allowance is needed
      is
      based upon an evaluation of both positive and negative evidence. In addition
      to
      the reorganization of the Company, the results of operations have improved
      due
      to improved market conditions as evidenced by its increasing backlog. In its
      evaluation of the need for a valuation allowance, the Company assesses prudent
      and feasible tax planning strategies. The ultimate amount of deferred tax assets
      realized could be different from those recorded, as influenced by potential
      changes in enacted tax laws and the availability of future taxable
      income.





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





**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**





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




Changes
      in interest rates affect the Company’s interest expense on variable rate debt.
      All of the Company’s outstanding debt was variable rate debt at March 31, 2008.
      A hypothetical 10% increase in the interest rate on variable rate debt would
      have resulted in additional interest expense of approximately $178,000 for
      the
      six months ended March 31, 2008. The company's outstanding variable rate debt
      was zero at March 31, 2007. The Company has not entered into any derivative
      instruments to hedge the effects of changes in interest rates.





The
      foreign currency exchange risk exists primarily because the three foreign
      subsidiaries maintain receivables and payables denominated in currencies other
      than their functional currency or the U.S. dollar. Each foreign subsidiary
      manages its own foreign currency exchange risk. The Company's U.S. operations
      transact their foreign sales in U.S. dollars, thereby avoiding fluctuations
      in
      foreign exchange rates. Any U.S. dollar exposure aggregating more than $500,000
      requires approval from the Company’s Chief Financial Officer, Vice President of
      Finance. Most of the currency contracts to buy U.S. dollars are with maturity
      dates less than six months. At March 31, 2008, the Company had no foreign
      currency exchange contracts outstanding.





Fluctuations
      in the price of nickel, our most significant raw material, subject the Company
      to commodity price risk. The Company manages its exposure to this market risk
      through internally established policies and procedures, including negotiating
      raw material escalators within product sales agreements, and continually
      monitoring and revising customer quote amounts to reflect the fluctuations
      in
      market prices for nickel. The Company does not use derivative instruments to
      manage this market risk. The Company monitors its underlying market risk
      exposure from a rapid change in nickel prices on an ongoing basis and believes
      that it can modify or adapt its strategies as necessary. The Company
      periodically purchases raw material forward with certain suppliers. However,
      there is a risk that we may not be able to successfully offset a rapid increase
      in the cost of raw material in the future as we have been able to in the
      past.




Page
          30
          of 34





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




The
      Company has performed, under the supervision and with the participation of
      the
      Company’s management, including the Company’s Chief Executive Officer and Chief
      Financial Officer, an evaluation of the effectiveness and the design and
      operation of the Company’s disclosure controls and procedures (as defined by
      Exchange Act rules 13a-15(e) and 15d-15(e)) pursuant to Rule 13a-15(b) of the
      Exchange Act as of the end of the period covered by this report. Based upon
      that
      evaluation, the Chief Executive Officer and the Chief Financial Officer
      concluded that the Company’s disclosure controls and procedures were effective
      as of March 31, 2008 in providing reasonable assurance that information required
      to be disclosed by the Company in the reports that it files or submits under
      the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the rules and forms of the Securities and Exchange
      Commission.




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




Page
          31
          of 34




**PART
      II OTHER INFORMATION**





**Item
      1.A. Risk Factors**





**Planned
      equipment downtime resulting from our capital improvement program may impair
      our
      ability to mitigate the effects of unplanned equipment
      outages.**





From
      time
      to time the Company has experienced unplanned equipment outages which
      temporarily reduced production levels, resulting in lower revenues in the
      quarter in which they occur. The Company's capital improvement program includes
      upgrades to certain pieces of equipment that are intended, among other things,
      to increase the reliability of the equipment and reduce the number and duration
      of unplanned outages. Certain of the upgrades require the equipment to be shut
      down while the work is performed. These scheduled shutdowns may impair our
      ability to mitigate the effects of an unplanned outage should one occur during
      the shutdown.




**Our
        management transition could adversely affect our
        performance.**
 
 Our
          President and Chief Executive Officers has announced that he intends to
          retire
          when his current employment agreement terminates on September 30, 2008.
          We have
          engaged an executive search firm to conduct a search for a new President
          and
          Chief Executive Officer. If we are unable to identify and employ a new
          President
          and Chief Executive Officer on a timely basis or if we are unable to effect
          a
          smooth transition from our current President to our new President, our
          results
          of operations and financial performance could be adversely
          affected.




**Item
      4. Submission of Matters to a Vote of Security Holders**





On
      February 25, 2008, the Annual Meeting of Stockholders of the Company was held
      at
      the Holiday Inn Select at the Indianapolis International Airport. The following
      matters were voted on at the meeting:





MATTER
            
            VOTES
                CAST FOR
            
            VOTES
                AGAINST/
              WITHHELD
            
            ABSTAIN
                AND BROKER NON-VOTESElection
                of Directors:Paul
                J. Bohan
            
            
            11,096,091
            
            
            140,407
            
            
            0Donald
                C. Campion
            
            
            10,827,859
            
            
            408,639
            
            
            0John
                C. Corey
            
            
            11,096,076
            
            
            140,422
            
            
            0Robert
                H. Getz
            
            
            10,903,179
            
            
            333,319
            
            
            0Timothy
                J. McCarthy
            
            
            10,902,929
            
            
            333,569
            
            
            0Francis
                J. Petro
            
            
            11,185,386
            
            
            51,112
            
            
            0William
                P. Wall
            
            
            10,894,554
            
            
            341,944
            
            
            0Ronald
                W. Zabel
            
            
            11,184,331
            
            
            52,167
            
            
            0








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





Exhibits .
      See
      Index to Exhibits.




Page
          32
          of 34





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




HAYNES
              INTERNATIONAL, INC./s/ *Francis
              J. Petro*Francis
                J. Petro
              President
                and Chief Executive Officer
              Date:
                May 8, 2008




/s/ *Marcel
                Martin*Marcel
                    Martin
                  Vice
                    President, Finance
                  Chief
                    Financial Officer
                  Date:
                    May 8, 2008
 
 Page
            33
            of 34





**INDEX
      TO EXHIBITS**





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






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