The global specialty alloy market consists of three primary sectors: stainless steel general purpose nickel alloys and high-performance nickel- and cobalt-based alloys.

It is believed that the high-performance alloy sector represents 200 million pounds of production volume per annum out of a total specialty alloy market of 38.5 billion pounds of production volume per annum.

High-temperature resistant alloys, or HTA, products are used primarily in manufacturing components for the hot sections of gas turbine engines. Stringent safety and performance standards in the aerospace industry result in development lead times typically as long as eight to ten years in the introduction of new aerospace-related market applications for HTA products.

HTA products are also used in gas turbine engines produced for use in applications such as naval and commercial vessels, electric power generators, power sources for offshore drilling platforms, gas pipeline booster stations and emergency standby power stations.

Corrosion resistant alloys, or CRA, products are used in a variety of applications, such as chemical processing, power plant emissions control, hazardous waste treatment, sour gas production and pharmaceutical vessels. Historically, the chemical processing market has represented the largest end-user sector for CRA products.

The Company has manufactured HTA products for the aerospace market since the late 1930s, and has developed numerous proprietary alloys for this market.

CRA products supplied by the Company have been used in the chemical processing market since the early 1930s.

Haynes also sells its products for use in the oil and gas industry, primarily in connection with sour gas production.

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

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

The Company’s Mountain Home plant is located on approximately 29 acres of land, and includes approximately 100,000 square feet of building space. The Mountain Home facility is primarily used to manufacture finished specialty stainless, nickel and a limited amount of cobalt alloy wire products. A limited amount of warehousing is also done at this facility.

Other revenue increased by 106.6% to $4.9 million in fiscal 2006 from $2.4 million for fiscal 2005.

Cost of sales as a percentage of net revenues decreased to 74.9% in fiscal 2006 from 88.8% in fiscal 2005.

Research and technical expense remained relatively flat at $2.7 million, or 0.6% of net revenues, in fiscal 2006 compared to $2.6 million, or 0.8% of net revenues, in fiscal 2005.

Operating income in fiscal 2006 was $65.9 million compared to $0.1 million in fiscal 2005.

Interest expense increased by $1.7 million to $8.1 million in fiscal 2006 from $6.4 million for fiscal 2005.

Net income increased by $39.6 million to $35.5 million in fiscal 2006 compared to net loss of $(4.1) million in fiscal 2005.