**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 December
      31, 2007





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, or a non-accelerated filer. See definition of “accelerated
      filler and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
      accelerated filer oAccelerated
      filer oNon-accelerated
      filer x





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
      February 1, 2008, the registrant had 11,905,310 shares of Common Stock, $0.001
      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 ofSeptember
                  30, 2007 and December 31, 2007
              1Unaudited
                  Consolidated Statements of Operations for the Three Months Ended
                  December
                  31, 2006 and 2007
              2Unaudited
                  Consolidated Statements of Comprehensive Income for the Three Months
                  Ended
                  December 31, 2006 and 2007
              3Unaudited
                  Consolidated Statements of Cash Flows for the Three Months Ended
                  December
                  31, 2006 and 2007
              4Notes
                  to Consolidated Financial Statements
              5Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              12Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              23Item
                  4.
              Controls
                  and Procedures
              24**PART
                  II**
              **OTHER
                  INFORMATION**Item
                  6.
              Exhibits
              25Signatures
              26Index
                  to Exhibits
              27










**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)**




**September 30,**
              **2007**
            
            **December
                31,**
              **2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            5,717
            
            $
            8,444Restricted
                cash - current portion
            
            
            110
            
            
            110Accounts
                receivable, less allowance for doubtfulaccounts
                of $1,339 and $1,257, respectively
            
            
            106,414
            
            
            93,854Inventories,
                net
            
            
            286,302
            
            
            304,054Income
                taxes receivable
            
            
            1,760
            
            
            -Deferred
                income taxes
            
            
            10,801
            
            
            11,384Other
                current assets
            
            
            1,457
            
            
            1,368Total
                current assets
            
            
            412,561
            
            
            419,214Property,
                plant and equipment (at cost)
            
            
            117,181
            
            
            121,929Accumulated
                depreciation
            
            
            (19,321
            )
            
            (21,484
            )Net
                property, plant and equipment
            
            
            97,860
            
            
            100,445Deferred
                income taxes - long term portion
            
            
            22,738
            
            
            23,699Prepayments
                and deferred charges, net
            
            
            3,702
            
            
            4,066Restricted
                cash - long term portion
            
            
            330
            
            
            220Goodwill
            
            
            41,252
            
            
            41,927Other
                intangible assets
            
            
            8,526
            
            
            8,250Total
                assets
            
            $
            586,969
            
            $
            597,821**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            60,443
            
            $
            61,538Income
                taxes payable
            
            
            -
            
            
            4,034Accrued
                pension and postretirement benefits
            
            
            14,647
            
            
            14,388Revolving
                credit facilities
            
            
            35,549
            
            
            28,335Deferred
                revenue - current portion
            
            
            2,500
            
            
            2,500Current
                maturities of long-term obligations
            
            
            110
            
            
            110Total
                current liabilities
            
            
            113,249
            
            
            110,905Long-term
                obligations (less current portion)
            
            
            3,074
            
            
            2,956Deferred
                revenue (less current portion)
            
            
            45,329
            
            
            44,704Non-current
                income taxes payable
            
            
            -
            
            
            5,384Accrued
                pension and postretirement benefits
            
            
            108,940
            
            
            98,350Total
                liabilities
            
            
            270,592
            
            
            262,299Stockholders’
                equity:Common
                stock, $0.001 par value (40,000,000 sharesauthorized,
                11,807,237 and 11,905,310 issued and outstandingat
                September 30, 2007 and December 31, 2007, respectively)
            
            
            12
            
            
            12Preferred
                stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued
                and
                outstanding)
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            218,504
            
            
            222,131Accumulated
                earnings
            
            
            93,880
            
            
            106,896Accumulated
                other comprehensive income
            
            
            3,981
            
            
            6,483Total
                stockholders’ equity
            
            
            316,377
            
            
            335,522Total
                liabilities and stockholders’ equity
            
            $
            586,969
            
            $
            597,821




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


Page
          1 of
          27


**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**


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


**Three
                  Months Ended**
                **December
                  31,****2006**
              
              **2007**Net
                  revenues
              
              $
              120,463
              
              $
              146,077Cost
                  of sales
              
              
              86,842
              
              
              111,872Gross
                  profit
              
              
              33,621
              
              
              34,205Selling,
                  general and administrative expense
              
              
              9,420
              
              
              9,990Research
                  and technical expense
              
              
              697
              
              
              908Operating
                  income
              
              
              23,504
              
              
              23,307Interest
                  expense, net
              
              
              1,809
              
              
              463Income
                  before income taxes
              
              
              21,695
              
              
              22,844Provision
                  for income taxes
              
              
              8,511
              
              
              9,001Net
                  income
              
              $
              13,184
              
              $
              13,843Net
                  income per share:Basic
              
              $
              1.32
              
              $
              1.17Diluted
              
              $
              1.27
              
              $
              1.16Weighted
                  average shares outstanding:Basic
              
              
              10,000,000
              
              
              11,821,842Diluted
              
              
              10,398,994
              
              
              11,965,900




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




Page
          2 of
          27


**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME**


**(Unaudited)**


**(in
      thousands)**


**Three
                  Months Ended**
                **December
                  31,****2006**
              
              **2007**Net
                  income
              
              $
              13,184
              
              $
              13,843Other
                  comprehensive income (loss), net of tax:Pension
                  curtailment
              
              
              _
              
              
              2,701Foreign
                  currency translation adjustment
              
              
              1,373
              
              
              (199
              )Comprehensive
                  income
              
              $
              14,557
              
              $
              16,345




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




Page
          3 of
          27


**HAYNES
      INTERNATIONAL, INC. and SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**(in
      thousands)**


**Three
                  Months Ended December 31,****2006**
              
              **2007**Cash
                  flows from operating activities:Net
                  income
              
              $
              13,184
              
              $
              13,843Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              1,772
              
              
              2,166Amortization
              
              
              282
              
              
              276Stock
                  compensation expense
              
              
              693
              
              
              350Excess
                  tax benefit from option exercises
              
              
              -
              
              
              (2,022
              )Deferred
                  revenue
              
              
              50,000
              
              
              -Deferred
                  revenue - portion recognized
              
              
              (296
              )
              
              (625
              )Deferred
                  income taxes
              
              
              (544
              )
              
              (3,705
              )Loss
                  on disposal of property
              
              
              42
              
              
              94Change
                  in assets and liabilities:Accounts
                  receivable
              
              
              2,403
              
              
              12,446Inventories
              
              
              (23,037
              )
              
              (17,673
              )Other
                  assets
              
              
              (2,552
              )
              
              (242
              )Accounts
                  payable and accrued expenses
              
              
              2,097
              
              
              902Income
                  taxes
              
              
              8,889
              
              
              11,999Accrued
                  pension and postretirement benefits
              
              
              (96
              )
              
              (6,307
              )Net
                  cash provided by operating activities
              
              
              52,837
              
              
              11,502Cash
                  flows from investing activities:Additions
                  to property, plant and equipment
              
              
              (3,139
              )
              
              (4,738
              )Change
                  in restricted cash
              
              
              110
              
              
              110Net
                  cash used in investing activities
              
              
              (3,029
              )
              
              (4,628
              )Cash
                  flows from financing activities:Net
                  increase (decrease) in revolving credit
              
              
              (51,003
              )
              
              (7,214
              )Proceeds
                  from exercise of stock options
              
              
              -
              
              
              1,255Excess
                  tax benefit from option exercises
              
              
              -
              
              
              2,022Payments
                  on long-term obligations
              
              
              (147
              )
              
              (154
              )Net
                  cash used in financing activities
              
              
              (51,150
              )
              
              (4,091
              )Effect
                  of exchange rates on cash
              
              
              142
              
              
              (56
              )Increase
                  (decrease) in cash and cash equivalents
              
              
              (1,200
              )
              
              2,727Cash
                  and cash equivalents, beginning of period
              
              
              6,182
              
              
              5,717Cash
                  and cash equivalents, end of period
              
              $
              4,982
              
              $
              8,444Supplemental
                  disclosures of cash flow information:Cash
                  paid during period for:Interest
                  (net of capitalized interest)
              
              $
              1,419
              
              $
              454Income taxes
              
              $
              129
              
              $
              732




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


Page
          4 of
          27


**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 months ended December 31, 2007 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
      retained 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 payments of
      interest. The liability for the payment of interest did not materially change
      as
      of December 31, 2007.




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.
      We are currently under audit in the U.S. federal tax jurisdiction and the state
      of Indiana for the September 30, 2005 tax year.




Page
          5 of
          27




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 did not materially change as of December 31,
      2007.




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 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 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. 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.





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





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





September 30, 2007
            
            December 31, 2007Raw
                Materials
            
            $
            16,218
            
            $
            20,031Work-in-process
            
            
            162,266
            
            
            163,251Finished
                Goods
            
            
            106,419
            
            
            118,117Other,
                net
            
            
            1,399
            
            
            2,655$
            286,302
            
            $
            304,054




Page
          6 of
          27





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





Income
      tax expense for the three months ended December 31, 2006 and 2007, 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 months
      ended December 31, are as follows:





Three
                Months Ended December 31,Pension
                Benefits
            
            Other
                Benefits2006
            
            2007
            
            2006
            
            2007Service
                cost
            
            $
            990
            
            $
            706
            
            $
            427
            
            $
            361Interest
                cost
            
            
            2,306
            
            
            2,688
            
            
            1,319
            
            
            1,115Expected
                return
            
            
            (2,457
            )
            
            (2,851
            )
            
            -
            
            
            -Amortizations
            
            
            -
            
            
            201
            
            
            (1,221
            )
            
            (1,032
            )Curtailment
                gain
            
            
            -
            
            
            (3,659
            )
            
            -
            
            
            -Net
                periodic benefit cost
            
            $
            839
            
            $
            (2,915
            )
            $
            525
            
            $
            444





The
      Company contributed $2,510 to the Company sponsored domestic pension plans,
      $1,072 to its other post-retirement benefit plans and $307 to the U.K. pension
      plan for the three months ended December 31, 2007. The Company presently expects
      future contributions of $6,310 to its domestic pension plans, $3,528 to its
      other post-retirement benefit plans and $920 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
          7 of
          27





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, that 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
          8 of
          27




As
      of
      December 31, 2007 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 $296 and
      $625 has been recognized related to this agreement, during the three months
      ended December 31, 2006 and 2007, 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 $282, and $276 for the three months ended December 31,
      2006 and 2007, 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 three months ended December 31, 2007 due to the
      adoption of FIN 48.




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


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




Page
          9 of
          27




December
                31, 2007
            
            Gross Amount
            
            Accumulated
                Amortization
            
            Carrying
                AmountGoodwill
            
            $
            41,927
            
            $
            —
            
            $
            41,927Patents
            
            
            8,667
            
            
            (4,904
            )
            
            3,763Trademarks
            
            
            3,800
            
            
            —
            
            
            3,800Non-compete
            
            
            840
            
            
            (318
            )
            
            522Other
            
            
            465
            
            
            (300
            )
            
            165$
            55,699
            
            $
            (5,522
            )
            $
            50,177




Estimate of Aggregate Amortization Expense:Year
                Ended September 30,2008
                (remainder of fiscal year)
            
            $
            8302009
            
            
            8162010
            
            
            3762011
            
            
            3632012
            
            
            288




**Note
      9. Net Income Per Share**




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




Three Months Ended
                December 31,(in thousands except share
                  and per share data)
              
              2006
              
              2007Numerator:Net
                  Income
              
              $
              13,184
              
              $
              13,843Denominator:Weighted
                  average shares outstanding - Basic
              
              
              10,000,000
              
              
              11,821,842Effect
                  of dilutive stock options
              
              
              398,994
              
              
              144,058Weighted
                  average shares outstanding - Diluted
              
              
              10,398,994
              
              
              11,965,900Basic
                  net income per share
              
              $
              1.32
              
              $
              1.17Diluted
                  net income per share
              
              $
              1.27
              
              $
              1.16




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. A total of 0 and 131,000
      anti-dilutive weighted average shares with respect to outstanding stock options
      have been excluded from the computation of diluted net income per share for
      the
      three months ended December 31, 2006 and 2007, respectively.




**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.


Page
          10
          of 27




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:





Grant
                Date
            
            Fair
              Value
            
            DividendYield
            
            Risk-free
              InterestRate
            
            ExpectedVolatility
            
            ExpectedLifeMarch
                30, 2007
            
            $
            19.06
            
            
            0
            %
            
            4.54
            %
            
            30.00
            %
            
            3
                yearsSeptember
                1, 2007
            
            $
            21.42
            
            
            0
            %
            
            4.16
            %
            
            30.00
            %
            
            3
                years




No
      new
      grants occurred in the three months ended December 31, 2007. 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.





The
      stock-based employee compensation expense for the three months ended December
      31, 2007 was $350 ($209 net of tax or $0.02 per fully diluted share) leaving
      remaining unrecognized compensation expense at December 31, 2007 of $2,408
      to be
      recognized over a weighted average period vesting of 1.72 years. The stock-based
      employee compensation expense for the three months ended December 31, 2006
      was
      $693 ($413 net of tax or $0.04 per fully diluted share).





The
      following table summarizes the activity under the stock option plans for the
      three months ended December 31, 2007:





Number
              of
              Shares
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual Life
            
            Aggregate
              Intrinsic
                ValueOutstanding
                at September 30, 2007
            
            
            503,763
            
            $
            30.52Granted
            
            
            0
            
            
            -Exercised
            
            
            (98,073
            )
            
            12.80Outstanding
                at December 31, 2007
            
            
            405,690
            
            $
            34.80
            
            
            7.74
                Years
            
            $
            14,578,989Vested
                or expected to vest
            
            
            405,690
            
            $
            34.80
            
            
            7.74
                Years
            
            $
            14,578,989Exercisable
                at December 31, 2007
            
            
            206,355
            
            $
            13.11
            
            
            6.69
                Years
            
            $
            11,636,829




Outstanding
            
            ExercisableGrant
                Date
            
            Number of
              Shares
            
            ExercisePrice
              PerShare
            
            Remaining
                Contractual
              Life in Years
            
            Numberof
              Shares
            
            Exercise Price
              Per
                ShareAugust
                31, 2004
            
            
            201,355
            
            $
            12.80
            
            
            6.67
            
            
            201,355
            
            $
            12.80May
                5, 2005
            
            
            8,334
            
            
            19.00
            
            
            7.33
            
            
            -
            
            
            19.00August
                15, 2005
            
            
            11,667
            
            
            20.25
            
            
            7.67
            
            
            -
            
            
            20.25October
                1, 2005
            
            
            10,000
            
            
            25.50
            
            
            7.75
            
            
            5,000
            
            
            25.50February
                21, 2006
            
            
            33,334
            
            
            29.25
            
            
            8.17
            
            
            -
            
            
            29.25March
                31, 2006
            
            
            10,000
            
            
            31.00
            
            
            8.25
            
            
            -
            
            
            31.00March
                30, 2007
            
            
            126,000
            
            
            72.93
            
            
            9.25
            
            
            -
            
            
            72.93September
                1, 2007
            
            
            5,000
            
            $
            83.53
            
            
            9.67
            
            
            -
            
            $
            83.53405,690
            
            
            
            
            
            
            
            
            206,355


Page
          11
          of 27


**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, 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**





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.


Page
          12
          of 27




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 the gross profit decline.
      The largest contributing factor to the decline in gross profit as a percentage
      of revenue is increased competition. Starting in the third quarter of fiscal
      2007, the Company has experienced increased competition from competitors who
      produce both stainless steel and high-performance alloys. Due to a slowing
      stainless steel market, these competitors have increased their production levels
      and sales activity in high-performance alloys to keep capacity in their mills
      as
      full as possible, and they are able to offer very competitive delivery times
      and
      prices. As a result of this competition, the Company's ability to raise prices
      on certain products has been limited in the three most recent fiscal quarters.
      Historically, the Company has experienced similar price competition in the
      1990's and in the early 2000's, when demand in the stainless market weakened.
      We
      believe, however, that we are in a better position to respond to the competition
      than we were at those times as a result of our increased emphasis on service
      centers and our value-added services. *American
      Metals Market* reported
      in January that stainless producers believe that prospects appear to be
      brightening in the stainless steel market and that the stage is set for a 2008
      recovery in stainless spot market volume and prices, which should begin to
      alleviate the pricing pressure felt by the Company in recent quarters.
      Additionally, management believes that the completion of the upgrade to the
      second annealing line, which will be completed in the third quarter of fiscal
      2008, will enable the Company to be competitive with respect to delivery-times
      and reliability.





Another
      factor which has negatively impacted gross profit as a percentage of net revenue
      is the downtime as a result of equipment upgrades and, in the first quarter
      of
      fiscal 2008, two unplanned outages. Planned and unplanned outages reduce the
      amount of pounds produced and shipped by the Company. 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 Company
      intends to complete the second phase of upgrades to its second annealing line
      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 will 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 $4.7 million
      in the first quarter 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.





In
      addition to planned downtime required in order to complete these upgrades,
      from
      time to time the Company has also experienced unplanned outages, such as those
      which occurred in the first quarter of fiscal 2008, which also reduce production
      levels. As a result of these unplanned outages, the Company produces and ships
      fewer pounds, resulting in lower revenues in the quarter in which they occur.
      In
      addition, it was more difficult to recover quickly from the unplanned outages
      in
      the first quarter due to the planned downtime that was also scheduled.
      Management believes that the investments in the Company's equipment over the
      last several years and continuing this year (including increasing capacity
      of
      the sheet finishing operations described above) have significantly and will
      continue to improve operating efficiency by increasing capacity, reducing
      unplanned downtime and manufacturing costs, and improving delivery performance,
      working capital management and product quality. In addition, it will enable
      us
      to recover more quickly from unplanned outages.





**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.




Page
          13
          of 27





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





(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.




Quarter
                  EndedDecember 31,
                  2006
              
              March
                  31,
                2007
              
              June
                  30,
                2007
              
              September 30,
                  2007
              
              December 31,
                  2007***Net
                  revenues***(in thousands)Aerospace
              
              $
              43,827
              
              $
              48,232
              
              $
              55,317
              
              $
              63,796
              
              $
              59,442Chemical
                  processing
              
              
              38,778
              
              
              37,701
              
              
              31,495
              
              
              39,986
              
              
              40,805Land-based
                  gas turbines
              
              
              20,076
              
              
              27,993
              
              
              26,812
              
              
              28,120
              
              
              25,505Other
                  markets
              
              
              15,671
              
              
              20,352
              
              
              24,598
              
              
              25,638
              
              
              17,772Total
                  product revenue
              
              
              118,352
              
              
              134,278
              
              
              138,222
              
              
              157,540
              
              
              143,524Other
                  revenue
              
              
              2,111
              
              
              3,058
              
              
              2,865
              
              
              3,410
              
              
              2,553**Net
                  revenues**
              
              $
              120,463
              
              $
              137,336
              
              $
              141,087
              
              $
              160,950
              
              $
              146,077***Pounds
                  by markets*** (in thousands)Aerospace
              
              
              1,780
              
              
              1,701
              
              
              1,973
              
              
              2,206
              
              
              2,154Chemical
                  processing
              
              
              1,479
              
              
              1,322
              
              
              1,082
              
              
              1,238
              
              
              1,312Land-based
                  gas turbines
              
              
              1,144
              
              
              1,382
              
              
              1,256
              
              
              1,311
              
              
              1,060Other
                  markets(1)
              
              
              1,053
              
              
              1,320
              
              
              1,538
              
              
              923
              
              
              681**Total
                  shipments**
              
              
              5,456
              
              
              5,725
              
              
              5,849
              
              
              5,678
              
              
              5,207***Average
                  selling price per pound***Aerospace
              
              $
              24.62
              
              $
              28.36
              
              $
              28.04
              
              $
              28.92
              
              $
              27.60Chemical
                  processing
              
              
              26.22
              
              
              28.52
              
              
              29.11
              
              
              32.30
              
              
              31.10Land-based
                  gas turbines
              
              
              17.55
              
              
              20.26
              
              
              21.35
              
              
              21.45
              
              
              24.06Other
                  markets
              
              
              14.88
              
              
              15.42
              
              
              15.99
              
              
              27.78
              
              
              26.10**Total
                  product**(excluding
                  other revenue)
              
              
              21.69
              
              
              23.45
              
              
              23.63
              
              
              27.75
              
              
              27.56**Total
                  average selling price**(including
                  other revenue)
              
              
              22.08
              
              
              23.99
              
              
              24.12
              
              
              28.35
              
              
              28.05




(1)
            The
                    decrease in pounds in Other markets relates primarily to the
                    reduction in
                    stainless steel wire pounds, which decreased by 484 pounds in
                    the quarter
                    ended December 31, 2007 versus the quarter ended December 31,
                    2006.


Page
          14
          of 27


**Results
      of Operations for the Three Months Ended December 31, 2007 Compared to the
      Three
      Months Ended December 31, 2006**




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 EndedDecember
                  31,
              
              Change2006
              
              2007
              
              Amount
              
              %Net
                  revenues
              
              $
              120,463
              
              
              100.0
              %
              $
              146,077
              
              
              100.0
              %
              $
              25,614
              
              
              21.3
              %Cost
                  of sales
              
              
              86,842
              
              
              72.1
              %
              
              111,872
              
              
              76.6
              %
              
              25,030
              
              
              28.8
              %Gross
                  profit
              
              
              33,621
              
              
              27.9
              %
              
              34,205
              
              
              23.4
              %
              
              584
              
              
              1.7
              %Selling,
                  general and administrative expense
              
              
              9,420
              
              
              7.8
              %
              
              9,990
              
              
              6.8
              %
              
              570
              
              
              6.1
              %Research
                  and technical expense
              
              
              697
              
              
              0.6
              %
              
              908
              
              
              0.6
              %
              
              211
              
              
              30.3
              %Operating
                  income
              
              
              23,504
              
              
              19.5
              %
              
              23,307
              
              
              16.0
              %
              
              (197
              )
              
              (0.8
              )%Interest
                  expense, net
              
              
              1,809
              
              
              1.5
              %
              
              463
              
              
              0.3
              %
              
              (1,346
              )
              
              (74.4
              )%Income
                  before income taxes
              
              
              21,695
              
              
              18.0
              %
              
              22,844
              
              
              15.6
              %
              
              1,149
              
              
              5.3
              %Provision
                  for income taxes
              
              
              8,511
              
              
              7.1
              %
              
              9,001
              
              
              6.2
              %
              
              490
              
              
              5.8
              %Net
                  income
              
              $
              13,184
              
              
              10.9
              %
              $
              13,843
              
              
              9.5
              %
              $
              659
              
              
              5.0
              %




**By
      market**


Three
                    Months EndedDecember
                    31,
                
                Change**2006**
                
                **2007**
                
                **Amount**
                
                **%*****Net
                    revenues***(in thousands)Aerospace
                
                $
                43,827
                
                $
                59,442
                
                $
                15,615
                
                
                35.6
                %Chemical
                    processing
                
                
                38,778
                
                
                40,805
                
                
                2,027
                
                
                5.2
                %Land-based
                    gas turbines
                
                
                20,076
                
                
                25,505
                
                
                5,429
                
                
                27.0
                %Other
                    markets
                
                
                15,671
                
                
                17,772
                
                
                2,101
                
                
                13.4
                %**Total
                    product revenue**
                
                
                118,352
                
                
                143,524
                
                
                25,172
                
                
                21.3
                %Other
                    revenue
                
                
                2,111
                
                
                2,553
                
                
                443
                
                
                21.0
                %**Net
                    revenues**
                
                $
                120,463
                
                $
                146,077
                
                $
                25,614
                
                
                21.3
                %***Pounds
                    by markets***(in
                    thousands)Aerospace
                
                
                1,780
                
                
                2,154
                
                
                374
                
                
                21.0
                %Chemical
                    processing
                
                
                1,479
                
                
                1,312
                
                
                (167
                )
                
                (11.3
                )%Land-based
                    gas turbines
                
                
                1,144
                
                
                1,060
                
                
                (84
                )
                
                (7.3
                )%Other
                    markets
                
                
                1,053
                
                
                681
                
                
                (372
                )
                
                (35.3
                )%**Total
                    shipments**
                
                
                5,456
                
                
                5,207
                
                
                (249
                )
                
                (4.6
                )%***Average
                    selling price per pound***Aerospace
                
                $
                24.62
                
                $
                27.60
                
                $
                2.97
                
                
                12.1
                %Chemical
                    processing
                
                
                26.22
                
                
                31.10
                
                
                4.88
                
                
                18.6
                %Land-based
                    gas turbines
                
                
                17.55
                
                
                24.06
                
                
                6.51
                
                
                37.1
                %Other
                    markets
                
                
                14.88
                
                
                26.10
                
                
                11.22
                
                
                75.4
                %**Total
                    product**(excluding
                    other revenue)
                
                
                21.69
                
                
                27.56
                
                
                5.87
                
                
                21.1
                %**Total
                    average selling price**(including other revenue)
                
                
                22.08
                
                
                28.05
                
                
                5.97
                
                
                27.0
                %




Page
          15
          of 27





*Net
      Revenues* .
      Net
      revenues increased by $25.6 million, or 21.3%, to $146.1 million in the first
      quarter of fiscal 2008 from $120.5 million in the same period of fiscal 2007.
      Volume for all products decreased by 4.6% to 5.2 million pounds in the first
      quarter of fiscal 2008 from 5.5 million pounds in the same period of fiscal
      2007. Volume of high-performance alloys increased by 4.9% to 5.0 million pounds
      in the first quarter of fiscal 2008 from 4.8 million pounds in the same period
      of fiscal 2007. Volume of stainless steel wire decreased by 71.5% to 0.2 million
      pounds in the first quarter of fiscal 2008 from 0.7 million pounds in the same
      period of fiscal 2007 as a result of the Company’s strategy to focus on the
      production and sales of high-performance alloy wire. It is anticipated, however,
      that there will continue to be a recurring level of stainless steel wire
      produced and sold into certain specialty markets. The aggregate average selling
      price per pound increased by 27.0% to $28.05 per pound in the first quarter
      of
      fiscal 2008 from $22.08 per pound in the same period of fiscal 2007 because
      of
      changes in product mix (both form and alloy), an increased level of service
      center value-added business (which also reflects a higher average cost per
      pound), reduced project business and higher raw material prices. Although nickel
      prices were lower in the first 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", unfavorably impacting both volume and
      average selling price is increased competition, while planned and unplanned
      outages lowered production in the quarter. The Company’s consolidated backlog
      increased by $11.5 million, or 4.9%, to $247.8 million at December 31, 2007
      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.





Sales
      to
      the aerospace market increased by 35.6% to $59.4 million in the first quarter
      of
      fiscal 2008 from $43.8 million in the same period of fiscal 2007, due to a
      12.1%
      increase in the average selling price per pound combined with a 21.0% 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.





Sales
      to
      the chemical processing market increased by 5.2% to $40.8 million in the first
      quarter of fiscal 2008 from $38.8 million in the same period of fiscal 2007,
      due
      to an 18.6% increase in the average selling price per pound, partially offset
      by
      a 11.3% decrease in volume. 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. Volume has declined
      due
      to 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 also impacts average selling price per
      pound.





Sales
      to
      the land-based gas turbine market increased by 27.0% to $25.5 million for the
      first quarter of fiscal 2008 from $20.1 million in the same period of fiscal
      2007, due to an increase of 37.1% in the average selling price per pound,
      partially offset by a 7.3% decrease in volume. The increase in the average
      selling price is due to the effect of a change in product mix (both form and
      alloy) and the Company's ability to pass through higher raw material costs
      to
      customers. Volume decreased as a result of lower billet volume (caused by
      ordering patterns) in the first quarter of fiscal 2008 compared to the same
      period of fiscal 2007. However, due to the relatively lower average selling
      price of billet, the decreased billet volume had a positive impact on average
      selling price.




Sales
      to
      other markets increased by 13.4% to $17.8 million in the first quarter of fiscal
      2008 from $15.7 million in the same period of fiscal 2007, due to a 75.4%
      increase in average selling price per pound, which was partially offset by
      a
      35.3% decrease in volume. The primary reason for 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 71.5%, while volume of all forms of high-performance alloy
      sold to other markets increased 29.8% in the first 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") markets, 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
          16
          of 27





*Other
      Revenue.* Other
      revenue increased by 21.0% to $2.6 million in the first quarter of fiscal 2008
      from $2.1 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 $111.9 million, and 76.6% of net revenues, in the first
      quarter of fiscal 2008, compared to $86.8 million, and 72.1% of net revenues,
      in
      the same period of fiscal 2007. Cost of sales in the first quarter of fiscal
      2008 grew as a result of increased volumes, increased raw materials costs,
      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 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. These increases in cost
      of
      sales were partially offset by a $3.7 million (2.5% 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 be attributed to the increased
      cost of sales, and increased competition (which lowered net revenue) and planned
      and unplanned equipment outages, as discussed above under
      "Overview".





*Selling,
      General and Administrative Expenses* .
      Selling, general and administrative expenses increased 6.1% to $10.0 million
      in
      the first quarter of fiscal 2008 from $9.4 million in the same period of fiscal
      2007 due to general inflationary increases and higher business activity.
      Selling, general and administrative expenses as a percentage of net revenues
      decreased to 6.8% in the first quarter of fiscal 2008 compared to 7.8% for
      the
      same period of fiscal 2007 due primarily to increased level of revenues. It
      is
      anticipated that SG&A expense for all of fiscal 2008 will increase by
      approximately 6% compared to fiscal 2007.





*Research
      and Technical Expense* .
      Research and technical expense increased 30.3% to $0.9 million in the first
      quarter of fiscal 2008 from $0.7 million in 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 quarter of fiscal
      2008 was $23.3 million compared to $23.5 million in the same period of fiscal
      2007.





*Interest
      Expense* .
      Interest expense decreased 74.4% to $0.5 million in the first quarter of fiscal
      2008 from $1.8 million in the same period of fiscal 2007. The decrease is from
      a
      lower average debt balance outstanding resulting from the Company's application
      of proceeds from the equity offering that occurred in the second quarter of
      fiscal 2007, cash generated from operations and proceeds from the exercise
      of
      stock options to reduce the outstanding debt balance.





*Income
      Taxes* .
      Income
      tax expense increased to $9.0 million in the first quarter of fiscal 2008 from
      $8.5 million in the same period of fiscal 2007 primarily due to higher pretax
      income. The effective tax rate for the first quarter of fiscal 2008 was 39.4%
      compared to 39.2% in the same period of fiscal 2007. The increase in the
      effective tax rate is primarily attributable to the impact of FIN 48 during
      the
      three months ended December 31, 2007 which increased the effective tax rate
      by
      0.7 points partially offset by a higher Internal Revenue Code Section 199
      manufacturer’s deduction (which provides a deduction for manufacturing
      activities in the U.S.) and higher foreign tax credits available. It is expected
      that the effective tax rate for fiscal 2008 will be approximately between 38.0%
      and 39.0%.





*Net
      Income* .
      As a
      result of the above factors, net income increased by $0.7 million to $13.8
      million in the first quarter of fiscal 2008 from $13.2 million in the same
      period of fiscal 2007.




Page
          17
          of 27




**Liquidity
      and Capital Resources**




*Comparative
      cash flow analysis*




During
      the first quarter 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 December 31, 2007, Haynes had cash and cash
      equivalents of approximately $8.4 million compared to cash and cash equivalents
      of approximately $5.7 million at September 30, 2007.




Net
      cash
      provided by operating activities was $11.5 million in the first quarter of
      fiscal 2008 compared to $52.8 million in the same period of fiscal 2007. Several
      items contributed to the difference. First, cash provided by operating
      activities in the first quarter 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 quarter.
      Second, inventory balances (net of foreign currency adjustments) at December
      31,
      2007 were $17.7million 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 quarter of fiscal 2008 as compared
      to the first quarter of fiscal 2007. Third, cash generated from a decrease
      in
      accounts receivable of $12.4 million. Net cash used in investing activities
      was
      $4.6 million in the first quarter of fiscal 2008 compared to $3.0 in the first
      quarter of fiscal 2007, primarily as a result of the ongoing capital expenditure
      program. Net cash used in financing activities included a reduction in
      borrowings on the revolving credit facility by $7.2 million as a result of
      cash
      generated from operations and proceeds from exercise of stock options (including
      excess tax benefits) of $3.3 million.




*Future
      sources of liquidity*





The
      Company’s sources of cash for fiscal 2008 are expected to consist primarily of
      cash generated from operations, cash on hand, and borrowings under both the
      U.S.
      revolving credit facility and the U.K. revolving credit facility (described
      below). The U.S. revolving credit facility and the U.K. revolving credit
      facility combine to provide borrowings in a maximum amount of $135.0 million,
      subject to a borrowing base formula and certain reserves. At December 31, 2007,
      the Company had cash and cash equivalents of approximately $8.4 million, an
      outstanding balance of $28.3 million on the U.S. revolving credit facility,
      an
      outstanding balance of zero on the U.K. revolving credit facility and access
      to
      a total of approximately $103.7 million under both facilities ($91.6 million
      in
      the United States and $12.1 million in the U.K.) in each case 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.





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 December 31, 2007, the U.S.
      revolving credit facility had an outstanding balance of $28.3 million. During
      the first three months of fiscal 2008, the U.S. revolving credit facility bore
      interest at a weighted average interest rate of 6.85%. 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 December 31, 2007, 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.




Page
          18
          of 27




U.K.
      revolving credit facility :
      The
      Company’s U.K. subsidiary, Haynes International, Ltd., or Haynes U.K., has
      entered into an agreement with a U.K.-based lender providing for a $15.0 million
      revolving credit facility. During the third quarter of fiscal 2007, the Company
      amended the U.K. revolving credit facility, which was set to mature April 2,
      2007, to extend the maturity date to April 2, 2008, reduce the margin included
      in the interest rate from 3% per annum to 2.25% per annum, and to reduce the
      commitment fee on the daily undrawn and/or unutilized balance of the facility
      from 0.375% to 0.25%. The Company is currently evaluating options to renew
      or
      replace this facility upon its maturity with one of similar availability. Haynes
      U.K. is required to pay interest on loans made under the U.K. revolving credit
      facility in an amount equal to LIBOR (as calculated in accordance with the
      terms
      of the U.K. revolving credit facility), plus 2.25% per annum. As of December
      31,
      2007, the U.K. revolving credit facility had an outstanding balance of zero.
      Availability under the U.K. revolving credit facility is limited by eligible
      receivables, eligible inventory and certain reserves established by the lender
      in accordance with the terms of the U.K. revolving credit facility. Haynes
      U.K.
      must meet certain financial covenants relating to tangible net worth and cash
      flow. As of December 31, 2007, the most recent measurement date required under
      the U.K. revolving credit facility, Haynes U.K. was in compliance with these
      covenants. The U.K. revolving credit facility is collateralized by a pledge
      of
      substantially all of the assets of Haynes U.K.




*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, $4.7 million of
      which
      was spent in the first quarter. The main projects for fiscal 2008 include
      continuing the upgrade of the 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 is now scheduled for completion during the first week
      of
      February, 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 periods 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. 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
          19
          of 27




*Contractual
      Obligations*





The
      following table sets forth the Company’s contractual obligations for the periods
      indicated, as of December 31, 2007:





(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)
            
            $
            32,299
            
            $
            3,415
            
            $
            28,884
            
            $
            —
            
            $
            —Operating
                lease obligations
            
            
            10,250
            
            
            3,937
            
            
            4,389
            
            
            1,527
            
            
            397Raw
                material contracts
            
            
            81,652
            
            
            79,740
            
            
            1,912
            
            
            —
            
            
            —Mill
                supplies contracts
            
            
            331
            
            
            331
            
            
            —
            
            
            —
            
            
            —Capital
                projects
            
            
            11,509
            
            
            11,509
            
            
            —
            
            
            —
            
            
            —Pension
                plan(3)
            
            
            41,538
            
            
            9,788
            
            
            21,490
            
            
            10,260
            
            
            —Other
                postretirement benefits(4)
            
            
            49,400
            
            
            4,600
            
            
            9,800
            
            
            10,000
            
            
            25,000Non-compete
                obligations(5)
            
            
            330
            
            
            110
            
            
            220
            
            
            —
            
            
            —Total
            
            $
            227,309
            
            $
            113,430
            
            $
            66,695
            
            $
            21,787
            
            $
            25,397







(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 December 31, 2007.(3)
              The
                  Company has a funding obligation to contribute an additional $40,310
                  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 in fiscal
                  2008 to
                  the U.K. Pension Plan arising from an obligation in the U.K. debt
                  agreement.(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 which had an impact of increasing the
                  non-current income taxes payable by $4,818. Taxes are not included
                  in the
                  table. It is not possible to determine in which future period the
                  tax
                  liability might be paid out.




At
      December 31, 2007, 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
          20
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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
          21
          of 27





*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 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
          22
          of 27




*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 impact of the adoption of
      FIN 48 on October 1, 2007, was to **** decrease
      retained earnings by $0.8 million, increase goodwill by $0.7 million,
      increase deferred tax assets by $3.3 million, and increase non-current
      income taxes payable by $4.8 million.





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 $0.2 million for the
      payments of interest. The liability for the payment of interest did not
      materially change as of December 31, 2007.





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.
      We are currently under audit in the U.S. federal tax jurisdiction and the state
      of Indiana for the September 30, 2005 tax year.





As
      of
      October 1, 2007, the total amount of unrecognized tax benefits was $4.8 million,
      of which $0.8 million would affect the effective tax rate, if recognized. The
      amount of unrecognized tax benefits did not materially change as of December
      31,
      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 December 31,
      2007. A hypothetical 10% increase in the interest rate on variable rate debt
      would have resulted in additional interest expense of approximately $604,000
      for
      the three months ended December 31, 2006 and $200,000 for the three months
      ended
      December 31, 2007. The Company has not entered into any derivative instruments
      to hedge the effects of changes in interest rates.




Page
          23
          of 27





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 December 31, 2007, 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.





**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 December 31, 2007 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
          24
          of 27




**PART
      II OTHER INFORMATION**





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





Exhibits .
      See
      Index to Exhibits.




Page
          25
          of 27





**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. PETROFrancis
                J. PetroPresident
                and Chief Executive OfficerDate:
                February 5, 2008/s/ MARCEL MARTINMarcel
                MartinVice
                President, FinanceChief
                Financial OfficerDate:
                February 5, 2008




Page
          26
          of 27




**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 Bylaws of Haynes International, Inc. (incorporated by
                reference to Exhibit 3.2 to the Haynes International, Inc.
                Registration Statement on Form S-1, Registration
                No. 333-140194).(4)
            
            4.01
            Specimen
                Common Stock Certificate (incorporated by reference to 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 2.1 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 2.2 to the Haynes International, Inc. Registration
                Statement on Form S-1, Registration No. 333-140194).(10)
            
            10.01
            Summary
                of 2008 Management Incentive Plan (incorporated by reference to Item
                5.02
                of the Haynes International, Inc. Form 8-K filed December 6,
                2007).(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
  Page
            27
            of 27