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

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

The Company has based these forward-looking statements on its current expectations and projections about future events. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based upon those assumptions also could be incorrect. Risks and uncertainties, some of which are discussed in Item 1A. of Part 1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2007, and in Part II, Item 1A of the Company's Form 10-Q for the fiscal quarter ended March 31, 2008 may affect the accuracy of forward-looking statements.

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

Overview

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

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

Key Events: As the Company previously announced on April 4, 2008, Francis Petro informed the Board of his intention to retire as the Company's President and Chief Executive Officer at the end of his existing employment agreement on September 30, 2008 and to continue to serve as a member of the Board of Directors. The Board then

retained Spencer Stuart, an executive search firm, to conduct a national search for a new Chief Executive Officer. Mr. Petro continues to assist the Corporate Governance Committee in the search for his successor.

On June 2, 2008 the Company announced the expansion of its relationship with HW Limited and its affiliated companies in Hong Kong and China for sales of Haynes products throughout Asia. Under the terms of the new long-term consulting agreement and the related acquisition of assets, which became effective on June 1, Haynes' sales and marketing presence in Asia will be greatly expanded. The sales force of HW Limited's Chinese affiliate will be integrated into the Haynes operations in China expanding Haynes' direct sales organization by eight people, which Haynes believes will lead to a more effective organization. In addition to overseeing this expanded organization, HW Limited's principal, Helen Wang will promote Haynes' products and services to customers in select markets in Asia, including China, Taiwan, South Korea, Singapore, Thailand, Laos, Malaysia, Vietnam, Indonesia, Cambodia, Philippines, Australia, and New Zealand. This consulting arrangement is one component of the Company's continued campaign to grow its market presence in China and the rest of Asia. The asset acquisition and related agreements increased fixed assets $15, increased non-compete agreement by $500 and increased goodwill by $2,485.

The installation of the equipment for the upgrade of the second annealing line was completed on schedule in the third quarter of fiscal 2008. Throughout July, start-up and certification activities have been taking place and intermediate material has been successfully processed on the upgraded equipment. It is expected that the final survey of the equipment will be completed in early August 2008. This completes the process of debottlenecking the sheet finishing operations and will enable the Company to take full advantage of previous capital improvements which improve operating performance in the form of increased capacity, reduced operating cost and improved working capital management.

Market Conditions: Generally, demand in the Company's markets remains strong and the Company saw improving results in both net revenue and gross profit margin as a percentage of net revenue in the third quarter of fiscal 2008. Management believes that the improving results were positively driven by several strategies. First, with demand in all markets strong and capacity limited, the Company carefully considers which types of projects to pursue in a given market to ensure the best margins are obtained. The Company's focus is growing capacity, while continuing to sell the highest volumes into the applications which provide the highest margins. This can be seen particularly in the chemical processing and flue-gas desulphurization markets which can appear weak in certain quarters not always as a reflection of demand in the market, but as a result of the Company's strategy to seek out higher-volume, higher-margin forms and alloys for project business which can be cyclical. In addition, the Company has continued to diversify its market base, expanding the industries served in the "Other Markets" category and also diversifying geographically, focusing on its presence in China and the rest of Asia. Finally, the Company looks to expand volumes through its capital upgrades. All of these strategies are intended to optimize returns and strengthen financial results.

Aerospace demand continues to be robust, as illustrated by the Company's high level of sales in this market to date in fiscal 2008. Haynes is well positioned to continue meeting current levels of demand and the anticipated increased level of demand in the latter part of fiscal 2009. Projects supporting this growth include the completion of upgrades to the Company's cold rolling mill in fiscal 2007 and both annealing lines in fiscal 2008 (which increased flat product finishing capacity by five million pounds), the installation of a new pilger mill at the Arcadia facility, also in fiscal 2008 (which increased capacity of seamless tubing), and continued expansion of the value-added operations in our service centers. The Company's level of order entry and backlog also indicates that demand in the aerospace market continues to be strong.

While pounds shipped in the land-based gas turbine market in the third quarter of fiscal 2008 were down slightly from the previous quarter, order entry and backlog continue to be strong and the Company does not believe demand in this market has materially slowed. Management expects demand in the land-based gas turbine market to continue to be favorable, subject to world economic conditions, due to higher activity in power generation, oil and gas production, and alternative power systems application. 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.

Although sales to the chemical processing industry were strong in the third quarter of fiscal 2008, the Company has seen some erosion in order entry in this market. Although some cyclicality as a result of project business is expected in this market from quarter to quarter, historically the chemical processing industry slows as a result of an overall economic slowdown as seen in recent quarters. It remains to be seen whether the slower rate of order entry is the result of a temporary dip in project business or a longer-term trend resulting from the economic environment.

The Company also continues its efforts to expand volumes sold into the industries which make up the "Other Markets" category. The industries in this category continue to seek to upgrade overall quality, improve product performance through increased efficiency, prolong product life, and lower 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 and industries. Due to non-repeating flue gas desulphurization projects, volume was lower in the third quarter of fiscal 2008, but overall management continues to see strength in the markets in this category.

Competition and Gross Profit: Beginning at the end of the second quarter and continuing through the fourth quarter of fiscal 2007, the Company experienced a trend of increasing revenues and average selling price per pound, while gross profit as a percentage of net revenues declined. During the first quarter of fiscal 2008, net revenue and average selling price per pound began to decline along with further erosion in gross profit as a percentage of net revenues. Compared to the first quarter of fiscal 2008, net revenue increased in the second quarter, but average selling price per pound and gross profit as a percentage of net revenue continued to decline. The decline in gross profit as a percentage of net revenue from the first quarter to the second quarter should be analyzed in light of the fact that the first quarter of fiscal 2008 included a one-time benefit of $3.7 million related to the pension curtailment gain. Adjusting for this gain, the gross profit as a percent of net revenue improved in the second quarter when compared to the first quarter. Although gross profit in the third quarter of fiscal 2008 is lower than the same period in fiscal 2007, it showed improvement over the second quarter of fiscal 2008. We believe this continued quarter to quarter improvement shows a trend of increasing net revenue and improving gross profit as a percentage of net revenue, even as the average selling price declined as compared to the previous quarter.

The largest contributing factor to gross profits which are lower as a percentage of revenue compared to the same periods in fiscal 2007 is increased price competition. Starting in the third quarter of fiscal 2007, the Company experienced increasing competition from competitors who produce both stainless steel and high-performance alloys. Due to a slowing stainless steel market, management believes 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. As a result of this competition, the Company's ability to raise prices on certain products was limited in the five most recent fiscal quarters. Historically, the Company experienced similar price competition in the 1990's and in the early 2000's, when demand in the stainless market weakened.

This competition should soften as the stainless market improves, however, American Metals Market reported in April 2008 that uncertainty as to the strengthening of the stainless market continues to exist. This could indicate that the recovery in the stainless market may take longer than anticipated or that the stainless market may continue to deteriorate. We believe, however, that we continue to improve our ability to respond to the competition as a result of our increased emphasis on service centers, our value-added services and our improving cost structure which has resulted from our capital expenditure program. We also believe that with the completion of the upgrade to the second annealing line, the Company's delivery-times and reliability will improve starting in the fourth fiscal quarter.

Capital Spending: Beginning in fiscal 2006, the Company began making significant investments in order to increase capacity in its sheet finishing operations, including upgrades to its cold rolling mill and one of two annealing lines, which were completed in fiscal 2007. The first phase of upgrades to the second annealing line was completed in the second quarter of fiscal 2008, and the second phase of these upgrades was completed in the third quarter of fiscal 2008, with final testing and survey of the equipment in the fourth quarter. These upgrades to the sheet finishing operations have increased the production capacity for high-performance alloys in sheet form from 9.0 million pounds per year to 14.0 million pounds per year. The Company's objective is to produce and sell 23.5 million pounds of high-performance alloys by no later than fiscal 2010 and possibly as early as fiscal 2009. With the completion of the upgrades to sheet finishing capacity and along with other capital upgrades since fiscal 2005, management is in the process of evaluating the positive impact of all these upgrades on total high-performance alloy

capacity across all product forms. It is believed that the upgrades may allow the Company to produce high-performance alloy volume in excess of the original estimate of 23.5 million pounds. In addition, management believes that completion of these upgrades will have a positive impact on gross profit as a percentage of net revenue, which has been negatively impacted by production downtime as a result of planned equipment upgrades.

Quarterly Market Information

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

                                                               Quarter Ended
                  December 31,     March 31,     June 30,       September 30,      December 31,     March 31,     June 30,
                      2006            2007          2007            2007               2007            2008         2008
Backlog(1)
Dollars (in
thousands)       $      206,859    $  237,589    $  258,867    $       236,256    $      247,775    $  254,470    $ 252,598
Pounds (in
thousands)                7,575         8,454         8,551              7,397             8,274         8,706        8,335
Average
selling price
per pound        $        27.31    $    28.10    $    30.27    $         31.94    $        29.95    $    29.23    $   30.30

Average
nickel price
per pound
London Metals
Exchange (2)     $        15.68    $    21.01    $    18.92    $         13.40    $        12.11    $    14.16    $   10.23

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

                                                             Quarter Ended
                   December 31,     March 31,     June 30,      September     December 31,     March 31,     June 30,
                       2006            2007         2007        30, 2007          2007            2008         2008
Net revenues
(in thousands)
Aerospace         $       43,827    $   48,232    $  55,317    $    63,796   $       59,442    $   63,472    $  62,857
Chemical
processing                38,778        37,701       31,495         39,986           40,805        37,404       49,165
Land-based gas
turbines                  20,076        27,993       26,812         28,120           25,505        33,506       31,004
Other markets             15,671        20,352       24,598         25,638           18,887        26,085       18,811
Total product
revenue                  118,352       134,278      138,222        157,540          144,639       160,467      161,837
Other
revenue(1)                 2,111         3,058        2,865          3,410            1,438         3,304        4,503
Net revenues      $      120,463    $  137,336    $ 141,087    $   160,950   $      146,077    $  163,771    $ 166,340

Pounds by
markets (in
thousands)

Aerospace                  1,780         1,701        1,973          2,206            2,154         2,190        2,319

Chemical
processing                 1,479         1,322        1,082          1,238            1,312         1,287        1,649

Land-based gas
turbines                   1,144         1,382        1,256          1,311            1,060         1,742        1,519

Other
markets(2)                 1,053         1,320        1,538            923              681           861          732

Total shipments            5,456         5,725        5,849          5,678            5,207         6,080        6,219

Average selling
price per pound
Aerospace         $        24.62    $    28.36    $   28.04    $     28.92   $        27.60    $    28.98    $   27.11
Chemical
processing                 26.22         28.52        29.11          32.30            31.10         29.06        29.82
Land-based gas
turbines                   17.55         20.26        21.35          21.45            24.06         19.23        20.41
Other markets              14.88         15.42        15.99          27.78            27.73         30.30        25.70
Total product
(excluding
other revenue)             21.69         23.45        23.63          27.75            27.78         26.39        26.03
Total average
selling price
(including
other revenue)             22.08         23.99        24.12          28.35            28.05         26.94        26.75

(2) The historical decrease in pounds in Other Markets relates primarily to the reduction in stainless steel wire pounds.

Results of Operations for the Three Months Ended June 30, 2008 Compared to the
Three Months Ended June 30, 2007



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



                                       Three Months Ended
                                            June 30,                                    Change
($ in thousands)                 2007                       2008                 Amount             %
Net revenues              $ 141,087     100.0 %      $ 166,340    100.0 %     $     25,253       17.9 %
Cost of sales               104,148      73.8 %        126,223     75.9 %           22,075       21.2 %
Gross profit                 36,939      26.2 %         40,117     24.1 %            3,178        8.6 %
Selling, general and
administrative expense       10,871       7.7 %         11,007      6.6 %              136        1.3 %
Research and technical
expense                         747       0.5 %            819      0.5 %               72        9.6 %
Operating income             25,321      18.0 %         28,291     17.0 %            2,970       11.7 %
Interest expense, net           263       0.2 %             22      0.0 %             (241 )    (91.6 )%
Income before income
taxes                        25,058      17.8 %         28,269     17.0 %            3,211       12.8 %
Provision for income
taxes                         7,317       5.2 %         10,705      6.4 %            3,388       46.3 %
Net income                $  17,741      12.6 %      $  17,564     10.6 %     $       (177 )     (1.0 )%

By market

                                              Three Months Ended
                                                   June 30,                     Change
                                               2007         2008        Amount           %
Net revenues (in thousands)
Aerospace                                   $   55,317    $  62,857    $   7,540     13.6 %
Chemical processing                             31,495       49,165       17,670     56.1 %
Land-based gas turbines                         26,812       31,004        4,192     15.6 %
Other markets                                   24,598       18,811       (5,787 )  (23.5 )%
Total product revenue                          138,222      161,837       23,615     17.1 %
Other revenue                                    2,865        4,503        1,638     57.2 %
Net revenues                                $  141,087    $ 166,340    $  25,253     17.9 %

Pounds by markets (in thousands)
Aerospace                                        1,973        2,319          346     17.5 %
Chemical processing                              1,082        1,649          567     52.4 %
Land-based gas turbines                          1,256        1,519          263     20.9 %
Other markets                                    1,538          732         (806 )  (52.4 )%
Total shipments                                  5,849        6,219          370      6.3 %

Average selling price per pound
Aerospace                                   $    28.04    $   27.11    $   (0.93 )   (3.3 )%
Chemical processing                              29.11        29.82         0.71      2.4 %
Land-based gas turbines                          21.35        20.41        (0.94 )   (4.4 )%
Other markets                                    15.99        25.70         9.70     60.7 %
Total product (excluding other revenue)          23.63        26.03         2.40     10.2 %
Total average selling price (including
other revenue)                                   24.12        26.75         2.63     10.9 %

Net Revenues. Net revenues increased by $25.3 million, or 17.9%, to $166.3 million in the third quarter of fiscal 2008 from $141.1 million in the same period of fiscal 2007. Volume for all products increased by 6.3% to 6.2 million pounds in the third quarter of fiscal 2008 from 5.8 million pounds in the same period of fiscal 2007. Volume of high-performance alloys increased by 20.8% to 6.1 million pounds in the third quarter of fiscal 2008 from 5.0 million pounds in the same period of fiscal 2007. As a result of the Company's strategy to focus on the production and sale of high-performance alloy wire, volume of stainless steel wire decreased to 0.1 million pounds in the third quarter of fiscal 2008 from 0.8 million pounds in the same period of fiscal 2007. It is anticipated that there will continue to be a recurring amount of stainless steel wire produced and sold into certain specialty markets. The aggregate average selling price per pound increased by 10.9% to $26.75 per pound in the third quarter of fiscal 2008 from $24.12 per pound in the same period of fiscal 2007 because of changes in product mix (including market, form and alloy), an increased level of service center value-added business and changes in raw material prices. Although nickel prices were lower in the third quarter of fiscal 2008 than in the same period of fiscal 2007, the lower price of nickel was offset by increased prices for other raw materials that are significant in the manufacture of the Company's products, such as molybdenum, cobalt and chromium. Management continues to believe that both pricing and volume were unfavorably impacted by increased competition during the quarter. The Company's consolidated backlog decreased by $1.9 million, or 0.7%, to $252.6 million at June 30, 2008 from $254.5 million at March 31, 2008. Management continues to expect the demand for high-performance alloys to be positively driven by the continuation of favorable trends in the aerospace, chemical processing (including new construction and maintenance) and land-based gas turbine markets, subject to world economic conditions. In addition, completion of the expansion of the Company's sheet finishing operations should continue to help the Company compete more effectively on lead time resulting in decreased pricing pressure.

Sales to the aerospace market increased by 13.6% to $62.9 million in the third quarter of fiscal 2008 from $55.3 million in the same period of fiscal 2007, due . . .