Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                    to


Commission file number 001-33288

HAYNES INTERNATIONAL, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

06-1185400(I.R.S. Employer Identification No.)1020 West Park Avenue, Kokomo, Indiana(Address of principal executive offices)

46904-9013(Zip Code)


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

Securities
registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registeredCommon Stock, par value $.001 per share

NASDAQ Global Market


Securities
registered pursuant to section 12(g) of the Act:None.

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o Yes        ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.o Yes        ý No

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 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. ý Yes        o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller Reporting Company o


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

As of March 31, 2010, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $427,417,302
based on the closing sale price as reported on the NASDAQ Global Market. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding
common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Section 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.  ý Yes        o No

12,144,079 shares of Haynes International, Inc. common stock were outstanding as of November 18, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held February 28, 2011 have been incorporated by reference into Part III of this report.



---





Table of Contents

TABLE OF CONTENTS



Page No.Part IItem 1.

Business


3Item 1A.

Risk Factors


18Item 1B.

Unresolved Staff Comments


25Item 2.

Properties


25Item 3.

Legal Proceedings


26Item 4.

Submission of Matters to a Vote of Security Holders


27Part IIItem 5.

Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities


28Item 6.

Selected Financial Data


30Item 7.

Management's Discussion and Analysis of Financial Condition and
Results of Operations


33Item 7A.

Quantitative and Qualitative Disclosures About Market
Risk


50Item 8.

Financial Statements and Supplementary
Data


51Item 9.

Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure


89Item 9A.

Controls and Procedures


89Item 9B.

Other Information


89Part IIIItem 10.

Directors, Executive Officers and Corporate
Governance


90Item 11.

Executive Compensation


90Item 12.

Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters


90Item 13.

Certain Relationships and Related Transactions, and Director Independence


91Item 14.

Principal Accountant Fees and Services


91Part IVItem 15.

Exhibits, Financial Statement Schedules


92Signatures


93Index to Exhibits


95


---





Table of Contents

This Annual Report on Form 10-K contains statements that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Those statements appear in a number
of places in this Report 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 strategic plans,
revenues, financial results, dividends and backlog balance; trends in the industries that consume the Company's products; global economic and political conditions; production levels at the Company's
Kokomo, Indiana facility; commercialization of the Company's production capacity; and the Company's ability to develop new products. Readers are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, many of
which are beyond the Company's control.

The Company has based these forward-looking statements on its current expectations and projections about future events. Although the Company believes that the
assumptions on which the forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate. As a result, the forward-looking statements based upon those
assumptions also could be incorrect. Risks and uncertainties, some of which are discussed in Item 1.A to this Report, 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.

Part I

Item 1.    Business

Overview

Haynes International, Inc. ("Haynes" or "the Company") is one of the world's largest producers of high-performance
nickel- and cobalt-based alloys in sheet, coil and plate forms. The Company is focused on developing, manufacturing, marketing and distributing technologically advanced, high-performance
alloys, which are sold primarily in the aerospace, chemical processing and land-based gas turbine industries. The Company's products consist of high temperature resistant alloys, or HTA
products, and corrosion resistant alloys, or CRA products. HTA products are used by manufacturers of equipment that is subjected to extremely high temperatures, such as jet engines for the aerospace
market, gas turbine engines used for power generation and waste incineration, and industrial heating equipment. CRA products are used in applications that require resistance to very corrosive media
found in chemical processing, power plant emissions control and hazardous waste treatment. Management believes Haynes is one of four principal producers of high-performance alloy products
in sheet, coil and plate forms, and sales of these forms, in the aggregate, represented approximately 64% of net product revenues in fiscal 2010. The Company also produces its products as seamless and
welded tubulars, and in slab, 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 wire products. The Company's products are sold 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. In fiscal 2010, approximately 78% of the Company's net revenues was generated by its direct sales
organization, and the remaining 22% was generated by a network of independent distributors and sales agents who supplement its direct sales efforts primarily in the United States, Europe and Asia,
some of whom have been associated with the Company for over 30 years.

3

---



Table of Contents

Available Information

The address of the Company's website is www.haynesintl.com. The Company provides a link to its reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 on its website as soon as reasonably practicable after filing with the U.S. Securities and Exchange Commission. The filings
available on the Company's website date back to November 23, 2009. For all filings made prior to that date, the Company's website includes a link to the website of the U.S. Securities and
Exchange Commission, where such filings are available. Information contained or referenced on the Company's website is not incorporated by reference and does not form a part of this
Form 10-K.

Significant Events of Fiscal 2010

The information under the caption "Significant Events of Fiscal 2010" in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations contained elsewhere in this Form 10-K is incorporated herein by reference.

Business Strategy

The Company's goal is to grow its business and increase revenues and profitability while continuing to be its customers' provider of
choice for high-performance alloys. The Company pursues this goal by taking advantage of its
diverse product offerings and service capabilities to penetrate end markets, and lowering costs through strategic investment in manufacturing facilities.



4

---



Table of Contents





5

---



Table of Contents

Company History

The Company began operations in 1912 as the Haynes Stellite Works, which was purchased by Union Carbide and Carbon Corporation in 1920.
In 1972, the operations were sold to Cabot Corporation. In 1987, Haynes was incorporated as a stand-alone corporation in Delaware, and in 1989 Haynes was sold by Cabot Corporation to Morgan Lewis
Githens & Ahn Inc., a private investment firm. The Blackstone Group, a private investment firm, purchased Haynes from Morgan Lewis Githens & Ahn Inc. in 1997. Haynes
encountered liquidity difficulties throughout fiscal 2003 and the first half of fiscal 2004. Due to concurrent downcycles in its largest markets, and rising raw material and energy costs, the Company
could not generate sufficient cash to both satisfy its debt service obligations and fund operations. On March 29, 2004, Haynes and its U.S. subsidiaries and affiliates as of that date filed
voluntary petitions for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. On August 31, 2004, Haynes emerged from bankruptcy pursuant to a court-approved plan of
reorganization.

In
November 2005, Haynes acquired certain assets of the Branford Wire Company, including a facility that manufactured both stainless steel wire and high-performance alloy
wire. The Company primarily produces high-performance alloy wire, but continues to produce stainless steel wire on a limited basis at the Haynes Wire Company, in Mountain Home, North
Carolina.

On
March 23, 2007, the Company completed an equity offering, which resulted in the issuance of 1,200,000 shares of its common stock. Simultaneously the Company listed its common
stock on The NASDAQ Global Market.

Products

The global specialty alloy market consists of three primary sectors: stainless steel, general purpose nickel alloys and
high-performance nickel- and cobalt-based alloys. The Company believes that the high-performance alloy sector represents less than 10% of the total alloy market. The Company
competes exclusively in the high-performance nickel- and cobalt-based alloy sectors, which includes HTA products
and CRA products. In fiscal 2008, 2009 and 2010, HTA products accounted for approximately 73%, 74% and 75% of the Company's net revenues, respectively; and sales of the Company's CRA products
accounted for approximately 27%, 26% and 25% of the Company's net revenues, respectively. These percentages are based on data which include revenue associated with sales by the Company to its foreign
subsidiaries, but exclude revenue associated with sales by foreign subsidiaries to their customers. Management believes, however, that the effect of including revenue data associated with sales by its
foreign subsidiaries would not materially change the percentages presented in this section.

High Temperature Resistant Alloys.HTA products are used primarily in manufacturing components for the hot sections of gas turbine
engines. Stringent
safety and performance standards in the aerospace industry result in development lead times typically as long as eight to ten years in the introduction of new aerospace-related market applications for
HTA products. However, once a particular new alloy is shown to possess the properties required for a specific application in the aerospace market, it tends to remain in use for extended periods. HTA
products are also used in gas turbine engines produced for use in applications such as naval and commercial vessels, electric power generation, power sources for offshore drilling platforms, gas
pipeline booster stations and emergency standby power stations. The following table sets

6

---



Table of Contents

forth
information with respect to the Company's significant high temperature resistant alloys, applications and features (new HTA development is discussed below under "Patents and Trademarks"):

Alloy and Year Introduced

End Markets and Applications(1)

FeaturesHAYNES® HR-160® alloy (1990)(2)

Waste incineration/CPI-boiler tube shields

Good resistance to sulfidation at high temperaturesHAYNES® 242® alloy (1990)(2)

Aero-seal rings

High strength, low expansion and good fabricabilityHAYNES® HR-120® alloy (1990)(2)

LBGT-cooling shrouds

Good strength-to-cost ratio as compared to competing alloysHAYNES® 230® alloy (1984)(2)

Aero/LBGT-ducting, combustors

Excellent combination of strength, stability, oxidation resistance and fabricabilityHAYNES® 214® alloy (1981)(2)

Aero-honeycomb seals

Excellent combination of oxidation resistance and fabricating among nickel-based alloysHAYNES® 188 alloy (1968)(2)

Aero-burner cans, after-burner components

High strength, oxidation resistant cobalt-based alloyHAYNES® 625 alloy (1964)

Aero/CPI-ducting, tanks, vessels, weld overlays

Good fabricability and general corrosion resistanceHAYNES® 617 alloy (1999)

Aero/LBGTducting, combustors

Good combination of strength, stability, oxidation resistance and fabricabilityHAYNES® 263 alloy (1960)

Aero/LBGT-components for gas turbine hot gas exhaust pan

Good ductility and high strength at temperatures up to 1600°FHAYNES® 718 alloy (1955)

Aero-ducting, vanes, nozzles

Weldable high strength alloy with good fabricabilityHASTELLOY® X alloy (1954)

Aero/LBGT-burner cans, transition ducts

Good high temperature strength at relatively low costHAYNES® Ti 3A1-2.5 alloy (1950)

Aero-aircraft hydraulic and fuel systems components

Light weight, high strength titanium-based alloyHAYNES® 25 alloy (1950)(2)

Aero-gas turbine parts, bearings, and various industrial applications

Excellent strength, good oxidation, resistance to 1800°F


(1)"Aero"
refers to the aerospace industry; "LBGT" refers to the land-based gas turbine industry; "CPI" refers to the chemical
processing industry.(2)Represents
a product which the Company believes has limited or no significant competition.


Corrosion Resistant Alloys.CRA products are used in a variety of applications, such as chemical processing, power plant emissions
control, hazardous
waste treatment, sour gas production and pharmaceutical vessels. Historically, the chemical processing market has represented the largest end-user sector for CRA products. Due to
maintenance, safety and environmental considerations, the Company believes this market continues to represent an area of potential long-term growth. Unlike aerospace applications within
the HTA product market, the development of new market applications for CRA products generally does not require long lead times. The following table sets forth information with respect

7

---



Table of Contents

to
certain of the Company's significant corrosion resistant alloys, applications and features (new CRA development is discussed below under "Patents and Trademarks"):

Alloy and Year Introduced

End Markets and Applications(1)

FeaturesHASTELLOY® C-2000® alloy (1995)(2)

CPI-tanks, mixers, piping

Versatile alloy with good resistance to uniform corrosionHASTELLOY® B-3® alloy (1994)(2)

CPI-acetic acid plants

Better fabrication characteristics compared to other nickel-molybdenum alloysHASTELLOY® D-205® alloy (1993)(2)

CPI-plate heat exchangers

Corrosion resistance to hot sulfuric acidULTIMET® alloy (1990)(2)

CPI-pumps, valves

Wear and corrosion resistant nickel-based alloyHASTELLOY® C-22® alloy (1985)

CPI/FGD-tanks, mixers, piping

Resistance to localized corrosion and pittingHASTELLOY® G-30® alloy (1985)(2)

CPI-tanks, mixers, piping

Lower cost alloy with good corrosion resistance in phosphoric acidHASTELLOY® G-35® alloy (2004)(2)

CPI-tanks, heat exchangers, piping

Improved corrosion resistance to phosphoric acid with excellent resistance to corrosion in highly oxidizing mediaHASTELLOY® C-276 alloy (1968)

CPI/FGD/oil and gas tanks, mixers, piping

Broad resistance to many environments


(1)"CPI"
refers to the chemical processing industry; "FGD" refers to the flue gas desulphurization industry.(2)Represents
a patented product or a product to which the Company believes has limited or no significant competition.


Patents and Trademarks

The Company currently maintains a total of approximately 14 U.S. patents and applications and approximately 169 foreign counterpart
patents and applications targeted at countries with significant or potential markets for the patented products and continues to develop, manufacture and test high-performance nickel- and
cobalt-based alloys. Since fiscal 2000, the Company's technical programs have yielded six new proprietary alloys, four of which are currently commercially available and two of which are being
scaled-up to be brought to market. Of the alloys which are being commercialized, two alloys saw advancement in the process during fiscal 2010. First, HAYNES® 282®
alloy, which management believes will have significant commercial potential for the Company in the long-term, is the subject of a patent application filed in fiscal 2004. HAYNES 282 alloy
has excellent formability, fabricability and forgeability. The commercial launch of HAYNES 282 alloy occurred in October 2005 and, since that time, there have been more than 70 customer tests and
evaluations of this product for the hot sections of gas turbines in the aerospace and land-based gas turbine markets, as well as for automotive and other high-temperature
applications. The Company will continue to actively promote HAYNES 282 alloy through customer engineering visits and technical presentations and papers. In addition, commercialization of
HASTELLOY® C-22HS® alloy also continued in fiscal 2010. The Company has been providing customers with samples of this alloy and making technical presentations since
2004. Testing and evaluation of the alloy is ongoing with special emphasis on applications for the oil and gas market. It is important to note, however, that both of these alloys are in the early
stages of commercialization and pounds sold to date are very low compared to the Company's other proprietary alloys; furthermore, pounds sold in the next three to five years are expected to remain at
low levels. The Company believes that the alloys (particularly HAYNES 282 alloy) are significantly further along the commercialization curve when compared to historical trends for other proprietary
alloys introduced by the Company. In addition to

8

---



Table of Contents

HAYNES
282 alloy and HASTELLOY C-22HS alloy, commercialization is also ongoing for HASTELLOY® HYBRID-BC1® alloy. HASTELLOY HYBRID-BC1 alloy, a CRA product with
potential applications in the chemical processing industry, has demonstrated resistance to hydrochloric and sulfuric acid.

In
addition to the commercialization of the above alloys, the Company continues to scale-up new alloys not yet ready to begin the commercialization process. U.S. patent
applications were filed in fiscal 2006 and 2008 for the HAYNES® NS-163® alloy and HAYNES® HR-224® alloy, respectively. Both of
these new materials are believed to have significant, medium to long-term commercial potential. HAYNES NS-163 alloy is a new alloy with extraordinary
high-temperature strength in sheet form, which has applications in the aerospace, land-based gas turbine and automotive markets. Data generation and fabrication trials
continued through 2010, with test marketing initiated in early 2009. HAYNES HR-224 alloy is an HTA product with superior
resistance to oxidation. Scale up of this alloy is continuing and test marketing was initiated in fiscal 2010.

Patents
or other proprietary rights are an important element of the Company's business. The Company's strategy is to file patent applications in the U.S. and any other country that
represents an important potential commercial market to the Company. In addition, the Company seeks to protect its technology which is important to the development of the Company's business. The
Company also relies upon trade secret rights to protect its technologies and its development of new applications and alloys. The Company protects its trade secrets in part through confidentiality and
proprietary information agreements with its customers. Trademarks on the names of many of the Company's alloys have also been applied for or granted in the U.S. and certain foreign countries.

While
the Company believes its patents are important to its competitive position, significant barriers to entry continue to exist beyond the expiration of any patent period. These
barriers to entry and production include the unique equipment required to produce this material and the exacting process required to achieve the desired metallurgical properties. These processing
requirements include such items as specific annealing temperature, processing speeds and reduction per rolling pass. Management believes that the current alloy development program and these barriers
to entry reduce the impact of patent expirations on the Company.

End Markets

The Company estimates that the global specialty alloy market, including stainless steels, general purpose nickel alloys and
high-performance nickel- and cobalt-based alloys, represents total production volume of approximately 37.0 billion pounds per annum. Of this total market, the Company competes in
the high-performance nickel- and cobalt-based alloy sector, which is estimated to represent approximately 200 million pounds of production per annum. The
high-performance alloy market demands diverse, specialty alloys suitable for use in precision manufacturing. Given the technologically advanced nature of the products, strict requirements
of the end users and higher-growth end markets, the Company believes the high-performance alloy sector provides greater growth potential, higher profit margins and greater opportunities
for service, product and price differentiation than stainless steels and general purpose nickel alloys. While stainless steel and general purpose nickel alloy is generally sold in bulk through
third-party distributors, the Company's products are sold in smaller-sized orders which are customized and typically handled on a direct-to-customer basis.

Aerospace.The Company has manufactured HTA products for the aerospace market since the late 1930s, and has developed numerous
proprietary alloys for
this market. Customers in the aerospace market tend to be the most demanding with respect to meeting specifications within very low tolerances and achieving new product performance standards.
Stringent safety standards and continuous efforts to reduce equipment weight require close coordination between the Company and its customers in the selection and development of HTA products. As a
result, sales to aerospace customers tend to be made through the

9

---



Table of Contents

Company's
direct sales force. Demand for the Company's products in the aerospace market is based on the new and replacement market for jet engines and the maintenance needs of operators of commercial
and military aircraft. The hot sections of jet engines are subjected to substantial wear and tear and accordingly require periodic maintenance, repair and overhaul. The Company views the maintenance,
repair and overhaul business as an area of continuing long-term growth.

Chemical Processing.The chemical processing market represents a large base of customers with diverse CRA applications driven by demand
for key end
use markets such as automobiles, housing, health care, agriculture, and metals production. CRA products supplied by the Company have been used in the chemical processing market since the early 1930s.
Demand for the Company's products in this market is driven by the level of maintenance, repair and expansion requirements of existing chemical processing facilities, as well as the construction of new
facilities. The Company believes the extensive worldwide network of Company-owned service and sales centers, as well as its network of independent distributors and sales agents who supplement the
Company's direct sales efforts outside of the U.S., provide a competitive advantage in marketing its CRA products in the chemical processing market.

Land-based Gas Turbines.Demand for the Company's products in this market is driven by the construction of cogeneration facilities such
as base load for electric utilities or as backup sources to fossil fuel-fired utilities during times of peak demand. Demand for the Company's alloys in the land-based gas
turbine markets has also been driven by concerns regarding lowering emissions from generating facilities powered by fossil fuels. Land-based gas turbine generating facilities have gained
acceptance as clean, low-cost alternatives to fossil fuel-fired electric generating facilities. Land-based gas turbines are also used in power barges with mobility
and as temporary base-load-generating units for countries that have numerous islands and a large coastline. Demand is also generated by mechanical drive units used for oil and
gas production and pipeline transportation, as well as microturbines that are used as back up sources of power generation for hospitals and shopping malls. With a service center in China and sales
centers in India and Singapore, the Company is well positioned to take advantage of the long-term growth potential in those areas in demand for power generation.

Other Markets.Other markets to which the Company sells its HTA products and CRA products include flue-gas desulphurization (or FGD),
oil
and gas, waste incineration, industrial heat treating, automotive, instrumentation, biopharmaceuticals, solar and nuclear fuel. The FGD market has been driven by both legislated and
self-imposed standards for lowering emissions from fossil fuel-fired electric generating facilities. With the completion of the Company's recent capital projects, the Company
anticipates increasing its participation in the FGD market due to the increased production capacity and the improved cost structure which resulted from the completion of the capital projects. The
Company also sells its products for use in the oil and gas market, primarily in connection with sour gas production. In addition, incineration of municipal, biological, industrial and hazardous waste
products typically produces very corrosive conditions that demand high-performance alloys. The Company continues to look for opportunities to introduce and expand the use of its alloys in
emerging technologies such as solar and nuclear fuel applications. Markets capable of providing growth are being driven by increasing performance, reliability and service life requirements for
products used in these markets which could provide further applications for the Company's products.

Sales and Marketing and Distribution

The Company sells its products primarily through its direct sales organization, which operates from 14 total locations in the U.S.,
Europe, Asia and India, 11 of which are service and/or sales centers. All of the Company's service and/or sales centers are operated either directly by the Company or through its wholly-owned
subsidiaries. Approximately 79% of the Company's net revenues in fiscal 2010 were generated by the Company's direct sales organization. The remaining 21% of the Company's fiscal 2010 net revenues was
generated by a network of independent distributors and sales agents who supplement the Company's direct sales in the U.S., Europe and Asia, some of whom have been associated with the Company for over

10

---



Table of Contents

30 years.
Going forward, the Company expects its direct sales force to continue to generate approximately 80% of its total net revenues.

Providing
technical assistance to customers is an important part of the Company's marketing strategy. The Company provides performance analyses of its products and those of its
competitors for its customers. These analyses enable the Company to evaluate the performance of its products and to make recommendations as to the use of those products in appropriate applications,
enabling the products to be included as part of the technical specifications used in the production of customers' products. The Company's market development professionals are assisted by its
engineering and technology staff in directing the sales force to new opportunities. Management believes the Company's combination of direct sales, technical marketing, engineering and customer support
provides an advantage over other manufacturers in the high-performance alloy industry. This activity
allows the Company to obtain direct insight into customers' alloy needs and to develop proprietary alloys that provide solutions to customers' problems.

The
Company continues to focus on growing its business in foreign markets. In recent years, the Company opened a service and sales center in China, the first service and sales center
operated by any manufacturer of nickel- and cobalt- based alloys in China, and sales centers in Singapore, India and Italy. Although sales to China in fiscal 2010 were approximately
$33.4 million, compared to $38.1 million in fiscal 2009, for the long-term, management continues to view China as an expanding market opportunity for the Company. That is why
the Company continues to evaluate the possibility of opening a second service center in China, although global economic conditions may continue to delay this decision.

While
the Company is making concentrated efforts to expand foreign sales, the majority of its revenue continues to be provided by sales to U.S. customers. The Company's domestic
expansion effort includes, but is not limited to, the continued expansion of ancillary product forms, the continued development of new high-performance alloys, the utilization of external
conversion resources to expand and improve the quality of mill-produced product, the addition of equipment in U.S. service and sales centers to improve the Company's ability to provide a
product closer to the form required by the customer and the continued effort through the technical expertise of the Company to find solutions to customer challenges.

The
following table sets forth the approximate percentage of the Company's fiscal 2010 net revenues generated through each of the Company's distribution channels.

From
Domestic
Locations

From
Foreign
Locations

TotalCompany mill direct/service and sales centers


59
%

19
%

78
%Independent distributors/sales agents


21
%

1
%

22
%Total


80
%

20
%

100
%


The
Company's top twenty customers accounted for approximately 36%, 35% and 32% of the Company's net revenues in fiscal 2008, 2009 and 2010, respectively. No customer or group of
affiliated customers of the Company accounted for more than 10% of the Company's net revenues in fiscal 2008, 2009 or 2010.

Net
revenues and net income (loss) in fiscal 2008, 2009 and 2010 were generated primarily by the Company's U.S. operations. Sales to domestic customers comprised approximately 54%, 63%
and 61% of the Company's net revenues in fiscal 2008, 2009 and 2010, respectively. In addition, the majority of the Company's operating costs are incurred in the U.S., as all of its manufacturing
facilities are located in the U.S. It is expected that net revenues and net income will continue to be highly dependent on the Company's domestic sales and manufacturing facilities in the U.S.

11

---



Table of Contents

The
Company's foreign and export sales were approximately $292.9 million, $179.7 million, and $149.9 million for fiscal 2008, 2009 and 2010, respectively. Additional
information concerning foreign operations and export sales is set forth in Note 13 to the Consolidated Financial Statements included elsewhere in this Form 10-K.

Manufacturing Process

High-performance alloys require a lengthier, more complex production process and are more difficult to manufacture than
lower-performance alloys, such as stainless steel. The alloying elements in high-performance alloys must be highly refined during melting, and the manufacturing process must be tightly
controlled to produce precise chemical
properties. The resulting alloyed material is more difficult to process because, by design, it is more resistant to deformation. Consequently, high-performance alloys require that a
greater force be applied when hot or cold working and are less susceptible to reduction or thinning when rolling or forging. This results in more cycles of rolling, annealing and pickling compared to
a lower-performance alloy to achieve proper dimensions. Certain alloys may undergo as many as 40 distinct stages of melting, remelting, annealing, forging, rolling and pickling before they achieve the
specifications required by a customer. The Company manufactures its high-performance alloys in various forms, including sheet, plate, billet/ingot, tubular, wire and other forms.

The
manufacturing process begins with raw materials being combined, melted and refined in a precise manner to produce the chemical composition specified for each
high-performance alloy. For most high-performance alloys, this molten material is cast into electrodes and additionally refined through electroslag remelting. The resulting
ingots are then forged or rolled to an intermediate shape and size depending upon the intended final product form. Intermediate shapes destined for flat products are then sent through a series of hot
and cold rolling, annealing and pickling operations before being cut to final size.

The
argon oxygen decarburization gas controls in the Company's primary melt facility remove carbon and other undesirable elements, thereby allowing more tightly-controlled chemistries,
which in turn produce more consistent properties in the high-performance alloys. The argon oxygen decarburization gas control system also allows for statistical process control monitoring
in real time to improve product quality.

The
Company has a four-high Steckel rolling mill for use in hot rolling high-performance alloys, created specifically for that purpose. The four-high
Steckel rolling mill was installed in 1982 and is one of only two such mills in the high-performance alloy industry. The mill is capable of generating approximately 12.0 million
pounds of separating force and rolling a plate up to 72 inches wide. The mill includes integrated computer controls (with automatic gauge control and programmed rolling schedules), two coiling Steckel
furnaces and five heating furnaces. Computer-controlled rolling schedules for each of the hundreds of combinations of product shapes and sizes the Company produces allow the mill to roll numerous
widths and gauges to exact specifications without stoppages or changeovers.

The
Company also operates a three-high rolling mill and a two-high rolling mill, each of which is capable of custom processing much smaller quantities of material
than the four-high Steckel rolling mill. These mills provide the Company with significant flexibility in running smaller batches of varied products in response to customer requirements.
The Company believes the flexibility provided by the three-high and two-high mills provides the Company an advantage over its major competitors in obtaining smaller specialty
orders.

Investments
in plant and equipment have allowed the Company to increase capacity, reduce unplanned equipment outages, produce higher quality products at reduced costs and improve working
capital management. The Company spent $18.7 million in fiscal 2008, $9.3 million in fiscal 2009 and $12.2 million in fiscal 2010 on plant and equipment upgrades. The significant
investments over the last several years were the result of under-investment in prior years, as well as increases in customer demand and quality requirements. The principal benefits of these
investments are improved machine reliability,

12

---



Table of Contents

improved
product quality, increased processing efficiency, increased capacity, reduced maintenance costs and reduced risk of unplanned outages.

As
announced at the beginning of fiscal 2010, the Company plans to spend, in total, approximately $85.0 million over fiscal years 2010 through 2014 on new strategic initiatives,
routine capital maintenance projects and restructuring its service centers. This amount includes approximately $30.0 million on upgrades to its four-high Steckel rolling mill and
supporting equipment, approximately $25.0 million on other equipment purchases and upgrades and approximately $20.0 million on routine capital maintenance projects. In addition, the
Company is finalizing plans to spend approximately $10.0 million over the course of fiscal 2011 and 2012 to restructure, consolidate and enhance capabilities at its service center operations to
improve the return on assets at those operations. Management does not anticipate prolonged equipment outages as a result of upgrades for any of these projects. These projects are expected to improve
quality, improve inventory turnover, reduce operating costs, improve delivery performance and decrease cycle time.

Capital
spending in fiscal 2010 was $12.2 million, compared to an original target of approximately $15.0 million (excluding any amounts for service center restructuring).
The difference of $2.8 million between the original forecast and the actual spending includes $2.2 million related to the timing of completion of a project for the Company's
four-high Steckel rolling mill that was started in fiscal 2010, but which will be completed in the first quarter of fiscal 2011. The target for capital spending in fiscal 2011 is
approximately $15.0 million, plus additional amounts for the restructuring of the Company's service centers. Management estimates that spending on the service center project will be
approximately $10.0 million over the course of fiscal 2011 and 2012.

Backlog

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 Company's backlog orders
have shipped within six months and approximately 90% have shipped within 12 months. The backlog figures do not reflect that portion of the Company's business conducted at its service and sales
centers on a spot or "just-in-time" basis.

Consolidated Backlog at Fiscal Quarter End

2006

2007

2008

2009

2010(in millions)1st quarter

$
203.5

$
206.9

$
247.8

$
199.7

$
110.42nd quarter


207.4


237.6


254.5


153.0


124.63rd quarter


200.8


258.9


252.6


113.4


130.94th quarter


206.9


236.3


229.2


106.7


148.0


Raw Materials

In fiscal 2010, nickel, a major component of many of the Company's products, accounted for approximately 59% of raw material costs, or
approximately 29% of total cost of sales. Other raw materials include cobalt, chromium, molybdenum and tungsten. Melt materials consist of virgin raw material, purchased scrap and internally produced
scrap.

The
average nickel price per pound for cash buyers for the 30-day period ended on September 30, 2008, 2009 and 2010, as reported by the London Metals Exchange, was
$8.07, $7.93 and $10.26, respectively. Prices for other raw materials which are significant in the manufacture of the Company's products, such as molybdenum, cobalt and chromium, were also higher in
fiscal 2010 than fiscal 2009.

13

---



Table of Contents

Since
most of the Company's products are produced pursuant to specific orders, the Company purchases raw materials against known production schedules. The materials are purchased from
several different suppliers through various arrangements including annual contracts and spot purchases, and involve a variety of pricing mechanisms. Because the Company maintains a policy of pricing
its products at the time of order placement, the Company attempts to establish selling prices with reference to known costs of materials, thereby reducing the risk associated with changes in the cost
of raw materials. However, to the extent that the price of nickel fluctuates rapidly, there may be an unfavorable effect on the Company's gross profit margins. The Company periodically purchases
material forward with certain suppliers.

Research and Technical Support

The Company's technology facilities are located at the Kokomo headquarters and consist of 19,000 square feet of offices and
laboratories, as well as an additional 90,000 square feet of paved storage area. The Company has six fully equipped technology testing laboratories, including a mechanical test lab, a metallographic
lab, an electron microscopy lab, a corrosion lab, a high temperature lab and a welding lab. These facilities also contain a reduced scale, fully equipped melt shop and process lab. As of
September 30, 2010, the technology, engineering and technological testing staff consisted of 23 persons, 9 of whom have engineering or science degrees, including 6 with doctoral degrees, with
the majority of degrees in the field of metallurgical engineering.

Research
and technical support costs primarily relate to efforts to develop new proprietary alloys and new applications for existing alloys. The Company spent approximately
$3.4 million, $3.1 million and $2.8 million for research and technical support activities for fiscal 2008, 2009 and 2010, respectively.

During
fiscal 2010, research and development projects were focused on new alloy development, new product form development and new alloy concept validation, all relating to products for
the aerospace, land-based gas turbine, chemical processing and oil and gas industries. In addition, significant projects were conducted to generate technical data in support of major
market application opportunities in areas such as renewable energy, fuel cell systems, biotechnology (including toxic waste incineration and pharmaceutical manufacturing), and power generation.

Competition

The high-performance alloy market is a highly competitive market in which eight to ten major producers participate in
various product forms. The Company's primary competitors in flat rolled products include Special Metals Corporation, a subsidiary of Precision Cast Parts, Allegheny Technologies, Inc. and Krupp
VDM GmbH, a subsidiary of Thyssen Krupp Stainless. The Company faces strong competition from domestic and foreign manufacturers of both high-performance alloys (similar to those the
Company produces) and other competing metals. The Company may face additional competition in the future to the extent new materials are developed, such as plastics or ceramics, that may be substituted
for the Company's products. The Company also believes that it will face increased competition from non-U.S. entities in the next five to ten years, especially from competitors located in
Eastern Europe and Asia. Additionally, in recent years the Company has benefited from a weak U.S. dollar, which makes the goods of foreign competitors more expensive to import into the U.S. In the
event that the U.S. dollar strengthens, the Company may face increased competition in the U.S. from foreign competitors.

Starting
in the fourth quarter of fiscal 2007 and continuing through fiscal 2010, the Company experienced strong price competition from competitors who produce both stainless steel and
high-performance alloys due primarily to weakness in the stainless market. Historically, the Company experienced similar price competition in the 1990's and in the early 2000's, when
demand in the stainless market weakened. Increased competition has required the Company to continually price our product competitively, which has contributed to the reduction in the Company's gross
profit margin and net income. Although the economic environment has modestly improved, there continues to be significant

14

---



Table of Contents

uncertainty
as to when the stainless market will return to the pre-recession levels. When stainless demand begins to improve, price competition in the high-performance alloy
industry should begin to ease. The Company continues to respond to the competition by increasing emphasis on service centers, offering value-added services, improving its cost structure, and striving
to improve delivery-times and reliability. At this time, however, continued weakness in the economy continues to generate intense competitive pricing pressure.

Employees

As of September 30, 2010, the Company employed approximately 980 full-time employees worldwide. All eligible hourly
employees at the Kokomo plant and the Lebanon, Indiana service and sales center (approximately 499 in the aggregate) are covered by a collective bargaining agreement. On July 1, 2010, the
Company entered into a new collective bargaining agreement with the United Steelworkers of America, which will expire in June 2013. Management believes that current relations with the union are
satisfactory. In September 2010, a majority of the 76 hourly employees at the Company's Arcadia, Louisiana operations elected to be represented by the United Steelworkers of America, although no
collective bargaining agreement is in place at this time and negotiations are ongoing. None of the other employees at the Company's domestic operations are represented by a labor union.

Environmental Matters

The Company's facilities and operations are subject to various foreign, federal, state and local laws and regulations relating to the
protection of human health and the environment, including those governing the discharge of pollutants into the environment and the storage, handling, use, treatment and disposal of hazardous
substances and wastes. In the U.S., such laws include the Occupational, Safety and Health Act, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act and the Resource Conservation
and Recovery Act. As environmental laws and regulations continue to evolve, it is likely the Company will be subject to increasingly stringent
environmental standards in the future, particularly under air quality and water quality laws and standards related to climate change issues, such as a reporting of greenhouse gas emissions. Violations
of these laws and regulations can result in the imposition of substantial penalties and can require facilities improvements. Expenses related to environmental compliance were approximately
$1.8 million for fiscal 2010 and are expected to be approximately $1.8 million for fiscal 2011. Although there can be no assurance, based upon current information available to the
Company, the Company does not expect that costs of environmental contingencies, individually or in the aggregate, will have a material adverse effect on the Company's financial condition, results of
operations or liquidity. The Company's facilities are subject to periodic inspection by various regulatory authorities, who from time to time have issued findings of violations of governing laws,
regulations and permits. In the past five years, the Company has paid administrative fines, none of which have had a material effect on the Company's financial condition, for alleged violations
relating to environmental matters, including the handling and storage of hazardous wastes, requirements relating to its Title V Air Permit, requirements relating to the handling of polychlorinated
biphenyls and violations of record keeping and notification requirements relating to industrial waste water discharge. Capital expenditures of approximately $1.1 million were made for pollution
control improvements during fiscal 2010, with additional expenditures of approximately $1.8 million for similar improvements planned for fiscal 2011.

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 fiscal 2007, IDEM issued a single post-closure permit applicable to both the North and South
Landfills, which contains monitoring and post-closure care requirements. In addition,

15

---



Table of Contents

IDEM
required that a Resource Conservation and Recovery Act, or RCRA, Facility Investigation, or RFI, be conducted in order to further evaluate one area of concern and one solid waste management unit.
The RFI commenced in fiscal 2008 and is ongoing. Based on preliminary results, the Company has determined that additional testing and further source remediation are necessary.

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 action by the Company could be required.

The
Company is unable to estimate the costs of any further corrective action at these sites, if required. Accordingly, the Company cannot assure 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 closure and post-closure groundwater monitoring 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.

The
Company may also incur liability for alleged environmental damages associated with the off-site transportation and disposal of hazardous substances. The Company's
operations generate hazardous substances, and, while a large percentage of these substances are reclaimed or recycled, the Company also accumulates hazardous substances at each of its facilities for
subsequent transportation and disposal off-site by third parties. Generators of hazardous substances which are transported to disposal sites where environmental problems are alleged to
exist are subject to claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, and state counterparts. CERCLA imposes strict, joint and several
liabilities for investigatory and cleanup costs upon hazardous substance generators, site owners and operators and other potentially responsible parties. The Company may have generated hazardous
substances disposed of at other sites potentially subject to CERCLA or equivalent state law remedial action. Thus, there can be no assurance that the Company will not be named as a potentially
responsible party at sites in the future or that the costs associated with those sites would not have a material adverse effect on the Company's financial condition, results of operations or
liquidity.

16

---



Table of Contents

Executive Officers of the Company

The following table sets forth certain information concerning the persons who served as executive officers as of September 30,
2010. Except as indicated in the following paragraphs, the principal occupations of these persons have not changed during the past five years.

Name

Age

Position with Haynes International, Inc.Mark Comerford


48

President and Chief Executive Officer; DirectorMarcel Martin


60

Vice PresidentFinance, Treasurer, Chief Financial OfficerVenkat R. Ishwar


58

Vice PresidentMarketing & TechnologyAnastacia S. Knapper


36

Vice PresidentGeneral Counsel & Corporate SecretaryMarlin C. Losch


50

Vice PresidentSales & DistributionDaniel W. Maudlin


44

Controller and Chief Accounting OfficerJean C. Neel


51

Vice PresidentCorporate AffairsScott R. Pinkham


43

Vice PresidentManufacturingGregory M. Spalding


54

Vice PresidentTube & Wire ProductsJeffrey L. Young


53

Vice President & Chief Information Officer


Mr. Comerford
was elected President and Chief Executive Officer and a director of the Company in October 2008. Before joining the Company, Mr. Comerford was President of
Brush International, Inc., a subsidiary of Brush Engineered Materials, Inc., a company that manufactures high performance materials, from 2004 to 2008.

Mr. Martin
has served as Vice PresidentFinance, Treasurer and Chief Financial Officer of the Company since July 2004.

Dr. Ishwar
has served as Vice PresidentMarketing & Technology of the Company since January 2010. Dr. Ishwar was Senior Vice President of Forgital USA, a
manufacturer of mechanical components, between July 2008 and December 2009. Prior to that, he was Director of Marketing and Business Development at the Company from 2005 to July 2008.

Mrs. Knapper
has served as Vice PresidentGeneral Counsel & Corporate Secretary of the Company since July 2006. Prior to joining the Company, beginning in 2000,
Mrs. Knapper was a lawyer in private practice with the law firm Ice Miller LLP in Indianapolis, Indiana.

Mr. Losch
has served as Vice PresidentSales & Distribution of the Company since January 2010. Prior to that, he served as Vice PresidentNorth
American Sales of the Company beginning in February 2006. Mr. Losch was Midwest Regional Manager of the Company from 2001 to 2006.

Mr. Maudlin
has served as Controller and Chief Accounting Officer of the Company since September 2004.

Ms. Neel
has served as Vice PresidentCorporate Affairs of the Company since April 2000.

Mr. Pinkham
has served as Vice PresidentManufacturing of the Company since March 2008. Prior to that, he served as Vice PresidentManufacturing Planning
of the Company from 2004 to 2008.

Mr. Spalding
has served as Vice PresidentTube & Wire Products of the Company since May 2009. Prior to that, he served as Vice President, Haynes Wire &
Chief Operating Officer from 2006 to May 2009, and Vice PresidentNorth American Sales since he joined the Company in July 1999.

Mr. Young
has served as Vice President & Chief Information Officer since November 2005.

17

---





Table of Contents

Item 1A.    Risk Factors

Risks Related to Our Business

Our revenues may fluctuate widely based upon changes in demand for our customers' products.

Demand for our products is dependent upon and derived from the level of demand for the machinery, parts and equipment produced by our
customers, which are principally manufacturers and fabricators of machinery, parts and equipment for highly specialized applications. Historically, certain of the markets in which we compete have
experienced unpredictable, wide demand fluctuations. Because of the comparatively high level of fixed costs associated with our manufacturing processes, significant declines in those markets have had
a disproportionately adverse impact on our operating results.

Since
we became an independent company in 1987, we have, in several instances, experienced substantial year-to-year declines in net revenues, primarily as a
result of decreases in demand in the industries to which our products are sold. In 1992, 1999, 2002, 2003, 2009 and 2010, our net revenues, when compared to the immediately preceding year, declined by
approximately 24.9%, 15.4%, 10.3%, 21.2%, 31.1% and 13.0%, respectively. We may experience similar fluctuations in our net revenues in the future. Additionally, demand is likely to continue to be
subject to substantial year-to-year fluctuations as a consequence of industry cyclicality, as well as other factors such as global economic uncertainty, and such fluctuations
may have a material adverse effect on our financial condition or results of operations.

Profitability in the high-performance alloy industry is highly sensitive to changes in sales volumes.

The high-performance alloy industry is characterized by high capital investment and high fixed costs. The cost of raw
materials is the primary variable cost in the manufacture of our high-performance alloys and, in fiscal 2010, represented approximately 48.5% of our total cost of sales. Other
manufacturing costs, such as labor, energy, maintenance and supplies, often thought of as variable, have a significant fixed element. Profitability is, therefore, very sensitive to changes in volume,
and relatively small changes in volume can result in significant variations in earnings. Our ability to effectively utilize our manufacturing assets depends greatly upon continuing demand in our
end-markets, successfully increasing our market share and continued acceptance of our new products into the marketplace. Any failure to effectively utilize our manufacturing assets may
negatively impact our gross margin and net income.

We are subject to risks associated with global economic and political uncertainties

We are susceptible to macroeconomic downturns in the United States and abroad that may affect the general economic climate and our
performance and the demand of our customers. The continuing turmoil in the global financial system has had, and may continue to have, an impact on our business and our financial condition. In addition
to the impact that the global financial crisis has already had, we may face significant challenges if conditions in the financial markets do not improve or worsen.

In
addition, we are subject to various domestic and international risks and uncertainties, including changing social conditions and uncertainties relating to the current and future
political climate. Changes in governmental policies (particularly those that would limit or reduce defense spending) could have an adverse effect on our financial condition and may reduce our
customers' demand for our products and/or depress pricing of those products used in the defense industry or which have other military applications, resulting in a material adverse impact on our
business, prospects, results of operations, revenues and cash flows. Furthermore, any actual armed hostilities, and any future terrorist attacks in the U.S. or abroad, could also have an adverse
impact on the U.S. economy, global financial markets and our business. The effects may include, among other things, a decrease in demand in the aerospace industry due to reduced air travel, as well as
reduced demand in the other industries we serve. Depending upon the severity, scope and duration of these effects, the impact on our financial position, results of operations, and cash flows could be
material.

18

---



Table of Contents

We Operate in Cyclical Markets.

A significant portion of our revenues are derived from the highly cyclical aerospace, power generation and chemical processing markets.
Our sales to the aerospace industry constituted 36.3% of our total sales in fiscal 2010. Our land-based gas turbine and chemical processing sales constituted 19.4% and 23.0%, respectively,
of our total sales in fiscal 2010.

The
commercial aerospace industry is historically driven by demand from commercial airlines for new aircraft. The U.S. and international commercial aviation industries continue to face
challenges arising from the global economic climate, competitive pressures and fuel costs. Demand for commercial aircraft is influenced by industry profitability, trends in airline passenger traffic,
the state of U.S. and world economies, the ability of aircraft purchasers to obtain required financing and numerous other factors, including the effects of terrorism and health and safety concerns.
The military aerospace cycle is highly dependent on U.S. and foreign government funding; however, it is also driven by the effects of
terrorism, a changing global political environment, U.S. foreign policy, the retirement of older aircraft and technological improvements to new engines that increase reliability. Accordingly, the
timing, duration and severity of cyclical upturns and downturns cannot be forecast with certainty. Downturns or reductions in demand could have a material adverse effect on our business.

The
land-based gas turbine market is also cyclical in nature. Demand for power generation products is global and is affected by the state of the U.S. and world economies, the
availability of financing to power generation project sponsors and the political environments of numerous countries. The availability of fuels and related prices also have a large impact on demand.
Reductions in demand for our products sold into the land-based gas turbine industry may have a material adverse effect on our business.

We
also sell products into the chemical processing industry, which is also cyclical in nature. Customer demand for our products in this market may fluctuate widely depending on U.S. and
world economic conditions, the availability of financing, and the general economic strength of the end use customers in this market. Cyclical declines or sustained weakness in this market could have a
material adverse effect on our business.

Aerospace demand is dependent on primarily two manufacturers.

A significant portion of our aerospace products are sold to fabricators and are ultimately used in the production of new commercial
aircraft. There are only two primary manufacturers of large commercial aircraft in the world, The Boeing Company and Airbus. A significant portion of our aerospace sales are dependent on the number of
new aircraft built by these two manufacturers, which is in turn dependent on a number of factors over which we have little or no control. Those factors include demand for new aircraft from around the
globe and factors that impact manufacturing capabilities, such as the availability of raw materials and manufactured components, changes in the regulatory environment and labor relations between the
aircraft manufacturers and their work forces. A significant interruption or slow down in the number of new aircraft built by the aircraft manufacturers could have a material adverse effect on our
business.

Our operations are dependent on production levels at our Kokomo facility.

Our principal assets are located at our primary integrated production facility in Kokomo, Indiana and at our production facilities in
Arcadia, Louisiana and in Mountain Home, North Carolina. The Arcadia and Mountain Home plants rely to a significant extent upon feedstock produced at the Kokomo facility. Any production failures,
shutdowns or other significant problems at the Kokomo facility could have a material adverse effect on our financial condition and results of operations. We maintain property damage insurance to
provide for reconstruction of damaged equipment, as well as business interruption insurance to mitigate losses resulting from any production shutdown caused by an insured loss. Although we believe

19

---



Table of Contents

that
our insurance is adequate to cover any such losses that may not be the case. One or more significant uninsured losses at our Kokomo facility may have a material adverse effect on our financial
condition.

In
addition, from time to time we schedule planned outages on the equipment at our Kokomo facility for maintenance and upgrades. These projects are subject to a variety of risks and
uncertainties, including a variety of market, operational and labor related factors, many of which may be beyond our control. Should a planned shut-down on a significant piece of equipment
last materially longer than originally planned, there could be a material adverse effect on our operating results.

During periods of lower demand in other alloy markets, some of our competitors may use their available capacity to produce higher volumes of high-performance
alloys, which leads to increased competition in the high-performance alloy market.

We have experienced increased competition since the third quarter of fiscal 2007 from competitors who produce both stainless steel and
high-performance alloys. Due to continued under-utilization of capacity in the stainless steel market, we believe these competitors increased their production levels and sales activity in
high-performance alloys to keep capacity in their mills as full as possible, while offering very competitive prices and delivery times. While competition should soften as the stainless
market improves, based on the current economic environment there continues to be significant capacity available in the stainless market with which we are competing. Increased competition has required
us to lower prices, which has contributed to the reduction in our gross profit margin.

In
addition, as a result of the competition in our markets, we have made significant price concessions to our customers from time to time, and we expect customer pressure for further
price concessions to continue. Maintenance of our market share will depend, in part, on our ability to sustain a cost
structure that enables us to be cost-competitive. If we are unable to adjust our costs relative to our pricing, our profitability will suffer. Our effectiveness in managing our cost
structure will be a key determinate of future profitability and competitiveness.

Rapid fluctuations in the price of nickel may materially adversely affect our operating results.

To the extent that we are unable to adjust to rapid fluctuations in the price of nickel, there may be a negative effect on our gross
profit margins. In fiscal 2010, nickel, a major component of many of our products, accounted for approximately 59% of our raw material costs, or approximately 29% of our total costs of sales. We enter
into several different types of sales contracts with our customers, some of which allow us to pass on increases in nickel prices to our customers. In other cases, we price our products at the time of
order, which allows us to establish prices with reference to known costs of our nickel inventory, but which does not allow us to offset an unexpected rise in the price of nickel. We may not be able to
successfully offset rapid increases in the price of nickel or other raw materials in the future. In the event that raw material price increases occur that we are unable to pass on to our customers,
our cash flows or results of operations would be materially adversely affected.

Alternatively,
as happened in fiscal 2009, our results of operations may also be negatively impacted if both customer demand and nickel prices rapidly fall at the same time. In those
circumstances, we may experience higher per pound manufacturing costs due to the recognition of higher nickel costs from inventory which flows through cost of goods sold.

Our business is dependent on a number of raw materials that are subject to volatility in price and availability.

We use a number of raw materials in our products which are found in only a few parts of the world and are available from a limited
number of suppliers. The availability and costs of these materials may be influenced by private or government cartels, changes in world politics, labor relations between the materials producers and
their work force, unstable governments in exporting nations and inflation. The ability of key material suppliers to meet quality and delivery requirements can also impact our ability to

20

---



Table of Contents

meet
commitments to customers. Future shortages or price fluctuations in raw materials could result in decreased sales as well as margins, or otherwise adversely affect our business. The enactment of
new or increased import duties on raw materials imported by us could also increase the costs to us of obtaining the raw materials and might adversely affect our business.

Failure to successfully develop, commercialize, market and sell new applications and new products could adversely affect our business.

We believe that our proprietary alloys and metallurgical manufacturing expertise provide us with a competitive advantage over other
high-performance alloy producers. Our ability to maintain this competitive advantage depends on our ability to continue to offer products that have equal or better performance
characteristics than competing products at competitive prices. Our future growth will depend, in part, on our ability to address the increasingly demanding needs of our customers by enhancing the
properties of our existing alloys, by timely developing new applications for our existing products, and by timely developing, commercializing, marketing and selling new products. If we are not
successful in these efforts, or our new products and product enhancements do not adequately meet the requirements of the marketplace and achieve market acceptance, our revenues, cash flows and results
of operations could be negatively affected.

An interruption in energy services may cause manufacturing curtailments or shutdowns.

We rely upon third parties for our supply of energy resources consumed in the manufacture of our products. The prices for and
availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond
our control. Disruptions in the supply of energy resources could temporarily impair the ability to manufacture products for customers. Further, increases in energy costs, or changes in costs relative
to energy costs paid by competitors, has and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive,
increased energy prices may have an adverse effect on our results of operations and financial condition.

We may be adversely affected by environmental, health and safety laws, regulations, costs and other liabilities.

We are subject to various foreign, federal, state and local environmental, health and safety laws and regulations, including those
governing the discharge of pollutants into the environment, the storage, handling, use, treatment and disposal of hazardous substances and wastes and the health and safety of our employees. Under
these laws and regulations, we may be held liable for all costs arising out of any release of hazardous substances on, under or from any of our current or former properties or any off-site
location to which we sent or arranged to be sent wastes for disposal or treatment, and such costs may be material. We could also be held liable for any and all consequences arising out of human
exposure to such substances or other hazardous substances that may be attributable to our products or other environmental damage. In addition, some of these laws and
regulations require our facilities to operate under permits that are subject to renewal or modification. These laws, regulations and permits can require expensive pollution control equipment or
operational changes to limit actual or potential impacts to the environment. Violations of these laws, regulations or permits can also result in the imposition of substantial penalties, permit
revocations and/or facility shutdowns.

We
have received permits from the environmental regulatory authorities in Indiana and North Carolina to close and to provide post-closure monitoring and care for certain
areas of our Kokomo and Mountain Home facilities that were used for the storage and disposal of wastes, some of which are classified as hazardous under applicable regulations. We are required to
monitor groundwater and to continue post-closure maintenance of the former disposal areas at each site. As a result, we are aware of elevated levels of certain contaminants in the
groundwater and additional corrective action could be required. Additionally, it is possible that we could be required to undertake other corrective action for any

21

---



Table of Contents

other
solid waste management unit existing or determined to exist at our facilities. We are unable to estimate the costs of any further corrective action, if required. Accordingly, we cannot assure
you that the costs of future corrective action at these or any other current or former sites will not have a material adverse effect on our financial condition, results of operations or liquidity.

We
may also incur liability for alleged environmental damages associated with the off-site transportation and disposal of hazardous substances. Our operations generate
hazardous substances, many of which we accumulate at our facilities for subsequent transportation and disposal off-site or recycling by third parties. Generators of hazardous substances
which are transported to disposal sites where environmental problems are alleged to exist are subject to liability under CERCLA and state counterparts. In addition, we may have generated hazardous
substances disposed of at sites which are subject to CERCLA or equivalent state law remedial action. CERCLA imposes strict, joint and several liabilities for investigatory and cleanup costs upon
hazardous substance generators, site owners and operators and other potentially responsible parties regardless of fault. We cannot assure you that we will not be named as a potentially responsible
party at sites in the future or that the costs associated with current or future additional sites would not have a material adverse effect on our financial condition, results of operations or
liquidity.

Environmental
laws are complex, change frequently and have tended to become increasingly stringent over time. While we have budgeted for future capital and operating expenditures to
comply with environmental laws, we cannot assure you that environmental laws will not change or become more stringent in the future. Therefore, we cannot assure you that our costs of complying with
current and future environmental, health and safety laws and regulations, and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not materially
adversely affect our business, results of operations or financial condition. See "BusinessEnvironmental Matters."

Our manufacturing processes, and the manufacturing processes of many of our suppliers and customers, are energy intensive and generate carbon dioxide and other "Greenhouse
Gases", and pending legislation or regulation of Greenhouse Gases, if enacted or adopted in an onerous form, could have a material adverse impact on our results of operations, financial condition and
cash flows.

Political and scientific debates related to the impacts of emissions of greenhouse gases on the global climate are prevalent.
Regulation or some form of legislation aimed at reducing the Greenhouse Gas emissions is currently being considered in the United States as well as globally. As a high-performance alloy
manufacturer, we will be affected, both directly and indirectly, if proposed climate change legislation, such as use of a "cap and trade", is enacted which could have a material adverse impact on our
results of operations, financial condition and cash flows.

We could be required to make additional contributions to our defined benefit pension plans as a result of adverse changes in interest rates and the capital markets.

Our estimates of liabilities and expenses for pension benefits incorporate significant assumptions, including the rate used to discount
the future estimated liability, the long-term rate of return on plan assets and several assumptions relating to the employee workforce (salary increases, retirement age and mortality). We
currently expect that we will be required to make future minimum contributions to our defined benefit pension plans. A decline in the value of plan investments in the future, an increase in costs or
liabilities or unfavorable changes in laws or regulations that govern pension plan funding could materially change the timing and amount of required pension funding. A requirement to fund any deficit
created in the future could have a material adverse effect on our operations and financial condition.

22

---



Table of Contents

If we are unable to recruit, hire and retain skilled and experienced personnel, our ability to effectively manage and expand our business will be harmed.

Our success largely depends on the skills, experience and efforts of our officers and other key employees who may terminate their
employment at any time. The loss of any of our senior management team could harm our business. The announcement of the loss of one of our key employees could negatively affect our stock price. Our
ability to retain our skilled workforce and our success in attracting and hiring new skilled employees will be a critical factor in determining whether we will be successful in the future. We face
challenges in hiring, training, managing and retaining employees in certain areas including metallurgical researchers, equipment technicians, and
sales and marketing staff. If we are unable to recruit, hire and retain skilled employees, our new product and alloy development and commercialization could be delayed, and our marketing and sales
efforts could be hindered, which would adversely impact our competitiveness and financial results.

The risks inherent in our international operations may adversely impact our revenues, results of operations and financial condition.

We anticipate we will continue to derive a significant portion of our revenues from operations in international markets. As we continue
to expand internationally, we will need to hire, train and retain qualified personnel for our direct sales efforts and retain distributors and train their personnel in countries where language,
cultural or regulatory impediments may exist. We cannot ensure that distributors, regulators or other government agencies will continue to accept our products, services and business practices. In
addition, we purchase raw materials on the international market. The sale and shipment of our products and services across international borders, as well as the purchase of raw materials from
international sources, subject us to the trade regulations of various jurisdictions. Compliance with such regulations is costly. Any failure to comply with applicable legal and regulatory obligations
could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial
of export privileges, seizure of shipments and restrictions on certain business activities. Failure to comply with applicable legal and regulatory obligations could result in the disruption of our
shipping, sales and service activities. Our international sales operations expose us and our representatives, agents and distributors to risks inherent in operating in foreign jurisdictions,
including:



We
cannot assure you that one or more of these factors will not harm our business. Any material decrease in our international revenues or inability to expand our international operations
would adversely impact our revenues, results of operations and financial condition.

23

---



Table of Contents

Although a collective bargaining agreement is in place for certain employees, union or labor disputes could still disrupt the manufacturing process.

Our operations rely heavily on our skilled employees. Any labor shortage, disruption or stoppage caused by any deterioration in
employee relations or difficulties in the renegotiation of labor contracts could reduce our operating margins and income. Approximately 63% percent of our U.S. employees are affiliated with unions or
covered by collective bargaining agreements. Failure to negotiate new labor agreements when required could result in a work stoppage at one or more of our facilities. Although we believe that our
labor relations have generally been
satisfactory, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor disturbances could occur in the
future, any of which could reduce our operating margins and income and place us at a disadvantage relative to non-union competitors.

Product liability and product warranty risks could adversely affect our operating results.

We produce many critical products for commercial and military aircraft and for land-based gas turbines. Failure of our
products could give rise to substantial product liability and other damage claims. We maintain insurance addressing this risk, but there can be no assurance that the insurance coverage will be
adequate or will continue to be available on terms acceptable to us.

Additionally,
we manufacture our products to strict contractually-established specifications using complex manufacturing processes. If we fail to meet the contractual requirements for a
part, we may be subject to warranty costs to repair or replace the product itself and additional costs related to the investigation and inspection of non-complying products. These costs
are generally not insured.

Risks Related to Shares of Our Common Stock

Our stock price is subject to fluctuations as a result of being traded on a public exchange which may not be related to our performance.

The stock market has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and
investors in our common stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects. The price of our common stock could be
subject to wide fluctuations in response to a number of factors, including those listed elsewhere in this "Risk Factors" section and others such as:



Payment of dividends will depend on our future financial condition and performance.

Although our Board of Directors currently intends to continue the payment of regular quarterly cash dividends on shares of our common
stock, the timing and amount of future dividends will depend on the

24

---



Table of Contents

Board's
assessment of our operations, financial condition, projected liabilities, contractual restrictions, restrictions imposed by applicable law and other factors. We cannot guarantee that we will
continue to declare dividends at the same or similar rates.

Provisions of our certificate of incorporation and by-laws could discourage potential acquisition proposals and could deter or prevent a change in control.

Some provisions in our certificate of incorporation and by-laws, as well as Delaware statutes, may have the effect of
delaying, deferring or preventing a change in control. These provisions, including those regulating the nomination of directors, may make it more difficult for other persons, without the approval of
our Board of Directors, to launch takeover attempts that a stockholder might consider to be in his or her best interest. These provisions could limit the price that some investors might be willing to
pay in the future for shares of our common stock.

Item 1B.    Unresolved Staff Comments

There are no unresolved comments by the staff of the U.S. Securities and Exchange Commission.

Item 2.    Properties

Manufacturing Facilities.The Company owns manufacturing facilities in the following locations:



The
Kokomo plant, the Company's primary production facility, is located on approximately 180 acres of industrial property and includes over 1.0 million square feet of building
space. There are three sites consisting of (1) a headquarters and research laboratory; (2) primary and secondary melting, annealing furnaces, forge press and several smaller hot mills;
and (3) the Company's four-high Steckel rolling mill and sheet product cold working equipment, including two cold strip mills. All alloys and product forms other than tubular and
wire goods are produced in Kokomo.

The
Arcadia plant is located on approximately 42 acres of land, and includes 135,000 square feet of buildings on a single site. Arcadia uses feedstock produced in Kokomo to fabricate
welded and seamless alloy pipe and tubing and purchases extruded tube hollows to produce seamless titanium tubing. Manufacturing processes at Arcadia require cold pilger mills, weld mills, draw
benches, annealing furnaces and pickling facilities.

The
Mountain Home plant is located on approximately 29 acres of land, and includes approximately 100,000 square feet of building space. The Mountain Home facility is primarily used to
manufacture finished high-performance alloy wire. Warehousing of finished wire product is also done at this facility.

The
owned facilities located in the United States are subject to a mortgage which secures the Company's obligations under its U.S. revolving credit facility with a group of lenders led
by Wachovia Capital Finance Corporation. For more information see Note 7 to the Consolidated Financial Statements included elsewhere in this Form 10-K.

Service and Sales Centers.The service and sales centers contain equipment capable of precision laser and water jet processing services
to cut and
shape products to customers' precise specifications. The Company owns service and sales centers in the following locations:



25

---



Table of Contents

The
Openshaw plant, located near Manchester, England, consists of approximately 7 acres of land and over 200,000 square feet of buildings on a single site.

In
addition, the Company leases service and sales centers in the following locations:



Sales Centers.The Company leases sales centers in the following locations:



All
owned and leased service and sales centers not described in detail above are single site locations and are less than 100,000 square feet. The Company believes that its existing
facilities are suitable for its current business needs. The Company is developing plans to spend approximately $10.0 million over the course of the next several years to restructure,
consolidate and enhance capabilities at its service center operations.

Item 3.    Legal Proceedings

The Company is subject to extensive federal, state and local laws and regulations. Future developments and increasingly stringent
regulations could require us to make additional unforeseen expenditures for these matters. The Company is regularly involved in litigation, both as a plaintiff and as a defendant, relating to its
business and operations. Such litigation includes federal and state EEOC administrative actions and litigation and administrative actions relating to environmental matters. For more information see
"Item 1. BusinessEnvironmental Matters." Litigation and administrative actions may result in substantial costs and may divert management's attention and resources, and the level of
future expenditures for legal matters cannot be determined with any degree of certainty. Nonetheless, based on the facts presently known, management does not believe that expenditures for legal
proceedings will have a material effect on its financial position, results of operations or liquidity.

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 against numerous manufacturers, including the Company, in December 2008 in the U.S. District Court Eastern
Division and February 2007 in California state court, 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 53 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 issued in connection with the Company's emergence from Chapter 11
reorganization. While the Company contests such lawsuits vigorously, and may have applicable insurance, there are several

26

---



Table of Contents

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, it cannot assure you 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.

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

No matters were submitted to a vote of the Company's stockholders during the fourth quarter of fiscal 2010.

27

---





Table of Contents

Part II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company's common stock is listed on the NASDAQ Global Market ("NASDAQ") and traded under the symbol "HAYN". The following table
sets forth, for the periods indicated, the high and low closing prices for the Company's common stock as reported by NASDAQ.

Fiscal year ended September 30, 2010:

High

Low

DividendSeptember 30, 2010

$
35.39

$
27.58

$
0.20June 30, 2010

$
38.88

$
26.61

$
0.20March 31, 2010

$
36.59

$
27.04

$
0.20December 31, 2009

$
34.99

$
24.75

$
0.20Fiscal year ended September 30, 2009:September 30, 2009

$
34.67

$
20.58

$
0.00June 30, 2009

$
28.25

$
17.17

$
0.00March 31, 2009

$
26.41

$
10.92

$
0.00December 31, 2008

$
46.50

$
12.49

$
0.00


The
range of the Company's common stock price on NASDAQ from October 1, 2009 to September 30, 2010 was $38.88 to $24.75. The closing price of the common stock was $34.92 on
September 30, 2010.

As
of November 1, 2010, there were approximately 36 holders of record of the Company's common stock.

Our
payment of dividends is permitted under our existing financing agreement, although our U.S. revolving credit facility requires (i) prior notice to the agent, (ii) that
aggregate dividends cannot exceed $25.0 million per year, or $50.0 million during the term of the facility, and (iii) that the Company have at least $50.0 million in
availability within 30 consecutive days before and after issuance of any dividend. While it is our intention to continue to pay quarterly cash dividends for 2011 and beyond, any decision to pay future
cash dividends will be made by our Board of Directors and will depend upon our earnings, financial conditions and other factors.

28

---



Table of Contents

Cumulative Total Stockholder Return

The graph below compares the cumulative total stockholder return on the Company's common stock to the cumulative total return of the
Russell 2000 Index, S&P MidCap 400 Index, and Peer Group for each of the last six fiscal years ended September 30, 2010. The cumulative total return assumes an investment of $100 on
September 30, 2005 and the reinvestment of any dividends during the period. The Russell 2000 is a broad-based index that includes smaller market capitalization stocks. The S&P MidCap 400 Index
is the most widely used index for mid-sized companies. Management believes that the S&P MidCap 400 is representative of companies with similar market and economic characteristics to
Haynes. Furthermore, we also believe the Russell 2000 Index is representative of the Company's current market capitalization status and this index is also provided on a comparable basis. The companies
included in the Peer Group Index are: Allegheny Technologies, Inc., Titanium Metals Corporation, RTI International Metals, Inc., Universal Stainless & Alloy Products, Inc.
and Carpenter Technologies Corp. Management believes that the companies included in the Peer Group, taken as a whole, provide a meaningful comparison in terms of competition, product offerings and
other relevant factors. The total stockholder return for the peer group is weighted according to the respective issuer's stock market capitalization at the beginning of each period.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*  Among Haynes, The Russell 2000 Index, The S&P MidCap 400  Index and our Peer Group

GRAPHIC

---

2005

2006

2007

2008

2009

2010Haynes International, Inc.


100.00


156.00


341.48


187.32


127.28


139.68Russell 2000


100.00


105.29


123.55


105.16


99.91


117.69S&P MidCap 400


100.00


108.65


120.61


105.53


93.84


106.38Peer Group


100.00


195.57


301.86


142.87


129.72


199.02


29

---



Table of Contents

Item 6.    Selected Financial Data

This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto included elsewhere in this Form 10-K.

Amounts
below are in thousands, except backlog, which is in millions, share and per share information and average nickel price.

Year Ended September 30,2006

2007

2008

2009

2010Statement of Operations Data:Net revenues

$
434,405

$
559,836

$
637,006

$
438,633

$
381,543Cost of sales(1)


325,573


408,752


492,349


416,150


327,712Selling, general and administrative expense


40,296


39,441


42,277


36,207


35,470Research and technical expense


2,659


3,116


3,441


3,120


2,828Impairment of goodwill(2)











43,737


Operating income (loss)


65,877


108,527


98,939


(60,581
)

15,533Interest expense (income), net


8,024


3,939


1,025


509


(59
)Provision for (benefit from) income taxes


22,313


38,468


35,136


(8,768
)

6,717Net income (loss)

$
35,540

$
66,120

$
62,778

$
(52,322
)
$
8,875Net income (loss) per share(3):Basic

$
3.55

$
6.07

$
5.27

$
(4.36
)
$
0.74Diluted

$
3.46

$
5.89

$
5.22

$
(4.36
)
$
0.73Weighted average shares outstanding(3):Basic


10,000,000


10,896,067


11,903,289


12,004,498


12,049,779Diluted


10,270,642


11,230,101


12,026,440


12,004,498


12,159,529




September 30,2006

2007

2008

2009

2010Balance Sheet Data:Working capital

$
101,864

$
299,312

$
330,357

$
307,091

$
300,199Property, plant and equipment, net


88,921


97,860


107,302


105,820


107,043Total assets


445,860


586,969


617,567


544,150


551,543Total debt


120,043


38,733


14,909


1,592


1,433Long-term portion of debt


3,097


3,074


1,582


1,482


1,324Accrued pension and postretirement
benefits(4)


126,488


123,587


115,359


181,077


193,560Stockholders' equity


151,548


316,377
(5)

379,543


278,799


265,849




2006

2007

2008

2009

2010Consolidated Backlog at Fiscal Quarter End(5):1st quarter

$
203.5

$
206.9

$
247.8

$
199.7

$
110.42nd quarter


207.4


237.6


254.5


153.0


124.63rd quarter


200.8


258.9


252.6


113.4


130.94th quarter


206.9


236.3


229.2


106.7


148.0




Year Ended September 30,2006

2007

2008

2009

2010Average nickel price per pound(6)

$
13.67

$
13.40

$
8.07

$
7.93

$
10.26


---

30

---



Table of Contents

31

---





Table of Contents

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 breakdown of net revenues, shipments and average selling prices to the markets served by Haynes 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 elsewhere in this Form 10-K.

Quarter Ended

Quarter EndedDecember 31,
2008

March 31,
2009

June 30,
2009

September 30,
2009

December 31,
2009

March 31,
2010

June 30,
2010

September 30,
2010BacklogDollars (in thousands)

$
199,667

$
153,039

$
113,420

$
106,680

$
110,406

$
124,571

$
130,885

$
147,958Pounds (in thousands)


7,287


5,557


4,468


4,544


4,915


5,805


5,675


5,997Average selling price per pound

$
27.40

$
27.54

$
25.39

$
23.48

$
22.46

$
21.46

$
23.06

$
24.67Average nickel price per poundLondon Metals Exchange(1)

$
4.39

$
4.40

$
6.79

$
7.93

$
7.75

$
10.19

$
8.79

$
10.26


(1)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 Ended

Quarter EndedDecember 31,
2008

March 31,
2009

June 30,
2009

September 30,
2009

December 31,
2009

March 31,
2010

June 30,
2010

September 30,
2010Net revenues(in thousands)Aerospace

$
49,721

$
45,200

$
34,959

$
30,158

$
28,375

$
33,495

$
36,739

$
39,793Chemical processing


30,883


26,025


26,944


25,803


20,828


18,333


27,461


21,062Land-based gas turbines


32,145


28,648


22,087


14,821


14,966


20,028


18,412


20,802Other markets


19,166


17,562


11,529


11,152


13,080


19,426


15,540


20,021Total product revenue


131,915


117,435


95,519


81,934


77,249


91,282


98,152


101,678Other revenue


2,389


2,978


2,806


3,657


3,759


3,337


3,119


2,968Net revenues

$
134,304

$
120,413

$
98,325

$
85,591

$
81,008

$
94,619

$
101,271

$
104,646Shipments by markets(in thousands of pounds)Aerospace


1,653


1,648


1,387


1,261


1,221


1,435


1,581


1,739Chemical processing


947


1,170


1,077


1,337


1,155


811


1,372


870Land-based gas turbines


1,507


1,680


1,405


872


946


1,291


1,106


1,252Other markets


691


871


511


467


605


867


665


906Total shipments


4,798


5,369


4,380


3,937


3,927


4,404


4,724


4,767Average selling price per poundAerospace

$
30.08

$
27.43

$
25.20

$
23.92

$
23.24

$
23.34

$
23.24

$
22.88Chemical processing


32.61


22.24


25.02


19.30


18.03


22.61


20.02


24.21Land-based gas turbines


21.33


17.05


15.72


17.00


15.82


15.51


16.65


16.62Other markets


27.74


20.16


22.56


23.88


21.62


22.41


23.37


22.10Total average selling price(product only; excluding other revenue)


27.49


21.87


21.81


20.81


19.67


20.73


20.78


21.33Total average selling price(including other revenue)


27.99


22.43


22.45


21.74


20.63


21.48


21.44


21.95


32

---





Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Please refer to page 1 of this Form 10-K for a cautionary statement regarding forward-looking information.

Overview of Business

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

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

Significant Events of Fiscal 2010



On November 23, 2009, the Company announced that the Board of Directors has initiated a regular quarterly cash dividend of $0.20
per outstanding share of the Company's common stock. The first dividend paid by the Company was on December 15, 2009 to stockholders of record at the close of business on December 3,
2009, the first business day of December. The December dividend cash pay-out was based on current shares outstanding and equaled approximately $2.4 million. Subsequently, there were
cash dividend payments on March 15, 2010, June 15, 2010 and September 15, 2010. The total authorized cash dividends paid for fiscal 2010 was approximately $9.7 million.



On July 1, 2010, the Company announced that the membership of the United Steelworkers Local 2958 (USW) ratified an agreement
covering approximately 485 employees at the Company's Kokomo, Indiana plant and the Lebanon, Indiana service center. The new three-year agreement included a lump sum payout of four
thousand dollars for covered employees and wage increases of 0.0%, 2.0% and 2.0% in 2010, 2011 and 2012. This agreement succeeds an existing agreement that expired June 30, 2010. The
one-time lump sum payment total of $2.1 million (including employer taxes) was paid in July 2010 and will be expensed on a straight-line basis over the
three-year life of the contract as the payment allows for a lower wage increase over the term of the agreement.



Net income for fiscal 2010 is $8.9 million, a substantial improvement over the fiscal 2009 net loss of $52.3 million. The
net loss in fiscal 2009 included a write-off of goodwill of $42.9 million. The Company's improved results from fiscal 2009 to fiscal 2010 were due to a combination of a modestly
improving market environment, improved product mix, high cost raw material from inventory which impacted cost of goods

33

---



Table of Contents

sold
in fiscal 2009 having no impact in fiscal 2010, and an improved cost structure (including staffing reductions during fiscal 2009 and operating efficiencies attributable to equipment upgrades).



As announced at the beginning of fiscal 2010, the Company plans to spend, in total, approximately $85.0 million over fiscal
years 2010 through 2014 on capital projects. This amount includes approximately $30.0 million on upgrades to its four-high Steckel rolling mill and supporting equipment,
approximately $25.0 million on other equipment purchases and upgrades and approximately $20.0 million on routine capital maintenance projects. In addition, the Company is finalizing
plans to spend approximately $10.0 million over the course of fiscal 2011 and 2012 to restructure, consolidate and enhance capabilities at its service center operations to improve the return on
assets at those operations. Management does not anticipate prolonged equipment outages as a
result of upgrades for any of these projects. These projects are expected to improve quality, improve inventory turnover, reduce operating costs, improve delivery performance and decrease cycle time.

Capital
spending in fiscal 2010 was $12.2 million, compared to an original target of approximately $15.0 million, excluding any spending for service center restructuring.
The difference of $2.8 million between the original forecast and the actual amount spent includes $2.2 million related to the timing of completion of a project for the Company's
four-high Steckel rolling mill that was started in fiscal 2010, but which will be completed in the first quarter of fiscal 2011. The target for capital spending in fiscal 2011 is
approximately $15.0 million, plus additional amounts for the restructuring of the Company's service centers. Management estimates that spending on the service center project will be
approximately $10.0 million over the course of fiscal 2011 and 2012.

Dividends Declared

On November 18, 2010, the Company announced that the Board of Directors declared a regular quarterly cash dividend of $0.20 per
outstanding share of the Company's common stock. The dividend is payable December 15, 2010 to stockholders of record at the close of business on December 1, 2010. The aggregate cash
payout based on current shares outstanding will be approximately $2.4 million, or approximately $9.7 million on an annualized basis.

Outlook



Net revenues, volume and net income improved during each quarter of fiscal 2010 when compared to the immediately preceding quarter.
Management expects this trend to continue into fiscal 2011 due to moderate improvement in demand in the Company's end markets and improving global economic conditions. Management expects that the
Company's operating results will continue to be negatively impacted by reduced absorption of fixed manufacturing costs due to less than optimal production volumes, and by competition from stainless
manufacturers who are trying to fill increased capacity, which may impose continued downward pressure on prices. These negative factors are expected to be somewhat offset by the benefit of the cost
savings initiatives undertaken in fiscal
2009 and 2010 and increased efficiencies and equipment reliability resulting from the Company's capital improvement program.

Although
management expects continued improvement in forward performance for fiscal 2011 compared to fiscal 2010, net revenues, volume and net income in the first quarter of fiscal 2011
should approximate the levels achieved in the fourth quarter of fiscal 2010, due to the impact of fewer ship days, customer shutdowns and major maintenance projects to be undertaken by the Company in
the first quarter. Management also expects that demand for the Company's products will continue to increase as market conditions improve, resulting in increased levels of net revenues, volume and net
income in the second quarter of fiscal 2011 as compared to the fourth quarter of fiscal 2010.

34

---



Table of Contents



Controllable working capital, which includes accounts receivable, inventory, accounts payable and accrued expenses, increased during
fiscal 2010. Accounts receivable increased during fiscal 2010 due to increased sales and an almost three-day improvement in days sales outstanding. Inventory increased significantly during
the fiscal year primarily due to staging of work-in-process inventory for initiation of the inventory pull process, staging of inventory as safety stock for customers in the
event of a work stoppage associated with the collective bargaining agreement negotiation and increased sales volumes. The process of reducing inventory started in July 2010 and management expects that
during fiscal 2011 inventory turns will improve quarter-over-quarter. Although inventory was reduced during the fourth quarter of fiscal 2010, the reduction was lower than
management's original expectation. The initiation and operation of the pull inventory process is more complex than originally considered, in particular due to increased order entry. Progress is being
made, but management expects that the benefits from the inventory pull process will not be seen in full until the end of fiscal 2011. As a result of these factors, the cash balance at
September 30, 2010 was $64.0 million.



As a result of increasing order entry, backlog dollars were approximately $148.0 million at September 30, 2010, an
increase of approximately 13.1% from approximately $130.9 million at June 30, 2010. This increase is the result of a 7.0% increase in backlog average selling
price and a 5.7% increase in backlog pounds. In addition, backlog in all four of the Company's primary markets was higher at September 30, 2010 than at September 30, 2009. Management
expects backlog dollars and pounds to continue to increase through fiscal 2011.



Although volumes and pricing continued to improve through the fourth quarter of fiscal 2010, the Company continued to experience
intense price competition in the marketplace, particularly in mill direct project business. This competition continues to require the Company to aggressively price project business orders, which has
unfavorably impacted the Company's gross profit margin and net income. However, it appears that the impact of the price competition lessened in the second half of fiscal 2010, which is reflected in
the improved product pricing in the fourth quarter of fiscal 2010.

Average
selling price increased 8.4% between the first quarter and the fourth quarter of fiscal 2010. This increase reflects both a higher priced mix of alloys and forms and a modest
improvement in demand in the Company's end markets. Current selling prices continue to be impacted by both the competitive environment and the volatility of raw material in the market place, which
will continue to temper prices. If market conditions continue to improve, pricing competition in the high-performance alloy industry may begin to ease further in future quarters. The
Company continues to respond to this competition by increasing emphasis on service centers, offering value-added services, improving its cost structure, and focusing on delivery-times and reliability.

35

---



Table of Contents



Gross profit margin and gross profit margin percentage continued the trend of sequential improvement which began in the fourth quarter
of fiscal 2009.

Trend of Gross Profit Margin and
Gross Profit Margin Percentage for Fiscal 2009Quarter Ended(dollars in thousands)

December 31,
2008

March 31,
2009

June 30,
2009

September 30,
2009Net Revenues

$
134,304

$
120,413

$
98,325

$
85,591Gross Profit Margin

$
18,750

$
6,997

$
(8,168
)
$
4,904Gross Profit Margin %


13.9
%

5.8
%

(8.3
)%

5.7
%




Trend of Gross Profit Margin and
Gross Profit Margin Percentage for Fiscal 2010Quarter Ended(dollars in thousands)

December 31,
2009

March 31,
2010

June 30,
2010

September 30,
2010Net Revenues

$
81,008

$
94,619

$
101,271

$
104,645Gross Profit Margin

$
6,845

$
10,190

$
16,854

$
19,942Gross Profit Margin %


8.5
%

10.8
%

16.6
%

19.1
%


The
continued improvement in gross profit margin and gross profit margin percentage is due to a combination of rising volume, improved product mix, improved cost structure of the Company
(discussed below) and a modestly improving market environment. Service center transactional business volumes and prices have improved, particularly in the aerospace market, due to significant
destocking by the Company's customers in this market during the last two years.

Since
the fourth quarter of fiscal 2009, cost of goods sold per pound has improved as a result of (i) a significant reduction in the amount of higher cost raw material from
inventory, which negatively impacted cost of goods sold in much of fiscal 2009; (ii) manufacturing staff reductions in the second and fourth quarters of fiscal 2009; (iii) operating
efficiencies attributable to equipment upgrades, particularly in the sheet finishing operations; and (iv) continued implementation of lean manufacturing techniques.

36

---



Table of Contents

Overview of Markets

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

Year Ended September 30,2006

2007

2008

2009

2010Amount

% of
Total

Amount

% of
Total

Amount

% of
Total

Amount

% of
Total

Amount

% of
TotalNet Revenues(dollars in millions)Aerospace

$
165.8


38.2
%
$
211.2


37.7
%
$
247.3


38.8
%
$
160.0


36.5
%
$
138.4


36.3
%Chemical processing


129.4


29.8


148.0


26.4


166.1


26.1


109.7


25.0


87.7


23.0Land-based gas turbines


77.9


17.9


103.0


18.4


124.1


19.5


97.7


22.3


74.2


19.4Other markets(1)


56.4


13.0


86.3


15.4


86.6


13.6


59.4


13.5


68.1


17.8Total product


429.5


98.9


548.5


97.9


624.1


98.0


426.8


97.3


368.4


96.5Other revenue(2)


4.9


1.1


11.3


2.1


12.9


2.0


11.8


2.7


13.1


3.5Net revenues

$
434.4


100.0
%
$
559.8


100.0
%
$
637.0


100.0
%
$
438.6


100.0
%
$
381.5


100.0
%U.S.

$
265.1


61.0
%
$
343.9


61.4
%
$
344.1


54.0
%
$
258.9


59.0
%
$
231.6


60.7
%Foreign

$
169.3


39.0
%
$
215.9


38.6
%
$
292.9


46.0
%
$
179.7


41.0
%
$
149.9


39.3
%Shipments by Market
(millions of pounds)Aerospace


7.1


32.9
%

7.7


33.9
%

8.9


38.2
%

5.9


32.2
%

6.0


33.7
%Chemical processing


5.0


23.1


5.1


22.5


5.4


23.2


4.5


24.5


4.2


23.6Land-based gas turbines


4.8


22.2


5.1


22.5


6.0


25.8


5.5


29.6


4.6


25.8Other markets(1)


4.7


21.8


4.8


21.1


3.0


12.8


2.5


13.7


3.0


16.9Total Shipments


21.6


100.0
%

22.7


100.0
%

23.3


100.0
%

18.5


100.0
%

17.8


100.0
%Average Selling Price Per PoundAerospace

$
23.28




$
27.57




$
27.94




$
26.90




$
23.16Chemical processing


25.97





28.89





30.83





24.20





20.84Land-based gas turbines


16.27





20.22





20.82





17.88





16.15Other markets(1)


11.87





17.84





28.17





23.39





22.37Total product(3)


19.84





24.15





26.81





23.09





20.67Total average selling price


20.07





24.65





27.37





23.73





21.41


---

37

---



Table of Contents

Aerospace sales increased throughout fiscal 2010. The increased sales appear to be largely due to the end of a destocking process that occurred in
this market in fiscal 2008 and 2009. Based on the Company's current backlog and rate of order entry, management anticipates that aerospace sales will continue to improve in fiscal 2011. This belief is
further supported by sizable backlogs at Boeing and Airbus, including 2012 production schedules which will drive sales starting in mid-2011, and a strong showing for new plane orders at
the Farnborough Airshow. Management anticipates that the maintenance, repair and overhaul business will continue at a steady pace due to required maintenance schedules for engines currently in use.

Sales
to the chemical processing industry decreased year-over-year, primarily as a result of the economic slowdown which impacted volume and price. Pounds shipped
to the chemical processing market in fiscal 2010 fluctuated quarter-to-quarter as a result of sporadic project business. Management believes the reduced sales in fiscal 2010
compared to prior periods reflect the historical trend of decreases in the Company's chemical processing market sales when there are global economic concerns. However, based on our order entry and
backlog balance, it is anticipated that sales to the chemical processing industry will improve in fiscal 2011 compared to fiscal 2010. The improved level of activity is further supported by an
increase in forecasted global spending in the chemical processing sector.

Sales
to the land-based gas turbine market in fiscal 2010 decreased by approximately 24% from the previous year. Based on the Company's backlog and order entry rate, it is
anticipated that volumes for fiscal 2011 will improve from fiscal 2010, although the amount of the improvement is uncertain. Subject to global economic conditions, management believes that
long-term demand after calendar 2011 in this market will show improvement due to higher activity in power generation, oil and gas production, and alternative power systems.
Land-based gas turbines are favored in electric generating facilities due to low capital cost at installation, flexibility in use of alternative fuels and fewer SO2 emissions
than the traditional fossil fuel-fired facilities.

Sales
into the "Other" market category increased year-over-year by 15% driven by a volume increase of 20%. The industries in this category focus on upgrading
overall quality, improving product performance through increased efficiency, prolonging product life, and lowering long-term costs. Companies in these industries are looking to achieve
these goals through the use of "Advanced Materials" which supports the increased use of high-performance alloys in an expanding number of applications. In addition to supporting and
expanding the traditional businesses of flue-gas desulphurization, automotive, oil and gas and heat treating, the Company expects increased levels of activity in
non-traditional markets such as solar, nuclear and silicon feed-stock production applications. Based on our backlog balance and order entry activity, it is anticipated that the
Company will experience a level of revenue activity for this category in excess of fiscal 2010.

38

---





Table of Contents

Results of Operations

Year Ended September 30, 2010 Compared to Year Ended September 30, 2009

($ in thousands)

Year Ended September 30,

Change2009

2010

Amount

%Net revenues

$
438,633


100.0
%
$
381,543


100.0
%
$
(57,090
)

(13.0
)%Cost of sales


416,150


94.9
%

327,712


85.9
%

(88,438
)

(21.3
)%Gross profit


22,483


5.1
%

53,831


14.1
%

31,348


139.4
%Selling, general and administrative expense


36,207


8.3
%

35,470


9.3
%

(737
)

(2.0
)%Research and technical expense


3,120


0.7
%

2,828


0.7
%

(292
)

(9.4
)%Impairment of Goodwill


43,737


10.0
%







(43,737
)

(100.0
)%Operating income (loss)


(60,581
)

(13.8
)%

15,533


4.1
%

76,114


125.6
%Interest income


(138
)

0.0
%

(209
)

0.0
%

(71
)

(51.4
)%Interest expense


647


0.1
%

150


0.0
%

(497
)

(76.8
)%Income (loss) before income taxes


(61,090
)

(13.9
)%

15,592


4.1
%

76,682


125.5
%Provision for (benefit from) income taxes


(8,768
)

(2.0
)%

6,717


1.8
%

15,485


176.6
%Net income (loss)

$
(52,322
)

(11.9
)%
$
8,875


2.3
%
$
61,197


117.0
%


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

By market

Year Ended
September 30,

Change2009

2010

Amount

%Net revenues(dollars in thousands)Aerospace

$
160,038

$
138,402

$
(21,636
)

(13.3
)%Chemical processing


109,655


87,684


(21,971
)

(20.0
)%Land-based gas turbines


97,701


74,208


(23,493
)

(24.0
)%Other markets


59,409


68,067


8,658


14.6
%Total product revenue


426,803


368,361


(58,442
)

(13.7
)%Other revenue


11,830


13,182


1,352


11.4
%Net revenues

$
438,633

$
381,543

$
(57,090
)

(13.0
)%Pounds by markets(in thousands)Aerospace


5,949


5,976


27


0.5
%Chemical processing


4,531


4,208


(323
)

(7.1
)%Land-based gas turbines


5,464


4,595


(869
)

(15.9
)%Other markets


2,540


3,043


503


19.8
%Total shipments


18,484


17,822


(662
)

(3.6
)%Average selling price per poundAerospace

$
26.90

$
23.16

$
(3.74
)

(13.9
)%Chemical processing


24.20


20.84


(3.36
)

(13.9
)%Land-based gas turbines


17.88


16.15


(1.73
)

(9.7
)%Other markets


23.39


22.37


(1.02
)

(4.4
)%Total product(excluding other revenue)


23.09


20.67


(2.42
)

(10.5
)%Total average selling price(including other revenue)

$
23.73

$
21.41

$
(2.32
)

(9.8
)%


39

---



Table of Contents

Net Revenues.Net revenues were $381.5 million in fiscal 2010, a decrease of 13.0% from $438.6 million in
fiscal 2009. Volume was 17.8 million pounds in fiscal 2010, a decrease of 3.6% from 18.5 million pounds in fiscal 2009. The aggregate average selling price was $21.41 per pound in fiscal
2010, a decrease of 9.8% from $23.73 per pound in fiscal 2009. Increased competition and weakness in customer demand in the first half of fiscal 2010 unfavorably impacted both average selling price
and volume in fiscal 2010 in all primary markets. The Company's consolidated backlog was $148.0 million at September 30, 2010, an increase of 38.7% from $106.7 million at
September 30, 2009. The increase in backlog reflects the combination of a 32.0% increase in pounds and a 5.1% increase in average selling price resulting primarily from the improving economic
conditions and, to a lesser degree, rising raw material costs.

Sales
to the aerospace market were $138.4 million in fiscal 2010, a decrease of 13.5% from $160.0 million in fiscal 2009, due to a 13.9% decrease in the average selling
price per pound partially offset by a 0.5% increase in volume. Pricing decreased due to reduced market demand in fiscal 2010 as reflected in the reduction in air traffic and destocking of the aero
engine supply chain starting in fiscal 2009 and continuing through the early part of fiscal 2010. Volumes remained flat in fiscal 2010 from 2009, however, the activity in the aerospace market improved
in the last half of fiscal 2010 over the first half of fiscal 2010.

Sales
to the chemical processing market were $87.7 million in fiscal 2010, a decrease of 20.0% from $109.7 million in fiscal 2009, due to a 13.9% decrease in the average
selling price per pound combined with a 7.1% decrease in volume. Volume in this market is project-oriented in nature and the decline in fiscal 2010 was primarily due to the impact of the global
economic recession on construction and maintenance activity in the market. Average selling price per pound decreased due to continued price competition.

Sales
to the land-based gas turbine market were $74.2 million in fiscal 2010, a decrease of 24.0% from $97.7 million in fiscal 2009, due to a decrease of 9.7%
in the average selling price per pound combined with a 15.9% decrease in volume. The decrease in both volume and average selling price is due to reduced manufacturing activity by original equipment
manufacturers and increased price competition.

Sales
to other markets were $68.1 million in fiscal 2010, an increase of 14.6% from $59.4 million in fiscal 2009, due to a 19.8% increase in volume and a 4.4% decrease in
average selling price per pound. The increase in volume reflects the continued effort to sell into new applications, especially solar and nuclear fuel applications. The decline in average selling
price reflects the competitive economic environment.

Other Revenue.Other revenue was $13.2 million in fiscal 2010, an increase of 11.4% from $11.8 million in fiscal 2009. The
increase is
due primarily to a reduction in customer returns.

Cost of Sales.Cost of sales was $327.7 million, or 85.9% of net revenues, in fiscal 2010 compared to $416.2 million, or
94.9% of net
revenues, in fiscal 2009. Cost of sales in fiscal 2010 decreased by $88.4 million, or 21.3%, as compared to fiscal 2009 due to lower sales volume, lower raw material costs, workforce reductions
and other reduced manufacturing expenses. This decrease was partially offset by reduced absorption of fixed manufacturing costs caused by lower production of sheet product.

Selling, General and Administrative Expense.Selling, general and administrative expense was $35.5 million in fiscal 2010, a
decrease of
$0.7 million, or 2.0%, from $36.2 million in fiscal 2009 due to lower business activity causing sales expenses to decline and workforce reductions in the second and fourth quarters of
fiscal 2009. Selling, general and administrative expense as a percentage of net revenues increased to 9.3% for fiscal 2010 compared to 8.3% for fiscal 2009 due primarily to reduced revenues.

40

---



Table of Contents

Research and Technical Expense.Research and technical expense was $2.8 million in fiscal 2010, or 0.7% of revenue, a decrease of
$0.3 million from $3.1 million, or 0.7% of net revenues, in fiscal 2009 due to the reduction in workforce during the second and fourth quarters of fiscal 2009.

Impairment of Goodwill.An impairment charge of $43.7 million was recorded in the second quarter of fiscal 2009 due to weakening of
the U.S.
economy and the global credit crisis resulting in a reduction of the Company's market capitalization below its total shareholders' equity value for a sustained period of time. Please see Note 2
in the Notes to Consolidated Financial Statements contained elsewhere in this Form 10-K for additional information.

Operating Income (Loss).As a result of the above factors, operating income in fiscal 2010 was $15.5 million compared to an
operating loss of
$(60.6) million in fiscal 2009.

Interest Expense.Interest expense was $0.2 million in fiscal 2010, a decrease of $0.4 million from $0.6 million in
fiscal 2009.
The decrease is attributable to a lower average debt balance during fiscal 2010 (zero revolver at September 30, 2010). Interest expense includes the amortization of debt issuance costs
associated with the Company's credit facility which was renewed in fiscal 2009.

Income Taxes.Income tax was an expense of $6.7 million in fiscal 2010, an increase of $15.5 million from a benefit of $(8.8)
million
in fiscal 2009, due to the company generating pretax income rather than pretax loss. The effective tax rate for fiscal 2010 was 43.1%, compared to 14.4% in fiscal 2009. The change in the effective tax
rate is primarily attributable to the non-deductible goodwill impairment charge, which lowered the effective tax rate in fiscal 2009, combined with a change in the state apportionment
factor, which lowered the blended state tax rate in fiscal 2010 resulting in an unfavorable reduction of our deferred tax asset.

Net Income (Loss).As a result of the above factors, net income in fiscal 2010 was $8.9 million, an increase of $61.2 million
from a
net loss of $(52.3) million in fiscal 2009.

Year Ended September 30, 2009 Compared to Year Ended September 30, 2008

($
in thousands)

Year Ended September 30,

Change2008

2009

Amount

%Net revenues

$
637,006


100.0
%
$
438,633


100.0
%
$
(198,373
)

(31.1
)%Cost of sales


492,349


77.3
%

416,150


94.9
%

(76,199
)

(15.5
)%Gross profit


144,657


22.7
%

22,483


5.1
%

(122,174
)

(84.4
)%Selling, general and administrative expense


42,277


6.6
%

36,207


8.3
%

(6,070
)

(14.4
)%Research and technical expense


3,441


0.5
%

3,120


0.7
%

(321
)

(9.3
)%Impairment of Goodwill








43,737


10.0
%

43,737


NAOperating income


98,939


15.5
%

(60,581
)

(13.8
)%

(159,520
)

(161.2
)%Interest income


(188
)

0.0
%

(138
)

0.0
%

(50
)

(26.6
)%Interest expense


1,213


0.2
%

647


0.1
%

(566
)

(46.7
)%Income (loss) before income taxes


97,914


15.4
%

(61,090
)

(13.9
)%

(159,004
)

(162.4
)%Provision for (benefit from) income taxes


35,136


5.5
%

(8,768
)

(2.0
)%

(43,904
)

(125.0
)%Net income (loss)

$
62,778


9.9
%
$
(52,322
)

(11.9
)%
$
(115,100
)

(183.3
)%


41

---



Table of Contents

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

By market

Year Ended
September 30,

Change2008

2009

Amount

%Net revenues(dollars in thousands)Aerospace

$
247,272

$
160,038

$
(87,234
)

(35.3
)%Chemical processing


166,092


109,655


(56,437
)

(34.0
)%Land-based gas turbines


124,117


97,701


(26,416
)

(21.3
)%Other markets


86,592


59,409


(27,183
)

(31.4
)%Total product revenue


624,073


426,803


(197,270
)

(31.6
)%Other revenue


12,933


11,830


(1,103
)

(8.5
)%Net revenues

$
637,006

$
438,633

$
(198,373
)

(31.1
)%Pounds by markets(in thousands)Aerospace


8,851


5,949


(2,902
)

(32.8
)%Chemical processing


5,388


4,531


(857
)

(15.9
)%Land-based gas turbines


5,962


5,464


(498
)

(8.4
)%Other markets


3,074


2,540


(534
)

(17.4
)%Total shipments


23,275


18,484


(4,791
)

(20.6
)%Average selling price per poundAerospace

$
27.94

$
26.90

$
(1.04
)

(3.7
)%Chemical processing


30.83


24.20


(6.63
)

(21.5
)%Land-based gas turbines


20.82


17.88


(2.94
)

(14.1
)%Other markets


28.17


23.39


(4.78
)

(17.0
)%Total product(excluding other revenue)


26.81


23.09


(3.72
)

(13.9
)%Total average selling price(including other revenue)

$
27.37

$
23.73

$
(3.64
)

(13.3
)%


Net Revenues.Net revenues were $438.6 million in fiscal 2009, a decrease of 31.1% from $637.0 million in fiscal 2008. Volume
was
18.5 million pounds in fiscal 2009, a decrease of 20.6% from 23.3 million pounds in fiscal 2008. The aggregate average selling price was $23.73 per pound in fiscal 2009, a decrease of
13.3% from $27.37 per pound in fiscal 2008. The increased competition and the global economic recession unfavorably impacted both average selling price and volume in fiscal 2009 in all markets.
Commodity prices also declined due to the weak economic environment, which has contributed to the reduction in average selling prices. The Company's consolidated backlog was $106.7 million at
September 30, 2009, a decrease of 53.4% from $229.2 million at September 30, 2008. This reduction reflects the combination of a 40.0% decrease in pounds and a 22.4% decrease in
average selling price resulting from the economic recession, the competitive environment and lower raw material cost.

Sales
to the aerospace market were $160.0 million in fiscal 2009, a decrease of 35.3% from $247.3 million in fiscal 2008, due to a 3.7% decrease in the average selling
price per pound combined with a 32.8% decrease in volume. The volume decreased due to slowing market demand as reflected in the reduction in air traffic and the build rate for new aircraft and was
exacerbated by disruption to the aerospace supply chain from the fall 2008 work stoppage at Boeing.

42

---



Table of Contents

Sales
to the chemical processing market were $109.7 million in fiscal 2009, a decrease of 34.0% from $166.1 million in fiscal 2008, due to a 21.5% decrease in the average
selling price per pound combined with a 15.9% decrease in volume. Volume in this market is project-oriented in nature and the decline in fiscal 2009 was primarily due to the impact of the global
economic recession on construction and maintenance activity in the market, as well as an increasingly competitive environment.

Sales
to the land-based gas turbine market were $97.7 million in fiscal 2009, a decrease of 21.3% from $124.1 million for fiscal 2008, due to a decrease of
14.1% in the average selling price per pound combined with an 8.4% decrease in volume. The decrease in both volume and average selling price is due to the effect of the economic recession and
increased competition.

Sales
to other markets were $59.4 million in fiscal 2009, a decrease of 31.4% from $86.6 million in fiscal 2008, due to a 17.0% decrease in average selling price per pound
combined with a 17.4% decrease in volume. The decline in volume and average selling price reflects the economic slowdown and the continuing increase in market competition in many of these markets.

Other Revenue.Other revenue was $11.8 million in fiscal 2009, a decrease of 8.5% from $12.9 million in fiscal 2008. The
decrease is
due primarily to lower scrap and miscellaneous sales.

Cost of Sales.Cost of sales was $416.1 million, or 94.9% of net revenues, in fiscal 2009 compared to $492.3 million, or 77.3%
of net
revenues, in fiscal 2008. Cost of sales in fiscal 2009 decreased by $76.2 million as compared to fiscal 2008 due to lower volume, and spending and workforce reductions. However, cost of sales
per pound increased due to higher raw material costs from inventory and reduced absorption of fixed manufacturing costs caused by lower production volumes. Higher per pound cost and increased
competition combined with weaker demand (which reduced net revenue and average selling prices), resulted in an increase in cost of sales as a percentage of net revenues as compared to the same period
of fiscal 2008. In addition, cost of sales in fiscal 2008 was decreased by $3.7 million, or 0.6% of net revenues, as a result of a pension curtailment recorded due to an amendment to freeze
further pension benefit accruals for non-union employees in the U.S.

Selling, General and Administrative Expense.Selling, general and administrative expense was $36.2 million in fiscal 2009, a
decrease of
$6.1 million from $42.3 million in fiscal 2008 due primarily to: (i) lower business activity causing commissions and sales expenses to decline, and (ii) significant
workforce reductions in the second and fourth quarters of fiscal 2009. Selling, general and administrative expenses as a percentage of net revenues increased to 8.3% for fiscal 2009 compared to 6.6%
for fiscal 2008 due primarily to reduced revenues.

Research and Technical Expense.Research and technical expense was $3.1 million in fiscal 2009, or 0.7% of revenue, a decrease of
$0.3 million from $3.4 million, or 0.5% of net revenues, in fiscal 2008 due to the reduction in workforce during the second and fourth quarters of fiscal 2009.

Impairment of Goodwill.An impairment charge of $43.7 million was recorded in the second quarter of fiscal 2009 due to weakening of
the U.S.
economy and the global credit crisis resulting in a reduction of
the Company's market capitalization below its total shareholder's equity value for a sustained period of time. Please see Note 2 in the Notes to Consolidated Financial Statements contained
elsewhere in this Form 10-K for additional information.

Operating Income (Loss).As a result of the above factors, operating loss in fiscal 2009 was $(60.6) million compared to operating
income of
$98.9 million in fiscal 2008.

Interest Expense.Interest expense was $0.6 million in fiscal 2009, a decrease of $0.6 million from $1.2 million in
fiscal 2008.
The decrease is attributable to a lower average debt balance during fiscal 2009 (zero revolver at September 30, 2009). Interest expense includes the amortization of debt issuance costs
associated with the Company's credit facility which was renewed in fiscal 2009.

43

---





Table of Contents

Income Taxes.Income taxes were a benefit of $8.8 million in fiscal 2009, a decrease of $43.9 million from an expense of
$35.1 million in fiscal 2008, due to a pretax loss. The effective tax rate for fiscal 2009 was a benefit of 14.4% compared to an expense of 35.9% in fiscal 2008. The decrease in effective tax
rate is primarily attributable to (i) the impairment of non-deductible goodwill, (ii) a change in the reinvestment policy of a foreign entity and (iii) change in the
state apportionment factor which lowered the blended state tax rate resulting in an unfavorable reduction of our deferred tax asset.

Net Income (Loss).As a result of the above factors, net loss in fiscal 2009 was $(52.3) million, a decrease of
$115.1 million from net
income of $62.8 million in fiscal 2008.

Liquidity and Capital Resources



During fiscal 2010, the Company's primary sources of cash were cash on hand and cash from operations, as detailed below. At
September 30, 2010, the Company had cash and cash equivalents of approximately $64.0 million compared to cash and cash equivalents of approximately $105.1 million at
September 30, 2009.

Net
cash used in operating activities was $19.0 million in fiscal 2010, as compared to cash provided by operating activities of $120.0 million in fiscal 2009. At
September 30, 2010, inventory balances (net of foreign currency adjustments) were approximately $49.5 million higher than at September 30, 2009. This increase in inventory was a
result of higher sales in the fourth quarter of fiscal 2010 compared to the fourth quarter of fiscal 2009, initiation of pull inventory and higher raw material costs. Cash used from an increase of
accounts receivable was $15.8 million in fiscal 2010, as compared to cash generated of $50.9 million for fiscal 2009, as a result of higher fourth quarter sales. Pension and
postretirement benefits was a use of cash of $8.4 million in fiscal 2010. The above factors were partially offset by cash generated from income taxes due to refunds of prior year taxes paid and
cash generated from accounts payable due to higher purchases of raw materials. Net cash used in investing activities was $12.2 million in fiscal 2010, as a result of capital expenditure
spending. Net cash used from financing activities was $9.9 million primarily due to the payment of $9.7 million in dividends to shareholders. As a result of the above, the cash balance
decreased to $64.0 million at September 30, 2010.

Net
cash provided by operating activities was $120.0 million in fiscal 2009, as compared to cash provided by operating activities of $41.3 million in fiscal 2008. The
strong cash generation was the result of improved working capital management with the focus on reducing inventory and collecting accounts receivable. At September 30, 2009, inventory balances
(net of foreign currency adjustments) were approximately $121.0 million lower than at September 30, 2008. This reduction in inventory was a result of lower sales, lower raw material
costs and a focus on shortened production lead-times made possible by our recent equipment upgrades and more effective stocking strategies at service centers. Cash generated from a
reduction of accounts receivable was $50.9 million in fiscal 2009, as compared to $5.1 million for fiscal 2008, as a result of lower sales and focusing on improving days sales
outstanding. A use of cash of $13.9 million was related to pension and postretirement benefits in fiscal 2009. Net cash used in investing activities was $9.2 million in fiscal 2009, as a
result of the lower level of capital expenditure spending. As a result of the above, borrowings on the revolving credit facility decreased by $11.8 million to a zero balance on the revolver and
the cash balance increased to $105.1 million at September 30, 2009.



The Company's sources of cash for fiscal 2011 are expected to consist primarily of cash generated from operations, cash on hand, and,
if needed, borrowings under the U.S. revolving credit facility. The U.S. revolving credit facility provides borrowings in a maximum amount of $120.0 million, subject to a borrowing base formula
and certain reserves. At September 30, 2010, the Company had cash of approximately $64.0 million, an outstanding balance of zero on the U.S. revolving credit facility and access

44

---



Table of Contents

to
a total of approximately $120.0 million under the U.S. revolving credit facility, subject to borrowing base and certain reserves. Management believes that the resources described above will
be sufficient to fund working capital requirements, planned capital expenditures, payments to our pension plan and dividends over the next twelve months.



The Company and Wachovia Capital Finance Corporation (Central) ("Wachovia") entered into a Second Amended and Restated Loan and
Security Agreement (the "Amended Agreement") with an effective date of November 18, 2008, which amended and restated the revolving credit facility between Haynes and Wachovia dated
August 31, 2004. The maximum revolving loan amount under the Amended Agreement is $120.0 million subject to a borrowing base formula and certain reserves. 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 2.25% per annum, or the adjusted Eurodollar rate used by the
lender, plus up to 3.0% per annum. As of September 30, 2010, the U.S. revolving credit facility had an outstanding balance of zero. During the twelve month period ended September 30,
2010, it bore interest at a weighted average interest rate of 5.00%. 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 fixed charge coverage ratios and other customary covenants, including covenants restricting the incurrence of
indebtedness, the granting of liens, and the sale of assets. The Company is permitted to pay dividends and repurchase common stock if certain financial metrics are met. As of September 30,
2010, the most recent required measurement date under the Amended Agreement, the Company was in compliance with these covenants. The U.S. revolving credit facility matures on September 30,
2011. 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 the equity interests in its U.S.
subsidiaries, but excluding the four-high Steckel rolling mill and related assets, which are pledged to Titanium Metals Corporation to secure the performance of the Company's obligations
under a Conversion Services
Agreement with TIMET. The U.S. revolving credit facility is also secured by a pledge of a 65% equity interest in each of the Company's foreign subsidiaries.



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



At
the beginning of fiscal 2010, the Company announced plans to spend, in total, approximately $85.0 million over fiscal years 2010 through 2014 on new strategic initiatives, routine capital
maintenance projects and restructuring service centers. This amount includes approximately $30.0 million on upgrades to its four-high Steckel rolling mill and supporting equipment,
approximately $25.0 million on other equipment purchases and upgrades and approximately $20.0 million on routine capital maintenance projects. In addition, the Company is finalizing
plans to spend approximately $10.0 million over the course of fiscal 2011 and 2012 to restructure, consolidate and enhance capabilities at its service center operations to improve the return on
assets at those operations. Management does not anticipate prolonged

45

---



Table of Contents

equipment
outages as a result of upgrades for any of these projects. These projects are expected to improve quality, reduce operating costs, improve delivery performance and decrease cycle time.

Capital
spending in fiscal 2010 was $12.2 million, compared to an original target of approximately $15.0 million, excluding any amounts for service center restructuring.
The difference of $2.8 million between the original forecast and the actual spending includes $2.2 million related to the timing of completion of a project for the Company's
four-high steckel rolling mill that was started in fiscal 2010, but which will be completed in the first quarter of fiscal 2011. The target for capital spending in fiscal 2011 is
$15.0 million, plus additional amounts for the restructuring of the Company's service centers. Management estimates that spending on the service center project will be approximately
$10.0 million over the course of fiscal 2011 and 2012.



The following table sets forth the Company's contractual obligations for the periods indicated, as of September 30, 2010:

Payments Due by PeriodContractual Obligations(1)

Total

Less than
1 year

1-3 Years

3-5 Years

More than
5 years(in thousands)Debt obligations (including interest and fees)(2)

$
510

$
510

$


$


$
Operating lease obligations


11,406


2,919


3,280


2,237


2,970Capital lease obligations


305


33


66


66


140Raw material contracts


36,929


36,929








Mill supplies contracts


122


122








Capital projects


4,523


4,523








Leveltek monthly minimum commitment


4,700


600


1,200


1,200


1,700Pension plan(3)


63,463


13,663


28,920


20,880


Non-qualified pension plans


906


95


190


190


431Other postretirement benefits(4)


50,000


5,000


10,000


10,000


25,000Environmental post-closure monitoring


1,324











1,324Non-compete obligations(5)


110


110








Total

$
174,298

$
64,504

$
43,656

$
34,573

$
31,565


(1)Taxes
are not included in the table. As of September 30, 2010, the non-current income taxes payable were $308. It is not
possible to determine in which period the tax liability might be paid out.(2)As
of September 30, 2010, the revolver balance was zero, therefore no interest is due. However, the Company is obligated to the Bank
for unused line fees and quarterly management fees.(3)The
Company has a funding obligation to contribute $62,520 to the domestic pension plan and expects its U.K. subsidiary to contribute $943 in
fiscal 2010 to the U.K. These payments will be tax deductible. All benefit payments under the domestic pension plan will come from the plan and not the Company.(4)Represents
expected postretirement benefits only based upon anticipated timing of payments.(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.


46

---



Table of Contents

Inflation

While neither inflation nor deflation has had, nor do we expect them to have, a material impact on our operating results, there can be
no assurance that our business will not
be affected by inflation or deflation in the future. Historically, the Company has had the ability to pass on to customers both increases in consumable costs and material costs because of the
value-added contribution the material makes to the final product. Raw material comprises the most significant portion of the product costs. Nickel, cobalt and molybdenum, the primary raw materials
used to manufacture the Company's products, all have experienced significant fluctuations in price. In the future the Company may not be able to successfully offset rapid increases in the price of
nickel or other raw materials. In the event that raw material price increases occur that the Company is unable to pass on to its customers, its cash flows or results of operations would be materially
adversely affected.

Critical Accounting Policies and Estimates



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, asset impairments, retirement benefits, matters related to product liability lawsuits 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, pension asset mix and, in some cases, actuarial techniques, and various
other factors that are believed to be reasonable under the circumstances. The results of this process form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. The Company routinely 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 Note 2 in the Notes to the Consolidated Financial Statements included in Item 8 of this
Form 10-K. The Company has identified certain critical accounting policies, which are described below. The following listing of policies is not intended to be a comprehensive list
of all of the Company's accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for
management's judgment in their application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result.



Revenue is recognized when collectability is reasonably assured and 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. Should returns increase above historical experience, additional allowances may be required.

47

---



Table of Contents



The Company has defined benefit pension and postretirement 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 plan 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 postretirement 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.

The
Company believes the expected rate of return on plan assets of 8.5% is a reasonable assumption on a long-term perspective based on its asset allocation of 58% equity, 41%
fixed income and 1% other. The Company's assumption for expected rate of return for plan assets as of September 30, 2010 for equity, fixed income, and real estate/other are 10.25%, 5.5% and
8.5%, respectively. This position is supported through a review of investment criteria and consideration of historical returns over a several year period.

In
the short-term, substantial decreases in plan assets will result in higher plan funding contribution levels and higher pension expenses. A decrease of 25 basis points in
the expected long-term rate of return on plan assets would result in an increase in annual pension expense of about $331,000. To the extent that the actual return on plan assets during the
year exceeds or falls short of the assumed long-term rate of return, an asset gain or loss is created.
Gains and losses are generally amortized over a 7-year period. As an example, each $1.0 million in asset loss created by unfavorable investment performance results in seven annual
payments (contributions) of approximately $180,000 depending upon the precise effective interest rate in the valuation and the timing of the contribution.

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



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. The Company reviewed goodwill for impairment annually or more frequently if events or circumstances indicated that the carrying amount of goodwill may be impaired.
During the second quarter of fiscal 2009, the Company determined that the weakening of the U.S. economy and the global credit crisis resulted in a reduction of the Company's market capitalization
below its total shareholder's equity value for a sustained period of time, which is an indication that goodwill may be impaired. As a result, the Company performed an interim stepone goodwill
impairment analysis as of February 28, 2009 which indicated impairment.

As
a result, the Company recorded a non-cash charge of $43,737 for goodwill impairment in the second quarter of fiscal 2009. Accordingly, no goodwill impairment analysis was
required for the year ending September 30, 2010.The Company reviews trademarks for impairment annually or more often if necessary and concluded no impairment adjustment was necessary.

48

---



Table of Contents



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

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



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 331/3% per year over three years from the grant date. The amount of compensation cost recognized in the financial
statements is 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, expected forfeiture rate, and expected lives of the options.



The Company accounts for deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between
book and tax basis of recorded assets and liabilities. A valuation allowance is required 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 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.

On
October 1, 2007, the Company adopted guidance prescribing a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions
taken or expected to be taken in an income tax return. It also provides guidance related to reversal of tax positions, balance sheet classification, interest and penalties, interim period accounting,
disclosure and transition.

49

---



Table of Contents

Recently Issued Accounting Pronouncements

See Note 2.Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for information
regarding New Accounting Standards.

Item 7A.    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 revolver availability is at a variable rate at September 30, 2009 and
2010. The Company's outstanding variable rate debt was zero at September 30, 2009 and 2010. The Company has not entered into any derivative instruments to hedge the effects of changes in
interest rates.

The
foreign currency exchange risk exists primarily because the foreign subsidiaries maintain receivables and payables denominated in currencies other than their functional currency. The
foreign subsidiaries manage their own foreign currency exchange risk. The U.S. operations transact their foreign sales in U.S. dollars, thereby avoiding fluctuations in foreign exchange rates. Any
exposure aggregating more than $500,000 requires approval from the Company's Vice President of Finance. The Company is not currently party to any currency contracts.

Fluctuations
in the price of nickel, the Company's 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 presently use derivative instruments to manage this market risk, but may in the future. 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 the Company may not be able to successfully offset a rapid increase in the cost of raw material in the future as it has been able to in
the past.

On
June 11, 2009, to mitigate the volatility of the natural gas markets, the Company entered into a commodity swap-cash settlement agreement with JP Morgan
Chase Bank. The Company has agreed to a fixed natural gas price on a total of 300,000 MMBTU, at a settlement rate of 50,000 MMBTU per month for a period spanning October 2009 to March
2010. The Company's unrealized hedging loss was $83,000 at September 30, 2009. On a hypothetical basis, a $1.00 per MMBTU decrease in the market price of natural gas is estimated to have an
unfavorable impact of $300,000 of unrealized hedging loss for the period ended September 30, 2009 as a result of the commodity swap-cash settlement agreement. The Company is not
currently party to any commodity swap-cash settlement agreements.

50

---





Table of Contents

Item 8.    Financial Statements and Supplementary Data

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements of Haynes International, Inc. as of September 30, 2010 and 2009 and for the years ended September 30, 2010,
September 30, 2009 and September 30, 2008



PageReport of Independent Registered Public Accounting Firm

52Consolidated Balance Sheets

54Consolidated Statements of Operations

55Consolidated Statements of Comprehensive Income (Loss)

56Consolidated Statements of Stockholders' Equity

57Consolidated Statements of Cash Flows

58Notes to Consolidated Financial Statements

59


51

---





Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Haynes International, Inc.
Kokomo, IN

We
have audited the accompanying consolidated balance sheets of Haynes International, Inc. and subsidiaries (the "Company") as of September 30, 2010 and 2009, and the
related consolidated
statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2010. We also have audited the
Company's internal control over financial reporting as of September 30, 2010, based on criteria established inInternal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial
reporting based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Haynes International Inc. and
subsidiaries as of September 30, 2010 and

52

---



Table of Contents

2009,
and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2010, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2010, based on the
criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission.

/s/ DELOITTE & TOUCHE LLP

Indianapolis, IN
November 18, 2010

53

---





Table of Contents



HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (in thousands, except share and per share data)

September 30,
2009

September 30,
2010ASSETSCurrent assets:Cash and cash equivalents

$
105,095

$
63,968Restricted cashcurrent portion


110


110Accounts receivable, less allowance for doubtful accounts of $1,310 and $1,116 respectively


47,473


62,851Inventories


182,771


231,783Income taxes receivable


24,348


698Deferred income taxes


9,035


10,554Other current assets


645


1,666Total current assets


369,477


371,630Property, plant and equipment, net


105,820


107,043Deferred income taxeslong term portion


58,843


62,446Prepayments and deferred charges


2,670


3,753Restricted cashlong term portion


110


Other intangible assets, net


7,230


6,671Total assets

$
544,150

$
551,543LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
29,249

$
34,284Accrued expenses


10,312


15,780Revolving credit facility





Accrued pension and postretirement benefits


20,215


18,758Deferred revenuecurrent portion


2,500


2,500Current maturities of long-term obligations


110


109Total current liabilities


62,386


71,431Long-term obligations (less current portion)


1,482


1,324Deferred revenue (less current portion)


40,329


37,829Non-current income taxes payable


292


308Accrued pension and postretirement benefits


160,862


174,802Total liabilities


265,351


285,694Commitments and contingencies (Notes 9 and 10)





Stockholders' equity:Common stock, $0.001 par value (40,000,000 shares authorized, 12,101,829 and 12,144,079 shares issued and outstanding at September 30, 2009
and September 30, 2010, respectively)


12


12Preferred stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued and outstanding)





Additional paid-in capital


227,734


229,197Accumulated earnings


103,509


102,677Accumulated other comprehensive loss


(52,456
)

(66,037
)Total stockholders' equity


278,799


265,849Total liabilities and stockholders' equity

$
544,150

$
551,543


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

54

---



Table of Contents



HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except share and per share data)

Year Ended
September 30,
2008

Year Ended
September 30,
2009

Year Ended
September 30,
2010Net revenues

$
637,006

$
438,633

$
381,543Cost of sales


492,349


416,150


327,712Gross profit


144,657


22,483


53,831Selling, general and administrative expense


42,277


36,207


35,470Research and technical expense


3,441


3,120


2,828Impairment of goodwill





43,737


Operating income (loss)


98,939


(60,581
)

15,533Interest income


(188
)

(138
)

(209
)Interest expense


1,213


647


150Income (loss) before income taxes


97,914


(61,090
)

15,592Provision for (benefit from) income taxes


35,136


(8,768
)

6,717Net income (loss)

$
62,778

$
(52,322
)
$
8,875Net income (loss) per share:Basic

$
5.27

$
(4.36
)
$
0.74Diluted

$
5.22

$
(4.36
)
$
0.73Weighted average shares outstanding:Basic


11,903,289


12,004,498


12,049,779Diluted


12,026,440


12,004,498


12,159,529


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

55

---





Table of Contents



HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)        (in thousands)

Year Ended September 30,
2008

Year Ended September 30,
2009

Year Ended September 30,
2010Net income (loss)

$
62,778

$
(52,322
)
$
8,875Other comprehensive loss, net of tax:Pension curtailment


2,701


282


Pension and postretirement


(5,429
)

(49,637
)

(13,042
)Foreign currency translation adjustment


(3,374
)

(980
)

(539
)Other comprehensive loss


(6,102
)

(50,335
)

(13,581
)Comprehensive income (loss)

$
56,676

$
(102,657
)
$
(4,706
)


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

56

---



Table of Contents



HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (in thousands, except share data)

Common Stock





Accumulated
Other
Comprehensive
Income (Loss)Additional
Paid-in
Capital

Accumulated
Earnings

Total
Stockholders'
EquityShares

ParBalance October 1, 2007


11,807,237

$
12

$
218,504

$
93,880

$
3,981

$
316,377Net income











62,778





62,778Other comprehensive loss














(6,102
)

(6,102
)Adoption of guidance on uncertain tax positions











(827
)




(827
)Exercise of stock options


177,386





5,667








5,667Stock compensation








1,650








1,650Balance September 30, 2008


11,984,623


12


225,821


155,831


(2,121
)

379,543Net loss











(52,322
)




(52,322
)Other comprehensive loss














(50,335
)

(50,335
)Exercise of stock options


65,156





955








955Tax impact of forfeited vested options








(351
)







(351
)Issue restricted stock (less forfeitures)


52,050Stock compensation








1,309








1,309Balance September 30, 2009


12,101,829


12


227,734


103,509


(52,456
)

278,799Net income











8,875





8,875Dividends paid











(9,707
)




(9,707
)Other comprehensive loss














(13,581
)

(13,581
)Tax impact of forfeited vested options








(74
)







(74
)Issue restricted stock (less forfeitures)


42,250Stock compensation








1,537








1,537Balance September 30, 2010


12,144,079

$
12

$
229,197

$
102,677

$
(66,037
)
$
265,849


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

57

---





Table of Contents



HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Year Ended
September 30,
2008

Year Ended
September 30,
2009

Year Ended
September 30,
2010Cash flows from operating activities:Net income (loss)

$
62,778

$
(52,322
)
$
8,875Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation


8,934


10,450


11,316Amortization


1,119


993


559Impairment of goodwill





43,737


Stock compensation expense


1,650


1,309


1,537Excess tax benefit from option exercises


(3,187
)

21


Deferred revenue


(2,499
)

(2,501
)

(2,500
)Deferred income taxes


(7,511
)

3,887


2,661Pension curtailment gain


(3,659
)




Loss on disposition of property


321


169


232Change in assets and liabilities:Accounts receivable


5,121


50,901


(15,786
)Inventories


(21,569
)

120,980


(49,483
)Other assets


28


2,035


(2,130
)Accounts payable and accrued expenses


(4,021
)

(14,234
)

10,481Income taxes


12,604


(31,553
)

23,653Accrued pension and postretirement benefits


(8,826
)

(13,890
)

(8,434
)Net cash provided by (used in) operating activities


41,283


119,982


(19,019
)Cash flows from investing activities:Additions to property, plant and equipment


(18,685
)

(9,303
)

(12,340
)Asian distribution expansion and acquisition


(3,000
)




Change in restricted cash


110


110


110Net cash used in investing activities


(21,575
)

(9,193
)

(12,230
)Cash flows from financing activities:Dividends paid








(9,707
)Net decrease in revolving credit facility


(23,737
)

(11,812
)

Proceeds from exercise of stock options


2,480


976


Excess tax benefit from option exercises


3,187


(21
)

Payment for debt issuance cost





(316
)

Changes in long-term obligations


(135
)

(1,505
)

(159
)Net cash used in financing activities


(18,205
)

(12,678
)

(9,866
)Effect of exchange rates on cash


(162
)

(74
)

(12
)Increase (decrease) in cash and cash equivalents:


1,341


98,037


(41,127
)Cash and cash equivalents:Beginning of period


5,717


7,058


105,095End of period

$
7,058

$
105,095

$
63,968Supplemental disclosures of cash flow information:Cash paid during period for:Interest (net of capitalized interest)

$
1,115

$
566

$
40Income taxes paid (refunded), net

$
32,410

$
20,869

$
(19,460
)Capital expenditures incurred but not yet paid

$
864

$
606

$
916


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

58

---





Table of Contents



HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (in thousands, except per share data and otherwise noted)

Note 1    Background and Organization

Description of Business

Haynes International, Inc. and its subsidiaries (the "Company" or "Haynes") develops, manufactures, markets and distributes
technologically advanced, high-performance alloys primarily for use in the aerospace, land-based gas turbine and chemical processing industries. The Company's products are
high-temperature resistant alloys ("HTA") and corrosion resistant alloys ("CRA"). The Company's HTA products are used by manufacturers of equipment that is subjected to extremely high
temperatures, such as jet engines for the aerospace industry, gas turbine engines for power generation, waste incineration, and industrial heating equipment. The Company's CRA products are used in
applications that require resistance to extreme corrosion, such as chemical processing, power plant emissions control and hazardous waste treatment. The Company produces its
high-performance alloys primarily in sheet, coil and plate forms. In addition, the Company produces its products as seamless and welded tubulars, and in slab, bar, billets and wire forms.

High-performance
alloys are characterized by highly engineered often proprietary, metallurgical formulations primarily of nickel, cobalt and other metals with complex
physical properties. The complexity of the manufacturing process for high-performance alloys is reflected in the Company's relatively high average selling price per pound, compared to the
average selling price of other metals, such as carbon steel sheet, stainless steel sheet and aluminum. The high-performance alloy industry has significant barriers to entry such as the
combination of (i) demanding end-user specifications, (ii) a multi-stage manufacturing process, and (iii) the technical sales, marketing and manufacturing expertise
required to develop new applications.

Note 2    Summary of Significant Accounting Policies

A.    Principles of Consolidation and Nature of Operations

The consolidated financial statements include the accounts of Haynes International, Inc. and its wholly-owned subsidiaries. All intercompany transactions and
balances are eliminated. The Company has manufacturing facilities in Kokomo, Indiana; Mountain Home, North Carolina; and Arcadia, Louisiana with distribution service centers in Lebanon, Indiana;
LaMirada, California; Houston, Texas; Windsor, Connecticut; Paris, France; Openshaw, England; Lenzburg, Switzerland; Shanghi, China; and sales offices in Singapore; Milan, Italy; and Chennai, India.

B.    Cash and Cash Equivalents

The Company considers all highly liquid investment instruments, including investments with original maturities of three months or less at acquisition, to be cash
equivalents, the carrying value of which approximates fair value due to the short maturity of these investments.

C.    Accounts Receivable

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company
markets its products to a diverse customer base, both in the United States of America and overseas. Trade credit is extended based upon
evaluation of each customer's ability to perform its obligation, which is updated periodically. The Company purchases credit insurance for certain foreign trade receivables.

59

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

D.    Revenue Recognition

The Company recognizes revenue when collectability is reasonably assured and when title passes to the customer, which is generally at the time of shipment with
freight terms of FOB shipping point or at a foreign port for certain export customers. Allowances for sales returns are recorded as a component of net sales in the periods in which the related sales
are recognized. The Company determines this allowance based on historical experience.

E.    Inventories

Inventories are stated at the lower of cost or market. The cost of inventories is determined using the first-in, first-out ("FIFO")
method. The Company writes down its inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market or scrap
value, if applicable, based upon assumptions about future demand and market conditions.

F.     Intangible Assets and Goodwill

Goodwill was created primarily as a result of the Company's reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code and fresh start accounting.
Goodwill was not amortized and the value of goodwill was reviewed at least annually for impairment. If the carrying value of goodwill exceeded its fair value, impairment of goodwill could exist
resulting in a charge to earnings to the extent of goodwill impairment. The Company estimated fair value using a combination of a market value approach using quoted market prices and an income
approach using discounted cash flow projections.

During
the second quarter of fiscal 2009, the Company determined that the weakening of the U.S. economy and the global credit crisis resulted in a reduction of the Company's market
capitalization
below its total shareholder's equity value for a sustained period of time, which is an indication that goodwill may be impaired. As a result, the Company performed goodwill impairment analysis as of
February 28, 2009 which indicated impairment.

As
a result, the Company recorded a non-cash charge of $43,737 for goodwill impairment in the second quarter of fiscal 2009, which was primarily non-deductible
for tax purposes.

The
following table reflects the change to the carrying amount of goodwill for the year ended September 30, 2009 and 2010:

Goodwill balance at September 30, 2008

$
43,737Impairment charge


(43,737
)Goodwill balance at September 30, 2009 and 2010

$
0


The
Company also has patents, trademarks and other intangibles. As the patents have a definite 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 the impairment.

60

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

The
Company has non-compete agreements with lives of 5 to 7 years. Amortization of the patents, non-competes and other intangibles was $1,119, $993 and $559 for the
years ended September 30, 2008, 2009 and 2010, respectively.

The
Company reviews trademarks for impairment at least annually as of August 31 (the annual impairment testing date). No impairment was recognized in the year ended
September 30, 2009 or 2010 because the fair value exceeded the carrying values.

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

September 30, 2009

Gross
Amount

Accumulated
Amortization

Carrying
AmountPatents

$
8,667

$
(6,040
)
$
2,627Trademarks


3,800





3,800Non-compete


1,340


(758
)

582Other


316


(95
)

221$
14,123

$
(6,893
)
$
7,230




September 30, 2010

Gross
Amount

Accumulated
Amortization

Carrying
AmountPatents

$
8,667

$
(6,333
)
$
2,334Trademarks


3,800





3,800Non-compete


1,090


(664
)

426Other


316


(205
)

111$
13,873

$
(7,202
)
$
6,671




Estimate of Aggregate Amortization Expense:
Year Ended September 30,2011

$
5452012


3592013


3502014


3502015


328


G.    Property, Plant and Equipment

Additions to property, plant and equipment are recorded at cost with depreciation calculated primarily by using the straight-line method based on
estimated economic useful lives which are generally as follows:

Building and improvements

40 yearsMachinery and equipment

514 yearsOffice equipment and computer software

310 yearsLand improvements

20 years


61

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

Expenditures
for maintenance and repairs and minor renewals are charged to expense; major renewals are capitalized. Upon retirement or sale of assets, the cost of the disposed assets and
the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations.

The
Company records capitalized interest for long-term construction projects to capture the cost of capital committed prior to the placed in service date as a part of the
historical cost of acquiring the asset. The amount of interest capitalized was $642, $21 and $0 for the years ended September 30, 2008, 2009 and 2010, respectively. The decrease relates to the
Company having a zero balance on the revolver.

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. No impairment
was recognized in the year ended September 30, 2009 as a result of the evaluation performed, because the fair value exceeded the carrying values. There was no triggering event during the year
ended September 30, 2010.

H.    Environmental Remediation

When it is probable that a liability has been incurred or an asset of the Company has been impaired, a loss is recognized assuming the amount of the loss can be
reasonably estimated. The measurement of environmental liabilities by the Company is based on currently available facts, present laws and regulations, and current technology. Such estimates take into
consideration the expected costs of post-closure monitoring based on historical experience.

I.     Pension and Postretirement Benefits

The Company has defined benefit pension and postretirement 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 plan assets, 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 postretirement 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. Salaried employees hired
after December 31, 2005 and hourly employees hired after June 30, 2007 are not covered by the pension plan; however, they are eligible for an enhanced matching program of the defined
contribution plan (401(k)). Effective December 31, 2007, the U.S. pension plan was amended to freeze benefits for all non-union employees in the U.S. Effective September 30,
2009, the U.K. pension plan was amended to freeze benefits for employees in the plan. During fiscal 2009, the Company reduced its worldwide workforce by 18%.

62

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

J.     Foreign Currency Exchange

The Company's foreign operating entities' financial statements are stated in the functional currencies of each respective country, which are the local currencies.
All assets and liabilities are translated to U.S. dollars using exchange rates in effect at the end of the year, and revenues and expenses are translated at the weighted average rate for the year.
Translation gains or losses are recorded as a separate component of comprehensive income (loss) and transaction gains and losses are reflected in the consolidated statements of operations.

K.    Research and Technical Costs

Research and technical costs related to the development of new products and processes are expensed as incurred. Research and technical costs for the years ended
September 30, 2008, 2009 and 2010, were $3,441, $3,120, and $2,828, respectively.

L.    Income Taxes

The Company accounts for deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between book and tax basis of
recorded assets and liabilities. A valuation allowance is required 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 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.

M.   Stock Based Compensation

Restricted Stock Plan

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

Restricted
stock grants are subject to forfeiture if employment or service terminates prior to the vesting period or if the performance goals are not met, if applicable. The Company will
assess, on an ongoing
basis, the probability of whether the performance criteria will be achieved. The Company will recognize compensation expense over the performance period if it is deemed probable that the goals will be
achieved. The fair value of the Company's restricted stock is determined based upon the closing price of the Company's common stock on the grant date. The plan provides for the adjustment of the
number of shares covered by an outstanding grant and the maximum number of shares for which restricted stock may be granted in the event of a stock split, extraordinary dividend or distribution or
similar recapitalization event.

63

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

Stock Option Plans

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 331/3% per year over three years from the grant date. The amount of compensation cost recognized in the financial
statement is 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, expected forfeiture rate, and expected lives of the options.

N.    Financial Instruments and Concentrations of Risk

The Company may periodically enter into forward currency exchange contracts to minimize the variability in the Company's operating results arising from foreign
exchange rate movements. The Company does not engage in foreign currency speculation. At September 30, 2009 and 2010, the Company had no foreign currency exchange contracts outstanding.

Financial
instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. At September 30, 2010,
and periodically throughout the year, the Company has maintained cash balances in excess of federally insured limits. The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value because of the relatively short maturity of these instruments.

During
2010, 2009 and 2008 the Company did not have sales to any group of affiliated customers that were greater than 10% of net revenues. The Company generally does not require
collateral with the exception of letters of credit with certain foreign sales. Credit losses have been within management's expectations. In addition, the Company purchases credit insurance for certain
foreign trade receivables. The Company does not believe it is significantly vulnerable to the risk of near-term severe impact from business concentrations with respect to customers,
suppliers, products, markets or geographic areas.

O.    Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, asset impairment, retirement benefits, and environmental matters. The process of determining significant estimates is fact specific and takes into account factors such as

64

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

historical
experience, current and expected economic conditions, product mix, pension asset 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
routinely reevaluates these significant factors and makes adjustments where facts and circumstances dictate. Actual results may differ from these estimates under different assumptions or conditions.

P.     Earnings (Loss) Per Share

The Company accounts for earnings (loss) per share with two presentations"basic" and "diluted." Basic earnings (loss) per share is computed by
dividing net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding for the period. The computation of diluted earnings (loss) per
share is similar to basic earnings (loss)
per share, except the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued less any
treasury stock purchased. The treasury stock method is used, which assumes that the Company will use the proceeds from the exercise of the options to purchase shares of stock for treasury.

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

Years ended September 30,(in thousands, except share and per share data)

2008

2009

2010Numerator:Net income (loss)

$
62,778

$
(52,322
)
$
8,875Denominator:Weighted average shares outstandingBasic


11,903,289


12,004,498


12,049,779Effect of dilutive stock options


123,151


50,302


57,750Effect of restricted stock shares with no performance goal








52,000Adjustment for net loss





(50,302
)

Weighted average shares outstandingDiluted


12,026,440


12,004,498


12,159,529Basic net income (loss) per share

$
5.27

$
(4.36
)
$
0.74Diluted net income (loss) per share

$
5.22

$
(4.36
)
$
0.73Number of stock option shares excluded as their effect would be anti-dilutive


224,000


288,777


216,224Number of restricted stock shares excluded as their performance goal is not yet met





31,050


42,300Number of restricted stock shares excluded because of the net loss





21,000





Anti-dilutive
shares with respect to outstanding stock options have been properly excluded from the computation of diluted net income (loss) per share. Restricted stock
issued to certain key employees is not included in the computation as the performance goal is deemed not yet achieved.

65

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

Q.    Recently Issued Accounting Pronouncements

In December 2007, the FASB issued FASB Statement No. 141 (revised 2007),Business Combinations("SFAS 141(R)") which was primarily codified into Topic 805 (Business Combinations) in the ASC. This guidance 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. This guidance also expands disclosures related to business combinations and 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 SFAS 141(R) income tax requirements immediately upon adoption. The Company
is currently evaluating the impact of SFAS 141(R) related to future acquisitions, if any, on its financial position, results of operations and cash flows.

In
April 2008, the FASB issued FASB Staff Position No. 142-3,Determination of the Useful Life of Intangible Assets("FSP 142-3") which is primarily codified into Topic 250(IntangiblesGoodwill and Other)in the ASC. This
guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. The
intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS 141R, and other U.S. GAAP. This FSP was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years, and early adoption is prohibited. Accordingly, this FSP was effective for the Company on October 1, 2009 and it had no impact on the Company's consolidated financial
statements.

In
December 2008, the FASB issued FASB Staff Position No. 132(R)-1,Employers' Disclosures about Postretirement Benefit Plan
Assets("FSP 132(R)-1") which was primarily codified into Topic 715(Compensation Retirement Benefits)in the ASC. The guidance requires disclosures of the objectives of postretirement benefit plan assets, investment policies and strategies, categories of plan assets, fair value measurements of plan
assets, and significant concentrations of risk. This guidance was effective for fiscal years ending after December 15, 2009. The adoption of this guidance increased the Company's disclosures,
but did not have an impact on the Company's consolidated financial statements.

66

---





Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 2    Summary of Significant Accounting Policies (Continued)

R.    Comprehensive Income (Loss)

Comprehensive income (loss) includes changes in equity that result from transactions and economic events from non-owner sources. Comprehensive income
(loss) consists of net income (loss) and other comprehensive income (loss) items, including pension and foreign currency translation adjustments, net of tax when applicable.

Year Ended September 30,2008

2009

2010Pre-tax

Tax

Net

Pre-tax

Tax

Net

Pre-tax

Tax

NetNet income (loss)







$
62,778







$
(52,322
)






$
8,875Other comprehensive income (loss):Pension curtailment

$
4,532

$
(1,831
)

2,701

$
392

$
(110
)

282

$


$



Pension and postretirement


(8,789
)

3,360


(5,429
)

(80,073
)

30,436


(49,637
)

(20,935
)

7,893


(13,042
)Foreign currency translation adjustment


(3,169
)

(205
)

(3,374
)

(980
)




(980
)

(539
)




(539
)Other comprehensive income (loss)

$
(7,426
)
$
1,324

$
(6,102
)
$
(80,661
)
$
30,326

$
(50,335
)
$
(21,474
)
$
7,893

$
(13,581
)Total comprehensive income (loss)







$
56,676







$
(102,657
)






$
(4,706
)


The following is a breakdown of accumulated other comprehensive income (loss) net of tax effects:

Accumulated
Other
Comprehensive
Income (Loss) at
September 30,
2009

Other
Comprehensive
Loss for the
year ended
September 30,
2010

Accumulated
Other
Comprehensive
Loss at
September 30,
2010Foreign Currency Translation Adjustment

$
145

$
(539
)
$
(394
)Pension and Postretirement, including curtailment


(52,601
)

(13,042
)

(65,643
)$
(52,456
)
$
(13,581
)
$
(66,037
)


Note 3    Inventories

Inventories are stated at the lower of cost or market. The cost of inventories is determined using the first-in, first-out ("FIFO") method. The following is a
summary of the major classes of inventories:

September 30,2009

2010Raw materials

$
13,321

$
20,226Work-in-process


87,322


126,626Finished goods


81,228


83,971Other


900


960$
182,771

$
231,783


67

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 4    Property, Plant and Equipment

The following is a summary of the major classes of property, plant and equipment:

September 30,2009

2010Land and land improvements

$
4,887

$
5,068Buildings


13,548


14,763Machinery and equipment


122,007


130,534Construction in process


2,898


5,115143,340


155,480Less accumulated depreciation


(37,520
)

(48,437
)$
105,820

$
107,043


The
Company has $844 of assets under a capital lease for equipment related to the service center operation in Shanghai, China.

Note 5    Accrued Expenses

The following is a summary of the major classes of accrued expenses:

September 30,2009

2010Employee compensation

$
5,790

$
11,322Taxes, other than income taxes


1,611


2,091Other


2,911


2,367$
10,312

$
15,780


68

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 6    Income Taxes

The components of income before provision for income taxes are as follows:

Year Ended September 30,2008

2009

2010Income (loss) before income taxes:U.S.

$
86,124

$
(60,071
)
$
12,615Foreign


11,790


(1,019
)

2,977Total

$
97,914

$
(61,090
)
$
15,592Provision for (benefit from) income taxes:Current:U.S. Federal

$
34,580

$
(10,747
)
$
2,722Foreign


3,038


(183
)

678State


2,273


(2,111
)

696Total


39,891


(13,041
)

4,096Deferred:U.S. Federal


(6,499
)

3,309


720Foreign


194


(50
)

147State


1,550


1,014


1,754Total


(4,755
)

4,273


2,621Total provision for (benefit from) income taxes

$
35,136

$
(8,768
)
$
6,717


The
provision for (benefit from) income taxes applicable to results of operations differed from the U.S. federal statutory rate as follows:

Year Ended September 30,2008

2009

2010Statutory federal tax rate


35
%

35
%

35
%Tax provision for (benefit from) income taxes at the statutory rate

$
34,270

$
(21,381
)
$
5,457Foreign tax rate differentials


(894
)

125


(216
)Provision for (benefit from) state taxes, net of federal taxes


2,987


(419
)

468U.S. tax on distributed and undistributed earnings (losses) of foreign subsidiaries


793


(1,158
)

165Manufacturer's deduction


(1,260
)




(193
)Tax credits


(558
)

(490
)

(476
)Nondeductible goodwill





14,438


State tax rate reduction impact on deferred


1,430


379


1,149Other, net


(1,632
)

(262
)

363Provision for (benefit from) income taxes at effective tax rate

$
35,136

$
(8,768
)
$
6,717


During
fiscal 2010 the Company's effective tax rate increased due to the revaluation of the Company's deferred tax assets at a lower blended state income tax rate.

69

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 6    Income Taxes (Continued)

During
fiscal 2009 the Company's effective tax rate was impacted by the impairment of non-deductible goodwill, a change in the reinvestment policy of a foreign entity, and a
change in the state apportionment factor which lowered the blended state tax rate resulting in an unfavorable reduction of our deferred tax asset.

Deferred
tax assets (liabilities) are comprised of the following:

September 30,2009

2010Current deferred tax assets (liabilities):Inventories

$
2,062

$
3,608Pension and postretirement benefits


3,930


3,725Accrued expenses and other


936


560Accrued compensation and benefits


1,168


1,249Tax attributes





472Other foreign related


(17
)

TIMET Agreement


956


940Total net current deferred tax assets


9,035


10,554Noncurrent deferred tax assets (liabilities):Property, plant and equipment, net


(18,526
)

(18,619
)Intangible assets


(1,469
)

(1,367
)Pension and postretirement benefits


61,035


65,420Accrued compensation and benefits


1,761


2,205TIMET Agreement


15,426


14,223Other accruals


616


584Total net noncurrent deferred tax assets


58,843


62,446Net deferred tax assets (liabilities)

$
67,878

$
73,000


The
Company has excluded undistributed earnings of $33,342 of its foreign affiliates from its calculation of deferred tax liabilities because they will be permanently invested for the
foreseeable future. Should management decide in the future to repatriate all or a portion of these undistributed earnings, the Company would then be required to provide for taxes on such amounts.

On
October 1, 2007, the Company adopted guidance that prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax
positions taken or expected to be taken in an income tax return. It also provides guidance related to reversal of tax positions, balance sheet classification, interest and penalties, interim period
accounting, disclosure and transition. The impact of the adoption was to decrease accumulated earnings by $827, increase goodwill
by $675, increase deferred tax assets by $3,316, and increase non-current income taxes payable by $4,818 (including $241 of interest).

70

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 6    Income Taxes (Continued)

A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

October 1, 2007 To
September 30, 2008

October 1, 2008 To
September 30, 2009

October 1, 2009 To
September 30, 2010Balance at beginning of period

$
4,577

$
264

$
264Gross Increasescurrent period tax positions








Gross Decreasescurrent period tax positions








Gross Increasestax positions in prior periods








Gross Decreasestax positions in prior periods


(4,313
)




Gross Decreasessettlements with taxing authorities








Gross Decreaseslapse of statute of limitations








Balance at end of period

$
264

$
264

$
264


The
total amount of unrecognized tax benefits that would, if recognized, affect the effective income tax rate is $205 as of September 30, 2010. Additionally, as consistent with
prior periods, the Company recognized accrued interest expense and penalties related to the unrecognized tax benefits as additional income tax expense. The total amount of accrued interest and
penalties was approximately $44 and $0 respectively, as of September 30, 2010.

As
of September 30, 2010, the Company is open to examination in the U.S. federal income tax jurisdiction for the September 30, 2007, 2008, 2009 and 2010 tax years, in the
U.K. for the years 2005-2010, in Switzerland for 2007, 2008 and 2009, and in France for the year 2010. The Company is also open to examination in other foreign locations and various states
in the U.S., none of which were individually material. The Company was notified in October 2010 of an audit in a state jurisdiction.

Of
the unrecognized tax benefits noted above, the Company does not anticipate any significant changes to occur in unrecognized tax benefits over the next 12 months.

Note 7    Debt



The Company and Wachovia Capital Finance Corporation (Central) ("Wachovia") entered into a Second Amended and Restated Loan and
Security Agreement (the "Amended Agreement") with an effective date of November 18, 2008, which amended and restated the revolving credit facility between Haynes and Wachovia dated
August 31, 2004. Among other items, the Amended Agreement extended the maturity date of the U.S. revolving credit facility to September 30, 2011, increased the margin included in the
interest rate from 1.5% per annum to 2.25% per annum for LIBOR borrowings, permitted the Company to pay dividends and repurchase common stock if certain financial metrics are met, and eliminated a
covenant requiring the Company to maintain an EBITDA amount of $22.0 million. The maximum revolving loan amount under the Amended Agreement is $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 2.25% per annum, or the adjusted Eurodollar rate used by the
lender, plus up to 3.0% per annum. As of September 30, 2010, the U.S. revolving credit facility had an outstanding balance of zero. During the twelve month period ended September 30,
2010, it bore interest at

71

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 7    Debt (Continued)

a
weighted average interest rate of 5.00%. 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 fixed charge coverage ratios when availability is less than $25.0 million and other customary covenants including covenants restricting the
incurrence of indebtedness, the granting of liens, and the sale of assets and permits the Company to pay dividends and repurchase common stock if certain metrics are met. As of September 30,
2010, the most recent required measurement date under the agreement documentation, the Company was in compliance with these covenants, The U.S. revolving credit facility matures on
September 30, 2011. 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 interest in its
U.S. subsidiaries, but excluding the four-high Steckel rolling mill and related assets, which are pledged to Titanium Metals Corporation (see discussion of TIMET at Note 15). 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.



The Company's U.K. subsidiary, Haynes International, Ltd., or Haynes U.K., previously had an agreement with a U.K.-based lender
providing for a $15.0 million revolving credit facility. During April 2008, the term of the U.K. revolving credit facility ended. The Company replaced this facility with a multi-currency
overdraft facility. The overdraft facility has a limit of 2.0 million pound sterling ($3,142). Haynes U.K. is required to pay interest on overdrafts in an amount
equal to the Bank's Sterling Base Rate (in accordance with the terms facility), plus 2.0% per annum. As of September 30, 2010, the overdraft facility had an outstanding balance of zero.

Debt
and long-term obligations consist of the following (in thousands):

September 30,2009

2010Revolving Credit AgreementU.S. Facility, 5.00% 2009; 5.00% 2010, expires September 2011

$


$
Other long-term obligations


1,592


1,4331,592


1,433Less amounts due within one year


110


109$
1,482

$
1,324


Other
long-term obligations primarily represents environmental post-closure monitoring and maintenance activities (See Note 10). The carrying amount of
debt approximates fair value.

At
September 30, 2010, the Company had access to approximately $120,000 under its credit agreement (based on borrowing base and certain reserves). The Company's British subsidiary
(Haynes International LTD) has an overdraft facility of 2,000 Sterling ($3,142) all of which was available on September 30, 2010. The Company's French subsidiary (Haynes International, SARL)
has an overdraft

72

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 7    Debt (Continued)

banking
facility of 1,200 Euro ($1,638) of which all was available on September 30, 2010. The Company's Swiss subsidiary (Nickel-Contor AG) had an overdraft banking facility of 500 Swiss
Francs ($509) all of which was available on September 30, 2010.

Maturities
of long-term debt are as follows at September 30, 2010:

Year Ending2011

$
1092012


2013


2014


2015


2016 and thereafter


1,324$
1,433


Note 8    Pension Plan and Retirement Benefits

Defined Contribution Plans

The Company sponsors a defined contribution plan (401(k)) for substantially all U.S. employees. The Company contributes an amount equal
to 50% of an employee's contribution to the plan up to a maximum contribution of 3% of the employee's salary, except for all salaried employees and certain hourly employees (those hired after
June 30, 2007 that are not eligible for the U.S. pension plan). The Company contributes an amount equal to 60% of an employee's contribution to the plan up to a maximum contribution of 6% of
the employee's salary for these groups. Expenses associated with this plan for the years ended September 30, 2008, 2009 and 2010 totaled $1,091, $1,077 and $990, respectively.

The
Company sponsors certain profit sharing plans for the benefit of employees meeting certain eligibility requirements. There were no contributions to these plans for the years ended
September 30, 2008, 2009 and 2010.

73

---





Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 8    Pension Plan and Retirement Benefits (Continued)

Defined Benefit Plans

The Company has non-contributory defined benefit pension plans which cover most employees in the U.S. and certain foreign
subsidiaries. In the U.S. salaried employees hired after December 31, 2005 and hourly employees hired after June 30, 2007 are not covered by the pension plan; however, they are eligible
for an enhanced matching program of the defined contribution plan (401(k)). On October 3, 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. As a
result of freezing the benefit accruals for all non-union employees in the U.S. in the first quarter of fiscal 2008, the Company 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. Effective September 30, 2009, the U.K. pension plan was amended to freeze benefit accruals for members of its plan. As of September 30,
2009, the company recognized a reduction of the projected benefit obligation of $392, an increase to other comprehensive income (before tax) of $392 and zero impact on the statement of operations.

Benefits
provided under the Company's domestic defined benefit pension plan are based on years of service and the employee's final compensation. The Company's funding policy is to
contribute annually an amount deductible for federal income tax purposes based upon an actuarial cost method using actuarial and economic assumptions designed to achieve adequate funding of benefit
obligations.

The
Company has non-qualified pensions for former executives of the Company. Non-qualified pension plan expense (income) for the years ended September 30,
2008, 2009 and 2010 was $(129), $145 and $109, respectively. Accrued liabilities in the amount of $893 and $906 for these benefits are included in accrued pension and postretirement benefits liability
at September 30, 2009 and 2010, respectively.

In
addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all domestic employees become
eligible for these benefits, if they reach normal retirement age while working for the Company. During March 2006, the Company communicated to employees and plan participants a negative plan amendment
that caps the Company's liability related to total retiree health care costs at $5,000 annually effective January 1, 2007. An updated actuarial valuation was performed at March 31, 2006,
which reduced the accumulated postretirement benefit liability due to this plan amendment by $46,313 that will be amortized as a
reduction to expense over an eight year period. This amortization period began in April 2006 thus reducing the amount of expense recognized for the second half of fiscal 2006 and the respective future
periods.

The
Company made contributions of $12,650 and $14,200 to fund its domestic Company-sponsored pension plan for the year ended September 30, 2009 and 2010, respectively. The
Company's U.K. subsidiary made contributions of $960 and $943 for the year ended September 30, 2009 and 2010, respectively, to the U.K. pension plan.

74

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 8    Pension Plan and Retirement Benefits (Continued)

The
Company uses a September 30 measurement date for its plans. The status of employee pension benefit plans and other postretirement benefit plans are summarized below:

Defined Benefit
Pension Plans



Postretirement
Health Care BenefitsYear Ended
September 30,



Year Ended
September 30,2009

2010



2009

2010Change in Benefit Obligation:Projected benefit obligation at beginning of year

$
164,603

$
216,443



$
67,764

$
90,027Service cost


2,409


3,596




1,327


206Interest cost


11,821


11,600




4,925


4,819Plan amendment













Curtailment gain


(392
)









Actuarial losses


48,193


18,724




20,901


8,424Employee contributions


42










Benefits paid


(10,233
)

(11,357
)



(4,890
)

(4,852
)Projected benefit obligation at end of year

$
216,443

$
239,006



$
90,027

$
98,624Change in Plan Assets:Fair value of plan assets at beginning of year

$
119,591

$
126,285



$


$
Actual return on assets


3,275


14,905







Employer contributions


13,610


15,143




4,890


4,852Employee contributions


43










Benefits paid


(10,233
)

(11,357
)



(4,890
)

(4,852
)Fair value of plan assets at end of year

$
126,286

$
144,976



$


$
Funded Status of Plan:Unfunded status

$
(90,157
)
$
(94,030
)


$
(90,027
)
$
(98,624
)


Amounts recognized in the consolidated balance sheets are as follows:

Defined Benefit
Pension Plans

Postretirement
Health Care Benefits

Non-Qualified
Pension Plans

All Plans
CombinedSeptember 30,

September 30,

September 30,

September 30,2009

2010

2009

2010

2009

2010

2009

2010Accrued benefit liability

$
(90,157
)
$
(94,030
)
$
(90,027
)
$
(98,624
)
$
(893
)
$
(906
)
$
(181,077
)
$
(193,560
)Accumulated other comprehensive loss


77,924


86,639


7,017


19,238








84,941


105,877Net amount recognized

$
(12,233
)
$
(7,391
)
$
(83,010
)
$
(79,386
)
$
(893
)
$
(906
)
$
(96,136
)
$
(87,683
)Amounts expected to be recognized from AOCI into the statement of operations in the following year:Amortization of net loss

$
4,922

$
6,285

$
1,992

$
2,707

$


$


$
6,914

$
8,992Amortization of prior service cost


808


808


(5,789
)

(5,789
)







(4,981
)

(4,981
)$
5,730

$
7,093

$
(3,797
)
$
(3,082
)
$


$


$
1,933

$
4,011


75

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 8    Pension Plan and Retirement Benefits (Continued)

The accumulated benefit obligation for the pension plans was $199,567 and $227,052 at September 30, 2009 and 2010, respectively.

The
cost of the Company's postretirement benefits are accrued over the years employees provide service to the date of their full eligibility for such benefits. The Company's policy is to
fund the cost of claims on an annual basis.

The
components of net periodic pension cost and postretirement health care benefit cost are as follows:

Defined Benefit Pension PlansYear Ended September 30,2008

2009

2010Service cost

$
2,761

$
2,409

$
3,596Interest cost


10,757


11,821


11,600Expected return on assets


(11,432
)

(9,756
)

(10,626
)Amortization of prior service cost


808


808


808Recognized actuarial loss








4,922Curtailment gain


(3,659
)




Net periodic cost (benefit)

$
(765
)
$
5,282

$
10,300




Postretirement
Health Care BenefitsYear Ended September 30,2008

2009

2010Service cost

$
1,307

$
1,327

$
206Interest cost


4,859


4,925


4,819Amortization of unrecognized prior service cost


(5,789
)

(5,789
)

(5,789
)Recognized actuarial loss


1,630


482


1,992Net periodic cost

$
2,007

$
945

$
1,228


76

---





Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 8    Pension Plan and Retirement Benefits (Continued)

Assumptions

A 7.5% (8.0%-2009) annual rate of increase for ages under 65 and a 6.5% (7.0%-2009) annual rate of increase for
ages over 65 in the costs of covered health care benefits were assumed for 2010, gradually decreasing for both age groups to 5.0% (5.0%-2009) by the year 2016. Assumed health care cost
trend rates have a significant effect on the amounts reported for the health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects in 2010:

1-Percentage Point
Increase

1-Percentage Point
DecreaseEffect on total of service and interest cost components

$
0

$
0Effect on accumulated postretirement benefit obligation


0


0


The
effect on total of service and interest cost components and the effect on accumulated postretirement benefit obligation is zero due to the negative plan amendment that caps the
Company costs at $5,000 on an undiscounted basis per year.

The
actuarial present value of the projected pension benefit obligation and postretirement health care benefit obligation for the domestic plans at September 30, 2009 and 2010
were determined based on the following assumptions:

September 30,
2009

September 30,
2010Discount rate


5.500
%

4.875
%Rate of compensation increase (pension plan only)


4.000
%

3.500
%


The
net periodic pension and postretirement health care benefit costs for the domestic plans were determined using the following assumptions:

Defined Benefit
Pension and
Postretirement
Health Care PlansYear Ended
September 30,2008

2009

2010Discount rate


6.25
%

7.50
%

5.50
%Expected return on plan assets (pension plan only)


8.50
%

8.50
%

8.50
%Rate of compensation increase (pension plan only)


4.00
%

4.00
%

4.00
%


77

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 8    Pension Plan and Retirement Benefits (Continued)

Plan Assets and Investment Strategy

Our pension plan assets by level within the fair value hierarchy at September 30, 2010, are presented in the table below. Our
pension plan assets were accounted for at fair value. For more information on a description of the fair value hierarchy, see Note 17.

Level 1
Active
Markets for
Identical
Assets

Level 2
Other
Observable
Inputs

Level 3
Significant
Unobservable
Inputs

TotalU.S. Plan Assets:Mutual fund

$
17,741

$


$


$
17,741Common /collective fundsBonds





54,391





54,391Short-term money market





1,654





1,654U.S. common stock





51,478





51,478International equity





6,816





6,816Total U.S.

$
17,741

$
114,339

$


$
132,080U.K. plan assets


12,896








12,896Total pension plan

$
30,637

$
114,339

$


$
144,976


The
primary financial objectives of the Plan are to minimize cash contributions over the long-term and preserve capital while maintaining a high degree of liquidity. A
secondary financial objective is, where possible, to avoid significant downside risk in the short-run. The objective is based on a long-term investment horizon so that interim
fluctuations should be viewed with appropriate perspective.

The
desired investment objective is a long-term real rate of return on assets that is approximately 7.00% greater than the assumed rate of inflation as measured by the
Consumer Price Index, assumed to be 1.50%, equaling a nominal rate of return of 8.50%. The target rate of return for the Plan has been based upon an analysis of historical returns supplemented with an
economic and structural review for each asset class. The Company realizes that the market performance varies and that a 7.00% real rate of return may not be meaningful during some periods. The Company
also realizes that historical performance is no guarantee of future performance.

In
determining the expected rate of return on plan assets, the Company takes into account the plan's allocation at September 30, 2010 of 58% equities, 41% fixed income and 1%
other. The Company assumes an approximately 3.5% to 4% equity risk premium above the broad bond market yields of 5.50% to 6.00%. Note that over very long historical periods the realized risk premium
has been higher. The Company believes that its assumption of an 8.50% long-term rate of return on plan assets is comparable to other companies, given the target allocation of the plan
assets; however, there exists the potential for the use of a lower rate in the future.

It
is the policy of the Plan to invest assets with an allocation to equities as shown below. The balance of the assets shall be maintained in fixed income investments, and in cash
holdings, to the extent permitted below.

78

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 8    Pension Plan and Retirement Benefits (Continued)

Asset
classes as a percent of total assets:

Asset Class

Target(1)Equity


60
%Fixed Income


40
%Real Estate and Other


0
%


(1)From
time to time the Company may adjust the target allocation by an amount not to exceed 10%.


The
U.K. pension plan assets use a similar strategy and investment objective.

Contributions and Benefit Payments

The Company expects to contribute approximately $12,720 to its domestic pension plans, $5,000 to its domestic other postretirement
benefit plans, and $943 to the U.K. pension plan in fiscal 2011.

Pension
and postretirement health care benefits (which include expected future service) are expected to be paid out of the respective plans as follows:

Fiscal Year Ending September 30

Pension

Postretirement
Health Care2011

$
11,613

$
5,0002012


11,768


5,0002013


12,167


5,0002014


12,489


5,0002015


12,893


5,0002016-2020 (in total)


71,647


25,000


Note 9    Commitments

The Company leases certain transportation vehicles, warehouse facilities, office space and machinery and equipment under cancelable and non-cancelable leases, most of which
expire within 10 years and may be renewed by the Company. Rent expense under such arrangements totaled $3,770, $3,659 and $3,564 for the years ended September 30, 2008, 2009 and 2010,
respectively. Rent expense does not include income from sub-lease rentals totaling $150, $155 and $107 for the years ended September 30, 2008, 2009 and 2010, respectively. Future
minimum rental commitments under non-cancelable operating leases at September 30, 2010, are as follows:

Operating2011

$
2,9192012


1,9612013


1,3192014


1,2612015


9762016 and thereafter


2,970$
11,406


79

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 9    Commitments (Continued)

Future
minimum rental commitments under non-cancelable operating leases have not been reduced by minimum sub-lease rentals of $594 due in the future.

Note 10    Legal, Environmental and Other Contingencies

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.

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 was 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

80

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 10    Legal, Environmental and Other Contingencies (Continued)

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 fiscal 2007, IDEM issued a single post-closure permit applicable to both the North and South
Landfills, which contains monitoring and post-closure care requirements. In addition, IDEM required that a Resource Conservation and Recovery Act, or RCRA, Facility Investigation, or RFI,
be conducted in order to further evaluate one area of concern and one solid waste management unit. The RFI commenced in fiscal 2008 and is ongoing.

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 action by the Company could be required.
In addition, in August, 2008, employees discovered an abnormal pH in the sump pumps located in containment pits in the wastewater treatment facility. After testing, it was determined that there was a
leak in the pipeline from the cleaning house to the wastewater treatment facility. NCDENR was notified within 24 hours of the verification of the leak. To date, the state has not responded to
this disclosure.

As
of September 30, 2009 and September 30, 2010, the Company has accrued $1,516 and $1,448, respectively, for post-closure monitoring and maintenance
activities. 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 $1,884 which was then discounted using an appropriate
discount rate.

All
eligible hourly employees at the Kokomo plant and Lebanon, Indiana service center (approximately 50.9% or 499 in aggregate as of September 30, 2010) are covered by a
collective bargaining agreement which will expire in June 2013. In September 2010, a majority of the 76 hourly employees at the Company's Arcadia, Louisiana operations elected to be represented by the
United Steelworkers of America, although no collective bargaining agreement is in place at this time and negotiations are ongoing.

81

---





Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 11    Stock-based Compensation

Restricted Stock Plan

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

Restricted
stock grants are subject to forfeiture if employment or service terminates prior to the vesting period or if the performance goals are not met, if applicable. The Company will
assess, on an ongoing basis, the probability of whether the performance criteria will be achieved. The Company will recognize compensation expense over the performance period if it is deemed probable
that the goals will be achieved. The fair value of the Company's restricted stock is determined based upon the closing price of the Company's common stock on the grant date. The plan provides for the
adjustment of the number of shares covered by an outstanding grant and the maximum number of shares for which restricted stock may be granted in the event of a stock split, extraordinary dividend or
distribution or similar recapitalization event. Outstanding shares of restricted stock are entitled to receive dividends on shares of common stock.

On
January 8, 2010, the Company granted 46,000 shares of restricted stock to certain key employees and non-employee directors. The shares of restricted stock granted
to employees will vest on the third anniversary of their grant date, provided that (a) the recipient is still an employee with the Company and (b) for a portion of the grant, the Company
has met a three year net income performance goal. The shares of restricted stock granted to directors will vest on the earlier of (a) the third anniversary of the date of grant or
(b) the failure of such non-employee director to be re-elected at an annual meeting of the stockholders of the Company as a result of such non-employee
director being excluded from the nominations for any reason other than cause. The fair value of the grant was $34.00, the closing price of the Company's common stock on the day of the grant.

The
following table summarizes the activity under the restricted stock plan for the year ended September 30, 2010:

Number of
Shares

Weighted
Average Fair
Value At
Grant DateUnvested at September 30, 2009


52,050

$
17.82Granted


46,000

$
34.00Forfeited / Canceled


(3,750
)
$
17.82Vested


Unvested at September 30, 2010


94,300

$
25.71Expected to vest


67,000

$
28.93


Compensation
expense related to restricted stock for the years ended September 30, 2009 and 2010 was $62 and $516, respectively. The remaining unrecognized compensation expense at
September 30, 2010 was $1,360 to be recognized over a weighted average period of 2.17 years. Compensation expense is not

82

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 11    Stock-based Compensation (Continued)

being
recorded on the March 31, 2009 prior year grant of 31,050 shares granted to employees as is continues to be not probable that the performance goal will be achieved.

Stock Option Plans

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 331/3% per year over three years from the grant date.

The
fair value of option grants was estimated as of the date of the grant. The Company has elected to use the Black-Scholes option pricing model, which incorporates various assumptions
including volatility, expected life, risk-free interest rates, expected forfeitures and dividend yields. The volatility is based on historical volatility of the Company's common stock over
the most recent period commensurate with the estimated expected term of the stock option granted. The Company uses historical volatility because management believes such volatility is representative
of prospective trends. The expected term of an award is based on historical exercise data. The risk-free interest rate assumption is based upon observed interest rates appropriate for the
expected term of the awards. The expected forfeiture rate is based upon historical experience. The dividend yield assumption is based on the Company's history and expectation regarding dividend
payouts. The fair value of option grants include the assumptions for grants in fiscal 2008, 2009, and 2010 are as follows:

Grant Date

Fair
Value

Dividend
Yield

Risk-free
Interest Rate

Expected
Volatility

Expected
LifeMarch 31, 2008

$
16.41


0
%

1.88
%

42
%
3 yearsOctober 1, 2008

$
15.89


0
%

2.12
%

47
%
3 yearsMarch 31, 2009

$
9.86


0
%

1.15
%

86
%
3 yearsJanuary 8, 2010

$
17.93


2.35
%

1.62
%

89
%
3 years


On
January 8, 2010, the Company granted 37,000 options at an exercise price of $34.00, the fair market value of the Company's common stock on the day of the grant. During
fiscal 2010, no options were exercised and 37,416 options were forfeited/canceled.

The
stock-based employee compensation expense related to options for the years ended September 30, 2008, 2009 and 2010 was $1,650, $1,247, and $1,021, respectively. The remaining
unrecognized compensation expense at September 30, 2010 was $1,019 to be recognized over a weighted average vesting period of 0.54 years.

83

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 11    Stock-based Compensation (Continued)

The
following table summarizes the activity under the stock option plans:

Number of
Shares

Aggregate
Intrinsic
Value

Weighted
Average
Exercise
Prices

Weighted
Average
Remaining
Contractual
LifeOutstanding at September 30, 2009


394,737




$
40.20Granted


37,000





34.00Exercised


Canceled


(37,416
)Outstanding at September 30, 2010


394,321

$
3,161

$
38.25


6.62 yrs.Vested or expected to vest


384,336

$
3,161

$
38.25


6.62 yrs.Exercisable at September 30, 2010


280,076

$
2,532

$
39.30


5.88 yrs.




Grant Date

Exercise Price
Per Share

Remaining
Contractual
Life in Years

Outstanding
Number of
Shares

Exercisable
Number of
SharesAugust 31, 2004

$
12.80


3.92


86,886


86,886May 5, 2005


19.00


4.58


8,334


8,334August 15, 2005


20.25


4.92





October 1, 2005


25.50


5.00





February 21, 2006


29.25


5.42


25,001


25,001March 31, 2006


31.00


5.50


10,000


10,000March 30, 2007


72.93


6.50


67,500


67,500September 1, 2007


83.53


6.92





March 31, 2008


54.00


7.50


87,500


58,326October 1, 2009


46.83


8.00


20,000


6,666March 31, 2009


17.82


8.50


52,100


17,363January 8, 2010


34.00


9.25


37,000


394,321


280,076


Forfeitures
are estimated over the vesting period, rather than being recognized as a reduction of compensation expense when the forfeiture actually occurs.

84

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 12    Quarterly Data (unaudited)

The unaudited quarterly results of operations of the Company for the years ended September 30, 2009 and 2010 are as follows:

2009Quarter EndedDecember 31

March 31

June 30

September 30Net revenues

$
134,304

$
120,413

$
98,325

$
85,591Gross profit


18,750


6,997


(8,168
)

4,904Net income (loss)(1)


4,524


(42,889
)

(10,944
)

(3,013
)Net income (loss) per share:Basic

$
0.38

$
(3.58
)
$
(0.91
)
$
(0.25
)Diluted

$
0.38

$
(3.58
)
$
(0.91
)
$
(0.25
)




2010Quarter EndedDecember 31

March 31

June 30

September 30Net revenues

$
81,008

$
94,619

$
101,271

$
104,646Gross profit


6,845


10,190


16,854


19,942Net income (loss)


(1,286
)

956


3,747


5,458Net income (loss) per share:Basic

$
(0.11
)
$
0.08

$
0.31

$
0.46Diluted

$
(0.11
)
$
0.08

$
0.31

$
0.45


---

Note 13    Segment Reporting

The Company operates in one business segment: the design, manufacture, marketing and distribution of technologically advanced, high-performance alloys for use in the
aerospace, land-based gas turbine and

85

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 13    Segment Reporting (Continued)

chemical
processing industries. The Company has operations in the United States, Europe and China, which are summarized below. Sales between geographic areas are made at negotiated selling prices.

Year Ended September 30,2008

2009

2010Net Revenue by Geography:United States

$
344,118

$
258,940

$
231,607Europe


167,522


113,020


81,332China


63,950


38,114


33,693Other


61,416


28,559


34,911Net Revenues

$
637,006

$
438,633

$
381,543Net Revenue by Product Group:High temperature resistant alloys

$
465,014

$
324,588

$
286,157Corrosive resistant alloys


171,992


114,045


95,386Net revenues

$
637,006

$
438,633

$
381,543




September 30,2009

2010Long-lived Assets by Geography:United States

$
108,548

$
109,531Europe


3,570


3,347China


932


836Total long-lived assets

$
113,050

$
113,714


Note 14    Valuation and Qualifying Accounts

Balance at
Beginning
of Period

Charges
(credits) to
Expense

Deductions(1)

Balance at
End
of PeriodAllowance for doubtful accounts receivables:September 30, 2010

$
1,310

$
263

$
(457
)
$
1,116September 30, 2009


1,354


470


(514
)

1,310September 30, 2008


1,339


100


(85
)

1,354


---

Note 15    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 of titanium metal annually. TIMET paid the Company a $50,000 up-front fee and will also pay the Company for its

86

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 15    Deferred Revenue (Continued)

processing
services during the term of the agreement (20 years) at prices established by the terms of the agreement. TIMET may exercise an option to have ten million additional pounds of
titanium converted annually, provided that it offers to loan up to $12,000 to the Company for certain capital expenditures which may be required to expand capacity. In addition to the volume
commitment, the Company has granted TIMET a security interest on its four-high Steckel rolling mill, along with rights of access if the Company enters into bankruptcy or defaults on any
financing arrangements. The Company has agreed not to manufacture titanium products (other than cold reduced titanium tubing). The Company has also agreed not to provide titanium conversion services
to any entity other than TIMET for the term of the Conversion Services Agreement. The agreement contains certain default provisions which could result in contract termination and damages, including
the Company being required to return the unearned portion of the up-front fee. The cash received of $50,000 is recognized in income on a straight-line basis over the
20-year term of the agreement. The portion of the up-front fee not recognized in income is shown as deferred revenue on the consolidated balance sheet. Taxes were paid on the
up-front fee primarily in the first quarter of fiscal 2009.

Note 16    Commodity Contracts

On June 11, 2009, to mitigate the volatility of the natural gas markets, the Company entered into a commodity swap-cash settlement agreement with JP Morgan
Chase Bank. The Company has agreed to a fixed natural gas price on a total of 300,000 MMBTU, at a settlement rate of 50,000 MMBTU per month for a period spanning October 2009 to March
2010. The Company's realized hedging loss was $83 and $185 for the years ended September 30, 2009 and September 30, 2010, respectively.

As of September 30, 2009

Gain or (loss) Recognized in
Income (Loss)Balance Sheet
Location

Fair
Value

Statement of
Operations
Location

Year Ended
Sept. 30, 2009Commodity Contracts

Accounts Receivable

$
51

Cost of Sales

$
(83
)Accounts Payable

$
(134
)




As of September 30, 2010

Gain or (loss) Recognized in
Income (Loss)Balance Sheet
Location

Fair
Value

Statement of
Operations
Location

Year Ended
Sept. 30, 2010Commodity Contracts

Accounts Receivable

$


Cost of Sales

$
(185
)Accounts Payable

$



The
Company is not currently party to any commodity swap-cash settlement agreements.

Note 17    Fair Value Measurements

On October 1, 2008, the Company adopted guidance for assets and liabilities measured at fair value on a recurring basis. This guidance does not apply to non-financial
assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually until October 1, 2009. This guidance
establishes a framework for measuring fair value, clarifies the definition of

87

---



Table of Contents

HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data and otherwise noted)

Note 17    Fair Value Measurements (Continued)

fair
value within that framework and expands disclosures about the use of fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the
principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

This
guidance specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions that other market participants would use based
upon market data obtained from independent sources (observable inputs) or reflect the Company's own assumptions of market participant valuation (unobservable inputs). Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy that prioritizes the use of inputs used in valuation techniques into
the following three levels:



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

The
following table represents the Company's fair value hierarchy for its financial assets and liabilities (cash equivalents) measured at fair value on a recurring basis as of
September 30, 2010:

Fair Value Measurements
at Reporting Date Using:Level 1

Level 2

Level 3

TotalAssets:Cash and money market funds

$
63,968

$


$


$
63,968Pension plan assets


30,637


114,339





144,976Total fair value

$
94,605

$
114,339

$


$
208,944


The
Company has no Level 3 assets as of September 30, 2010.

88

---





Table of Contents

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Evaluation of Disclosure 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 September 30, 2010 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 U.S. Securities and Exchange Commission, including to ensure that information required to be disclosed by the Company that it files or submits
under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding
required disclosure.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of fiscal 2010 there were no changes in the Company's internal controls over financial reporting or in other
factors that have or are reasonably likely to materially affect these controls.

Management's Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined by Exchange Act rules 13a-15(f) and 15d-15(f)) for the Company. With the participation of
the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations (COSO) of The Treadway Commission. Based on our assessment, management has
concluded that, as of September 30, 2010, the Company's internal control over financial reporting is effective based on those criteria.

All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and
can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The
Company's effectiveness of internal control over financial reporting as of September 30, 2010 has been audited by Deloitte and Touche LLP, an independent registered
public accounting firm, and Deloitte & Touche has issued a report on the Company's internal control over financial reporting.

Mark Comerford
President & Chief Executive Officer
November 18, 2010

Marcel Martin
Chief Financial Officer
November 18, 2010


Item 9B.    Other Information

None.

89

---





Table of Contents

Part III

Item 10.    Directors, Executive Officers and Corporate Governance.

The information included under the caption "BusinessExecutive Officers" in this Form 10-K, and under
the captions "Election of Directors", "Section 16(a) Beneficial Ownership Reporting Compliance", "Corporate GovernanceCode of Ethics", "Corporate GovernanceCorporate
Governance Committee and Director Nominations", "Corporate GovernanceCommittee Structure", and "Corporate GovernanceIndependence of the Board of Directors and Committee
Members" in the Proxy Statement is incorporated herein by reference.

Item 11.    Executive Compensation.

The information included under the captions "Executive Compensation", "Corporate GovernanceCompensation Committee
Interlocks and Insider Participation" and "Corporate GovernanceDirector Compensation Program" in the Proxy Statement is incorporated herein by reference in response to this item.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information contained under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management"
in the Proxy Statement and "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesEquity Compensation Plan Information" in this
Form 10-K is incorporated herein by reference in response to this item. For additional information regarding the Company's stock option plans, please see Note 11 in the Notes
to Consolidated Financial Statements in this report.

Equity Compensation Plan Information

The following table provides information as of September 30, 2010 regarding shares of the Company's common stock issuable
pursuant to its stock option and restricted stock plans:

Plan Category

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
the second column)Equity compensation plans approved by security holders(1)


394,321

$
38.25


561,600
(2)


(1)For
a description of the Company's equity compensation plans, see Note 11 to the Consolidated Financial Statements in Item 8.(2)Includes
(i) 255,900 stock options which are exercisable for one share of common stock, and (ii) 305,700 shares of restricted
stock.


90

---



Table of Contents

Item 13.    Certain Relationships and Related Transactions.

The Company's policy is to require that all conflict of interest transactions between the Company and any of its directors, officers or
10% beneficial owners (collectively, "Insiders") and all transactions where any Insider has a direct or indirect financial interest, including related party transactions required to be reported under
Item 404(a) of Regulation S-K, must be reviewed and approved or ratified by the Board of Directors. The material terms of any such transaction, including the nature and
extent of the Insider's interest therein, must be disclosed to the Board of Directors. The Board will then review the terms of the proposed transaction to determine whether the terms of the proposed
transactions are fair to the Company and are no less favorable to the Company than those that would be available from an independent third party. Following the Board's review and discussion, the
proposed transaction will be approved or ratified only if it receives the affirmative votes of a majority of the directors who have no direct or indirect financial interest in the proposed
transaction, even though the disinterested directors represent less than a quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of
Directors which authorizes the contract or transaction.

There
are no transactions since the beginning of fiscal 2010, or any currently proposed transaction in which the Company is or was a participant in which any "related person", within the
meaning of Section 404(a) of Regulation S-K under the Securities Act of 1933, had or will have a material interest. The information contained under the caption "Corporate
GovernanceIndependence of Board of Directors and Committee Members" in the Proxy Statement is incorporated herein by reference in response to this item.

Item 14.    Principal Accountant Fees and Services.

The information included under the caption "Independent Registered Accounting Firm" in the Proxy Statement is incorporated herein by
reference in response to this item.

91

---



Table of Contents

Part IV

Item 15.    Exhibits, Financial Statement Schedules





92

---





Table of Contents

SIGNATURES

Pursuant to the requirements Section 13 or 15(d) of the Securities 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.By:

/s/ MARK COMERFORD Mark Comerford
President and Chief Executive Officer
Date: November 18, 2010


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/ MARK COMERFORD Mark Comerford

President and Chief Executive Officer;
Director (Principal Executive Officer)

November 18, 2010/s/ MARCEL MARTIN Marcel Martin

Chief Financial Officer
(Principal Financial Officer)

November 18, 2010/s/ DAN MAUDLIN Dan Maudlin

Controller and Chief Accounting Officer
(Principal Accounting Officer)

November 18, 2010/s/ JOHN C. COREY John C. Corey

Chairman of the Board, Director

November 18, 2010/s/ PAUL J. BOHAN Paul J. Bohan

Director

November 18, 2010/s/ DONALD C. CAMPION Donald C. Campion

Director

November 18, 2010/s/ ROBERT H. GETZ Robert H. Getz

Director

November 18, 2010


93

---



Table of Contents

Signature

Title

Date/s/ TIMOTHY J. MCCARTHY Timothy J. McCarthy

Director

November 18, 2010/s/ WILLIAM P. WALL William P. Wall

Director

November 18, 2010


94

---





Table of Contents

INDEX TO EXHIBITS

Exhibit
Number

Description3.1

Restated Certificate of Incorporation of Haynes International, Inc. (reflecting all amendments through October 31, 2009) (incorporated by reference to Exhibit 3.1 to the Haynes International, Inc.
Registration Statement on Form S-1, Registration No. 333-140194).3.2

Amended and Restated By-laws of Haynes International, Inc. (incorporated by reference to Exhibit 3.2 to the Haynes International, Inc. Registration Statement on Form S-1, Registration
No. 333-140194).4.1

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Haynes International, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2009).4.2

Restated Certificate of Incorporation of Haynes International, Inc. (incorporated by reference to Exhibit 3.1 hereof).4.3

Amended and Restated By-laws of Haynes International, Inc. (incorporated by reference to Exhibit 3.2 hereof).10.1

Form of Termination Benefits Agreements by and between Haynes International, Inc. and certain of its employees (incorporated by reference to Exhibit 10.1 to the Haynes International, Inc. Registration
Statement on Form S-1, Registration No. 333-140194).10.2

Haynes International, Inc. Death Benefit Plan, effective January 1, 2003 (incorporated by reference to Exhibit 10.2 to the Haynes International, Inc. Registration Statement on Form S-1,
Registration No. 333-140194).10.3

Amendment No. One to the Haynes International, Inc. Death Benefit Plan, dated August 30, 2004 (incorporated by reference to Exhibit 10.3 to the Haynes International, Inc. Registration Statement on
Form S-1, Registration No. 333-140194).10.4

Haynes International, Inc. Supplemental Executive Retirement Plan, Plan Document effective January 1, 2002 (incorporated by reference to Exhibit 10.4 to the Haynes International, Inc. Registration
Statement on Form S-1, Registration No. 333-140194).10.5

Amendment No. One to the Haynes International, Inc. Supplemental Executive Retirement Plan, dated August 30, 2004 (incorporated by reference to Exhibit 10.5 to the Haynes International, Inc.
Registration Statement on Form S-1, Registration No. 333-140194).10.6

Haynes International Inc. Supplemental Executive Retirement Plan(s), Master Trust Agreement, effective January 1, 2003 (incorporated by reference to Exhibit 10.6 to the Haynes International, Inc.
Registration Statement on Form S-1, Registration No. 333-140194).10.7

Amendment No. One to the Master Trust Agreement, dated August 30, 2004 (incorporated by reference to Exhibit 10.7 to the Haynes International, Inc. Registration Statement on Form S-1, Registration
No. 333-140194).10.08

Second Amended and Restated Loan and Security Agreement by and among Haynes International, Inc., Haynes Wire Company, the Lenders (as defined therein), Wachovia Capital Finance Corporation (Central), as agent for the
Lenders, and Bank One, N.A., as documentation agent, dated November 18, 2008 (incorporated by reference to Exhibit 10.10 to Haynes International, Inc. Annual Report on Form 10-K for the fiscal year ended September 30,
2008).10.09

Form of Director Indemnification Agreement between Haynes International, Inc. and certain of its directors named in the schedule to the Exhibit (incorporated by reference to Exhibit 10.21 to the Haynes
International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).


95

---



Table of Contents

Exhibit
Number

Description10.10

Conversion Services Agreement by and between the Company and Titanium Metals Corporation, dated November 17, 2006 (incorporated by reference to Exhibit 10.22 to the Haynes International, Inc. Registration
Statement on Form S-1, Registration No. 333-140194). Portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.10.11

Access and Security Agreement by and between the Company and Titanium Metals Corporation, dated November 17, 2006 (incorporated by reference to Exhibit 10.23 to the Haynes International, Inc. Registration
Statement on Form S-1, Registration No. 333-140194).10.12

Haynes International, Inc. 2007 Stock Option Plan as adopted by the Board of Directors on January 18, 2007 (incorporated by reference to Exhibit 10.25 to the Haynes International, Inc. Registration
Statement on Form S-1, Registration No. 333-140194).10.13

Form of Non-Qualified Stock Option Agreement to be used in conjunction with grants made pursuant to the Haynes International, Inc. 2007 Stock Option Plan (incorporated by reference to Exhibit 10.26 to the Haynes
International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).10.14

Second Amended and Restated Haynes International, Inc. Stock Option Plan as adopted by the Board of Directors on January 22, 2007 (incorporated by reference to Exhibit 10.27 to the Haynes International,
 Inc. Registration Statement on Form S-1, Registration No. 333-140194).10.15

Form of Non-Qualified Stock Option Agreements between Haynes International, Inc. and certain of its executive officers and directors named in the schedule to the Exhibit pursuant to the Haynes International,
 Inc. Second Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 10.28 to the Haynes International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).10.16

Indemnification Agreement with Anastacia S. Kilian (incorporated by reference to Exhibit 10.31 to the Haynes International, Inc. Registration Statement on Form S-1, Registration
No. 333-140194).10.17

Employment Agreement by and between Haynes International, Inc. and Mark Comerford dated September 8, 2008 (incorporated by reference to Exhibit 10.21 to Haynes International, Inc. Annual Report on
Form 10-K for the fiscal year ended September 30, 2008).10.18

Non-Qualified Stock Option Agreement by and between Haynes International, Inc. and Mark Comerford, dated October 1, 2008 (incorporated by reference to Exhibit 10.2 to Haynes International, Inc.
Form 8-K filed October 7, 2008).10.19

Amendment No. 1 to Executive Employment Agreement by and between Haynes International, Inc. and Mark Comerford, dated August 6, 2009 (incorporated by reference to Exhibit 10.1 to the Haynes
International, Inc. Form 8-K filed August 7, 2009).10.20

Haynes International, Inc. 2009 Restricted Stock Plan (incorporated by reference to Exhibit 10.02 to the Haynes International, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2009).10.21

Summary of 2010 Management Incentive Plan (incorporated by reference to Item 5.02 of the Haynes International, Inc. Form 8-K filed October 23, 2009).21.1**

Subsidiaries of the Registrant.23.1**

Consent of Deloitte & Touche LLP.31.1**

Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer31.2**

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1**

Section 1350 Certifications


**Filed
herewith


96

---