UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2009

or

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

For the transition period from to

Commission File Number: 001-33288

HAYNES INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

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

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

(765) 456-6000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant 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). Yes x No o

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

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o

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

As of February 1, 2010, the registrant had 12,144,079 shares of Common Stock, $.001 par value, outstanding.

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PART 1 FINANCIAL INFORMATION

Item 1. Financial Statements

HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

	September 30, 2009			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	105,095		$	97,510
Restricted cash—current portion	110			110
Accounts receivable, less allowance for doubtful accounts of $1,310 and $1,316 respectively	47,473			47,647
Inventories	182,771			186,463
Income taxes receivable	24,348			17,416
Deferred income taxes	9,035			9,252
Other current assets	645			1,721
Total current assets	369,477			360,119
Property, plant and equipment, net	105,820			107,767
Deferred income taxes—long term portion	58,843			59,800
Prepayments and deferred charges	2,670			2,815
Restricted cash—long term portion	110			—
Intangible assets, net	7,230			7,090
Total assets	$	544,150		$	537,591
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	29,249		$	29,829
Accrued expenses	10,312			9,363
Accrued pension and postretirement benefits	20,215			19,305
Revolving credit facilities	—			—
Deferred revenue – current portion	2,500			2,500
Current maturities of long-term obligations	110			103
Total current liabilities	62,386			61,100
Long-term obligations (less current portion)	1,482			1,382
Deferred revenue (less current portion)	40,329			39,704
Non-current income taxes payable	292			292
Accrued pension and postretirement benefits	160,862			159,527
Total liabilities	265,351			262,005
Commitments and contingencies (Note 6)	—			—
Stockholders’ equity:
Common stock, $0.001 par value (40,000,000 shares authorized, 12,101,829 shares issued and outstanding at September 30, 2009 and December 31, 2009, respectively)	12			12
Preferred stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued and outstanding)	—			—
Additional paid-in capital	227,734			228,095
Accumulated earnings	103,509			99,803
Accumulated other comprehensive loss	(52,456		)	(52,324		)
Total stockholders’ equity	278,799			275,586
Total liabilities and stockholders’ equity	$	544,150		$	537,591

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

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended
	December 31,
	2008			2009

Net revenues	$	134,304		$	81,008
Cost of sales	115,554			74,163
Gross profit	18,750			6,845
Selling, general and administrative expense	10,590			8,186
Research and technical expense	825			649
Operating income (loss)	7,335			(1,990		)
Interest income	(20		)	(45		)
Interest expense	356			48
Income (loss) before income taxes	6,999			(1,993		)
Provision for (benefit from) income taxes	2,475			(707		)
Net income (loss)	$	4,524		$	(1,286	)
Net income (loss) per share:
Basic	$	0.38		$	(0.11	)
Diluted	$	0.38		$	(0.11	)
Weighted average shares outstanding:
Basic	11,984,623			12,049,779
Diluted	12,044,999			12,049,779

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

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended December 31,
	2008			2009
Cash flows from operating activities:
Net income (loss)	$	4,524		$	(1,286	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	2,454			2,645
Amortization	291			140
Stock compensation expense	454			361
Deferred revenue	(625		)	(625		)
Deferred income taxes	792			(1,169		)
Loss on disposal of property	29			—
Change in assets and liabilities:
Accounts receivable	18,333			(178		)
Inventories	9,304			(3,648		)
Other assets	(916		)	(1,236		)
Accounts payable and accrued expenses	(5,055		)	238
Income taxes	(12,653		)	6,899
Accrued pension and postretirement benefits	(3,005		)	(2,268		)
Net cash provided by (used in) operating activities	13,927			(127		)

Cash flows from investing activities:
Additions to property, plant and equipment	(2,796		)	(5,070		)
Change in restricted cash	110			110
Net cash used in investing activities	(2,686		)	(4,960		)

Cash flows from financing activities:
Dividends paid	—			(2,420		)
Net decrease in revolving credit facility	(11,812		)	—
Payment for debt issuance costs	(306		)	—
Changes in long-term obligations	(1,315		)	(107		)
Net cash used in financing activities	(13,433		)	(2,527		)

Effect of exchange rates on cash	(13		)	29
Decrease in cash and cash equivalents	(2,205		)	(7,585		)

Cash and cash equivalents, beginning of period	7,058			105,095
Cash and cash equivalents, end of period	$	4,853		$	97,510

Supplemental disclosures of cash flow information:
Cash paid during period for: Interest (net of capitalized interest)	$	304		$	21
Income taxes	$	15,787		$	296

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

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HAYNES INTERNATIONAL, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share and per share data)

Note 1. Basis of Presentation

Interim Financial Statements

The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and such principles are applied on a basis consistent with information reflected in our Form 10-K for the year ended September 30, 2009 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments, which are necessary for a fair presentation of results for the respective interim periods. The results of operations for the three months ended December 31, 2009 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2010 or any interim period.

For purposes of this interim financial information, February 8, 2010 is the date through which subsequent events have been evaluated and represents the date the financial statements were issued.

Principles of Consolidation

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

Note 2. New 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 Accounting Standards Codification, or 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 December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (“SFAS 160”), which was primarily codified into Topic 810-10 (Consolidations) in the ASC. This guidance requires that noncontrolling interests be reported as a separate component of equity, that net income attributable to the parent and to the noncontrolling interest be separately identified in the consolidated statement of operations, that changes in a parent’s ownership interest be accounted for as equity transactions, and that, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at

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fair value. This guidance will be applied prospectively, except for presentation and disclosure requirements which were applied retroactively, as of the beginning of the Company’s fiscal year 2010. The Company does not currently have noncontrolling interests, and therefore the adoption of this guidance did not have an impact on the Company’s financial position, results of operations or cash flows.

In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets 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 is 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, 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 is effective for fiscal years and interim periods beginning after December 15, 2009. The adoption of this guidance is expected to increase our disclosures, but it is not expected to have an impact on our consolidated financial statements.

Note 3. Inventories

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

	September 30, 2009		December 31, 2009
Raw Materials	$	13,321	$	16,968
Work-in-process	87,322		88,268
Finished Goods	81,228		80,079
Other	900		1,148
	$	182,771	$	186,463

Note 4. Income Taxes

Income tax expense for the three months ended December 31, 2008 and 2009, differed from the U.S. federal statutory rate of 35% primarily due to state income taxes, differing tax rates on foreign earnings and the impact of permanent items with a pretax loss. The effective tax rate for the first quarter of fiscal 2010 was 35.5% compared to 35.4% in the same period of fiscal 2009.

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Note 5. Pension and Post-retirement Benefits

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

	Three Months Ended December 31,
	Pension Benefits						Other Benefits
	2008			2009			2008			2009
Service cost	$	635		$	899		$	332		$	52
Interest cost	2,999			2,864			1,231			1,205
Expected return	(2,510		)	(2,619		)	—			—
Amortizations	201			1,446			(1,327		)	(950		)
Net periodic benefit cost	$	1,325		$	2,590		$	236		$	307

The Company contributed $3,625 to Company sponsored domestic pension plans, $1,249 to its other post-retirement benefit plans and $245 to the U.K. pension plan for the three months ended December 31, 2009. The Company presently expects future contributions of $9,875 to its domestic pension plans, $3,551 to its other post-retirement benefit plans and $715 to the U.K. pension plan for the remainder of fiscal 2010. The Pension Protection Act of 2006 requires funding over a seven-year period to achieve 100% funded status.

Note 6. 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, filed against numerous manufacturers, including the Company, in December 2008 in the Federal MDL Court in Ohio and in California State Court in February 2007, respectively, alleging that the welding-related products of the defendant manufacturers harmed the users of such products through the inhalation of welding fumes containing manganese. The Company believes that it has defenses to these allegations and, that if the Company were found liable, the cases would not have a material effect on its financial position, results of operations or liquidity. In addition to these cases, the Company has in the past been named a defendant in several other lawsuits, including 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

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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, there are several risks and uncertainties that may affect its liability for claims relating to exposure to welding fumes and manganese. For instance, in recent cases, at least two courts (in cases not involving Haynes) have refused to dismiss claims relating to inhalation of welding fumes containing manganese based upon a bankruptcy discharge order. Although the Company believes the facts of these cases are distinguishable from the facts of its cases, there can be no assurance that any or all claims against the Company will be dismissed based upon the Confirmation Order, particularly claims premised, in part or in full, upon actual or alleged exposure on or after the date of the Confirmation Order. It is also possible that the Company will be named in additional suits alleging welding-rod injuries. Should such litigation occur, although the Company may have applicable insurance, 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 contain 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 actions by the Company could be required.

Historic nitric acid leaks were discovered at the Arcadia, Louisiana location in fiscal 2008. Analytical results were received in March 2008 and the site assessment was provided to the Louisiana Department of Environmental Quality, or LDEQ in May. Remediation of the spill, including the purchase of new equipment, was substantially complete in fiscal 2008. A preliminary assessment of the LDEQ authorized the Company’s proposed remedial actions. In fiscal 2009, the Company submitted responses to further inquiries from LDEQ regarding remediation activities, and is awaiting response from LDEQ.

As of December 31, 2009 and September 30, 2009, the Company has accrued $1,516 for post-closure monitoring and maintenance activities. In accordance with Statement of Position 96-1, Environmental Remediation Liabilities, which was primarily codified into Topic 410-30 (Asset Retirement and Environmental Obligations) in the ASC, accruals for these costs are calculated by estimating the cost to monitor and maintain each post-closure site and multiplying that amount by the number of years remaining in the 30 year post-closure monitoring period referred to above. At each fiscal year-end, or earlier if necessary, the Company evaluates the accuracy of the estimates for these monitoring and maintenance costs for the upcoming fiscal year. The accrual was based upon the undiscounted amount of the obligation of $2,123 which was then discounted using an appropriate discount rate. The cost associated with closing the sites has been incurred in financial periods prior to those presented, with the remaining cost to be incurred in future periods related solely to post-closure monitoring and maintenance. Based on historical experience, the Company estimates that the cost of post-closure monitoring and maintenance will approximate $134 per year over the remaining obligation period.

All eligible hourly employees at the Kokomo plant and Lebanon, Indiana service center (approximately 48.3% or 454 in aggregate as of September 30, 2009), are covered by a collective bargaining agreement which will expire in June 2010. The Company intends to renegotiate the agreement prior to its expiration.

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Note 7. Deferred Revenue

On November 17, 2006, the Company entered into a twenty-year agreement to provide conversion services to Titanium Metals Corporation (“TIMET”) for up to ten million pounds of titanium metal annually. TIMET paid the Company a $50,000 up-front fee and will also pay the Company for its processing services during the term of the agreement (20 years) at prices established by the terms of the agreement. 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 upfront 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 upfront 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 8. 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. The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) which was primarily codified into Topic 350 (Intangibles - Goodwill and Other) in the ASC. Pursuant to SFAS 142, goodwill is not amortized and the value of goodwill is reviewed at least annually for impairment. If the carrying value of goodwill exceeds its fair value, impairment of goodwill may 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.

Due to uncertainty surrounding the global economy and volatility in the Company’s stock price, the Company concluded a triggering event had occurred indicating potential impairment and performed an impairment test as of December 31, 2008 of its goodwill. No impairment was recognized at December 31, 2008 because the fair value exceeded the carrying values.

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 step one goodwill impairment analysis as of February 28, 2009 which indicated impairment. In connection with the second step of the goodwill impairment test, the Company compared the implied fair value of the reporting unit goodwill to the carrying value of that goodwill and determined that the carrying value of the Company’s one reporting unit exceeded its fair value. 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 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. The Company has non-compete agreements with lives of 5 to 7 years. Amortization of the patents, non-competes and other intangibles was $291 and $140 for the three months ended December 31, 2008 and 2009, respectively.

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

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

December 31, 2009	Gross Amount		Accumulated Amortization			Carrying Amount
Patents	$	8,667	$	(6,113	)	$	2,554
Trademarks	3,800		—			3,800
Non-compete	1,090		(547		)	543
Other	316		(123		)	193
	$	13,873	$	(6,783	)	$	7,090

Estimate of Aggregate Amortization Expense:

Year Ended September 30,
2010 (remainder of fiscal year)	$	417
2011	545
2012	359
2013	350
2014	350

Note 9. Net Income (Loss) Per Share

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

	Three Months Ended
	December 31,
(in thousands except share and per share data)	2008		2009
Numerator:
Net income (loss)	$	4,524	$	(1,286	)
Denominator:
Weighted average shares outstanding - Basic	11,984,623		12,049,779
Effect of dilutive stock options	60,376		51,418
Adjustment for net loss	—		(51,418		)
Weighted average shares outstanding - Diluted	12,044,999		12,049,779

Basic net income (loss) per share	$	0.38	$	(0.11	)
Diluted net income (loss) per share	$	0.38	$	(0.11	)

Number of stock option shares excluded as their effect would be anti-dilutive	280,334		207,500

Number of restricted stock shares excluded as their performance goal is not yet met	—		31,050

Number of restricted stock shares excluded because of the net loss	—		21,000

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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. Restricted stock issued to non-employee directors would be included in the computation if the Company had net income.

Note 10. 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 goal is 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 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. Outstanding shares of restricted stock are entitled to receive dividends on shares of common stock.

On March 31, 2009, the Company granted 53,800 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) 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 $17.82, the closing price of the Company’s common stock on the day of the grant. On September 30, 2009 the probability of reaching the 3 year performance goal was evaluated and it was determined that it was not probable that the performance goal would be achieved. Therefore the compensation expense recorded on the 31,050 shares granted to employees was reversed and no future compensation expense will be recorded unless circumstances change making the achievement of the goal no longer improbable.

The following table summarizes the activity under the restricted stock plan for the three months ended December 31, 2009:

	Number of Shares	Weighted Average Fair Value At Grant Date
Unvested at September 30, 2009	52,050	$	17.82
Granted	—
Forfeited / Canceled	—
Vested	—
Unvested at December 31, 2009	52,050	$	17.82
Expected to vest – December 31, 2009	21,000	$	17.82

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Compensation expense related to restricted stock granted to non-employee directors for the three months ended December 31, 2009 was $31. The remaining unrecognized compensation expense at December 31, 2009 was $281 to be recognized over a weighted average period of 2.25 years.

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 33 1/3% per year over three years from the grant date.

The fair value of option grants was estimated as of the date of the grant pursuant to FASB No. 123(R), Share-Based Payment, which was primarily codified into Topic 718 (Compensation — Stock Compensation) in the ASC. 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 at the time of the grant. Valuation of future grants under the Black-Scholes model will include a dividend yield.

The stock-based employee compensation expense for stock options for the three months ended December 31, 2008 and 2009 was $454 and $330, respectively. The remaining unrecognized compensation expense at December 31, 2009 was $1,385 to be recognized over a weighted average vesting period of 0.92 years.

The following table summarizes the activity under the stock option plans for the three months ended December 31, 2009:

	Number of Shares		Aggregate Intrinsic Value (000s)		Weighted Average Exercise Prices		Weighted Average Remaining Contractual Life
Outstanding at September 30, 2009	394,737				$	40.20
Granted	—
Exercised	—
Canceled	(7,666	)
Outstanding at December 31, 2009	387,071		$	2,879	$	39.68	7.18 yrs.
Vested or expected to vest	380,786		$	2,879	$	39.68	7.18 yrs.
Exercisable at December 31, 2009	221,875		$	1,980	$	36.92	6.19 yrs.

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Grant Date	Exercise Price Per Share		Remaining Contractual Life in Years	Outstanding Number of Shares	Exercisable Number of Shares
August 31, 2004	$	12.80	4.67	86,886	86,886
May 5, 2005	19.00		5.33	8,334	8,334
August 15, 2005	20.25		5.58	—	—
October 1, 2005	25.50		5.75	—	—
February 21, 2006	29.25		6.17	25,001	25,001
March 31, 2006	31.00		6.25	10,000	10,000
March 30, 2007	72.93		7.25	77,500	51,662
September 1, 2007	83.53		7.67	—	—
March 31, 2008	54.00		8.25	100,000	33,326
October 1, 2008	46.83		8.75	20,000	6,666
March 31, 2009	17.82		9.25	59,350	—
				387,071	221,875

Note 11. Dividend

In the first quarter of fiscal 2010, the Company declared the first quarterly cash dividend in its history. On November 23, 2009, the Company announced that the Board of Directors had initiated a quarterly cash dividend of $0.20 per outstanding share of the Company’s common stock. The dividend was paid December 15, 2009 to stockholders of record at the close of business on December 3, 2009. The dividend cash pay-out was $2,420 for the quarter based on shares outstanding.

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 March 15, 2010 to stockholders of record at the close of business on March 1, 2010.

Note 12. 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 JPMorgan 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. As of December 31, 2009, 150,000 MMBTU had been settled for a realized hedging loss of $219. The Company’s unrealized hedging gain was $1 at December 31, 2009.

	Fair Value							Gain or (loss) Recognized in Income (Loss)
	Balance Sheet	September 30,			December 31,			Statement of Operations	Three Months Ended December 31,
	Location	2009			2009			Location	2008	2009
Commodity Contracts	Accts Receivable	$	51		$	9		Cost of Sales	—	$	134
	Accounts Payable	$	(134	)	$	(8	)

Note 13. Fair Value Measurements

On October 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements , as amended by FSP FAS 157-3, for assets and liabilities measured at fair value on a recurring basis, which was primarily codified into FASB ASC 820-10 (Fair Value Measurements and Disclosures) in the ASC. This standard does not apply to non-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. FASB ASC 820-10 establishes a framework for measuring fair value, clarifies the definition of 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

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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.

FASB ASC 820-10 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 under FASB ASC 820-10 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:

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

When available, the Company uses unadjusted quoted market prices 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.

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

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

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

	Fair Value Measurements at Reporting Date Using:
December 31, 2009	Level 1		Level 2		Level 3		Total
Assets:
Cash and money market funds	$	97,510	$	—	$	—	$	97,510
Commodity contracts (accounts receivable)	—		9		—		9
Total assets	$	97,510	$	9	$	—	$	97,519
Liabilities:
Commodity contracts (accounts payable)	—		8		—		8
Total liabilities	$	—	$	8	$	—	$	8

The Company had no Level 3 assets as of September 30, 2009 or December 31, 2009.

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

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

This Quarterly Report on Form 10-Q (this “Form 10-Q”) 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 Form 10-Q 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; 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 contained herein 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 1A. of Part 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009, 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.

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. 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 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 markets its products primarily through its direct sales organization, which includes 12 service and/or sales centers in the United States, Europe, Asia and India. All of these centers are company-operated.

Significant Events

Declaration of Dividend

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stockholders of record at the close of business on December 3, 2009. The aggregate dividend cash pay-out was approximately $2.4 million for the quarter based on shares outstanding, and equal to approximately $9.6 million on an annualized basis.

Outlook

General

It appears that demand has stabilized, but it continues to be at low levels and it does not appear demand will significantly improve in the next two quarters. The Company expects that net revenues for the second and third quarters of fiscal 2010 will be similar to the amount recorded in the first quarter of fiscal 2010. Management believes that the Company’s net income will range from break-even to a small loss in the second quarter and from break-even to a small profit in the third quarter. Results for fiscal 2010 will continue to be unfavorably impacted by both reduced absorption of fixed manufacturing costs, which translates into increased cost of goods sold per pound, and by the competitive environment, which places downward pressure on prices. A portion of this reduced absorption will continue to be offset by lower spending from the cost saving initiatives undertaken in fiscal 2009.

Backlog

Slightly improving order entry activity in the first quarter of fiscal 2010 contributed to a slight improvement in backlog at December 31, 2009 as compared to September 30, 2009. Backlog dollars were $110.4 million at December 31, 2009, an increase of approximately 3.5% from $106.7 million at September 30, 2009. This increase is the result of an 8.2% increase in backlog pounds, which was partially offset by a 4.3% decline in backlog average selling price. Management expects the backlog to improve modestly through the second and third quarters of fiscal 2010. The improvement in backlog may begin to positively impact net revenues in the fourth quarter of fiscal 2010.

Backlog dollars at December 31, 2009 declined by approximately 45% from backlog dollars of $199.7 million at December 31, 2008. Backlog pounds declined by approximately 33% and backlog average selling price declined by approximately 17% during the same period, primarily due to decreased activity in the Company’s end markets and continued price competition.

Competition

In the first quarter of fiscal 2010, the Company continued to experience price competition from competitors who produce both stainless steel and high-performance alloys due primarily to the continued weakness in both the high-performance alloy market and in the stainless market. This competition has required the Company to continue to aggressively price orders, which has continued to impact the Company’s gross profit margin and net income. However, there are indications that both the stainless and high-performance alloy markets will begin to improve in calendar 2010. If this improvement materializes and continues, pricing competition in the high-performance alloy industry may begin to ease in future quarters. 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.

In December 2009, the Company announced that it would be raising base prices between 6% to 8% for all alloys, however, it is not yet known if these price increases will be accepted by the market due to the continuing uncertainty in the global economy. If the price increases are accepted, it is likely that the Company will begin to see the effect beginning in the third quarter of fiscal 2010.

Quarter over Quarter Gross Profit Margin Trend

Gross profit margin and gross profit margin percentage declined each quarter starting in the third quarter of fiscal 2008 through the third quarter of fiscal 2009. In the fourth quarter of fiscal 2009 and first quarter of fiscal 2010,

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however, both gross profit margin and gross profit margin percentage have increased sequentially compared to the prior quarter.

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

The sequential improvement in gross profit margin and gross profit margin percentage experienced in the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010 were primarily due to a reduction in cost of goods sold per pound. Cost of goods sold per pound decreased as a result of reduced per pound manufacturing costs resulting primarily from (i) a significant reduction in the amount of higher cost raw material from inventory, which impacted costs of goods sold in the first, second and third quarters of fiscal 2009, (ii) manufacturing staffing reductions started in the second quarter of fiscal 2009 which continued through the fourth quarter of fiscal 2009, (iii) operating efficiencies attributable to equipment upgrades, particularly upgrades in the sheet finishing operations and (iv) continued implementation of lean manufacturing techniques. The improvements in gross profit margin were seen despite a reduction in net revenues of (i) $12.7 million between the third and fourth quarters of fiscal 2009, and (ii) $4.6 million between the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010.

Quarterly Market Information

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

	Quarter Ended
	December 31, 2008		March 31, 2009		June 30, 2009		September 30, 2009		December 31, 2009
Backlog (1)
Dollars (in thousands)	$	199,667	$	153,039	$	113,420	$	106,680	$	110,406
Pounds (in thousands)	7,287		5,557		4,468		4,544		4,915
Average selling price per pound	$	27.40	$	27.54	$	25.39	$	23.48	$	22.46

Average nickel price per pound
London Metals Exchange(2)	$	4.39	$	4.40	$	6.79	$	7.93	$	7.75

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

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

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The Company’s financial performance in the first quarter of fiscal 2010 is reflective of the continued global economic slowdown and the corresponding caution being exhibited by the Company’s customers. Aggregate demand in the Company’s markets declined through the course of fiscal 2009, as reflected by decreases in net revenues, volume and pricing quarter-to-quarter in fiscal 2009. This decline in demand began with the economic slowdown that started in calendar 2007 and was magnified by the global economic recession. Competition continued to increase through fiscal 2009, which correspondingly reduced earnings in fiscal 2009 as compared to fiscal 2008. In the first quarter of fiscal 2010 net revenues were lower than the fourth quarter of fiscal 2009 as a result of an aggregate lower average selling price due to the competitive environment, while volume between these two quarters was essentially flat. Management expects that volume and net revenues in the second and third quarters of fiscal 2010 will approximate the levels of the first quarter of fiscal 2010. Through the remainder of fiscal 2010, the overall economic weakness, the competitive environment and the cautious approach of the Company’s customers to restocking will make improving net revenues challenging.

	Quarter Ended
	December 31, 2008		March 31, 2009		June 30, 2009		September 30, 2009		December 31, 2009
Net revenues (in thousands)
Aerospace	$	49,721	$	45,200	$	34,959	$	30,158	$	28,375
Chemical processing	30,883		26,025		26,944		25,803		20,828
Land-based gas turbines	32,145		28,648		22,087		14,821		14,966
Other markets	19,166		17,562		11,529		11,152		13,080
Total product revenue	131,915		117,435		95,519		81,934		77,249
Other revenue	2,389		2,978		2,806		3,657		3,759
Net revenues	$	134,304	$	120,413	$	98,325	$	85,591	$	81,008

Shipments by markets (in thousands of pounds)
Aerospace	1,653		1,648		1,387		1,261		1,221
Chemical processing	947		1,170		1,077		1,337		1,155
Land-based gas turbines	1,507		1,680		1,405		872		946
Other markets	691		871		511		467		605
Total shipments	4,798		5,369		4,380		3,937		3,927

Average selling price per pound
Aerospace	$	30.08	$	27.43	$	25.20	$	23.92	$	23.24
Chemical processing	32.61		22.24		25.02		19.30		18.03
Land-based gas turbines	21.33		17.05		15.72		17.00		15.82
Other markets	27.74		20.16		22.56		23.88		21.62
Total product (excluding other revenue)	27.49		21.87		21.81		20.81		19.67
Total average selling price (including other revenue)	27.99		22.43		22.45		21.74		20.63

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Results of Operations for the Three Months Ended December 31, 2009 Compared to the Three Months Ended December 31, 2008

	Three Months Ended
	December 31,										Change
($ in thousands)	2008					2009					Amount		%
Net revenues	$	134,304		100.0	%	$	81,008		100.0	%	(53,296	)	(39.7	)%
Cost of sales	115,554			86.0	%	74,163			91.6	%	(41,391	)	(35.8	)%
Gross profit	18,750			14.0	%	6,845			8.4	%	(11,905	)	(63.5	)%
Selling, general and administrative expense	10,590			7.9	%	8,186			10.1	%	(2,404	)	(22.7	)%
Research and technical expense	825			0.6	%	649			0.8	%	(176	)	(21.3	)%
Operating income (loss)	7,335			5.5	%	(1,990		)	(2.5	)%	(9,325	)	(127.1	)%
Interest income	(20		)	0.0	%	(45		)	0.0	%	(25	)	(125	)%
Interest expense	356			0.3	%	48			0.0	%	(308	)	(86.5	)%
Income (loss) before income taxes	6,999			5.2	%	(1,993		)	(2.5	)%	(8,992	)	(128.5	)%
Provision for (benefit from) income taxes	2,475			1.8	%	(707		)	(0.9	)%	(3,182	)	(128.6	)%
Net income (loss)	$	4,524		3.4	%	$	(1,286	)	(1.6	)%	(5,810	)	(128.4	)%

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

	Three Months Ended
	December 31,				Change
By market	2008		2009		Amount			%
Net revenues (in thousands)
Aerospace	$	49,721	$	28,375	$	(21,346	)	(42.9	)%
Chemical processing	30,883		20,828		(10,055		)	(32.6	)%
Land-based gas turbines	32,145		14,966		(17,179		)	(53.4	)%
Other markets	19,166		13,080		(6,086		)	(31.8	)%
Total product revenue	131,915		77,249		(54,666		)	(41.4	)%
Other revenue	2,389		3,759		1,370			57.3	%
Net revenues	$	134,304	$	81,008	$	(53,296	)	(39.7	)%

Pounds by markets (in thousands)
Aerospace	1,653		1,221		(432		)	(26.1	)%
Chemical processing	947		1,155		208			22.0	%
Land-based gas turbines	1,507		946		(561		)	(37.2	)%
Other markets	691		605		(86		)	(12.4	)%
Total shipments	4,798		3,927		(871		)	(18.2	)%

Average selling price per pound
Aerospace	$	30.08	$	23.24	$	(6.84	)	(22.7	)%
Chemical processing	32.61		18.03		(14.58		)	(44.7	)%
Land-based gas turbines	21.33		15.82		(5.51		)	(25.8	)%
Other markets	27.74		21.62		(6.12		)	(22.1	)%
Total product (excluding other revenue)	27.49		19.67		(7.82		)	(28.4	)%
Total average selling price (including other revenue)	27.99		20.63		(7.36		)	(26.3	)%

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Net Revenues. Net revenues were $81.0 million in the first quarter of fiscal 2010, a decrease 39.7% from $134.3 million in the same period of fiscal 2009. Volume was 3.9 million pounds in the first quarter of fiscal 2010, a decrease of 18.2% from 4.8 million pounds in the same period of fiscal 2009. The aggregate average selling price was $20.63 per pound in the first quarter of fiscal 2010, a decrease of 26.3% from $27.99 per pound in the same period of fiscal 2009. As discussed above under “Outlook”, increased competition and the global economic recession continued to unfavorably impact both average selling price and volume in the first quarter of fiscal 2010 in most of the Company’s markets. In addition, average selling price declined due in part to continued weakness in customer demand, competition and a reduction in raw material costs. The Company’s consolidated backlog was $110.4 million at December 31, 2009, an increase of 3.5% from $106.7 million at September 30, 2009. This increase reflects the combination of an 8.2% increase in backlog pounds partially offset by a 4.3% decrease in backlog average selling price.

Sales to the aerospace market were $28.4 million in the first quarter of fiscal 2010, a decrease of 42.9% from $49.7 million in the same period of fiscal 2009, due to a 22.7% decrease in the average selling price per pound combined with a 26.1% decrease in volume. The volume decreased due to slowing market demand as reflected in the reduction in air traffic and leaning out of the aero engine supply chain.

Sales to the chemical processing market were $20.8 million in the first quarter of fiscal 2010, a decrease of 32.6% from $30.9 million in the same period of fiscal 2009, due to a 44.7% decrease in the average selling price per pound partially offset by a 22.0% increase in volume. Volume was affected by the project-oriented nature of the market where the comparisons of volume shipped between quarters can be affected by timing, quantity and order size of the project business which also impacts average selling price per pound. In the first quarter of fiscal 2010 there was an increased level of project business for commodity alloy billet versus the comparable quarter of fiscal 2009 which increased volume and lowered average selling price per pound. The decrease in average selling price also reflects a lower percentage of sales of specialty alloy product.

Sales to the land-based gas turbine market were $15.0 million in the first quarter of fiscal 2010, a decrease of 53.4% from $32.1 million for the same period of fiscal 2009, due to a decrease of 25.8% in the average selling price per pound combined with a 37.2% decrease in volume. The decrease in both volume and average selling price is due to reduced original equipment manufacturer activity and increased price competition.

Sales to other markets were $13.1 million in the first quarter of fiscal 2010, a decrease of 31.8% from $19.2 million in the same period of fiscal 2009, due to a 22.1% decrease in average selling price per pound combined with a 12.4% decrease in volume. The decline in volume and average selling price reflects the economic slowdown and the continued increase in competition in many of these markets.

Other Revenue. Other revenue was $3.8 million in the first quarter of fiscal 2010, an increase of 57.3% from $2.4 million in the same period of fiscal 2009. The increase is due primarily to higher scrap and miscellaneous sales.

Cost of Sales. Cost of sales was $74.2 million, or 91.6% of net revenues, in the first quarter of fiscal 2010 compared to $115.6 million, or 86.0% of net revenues, in the same period of fiscal 2009. Cost of sales in the first quarter of fiscal 2010 decreased by $41.4 million as compared to the same period of fiscal 2009 due to lower volume, lower material costs, reduced spending and workforce reductions. This decrease was partially offset by reduced absorption of fixed manufacturing costs caused by lower production volumes, particularly that of sheet product. Cost of sales as a percentage of net revenues increased in the first quarter of fiscal 2010 as compared to the same period of fiscal 2009 due to increased price competition and weaker demand, which reduced net revenues.

Selling, General and Administrative Expense. Selling, general and administrative expense was $8.2 million for the first quarter of fiscal 2010, a decrease of $2.4 million, or 22.7%, from $10.6 million in the same period of fiscal 2009 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 10.1% for the first quarter of fiscal 2010 compared to 7.9% for the same period of fiscal 2009 due primarily to reduced revenues.

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Research and Technical Expense. Research and technical expense was $0.6 million, or 0.8% of revenue, for the first quarter of fiscal 2010, a decrease of $0.2 million from $0.8 million, or 0.6% of net revenues, in the same period of fiscal 2009, due to the reduction in workforce during the second and fourth quarters of fiscal 2009.

Operating Income (Loss). As a result of the above factors, operating loss in the first quarter of fiscal 2010 was $(2.0) million compared to operating income of $7.3 million in the same period of fiscal 2009.

Income Taxes. Income taxes were a benefit of $0.7 million in the first quarter of fiscal 2010, a decrease of $3.2 million from an expense of $2.5 million in the same period of fiscal 2009, due to a pretax loss. The effective tax rate for the first quarter of fiscal 2010 was 35.5%, compared to 35.4% in the same period of fiscal 2009.

Net Income (Loss). As a result of the above factors, net loss in the first quarter of fiscal 2010 was $(1.3) million, a decrease of $5.8 million from net income of $4.5 million in the same period of fiscal 2009.

Liquidity and Capital Resources

Comparative cash flow analysis

During the first quarter of fiscal 2010, the Company’s primary sources of cash were cash from operations and cash on-hand. At December 31, 2009, the Company had cash and cash equivalents of approximately $97.5 million compared to cash and cash equivalents of approximately $105.1 million at September 30, 2009.

Net cash used in operating activities was $0.1 million in the first quarter of fiscal 2010 compared to net cash provided by operating activities of $13.9 million in the same period of fiscal 2009. Several items contributed to the difference. Cash used from increased accounts receivable of $0.2 million was $18.5 million higher than cash provided by accounts receivable in the same period of fiscal 2009. Cash used from increased inventory balances (net of foreign currency fluctuation) of $3.6 million was $13.0 million higher than cash provided by decreased inventory balances in the same period of fiscal 2009. Offsetting the above items, cash generated from income taxes of $6.9 million was $19.6 million higher than cash used by income taxes in the same period of fiscal 2009. Net cash used in capital expenditures was $5.1 million in the first quarter of fiscal 2010 compared to $2.7 million in the first quarter of fiscal 2009 primarily as a result of higher capital expenditures. Net cash used in financing activities in the first quarter of fiscal 2010 included a $2.4 million dividend payment.

Future sources of liquidity

The Company’s sources of cash for fiscal 2010 are expected to consist primarily of cash generated from operations, cash on-hand, and borrowings under the U.S. revolving credit facility. The U.S. revolving credit facility provides borrowings in a maximum amount of $120.0 million, subject to a borrowing base formula and certain reserves. At December 31, 2009, the Company had cash of approximately $97.5 million, an outstanding balance of zero on the U.S. revolving credit facility and access 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 planned capital expenditures and working capital requirements over the next twelve months.

U.S. revolving credit facility: Haynes and Wachovia Capital Finance Corporation (Central) (“Wachovia”) entered into a Second Amended and Restated Loan and Security Agreement (the “Amended Agreement”) with an effective date of November 18, 2008, which amended and restated the revolving credit facility between Haynes and Wachovia dated August 31, 2004. Among other items, the Amended Agreement extends the maturity date of the U.S. revolving credit facility to September 30, 2011, increases the margin included in the interest rate from 1.5% per annum to 2.25% per annum for LIBOR borrowings, permits the Company to pay dividends and repurchase common stock if certain financial metrics are met, and eliminates the EBITDA covenant. The maximum revolving loan amount under the Amended Agreement continues to be $120.0 million. Borrowings under the U.S. revolving credit facility 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 December 31, 2009, the U.S. revolving credit facility had an outstanding balance of zero. During the three month period ended December 31, 2009 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.

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Contractual Obligations

The following table sets forth the Company’s contractual obligations for the periods indicated, as of December 31, 2009:

(in thousands)

	Payments Due by Period
Contractual Obligations(1)	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years

Debt obligations	$	893	$	510	$	383	—		—
Operating lease obligations	13,144		3,321		3,870		$	2,330	$	3,623
Capital lease obligations	321		33		66		66		156
Raw material contracts	33,906		28,341		5,565		—		—
Natural gas hedge	845		845		—		—		—
Mill supplies contracts	92		92		—		—		—
Capital projects	4,320		4,320		—		—		—
Pension plan(2)	81,835		14,410		28,000		26,350		13,075
FAS 87 NQ pension plan	869		95		190		190		394
Other postretirement benefits(3)	49,800		4,800		10,000		10,000		25,000
Non-compete obligations(4)	110		110		—		—		—
Total	$	186,136	$	56,877	$	48,074	$	38,936	$	42,249

(1) Taxes are not included in the table. The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes, on October 1, 2007. As of December 31, 2009, the non-current income taxes payable was $292. It is not possible to determine in which period the tax liability might be paid out.

(2) The Company has a funding obligation to contribute $80,875 to the domestic pension plan arising from the Pension Protection Act of 2006. These payments will be tax deductible. All benefit payments under the domestic pension plan are provided by the plan and not the Company. The Company expects its U.K. subsidiary to contribute $960 in fiscal 2010 to the U.K. Pension Plan.

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

(4) 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.

New 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 Accounting Standards Codification, or 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 December 2008, the FASB issued FASB Staff Position No. 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets which was primarily codified into Topic 715 (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 is effective for fiscal years and interim periods beginning after December 15, 2009. The adoption of this guidance is expected to increase our disclosures, but it is not expected to have an impact on our consolidated financial statements.

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Critical Accounting Policies and Estimates

Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, income taxes, 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 the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009, filed by the Company with the Securities and Exchange Commission. 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 Recognition

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.

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 (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 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 $260,000. 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

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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 fourteen members of the plan.

Impairment of Long-lived Assets and Other Intangible Assets

The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. Assumptions and estimates with respect to estimated future cash flows used in the evaluation are subject to a high degree of judgment and complexity.

Share-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 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.

Stock Option Plans

On October 1, 2005, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 123(R), Share-Based Payment, which was primarily codified into Topic 718 (Compensation — Stock Compensation) in the ASC. The statement requires compensation costs related to share-based payment transactions to be recognized in the financial statements. This statement applies to all awards granted after the effective date and to modifications, repurchases or cancellations of existing awards. Additionally, under the modified prospective method of adoption, the Company recognizes compensation expense for the portion of outstanding awards on the adoption date for which the requisite service period has not yet been rendered based on

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the grant-date fair value of those awards. The amount of compensation cost 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.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”), which was primarily codified into Topic 740 (Income Taxes) in the ASC, which requires deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax basis of recorded assets and liabilities. This guidance also requires deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The determination of whether or not a valuation allowance is needed is based upon an evaluation of both positive and negative evidence. In 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 FASB Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for Income Taxes which was primarily codified into Topic 740-10 (Income Taxes > Overall) in the ASC. This guidance 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Changes in interest rates affect the Company’s interest expense on variable rate debt. All of the Company’s outstanding debt was variable rate debt at December 31, 2008 and 2009. The Company’s outstanding variable rate debt was zero at December 31, 2008 and 2009. 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 or the U.S. dollar. 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 currency exchange rate exposure aggregating more than $500,000 requires approval from the Company’s Chief Financial Officer. 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.

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

	Haynes International, Inc. and Subsidiaries:

	Unaudited Consolidated Balance Sheets as of September 30, 2009 and December 31, 2009	1

	Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 2008 and 2009	2

	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended December 31, 2008 and 2009	3

	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2008 and 2009	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	27

PART II	OTHER INFORMATION

Item 6.	Exhibits	28

	Signatures	29

	Index to Exhibits	30

	HAYNES INTERNATIONAL, INC.


	/s/ Mark Comerford
	Mark Comerford
	President and Chief Executive Officer
	Date: February 8, 2010


	/s/ Marcel Martin
	Marcel Martin
	Vice President, Finance
	Chief Financial Officer
	Date: February 8, 2010

Number Assigned In Regulation S-K Item 601		Description of Exhibit

(3)	3.01	Restated Certificate of Incorporation of Haynes International, Inc. (incorporated by reference to Exhibit 3.1 to the Haynes International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).
	3.02	Amended and Restated Bylaws of Haynes International, Inc. (incorporated by reference to Exhibit 3.2 to the Haynes International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).
(4)	4.01*	Specimen Common Stock Certificate.
	4.02	Restated Certificate of Incorporation of Haynes International, Inc. (incorporated by reference to Exhibit 2.1 to the Haynes International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).
	4.03	Amended and Restated By-laws of Haynes International, Inc. (incorporated by reference to Exhibit 2.2 to the Haynes International, Inc. Registration Statement on Form S-1, Registration No. 333-140194).
(10)	10.01	Summary of 2010 Management Incentive Plan (incorporated by reference to Item 5.02 of the Haynes International, Inc. Form 8-K filed October 23, 2009).
(31)	31.01*	Rule 13a-14(a)/15d-14(a) Certification.
	31.02*	Rule 13a-14(a)/15d-14(a) Certification.
(32)	32.01*	Section 1350 Certifications.

	Three Months Ended
	December 31
	2008			2009
Net income (loss)	$	4,524		$	(1,286	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(4,405		)	132
Comprehensive income (loss)	$	119		$	(1,154	)

Item 6.	Exhibits

	Exhibits. See Index to Exhibits.

Note 1. Basis of Presentation

Note 2. New Accounting Pronouncements

Note 3. Inventories

Note 4. Income Taxes

Note 5. Pension and Post-retirement Benefits

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

Note 10. Stock-Based Compensation

Item 4. Controls and Procedures