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, each as amended. All statements other than statements of historical fact, including statements regarding market and industry prospects and future results of operations or financial position, made in this Form 10-Q are forward-looking. In many cases, you can identify forward-looking statements by terminology, such as "may", "should", "expects", "intends", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of such terms and other comparable terminology. The forward-looking information may include, among other information, statements concerning the Company's outlook for fiscal year 2013 and beyond, overall volume and pricing trends, cost reduction strategies and their anticipated results, capital expenditures and dividends. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. 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 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. Management believes Haynes is one of four principal producers of high-performance alloy products 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's products are sold primarily through its direct sales organization, which includes 13 service and/or sales centers in the United States, Europe and Asia. All of these centers are Company-operated.

Ratification of Collective Bargaining Agreement in the Arcadia, Louisiana Operation

As of December 19, 2012 the eligible employees of the Arcadia, Louisiana manufacturing facility ratified and are now covered by a collective bargaining agreement with the United Steelworkers of America which will expire December 19, 2015. The agreement includes an upfront payment of approximately three hundred thousand dollars, which was charged to expense in the first quarter of fiscal 2013.

Capital Spending

Management continues to believe in the long-term growth potential of the aerospace, land-based gas turbine and chemical processing markets. Therefore, the Company is continuing to implement the previously announced capital spending projects in line with plans to meet the expected long-term growth requirements of those target markets. Capital spending in the first quarter of fiscal 2013 was approximately $9.0 million and the forecasts for capital spending in fiscal 2013 and fiscal 2014 are approximately $70.0 million and $39.0 million, respectively. The capital spending planned for fiscal 2013 of approximately $70.0 million includes $19.0 million for the Arcadia tubular project, $19.0 million for the Kokomo flat product project, $10.0 million for the processing and service center upgrades, $4.0 million for the information systems upgrade project and the remaining $18.0 million for additional enhancements and upgrades of current facilities and equipment. The capital spending anticipated for fiscal 2014 of $39.0 million is expected to include $14.0 million to complete the Arcadia tubular project, $2.0 million to complete the Kokomo flat product project, $7.0 million to complete the processing center and service center upgrade, $2.0 million to complete the information system upgrade and the remaining $14.0 million for the continuing upgrade of existing equipment and facilities.

Capital spending in fiscal 2012 was $25.9 million, which included $15.2 million for ongoing projects such as upgrades to the Company's four-high Steckel rolling mill, electro slag remelt operations, sheet finishing operations and research and development equipment. In addition, project spending for the information technology system upgrade, Arcadia tubular and Kokomo flat product projects in fiscal 2012 were $3.6 million, $3.6 million and $3.5 million, respectively.

The actual and planned capital investments of approximately $135 million over the three year-period of fiscal 2012 through 2014 are expected to allow the Company to increase capacity, enhance product quality, reduce costs and improve working capital management. The Company anticipates that these significant investments will help the Company improve efficiency and meet expected long-term increasing customer demand for volume and quality improvements.

Dividends Paid and Declared

In the first quarter of fiscal 2013, the Company declared and paid a regular quarterly cash dividend of $0.22 per outstanding share of the Company's common stock. The dividend was paid December 17, 2012 to stockholders of record at the close of business on December 3, 2012. The dividend cash pay-out was approximately $2.7 million for the quarter based on the number of shares outstanding and equal to approximately $10.8 million on an annualized basis.

On January 31, 2013, the Company announced that the Board of Directors declared a regular quarterly cash dividend of $0.22 per outstanding share of the Company's common stock. The dividend is payable March 15, 2013 to stockholders of record at the close of business on March 1, 2013.

Gross Profit Margin Performance



                                         Comparison by Quarter of Gross Profit Margin and
                                     Gross Profit Margin Percentage for Fiscal 2012 and 2013
                                                          Quarter Ended
                         December 31,      March 31,        June 30,      September 30,     December 31,
(dollars in thousands)       2011             2012            2012            2012              2012
Net Revenues             $     128,851    $    158,882    $    141,574   $       150,254   $      114,300
Gross Profit Margin      $      23,491    $     34,535    $     32,389   $        30,425   $       18,774
Gross Profit Margin %             18.2 %          21.7 %          22.9 %            20.2 %           16.4 %

In the first quarter of each fiscal year, the Company's gross profit margin percentage is typically lower than the preceding quarter due to lower absorption of fixed manufacturing costs that do not decrease in proportion with decreased production levels. Production levels decrease in the first quarter due to the Company's observance of seasonal holidays and planned equipment downtime for capital upgrades and maintenance projects.

For the first quarter of fiscal 2013, gross profit and net income were lower than anticipated primarily due to lower than anticipated net sales. The lower net sales were a result of customers exercising increased caution in making purchases, which the Company attributes to ongoing uncertain economic conditions. Gross profit margins and gross profit margin percentages declined in the first quarter of fiscal 2013 compared to the fourth quarter of fiscal 2012 due to a combination of lower volumes across all markets and weaker pricing primarily in the commodity alloys. In addition, from the fourth quarter of fiscal 2012 through the first quarter of fiscal 2013, service center transactional business volumes and prices declined due to increased competition and customers reducing inventory levels throughout the supply chain.

Backlog

Set forth below are selected data relating to the Company's backlog, the 30-day average nickel price per pound as reported by the London Metals Exchange, and 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,     March 31,     June 30,      September 30,      December 31,
                                  2011            2012         2012            2012               2012
Backlog (1)
Dollars (in thousands)       $      261,811    $  264,245    $ 241,151    $       222,870    $      211,726
Pounds (in thousands)                 8,547         8,853        7,951              6,866             6,905
Average selling price per
pound                        $        30.63    $    29.85    $   30.33    $         32.46    $        30.66

Average nickel price per
pound
London Metals
Exchange(2)                  $         8.23    $     8.49    $    7.50    $          7.81    $         7.90

(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.

Backlog was $211.7 million at December 31, 2012, a decrease of approximately $11.1 million, or 5.0%, from $222.9 million at September 30, 2012. The backlog dollars declined during the first quarter of fiscal 2013 due to a 5.5% decrease in backlog average selling price for the quarter, slightly offset by a small increase in backlog pounds. The reduction in the backlog during the first quarter resulted from reduced order entry pricing and a slightly lower-valued mix of products in the backlog. Order entry volumes were comparable to sales volumes in the first quarter, causing only a slight increase in backlog pounds. The level of transactional business declined in the first quarter of fiscal 2013, after remaining relatively consistent through fiscal 2012. Intermediate and large size, project-based orders continued at relatively low levels in the first quarter of fiscal 2013, as experienced in fiscal 2012.

Management believes that the reduced level of both transactional and project-based orders has resulted from customers exercising caution in making purchases due to the current uncertain economic conditions associated with slow economic growth. The backlog for the aerospace and land-based gas turbine markets declined in the first quarter of fiscal 2013. Management believes the reduction is a result of customers adjusting their inventory levels within the supply chain. In addition, backlog decreased in the "Other Markets" category as projects for flue-gas desulphurization were lower than anticipated due to economic and regulatory concerns, and in the oil and gas market, the company has not received additional orders for a specific project that is in production testing along with other materials.

Quarterly Market Information



                                                                    Quarter Ended
                                  December 31,       March 31,      June 30,       September 30,      December 31,
                                      2011              2012           2012            2012               2012
Net revenues (in thousands)
Aerospace                        $        52,726    $     61,901    $   55,908    $        59,378    $        52,272
Chemical processing                       29,688          37,833        32,565             34,553             26,287
Land-based gas turbines                   30,104          32,167        27,971             28,940             22,628
Other markets                             12,721          23,082        21,280             24,477             10,618
Total product revenue                    125,239         154,983       137,724            147,348            111,805
Other revenue                              3,612           3,899         3,850              2,906              2,495
Net revenues                     $       128,851    $    158,882    $  141,574    $       150,254            114,300

Shipments by markets (in
thousands of pounds)
Aerospace                                  1,970           2,421         2,175              2,368              2,116
Chemical processing                        1,121           1,500         1,304              1,358                986
Land-based gas turbines                    1,585           1,771         1,559              1,605              1,261
Other markets                                456             782           673                739                322
Total shipments                            5,132           6,474         5,711              6,070              4,685

Average selling price per
pound
Aerospace                        $         26.76    $      25.57    $    25.70    $         25.08    $         24.70
Chemical processing                        26.48           25.22         24.97              25.44              26.66
Land-based gas turbines                    18.99           18.16         17.94              18.03              17.94
Other markets                              27.90           29.52         31.62              33.12              32.98
Total product (excluding
other revenue)                             24.40           23.94         24.12              24.27              23.86
Total average selling price
(including other revenue)                  25.11           24.54         24.79              24.75              24.40

Quarterly Performance

For the first quarter of fiscal 2013, net revenues decreased by $36.0 million from the fourth quarter of fiscal 2012, volume declined by 1.4 million pounds and net income decreased by $7.0 million during this period. Although a decline was anticipated in each of these categories from the fourth quarter of fiscal 2012 to the first quarter of fiscal 2013, each category declined more than anticipated. The decline in earnings for the first quarter of fiscal 2013 from the fourth quarter of fiscal 2012 was greater than previously expected due to lower than anticipated volume of pounds shipped combined with lower average selling prices per pound.

Outlook

Guidance

Net income for the second quarter of fiscal 2013 is expected to exceed the net income of the first quarter of fiscal 2013, but is expected to continue to be unfavorably impacted by the lower volumes and weaker pricing similar to that experienced during the first quarter. Due to the continued uncertainty of the economic environment, lack of visibility and continued lower level of order entry, management does not anticipate a recovery in the second quarter. However, certain macroeconomic trends may suggest a potential improvement in the second half of 2013.

Management expects net income for fiscal 2013 to be below net income of fiscal 2012. Due to the continued uncertainty of the economic environment, the amount of the decrease continues to be uncertain.

Working Capital

Controllable working capital, which includes accounts receivable, inventory, accounts payable and accrued expenses, was $287.7 million at December 31, 2012, a decrease of $23.5 million or 7.6% from $311.2 million at September 30, 2012. This decrease of $23.5 million resulted primarily from accounts receivable decreasing from the end of the fourth quarter of fiscal 2012. Inventory of finished goods increased during the quarter due to sales being lower than anticipated

and scrap inventory increased due to unfavorable scrap utilization due to lower levels of production and melting. Working capital as a percentage of net revenues increased from the end of fiscal 2012 but is anticipated to improve with higher sales.

Competition and Pricing

The Company is experiencing increased price competition in the marketplace relative to fiscal 2012, particularly in commodity type alloys in mill-direct project business, from competitors that have the ability to produce both high-performance alloys and stainless steel flat products. This competition continues to require the Company to aggressively price project business orders in these markets, which has unfavorably impacted the Company's gross profit margin and net income. As mill-direct lead times are decreasing, downward pressure on prices for service center transactional business is also occurring.

If market conditions improve, pricing competition in the high-performance alloy industry may begin to ease in future quarters. The Company continues to respond to this competition by increasing emphasis on service centers, offering value-added services, improving its cost structure and focusing on delivery times and reliability.

Results of Operations for the Three Months Ended December 31, 2011 Compared to the Three Months Ended December 31, 2012

The following table sets forth certain financial information as a percentage of net revenues for the periods indicated and compares such information between periods.

                                Three Months Ended
                                   December 31,                           Change
($ in thousands)           2011                    2012             Amount         %
Net revenues        $ 128,851     100.0 %  $ 114,300      100.0 %  $ (14,551 )    (11.3 )%
Cost of sales         105,360      81.8 %     95,526       83.6 %     (9,834 )     (9.3 )%
Gross profit           23,491      18.2 %     18,774       16.4 %     (4,717 )    (20.1 )%
Selling, general
and
administrative
expense                 9,816       7.6 %      9,811        8.6 %         (5 )     (0.1 )%
Research and
technical expense         765       0.6 %        858        0.8 %         93       12.2 %
Operating income       12,910      10.0 %      8,105        7.1 %     (4,805 )    (37.2 )%
Interest income           (62 )    (0.0 )%       (29 )     (0.0 )%       (33 )    (53.2 )%
Interest expense           26       0.0 %         17        0.0 %         (9 )    (34.6 )%
Income before
income taxes           12,946      10.0 %      8,117        7.1 %     (4,829 )    (37.3 )%
Provision for
income taxes            4,503       3.5 %      2,282        2.0 %     (2,221 )    (49.3 )%
Net income          $   8,443       6.5 %  $   5,835        5.1 %  $  (2,608 )    (30.9 )%

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

                                         Three Months Ended
                                            December 31,                       Change
By market                               2011             2012           Amount            %
Net revenues (in thousands)
Aerospace                          $       52,726    $     52,272    $       (454 )         (0.9 )%
Chemical processing                        29,688          26,287          (3,401 )        (11.5 )%
Land-based gas turbines                    30,104          22,628          (7,476 )        (24.8 )%
Other markets                              12,721          10,618          (2,103 )        (16.5 )%
Total product revenue                     125,239         111,805         (13,434 )        (10.7 )%
Other revenue                               3,612           2,495          (1,117 )        (30.9 )%
Net revenues                       $      128,851    $    114,300    $    (14,551 )        (11.3 )%

Pounds by market (in thousands)
Aerospace                                   1,970           2,116             146            7.4 %
Chemical processing                         1,121             986            (135 )        (12.0 )%
Land-based gas turbines                     1,585           1,261            (324 )        (20.4 )%
Other markets                                 456             322            (134 )        (29.4 )%
Total shipments                             5,132           4,685            (447 )         (8.7 )%

Average selling price per pound
Aerospace                          $        26.76    $      24.70    $      (2.06 )         (7.7 )%
Chemical processing                         26.48           26.66            0.18            0.7 %
Land-based gas turbines                     18.99           17.94           (1.05 )         (5.5 )%
Other markets                               27.90           32.98            5.08           18.2 %
Total product (excluding other
revenue)                                    24.40           23.86           (0.54 )         (2.2 )%
Total average selling price
(including other revenue)                   25.11           24.40           (0.71 )         (2.8 )%

Net Revenues. Net revenues were $114.3 million in the first quarter of fiscal 2013, a decrease of 11.3% from $128.9 million in the same period of fiscal 2012. Volume was 4.7 million pounds in the first quarter of fiscal 2013, a decrease of 8.7% from 5.1 million pounds in the same period of fiscal 2012. The aggregate average selling price was $24.40 per pound in the first quarter of fiscal 2013, a decrease of 2.8% from $25.11 per pound in the same period of fiscal 2012. Average selling price decreased due to lower raw material prices and increased competition especially in the commodity alloys, while volume decreased due to declining customer demand during uncertain economic conditions. The Company's consolidated backlog was $211.7 million at December 31, 2012, a decrease of 5.0% from $222.9 million at September 30, 2012. This decrease reflects a 5.5% decrease in backlog average selling price, slightly offset by a 0.6% increase in backlog pounds.

Sales to the aerospace market were $52.3 million in the first quarter of fiscal 2013, a decrease of 0.9% from $52.7 million in the same period of fiscal 2012, due to a 7.4% increase in volume offset by a 7.7% decrease in the average selling price per pound. The increase in volume reflects the expected continued strength of the demand for these products as evidenced by the production schedules for new airplane builds. The decrease in average selling price is due to lower raw material costs.

Sales to the chemical processing market were $26.3 million in the first quarter of fiscal 2013, a decrease of 11.5 % from $29.7 million in the same period of fiscal 2012, due to a 12.0% decrease in volume partially offset by a 0.7% increase in the average selling price per pound. The decrease in volume is attributable to lower customer demand due to spending delays in the chemical processing industry.

Sales to the land-based gas turbine market were $22.6 million in the first quarter of fiscal 2013, a decrease of 24.8% from $30.1 million for the same period of fiscal 2012, due to a decrease of 5.5% in the average selling price per pound combined with a 20.4% decrease in volume. The decrease in volume is due to lower levels of original equipment manufacturer activity and a lower level of maintenance spending by the Company's customers. In addition, volumes decreased due to customers lowering inventory levels within the supply chain. The decrease in average selling price is due to increased competition, especially in commodity alloys.

Sales to "other markets" were $10.6 million in the first quarter of fiscal 2013, a decrease of 16.5% from $12.7 million in the same period of fiscal 2012, due to a 29.4% decrease in volume partially offset by an 18.2% increase in average selling price per pound. The decrease in volume is due to certain project based orders being impacted by tax and fiscal policy. The increase in the average selling price reflects a change to a higher value alloy mix shipped into the other markets category in the first quarter of fiscal 2013.

Other Revenue. Other revenue was $2.5 million in the first quarter of fiscal 2013, a decrease of 30.9% from $3.6 million in the same period of fiscal 2012. The decrease is due to lower miscellaneous sales and increased reserves, partially offset by increased toll conversion sales.

Cost of Sales. Cost of sales was $95.5 million, or 83.6% of net revenues, in the first quarter of fiscal 2013 compared to $105.4 million, or 81.8% of net revenues, in the same period of fiscal 2012. Cost of sales in the first quarter of fiscal 2013 decreased by $9.8 million as compared to the same period of fiscal 2012 primarily due to lower volumes,

partially offset by an increase of approximately $0.3 million (including payroll taxes) due to the upfront payment related to the ratification of the union agreement in Arcadia, Louisiana.

Gross Profit. As a result of the above factors, gross profit was $18.8 million . . .