Thank you very much for joining us today. With me today, as normal, are Mark Comerford, President and CEO of Haynes International; and Marcel Martin, Vice President and Chief Financial Officer.

Before we get started, as always, I'd like to read a brief cautionary note regarding forward-looking statements. This conference call could contain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1933 and Section 21E of the Securities and Exchange Act of 1934.

The words believe, anticipate, plan and similar expressions are intended to identify forward-looking statements. Although we believe our plans, intentions and expectations regarding or suggested by forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties, and we can provide no assurance that such plans, intentions or expectations will be achieved.

Many of these risks are discussed in detail in the company's filings with the Securities and Exchange Commission, in particular, Form 10-K for fiscal year ended September 30, 2011. 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.

Thank you very much for listening. And now I'll turn the call over to Mark.

Thank you, Dan. Good morning, everyone, and thanks for joining us today.

Hopefully, you've all seen the press release and had a chance to review it. We'll deviate just a bit from our normal agenda today.

I want to spend a couple of minutes discussing the capital investments we announced in June and give you some insight into the whys and whats we expect from those investments, and Marcel will then provide detail on the financial results.

Quickly, I'm pleased with the work we've done to manage our mix over the past year or so, and we've utilized our capacity for higher value products. We believe that our results, with expanding gross margins, bear out the fact that we've had success in managing that mix.

We're manufacturing more lighter gauge products, processing more difficult materials with more stringent property and test requirements and we're continuing to convert our account base to more value-added products.

The results of this combination of mixed management and process improvement initiatives has resulted in our net income per pound shipped in the quarter being 76% higher than in the third quarter of fiscal '11. And year-to-date comparisons are similar on that measure.

As I'm sure you're aware, a lot of work has gone into achieving this, and there are a lot of moving pieces as we reengineer some of our processes, utilizing the upgraded equipment, convert more applications to value-added products and continually manage both the service and manufacturing sides of the business. We still have quite a bit more opportunity to get better, but thus far we're pleased with the results we've had to date and the continuous improvement direction we're taking in all aspects of our business.

In June, we announced the $61 million in capital expansion projects. Unlike several of our prior capital projects, which were targeted at upgrading existing facilities or equipment, these projects are targeting -- targeted at growing our business.

Specifically, we're committing $37 million in new equipment and upgrades to our Louisiana high performance tubular products facility to meet the need for capacity to support requirements in the aerospace, energy and corrosion markets.

The Arcadia facility continues to operate today, as we've told you previously, at very near to full capacity. Our expectation from the process enhancements that we have already made that Arcadia's output this year will surpass the levels of the prior peaks of the 2006, 2008 period.

So in order to meet anticipated demand, we need to invest in greater output capability.

Our existing core markets and existing customers will necessitate the expansion, and several of the new alloys and new applications we've developed over the past 3-plus years add to the need for this expansion. Almost all of these products are at the premium level of our product offering, so we expect the 60% expansion in capacity to provide excellent margin enhancement and returns when we are fully operational in fiscal '15.

And we expect these projects to begin contributing to our business in fiscal '14.

In addition, we announced $24 million in growth capital to be committed to our Kokomo operations for additional flat roll capacity, and by flat roll, I'm referring to sheet, coil and plate products. Like the tubing project, we expect this to be fully operational in fiscal '15.

However, we expect some of the benefit from this expansion to start in next year, in fiscal '13, late in the year.

If you recall, Haynes invested roughly $30 million a few years back to upgrade and replace cold finishing operations for sheet products, specifically upgrading cold rolling and annealing operations. Result, increased capacity in those operations from a little bit less than 9 million pounds per year to 12 million pounds per year.

Well, with those upgrades and several process improvement projects completed by our people in the plant, we've already exceeded that 12 million pounds per year. And in fact, as I mentioned earlier, we're processing lighter gauge and more difficult alloys, so if you look at this from the perspective of number of linear feet through the mill, the process engineering group and the production people in the mills have done a great job in getting the most out of this equipment.

In short, the capital project from the 2007, 2008 period was a clear winner for Haynes. The new project will increase our capacity for both plate and sheet products, and we've seen an approximate -- we've stated an approximate increase of 20% to our total flat roll.

And again, by flat roll, I'm now including plate products in addition to sheet and coil. So our expectation is that upon completion, we will have another roughly 3 million to 4 million pounds of flat roll capacity available.

As you've heard us in prior calls, sheet and plate are the core of what Haynes does. It's about 70% of our business, and these products are excellent contributors to our business.

You've heard us refer to them previously as real good absorption products for our business.

Our end markets are expanding, and we're constantly introducing new alloys and value-added capabilities. These investments will allow us to grow with our end markets and add more new applications to our mix.

Finally, I'd be remiss if I didn't address the current macroeconomic issues surrounding us, from the fiscal cliff, to the European financial crisis, to the slowdown in China, we're facing a period of very limited short-term visibility. I spent a lot of time in the last 6 months with our employees around the world and visiting customers.

I returned last week from a trip to both Europe and Asia, where I visited all of our facilities and met with a couple of customers as well. Yes, there is a short-term softening, most apparent in our chemical processing and other markets categories.

Marcel will give you greater detail on this as he discusses backlogs.

The key thing is aerospace remains very strong as evidenced by Boeing and Airbus backlogs and deliveries. Demand for more efficient aero engines is growing as new generations of more efficient commercial aircraft take hold in the industry, our energy and land-based gas turbine markets are still strong, and in several areas, especially the OEM side of land-based gas turbine, we're seeing improvement.

Chemical processing, flue-gas desulfurization and industrial heat treating, indicate that they see project workout in the future that they're actively quoting today, but clearly they've also said that some of these projects have been delayed by the current economic situation.

one, things are wearing out, and they're going to need to be replaced; two, new projects are on the horizon and capacity will tighten as world economies recover; and three, when they get the orders, Haynes will get the orders.

With that, let me turn it over to Marcel for details on our financial results.

Thanks, Mark. I will start with the year-over-year quarterly comparison of sales and an updated market backlog changes for the quarter.

Our third quarter of fiscal 2012 closed with net revenues of $141.6 million, down 1.1% percent from the third quarter of fiscal 2011. However, net income was up 63.5% to $13.7 million or $1.11 per share.

Backlog at the end of the quarter was $241.2 million, a decline of $23.1 million from the beginning of the quarter. On a year-to-date basis, backlog has declined by $32.2 million or 11.8%, primarily due to a reduction in pounds caused by slowing order entry for Project business in the CPI and other market categories.

Moving on our 4 primary markets, net revenue in the aerospace market in the third quarter of 2012 was $55.9 million, up 4.3% over the third quarter of 2011. Aerospace accounted for approximately 40.8% of our revenue during the quarter.

To the entire fiscal year, the aerospace market has continued to perform well as demand for engine materials and hydraulic tubing are being driven by new plane builds and MRO work. Both Boeing and Airbus backlogs continue to grow through combined backlogs after the Farnborough Airshow, now exceeding 8,000 planes.

Also, as noted on prior calls, our new alloys and applications for these continue to make an increasing contribution to both the revenue and margin lines.

Aerospace backlog was down only 2.6% for the quarter due to a combination of robust order entry and sales. The combination of this year's sales pounds supported by our order entry could provide a record level of pounds shipped in this market category.

In our chemical processing market, net revenue for the third quarter was $32.6 million, down 29.3% from last year. CPI accounted for approximately 24% of our total revenue in the quarter.

Business in this market for both transactional and project applications remains very competitive. Our current results reflect higher selling prices at lower volumes compared to a year ago, which in the prior year period included a key high volume project with us, which has not yet repeated.

However, transactional MRO business for this year continues to perform well.

As I previously noted on the prior call, there was a major new application last year that has not repeated this year, but could in the future. However, our application, engineering and marketing groups have done an excellent job this year filling the gap created by a reduced level of large Project business.

CPI backlog for the quarter is down by 18.6% and reflects reduced level of Project business currently being booked. Based on our discussions with customers, it's about postponing project work, not canceling projects.

For the land-based gas turbine market, our net revenues totaled $28 million for the quarter, up approximately 32.8% from last year and represents 21.6% of our total revenues for the quarter. End users continue to be confident about achieving their shipping targets in this market, especially in the U.S., where natural gas prices remain at near multiyear lows.

Quote activity is rising with OEMs, and we're having success in booking orders with non-U.S. manufacturers as well as U.S.-based manufacturers.

In addition, we are seeing increases in long-term forecast build rates and an increasing amount of MRO business.

Similar to aerospace, land-based gas turbine backlog declined by only 3.1% in the quarter, and as with aerospace, there is a good possibility that sales pounds for fiscal 2012 could reach a record pound level.

Lastly, our other market category had net revenue of $21.3 million in the quarter, up 10.6% from the third quarter of fiscal 2011. Examples of the markets within this category include, but are not limited to, oil and gas, flue gas desulfurization, heat treat and solar.

This market category accounted for about 13.7% of our total revenue in the quarter. As we said previously, this market is probably the most project-timing dependent, and as previously noted, Project business has slowed, which is why this market category has had the largest decline in backlog, equaling 28.7% for the quarter.

Although large capital projects are currently being postponed in this category, customers are indicating that Project business for the noted industries should return in fiscal 2013.

A comment on July's backlog, our book-to-bill in July was essentially 1. The backlog today, at $239.8 million, 8 million pounds and average selling price of $30.10.

Although the backlog has declined during the year, it reduced Project business, particularly for CPI and other market categories, the backlog continues to represent a solid order book, represented with good margin product.

The combination of the noted revenue and cost changes between last year's and this year's third quarter as discussed in the 10-Q and press release resulted in a gross profit margin in the third quarter of fiscal 2012 of $32.4 million compared to $25.3 million in the same quarter a year ago, an improvement of $7.1 million or 27.9% between periods. The improvement in product pricing of $1.59 per pound netted against an unchanged product cost per pound between periods contributed $9 million to gross margin improvement, which was partially offset by an unfavorable volume effect to gross margin of $1.9 million.

The result was that the gross profit margin as a percentage of net revenues was 22.9% in the current quarter compared to 17.7% in the comparable period a year ago.

As noted above, the most significant contributor to the gross margin improvement for the third quarter of this year compared to last year was the increase in average selling price between periods of $1.59 per pound, which essentially all fell to the gross margin line.

Last year's fiscal -- last fiscal year's third quarter gross margin per pound was $4.10, and this year's third quarter gross margin per pound is $5.68, a 38.5% increase between years.

The year-over-year improvement in performance in the third fiscal quarter reflects the improved economic environment, which thus far has favorably impacted the markets we service. It also highlights the effect of continuing to improve product mix by managing what markets sell into, what forms we sell, what alloys we sell, and our continuing effort to improve the manufacturing cost structure through capital spending.

Gross margin percent in the third fiscal quarter of this year was 22.9% compared to 21.7% in the second fiscal quarter of this year. 1.2% higher rate from second to third quarter is a due to higher average selling price per pound combined with a lower cost of goods sold per pound quarter-to-quarter, resulting in a gross margin per pound of $5.68 per pound in the third quarter compared to $5.33 in the second quarter.

The $2.1 million reduction in gross margin from the second to third quarter of this fiscal year is attributable to the carryover dollars in revenue from the first to second quarter, which has been described in both the second and third quarter Form 10-Qs. The carryover revenue added $2.1 million in gross margin to the second quarter, which when adjusted for makes the gross margin dollar between the second and third quarters comparable.

SG&A including R&D for the current quarter was $11.2 million, an increase of $200,000 or 2% compared to the prior year's third quarter. Factors, contributing to the higher SG&A cost in the third quarter fiscal 2012 included additional headcount, salary increases and increased marketing cost due to the increasing level of activity.

From last year's third quarter to this year's third quarter, SG&A plus R&D as a percentage of sales improved slightly from 8% to 7.9%.

Forecast for fiscal 2012 SG&A, including R&D, continues to be approximately $45.2 million for the year. For the third quarter of this fiscal year, pretax income was $21.2 million, compared to pretax income of $13.9 million in the third quarter fiscal 2011.

For the third quarter fiscal 2012, there was tax expense of $7.5 million versus a tax expense of $5.5 million in the third quarter of fiscal 2011. The effective tax rate for the third quarter of fiscal 2012 was 35.3% compared to 39.7% in the comparable period of last year.

Rate from last year was higher, primarily due to reduced state tax rates, which require recognition of an estimate for the decrease in deferred tax assets due to the lower state tax rates. It is anticipated that the rate for fiscal 2012 will be approximately 34.5%.

Net income for the third quarter fiscal 2012 was $13.7 million or $1.11 per diluted share compared to net income of $8.4 million or $0.69 per diluted share in last year's fiscal third quarter.

The company continues to focus on improving working capital management with an emphasis on inventory through capital improvements and initiation of pooling many manufacturing techniques. Inventory increased by approximately $17.3 million during the third quarter in order to support Project business scheduled to ship in the fourth quarter and developing of the extra material in the third quarter to offset maintenance outages of molding equipment scheduled for the fourth quarter of this year.

It is anticipated that through the fourth quarter, with Project business shipments and reduced melting, inventory will decline and turns will improve at approximately a turn rate equal to the rate at the end of last fiscal year.

In the first 3 quarters of fiscal 2012, the company spent $17.1 million on capital projects, including the continuation of work on the 4-high Steckel rolling mill, installation of an additional electroslag remelt furnace, upgrades of the vacuum melt furnace processing systems and instrumentation, upgrades to the research and technology laboratory equipment and the upgrade of the information technology system. Also, as noted by Mark, the company has initiated 2 additional capital projects, which will total approximately $61 million of spending over the next 2 fiscal years with initial spending for these 2 projects totaling $7.4 million in the fourth quarter.

Capital spending in the fourth quarter is expected to total $12.7 million, bringing the total of spending for fiscal 2012 to $29.8 million on capital projects.

In addition to the cash available $51.3 million at June 30, 2012, the company has a working capital facility of $120 million, which can be increased to $170 million at the company's option. This provides total liquidity of $220 million, which is expected to enable the company to continue to take advantage of the improving economic environment and any other growth opportunities that become available.

Net income in the fourth quarter fiscal 2012 is expected to approximate net income of the third quarter fiscal 2012. However, net income may exceed this level if improvement occurs in transactional business during the fourth quarter.

Even though the economic environment continues to be uncertain, the company's performance continues to improve. The company's balance sheet is solid, with no debt, and liquidity is expected to be sufficient to fund our obligations and support the growth of the business on a prospective basis.

We have a business plan that continues to perform that plan. Lastly, the backlog represents a strong starting point for the remainder of fiscal 2012.

With that, let me turn things back to Mark now.

Thanks, Marcel. Our balance sheet remains strong, and we intend to keep it that way.

We have significant inventory on the ground as of June 30. However, we're reducing that as we progress through a planned maintenance shutdown in our melt shop in the fourth quarter.

We're managing our mix well and migrating further into value-added services. Our plants are responding well and our people are committed to meeting the needs of our customers.

Our core markets of aerospace, land-based gas turbines and chemical processing, all have excellent, longer term growth opportunities. We've always been very conservative in our assessments of the market and aggressive in our pursuit of new applications in driving waste out of our processes.

We'll continue to manage the business in this manner.

Everyone at Haynes is excited and, by the way, to several of our key accounts that rely heavily on Haynes for supply of products, are also very excited about the growth capital we're now committing. And we're all fully aware that the real work of converting that growth plan into reality starts now.

Finally, I also want to recognize and welcome Mike Shor to Haynes. Mike joined our Board of Directors on Wednesday, and as many of you know, he has a great background in our industry and a deep knowledge of manufacturing operations.

Mike recently retired from a long career of carpenter technology, and I can tell you I'm very pleased to have Mike joining us.

With that, let's open the call to your questions.

So a point of clarification, as I look at some of the commentary around short-term visibility and words like transactional, it sounds to me like there's a lack of urgency from, say, the customer base, and they don't really want to extend the inventory on themselves. Is that what you're saying?

I mean, it doesn't really sound from a commentary from customers or from other peers that there's any deterioration, so to speak, in the end markets.

I think it's market dependent, Ed. And also, I think everything is relative.

I think one of the things you have to take a look at is last year, 6 of the first 7 months of the year, we recorded record order entry. Clearly, and as we stated at that time, there was a replenishment of supply pipelines going on throughout the industry.

And now, what we're seeing is people are operating now and supplying jet engines, flue gas desulfurization, wallpaper, all of those things, through to their customer base right now. As you look market-to-market, and as Marcel talked about in the backlog situation, you can see that the aerospace and land-based gas turbine, the data says, "Look, it's flattened out at a very nice level."

And it's holding up well. And if you look at the end markets all the way down at the end, Boeing shipping or delivering almost -- well, I think there are 330 planes now through July.

There's going to continue to be very good pull on the supply chain moving into the future years. As you look at things like the CPI, chemical processing industry, FGD, industrial heat treating, some of those what's happened is you're not seeing the large projects get let lately, and I think that's consistent through the industry that people seeing that type of thing.

But what's happening is you are seeing people come in for MRO things, and one of the things we do is we do commit to inventory so that we can meet those quick transactional requirements. But whereas, a year ago, people were saying, "Go ahead and let's replenish the pipeline and supply us.

We'll put it on the ground and won't compete for projects," now a lot more of that is coming back into the supplier. And more importantly, at the end unit, the end user side of things, a lot of these big projects, it's quote, requote, quote again, and they're just not getting the money left to our customers to go ahead and initiate a lot of these big projects.

Did I answer your question?

Yes. So it's timing is what I hear.

That's what's being relayed to us. As I said, I met with a bunch of these guys from the last -- especially in the last quarter, and a lot of it was, yes, these things are wearing out.

And trust me, when we get it, you'll get it because I'm kind of pushing them a little bit on these things, when -- especially with where nickel is right now, it's a good time for some of these guys to be buying. By the way, true from a macro level, I think that nickel number is telling you something.

And we all see it right now. So it's a short-term visibility issue right now.

I think things are still looking very good, especially as we look at '13 and '14, but I think you just have a situation right now, especially with what's going on in the macro environment, be it China, be it Europe or even the situation here with fiscal cliff. A lot of people are sitting on their wallet right now.

You are certainly ahead of it. I remember -- I recall you mentioning the nickel situation, I think, last quarter, when -- so it was surprising to see the inventory build in the quarter being ahead of it.

But I think you said it was for safety stock perhaps for the shutdowns that you have coming in the next quarter, is that right?

Yes, we're going to bleed the inventory down this quarter because we had some planned shutdowns. And I mean, you know the drill.

What happens is you end up with a lot revert coming through and you pull heats out of the melt schedule to match the order book. I'm sure we'll see some increase in things like raw materials and stuff like that, but what we expect to see is the things like the whip and semifinished and even finished goods get pulled down during the quarter.

That's the plan.

So looking at the margin and the business across the whole, I mean, this is, I guess, a testament to maybe what kind of tweaking you did to the equipment, because when sales fell in the previous cycle, I mean, you saw a quick deterioration in the margin profile. That hasn't happened.

And I can't help but think if volume returns, I mean, what kind of leverage you can get off this new model? Can you -- I know you mentioned pricing and lower COGS, I guess, due to the raw materials, but can you also maybe talk about some of the efficiencies and what that did to the margin structure of the business?

I'll let Marcel touch on this, but I also just want keep forefront in your mind, too, Ed, that we've done a lot of great cost reduction work, and I think we're seeing a lot of the benefit. A lot of it being the CapEx upgrades, like, when Haynes redid the furnaces and the cold rolling mill.

That really helped throughput, and throughput is great at a place like this. When you're running 12-plus million pounds a year of sheet as opposed to 8 million or 9 million, that's great absorption for the business and it's great -- those are great volume items for the business.

So that's fantastic on the cost side. I will also say, too, right now the mix is very good, be it the tubular products or some of these -- the new C-22HS that we've gotten into some new applications, some of the cobalt-based alloys came back pretty strong this year for aerospace.

So the mix right now, we talk a lot about mix management, and there's a lot of that goes on as far as us picking and selecting which orders we really want to be competitive on versus which you have to let go sometimes when you're full on certain pieces of equipment. But the mix has been very good and we've been the beneficiaries of very good market in some key areas, where it allows us to manage the mix that way.

So, Marcel, anything you'll add on the cost side?

Just to reiterate, I think, what both Mark and you've alluded to, Ed, we've been spending CapEx now, I think, at a very good clip, an increasing clip since 2007 after that restructuring for the 2005. And it's always been about just improving the process from the beginning to the end.

We talk a lot about sheet area where we spent money on the finishing operations for the cold rolling mills, the annealing lines and so forth, increased capacities, reduced operating cost, but it's also been done at the really -- literally through the entire facility, starting at the air melt. We spent money operating in the air melt operations, increased capacities, reducing operating cost in the vacuum side.

We've upgraded all our ESRs over the last several years, completed that project. We've added equipment periodically to fill gaps.

So this is just a process that continued or started 5 or 7 years ago and we continue to work on it, and what you see coming with the $61 million is a combination of both capacity, Ed, but also of just an operating improvement that is applicable to all the product we make in Arcadia, and all the flat product we make here in Kokomo.

Yes. And, Ed, and if I can add to that, too.

Anytime we talk about Arcadia being full, those are really -- those are very good products. That means that the world of acetic acid is picking up, either MRO or new business.

The aerospace business is going strong, and some high-end corrosion applications, like I said with the acetic acid, those are going pretty well. And I think you're aware, and we've discussed it before, the new application work that we've done, a lot of that has found its way into Arcadia, and that's been very good for the company.

And just to focus on that particular point in Arcadia. Arcadia is a specialty type operation, not a lot of positive.

So we look at that operation from a tubular perspective, it's representing about 14% of our business from a revenue perspective. That's how you have to really look at that business, because it's at the high end for us, very good margin product, very high-end product.

So Marcel, while I have you, last question. SG&A, you said $45 million for the year.

I'm assuming that includes R&D?

Yes, it does.

With the expansion here on the -- finishing the rolling side, does that put you any constraints on the melting side? Or whether your investments from a years ago -- do you have plenty of room on the melting side?

We're adding some remelt capability, I saw, that we should have in place probably towards the end of this calendar. That's going to help us out quite a bit.

On the air melt side, I'll say there are no constraints. On the vacuum or premium side of the business, there are -- yes, we're definitely up against some hurdles there.

So it's -- that's part of the managing mix equation.

Any thought to adding melt in that area?

We're looking at a number of options right now, Tim.

I had a few questions. First of all, can you update us on the CFO search?

Yes, we're -- we've contracted an outside firm, and we're interviewing both inside and outside candidates. And it's going very well.

So when do you expect to announce a hiring?

Probably toward the end of the fiscal.

Okay. And then thanks for the detail on the capital projects.

It's very exciting and, I guess, maybe I could parse it together, but can you somehow describe an overall sense to your total business, what the total additions would be? I guess what I'm trying to figure out is compared to your prior capacity in 2007, how much more capacity in pounds will you have now?

I'll break it down to 2 pieces. We'll take a bite -- we talked about Arcadia, that's our tubular facility.

That currently represents about 14% of our business right now. So we're taking that 14%, we're going to expand it by over 60%.

So that's, that element of it. And that's essentially via additional pilgering equipment.

We've bought 7 pilger operations down there, we're going to add 2 more, we're adding in a third annealing furnace, we're adding a significant amount of new equipment replacement, old equipment, so from an operating cost perspective, reducing the cost substantially through better yield improvement, better processing. On the flat product side, as Mark noted, we're adding probably 4 million pounds of product on that side of the operations, and that typically sells -- our average selling price is about $24, $25 a pound.

So I think you can see the add-on relative to that.

Okay. I'll work through that.

And, I guess, you're kind enough a year or so ago to kind of answer a question, which I think was on a lot of investors minds, which is given the pricing that was really high back at the last peak, but the capacity expansions that you were making, and now with these, would it be possible to exceed your prior peak EPS, and your answer was yes at the time. Now I was just wondering if you could quantify that with these new capital additions?

And I guess more importantly, given your -- the third variable would be just your mix change. So I guess can you quantify how much more you might be able to exceed it?

I don't know you don't want to be locked into a number, but at capacity.

I think, again it's maybe kind of -- yes, I'll give you the parameters to work within. We talked about what the add-on would be relative to the tubular facility from a revenue perspective.

We've talked about or even noted the pound adds for the flat product side. So that should give you pretty good revenue numbers.

And then you need to think in terms of how we look at it is because of these new projects -- again, we're talking about capacity, that's one way to look at it. There are additional revenues, which we talked about that.

And I think you need just to think in terms of what will these things do to our gross margin percentage. And if you think about these projects, essentially, what we're adding, there's not -- the operating cost adds here are related to depreciation expense and to raw material variable cost.

Other than that, the costs are relatively small add-ons, it's very variable in that respect. And these projects impact all the products that we make within the flat area and the tubular area.

Well, I'm trying to paint a little picture here for you. And then you think in terms of what might the margin percentage effect be?

And we've talked about this at -- probably next year, and I think it's toward the latter part of the year where we really have an effect on the margin percentage. However, in 2013, we would expect to see something in the area of 1% to 2% of additional gross margin percentage add-on, and in 2015, probably another 1% to 2%.

So you're looking out at the end of these projects with completion of something probably between 2% to 4% of additional gross margin add-on. Does that help?

Yes, it really does.

Thanks, Al.

One thing, Marcel, I appreciate the color again on the backlog for July. Can you detect any shift in the mix from an end market perspective compared to what you've been seeing over prior months?

No, it's pretty -- it's very consistent, and I think it has to be for us the start the year on the aerospace side, for example. We've talked about this past quarter there being about a 3% drop.

But if you look year-over-year, beginning of the year to the end of June, the backlog was flat for aerospace, and we've had a very robust sales year. I mean, we're approaching -- potentially hitting a record sales pound shipment level.

It was essentially at the same situation with the back -- the land-based gas turbines. And so that 60% of our market has been very consistent, at a relatively high level, at least compared to '07 and '08.

And really haven't detected any changes at this point. I really can't see any.

Okay. I appreciate that.

One other question, I don't know if -- you may have mentioned this before, but in terms of the inventory build, did you talk about how many pounds of material you built?

We really haven't talked about that. I think we'll just, at this point, stay with the dollars.

It's always a moving target. But we did add probably in the core about $17 million.

But if you look at it as compared to the beginning of the year, we've added about $50 million. But the primary driver was we have some melding equipment outages through the course of this quarter, and we've had -- we had to take steps to build inventory on the finished goods side, primarily on our foreign operations, because you think about the fact that it takes 4 weeks to get material from here to our foreign operations, so you really have to start that process early in the second quarter.

You really can't wait until the third quarter. You start melting, you start building.

So what you're seeing now at the end of the third quarter is an increase in our finished goods in our foreign operations, which will be metered out over the balance of this quarter. In the U.S., the finished good add was essentially was flat.

We didn't really add anything in the U.S. ops.

Where we did have some adds was on the working process side, and we're taking out through the course of this quarter that will be run down with the lack of melding operations. We'll see a little blip through the quarter, and probably we'll get that worked up by the end of the quarter in our revert material.

When you don't melt, you build revert, so that's just a natural process. And we'll work that out, but I think, again, we're working the inventory down.

And I don't think we'll have any issues by the end of the quarter.

I appreciate that. If I could ask just one last question.

One of the things that's important to your business has been, that you've talked about over the years, has been the ability to ship quickly and to provide a superior customer service. Along those lines, I'm just wondering, as you go forward with these new expansion projects and you see a recovery of the end markets, I mean, what's the ideal level of backlog for you guys?

I mean, is -- where the backlog is now, is this a good level, or would you like to see it higher, or would you like to see it lower as these end markets unfold over the next couple of years?

Our objective, Mark, just to give you an idea, is to keep improving the turns that we have in our inventory and all the way through, which gets back to the backlog levels. So if you think of really what that is, more so than anything, at least in my opinion, is it gets down to the cycle time and the velocity through the plants.

Things like shipping time, we have difficulty controlling that. Also at the finished goods side of it, just to give you an idea, one of our operations, 3 years ago, used to make about 14,000 cut parts a month.

They're now up -- last month, they did over 50,000 cut parts. So that's -- there is an inventory support level required to meet that.

And, by the way, cut parts is one of the reasons that you see our average selling prices increasing even in the face of lower nickel prices. So I'm giving you kind of a long answer, but I'll let Marcel talk more about it.

But really what we're constantly striving to do is create better velocity through the plants, and therefore, really drive our turns to a much better level. So trying to manage the business better on less inventory per dollar of sales.

Exactly what Mark said. If all things remained equal, and with these capital adds both in Arcadia and here in Kokomo, what you'd see are 2 things: inventories would decline because of improved turns with the same level of sales, and we probably have a downtick in the backlog because we'll be just producing -- we'd be servicing our customers quicker.

That's if all things remained equal. Okay, does that answer your question, Mark?

Yes, it sure does, Marcel and Mark.

Just 2 quick follow-ups. First, I don't know if you can have a perspective on aerospace and your split between OEM and spare engine platforms.

I know spare seems to be a little bit weaker than OEM, I don't know -- and I know you've tried to parse it out before, but do you have a better answer for us at this point?

I can tell you that when I talked to the marketing guys -- and it's like what you said. I mean, if you think about where we sell, a lot of the fabricators that we sell to are supplying both into the OEM market as well as to the spares markets.

So it's tough to parse this out. I think as you get further down the supply chain, you get better clarity on that.

But essentially, what our people say, is essentially we're probably running about 40%, 45% OEM, and the MRO business runs anywhere 55% to 60%. So it's almost 1:1 breakout the way our people assess the market.

Okay. So more MRO than OEM, slightly?

And then finally, the pricing perspective, and with the capacity additions -- I know you guys are conservative, so when you put in new facilities you need it, what do you think that does to pricing in the marketplace in general as you kind of roll out additional capacity?

Yes, I think you have to be very selective in where you add the capacity. Somebody asked the question earlier about melting capacity.

There seems to be quite a bit of melting capacity that's been added into the marketplace in the last x number of years. So maybe we can strike an alliance somewhere and help people out or purchase some of that capacity, so we don't know.

Typically, the equation is, as capacity is added, prices go down. I think that's why you have to -- we have to be very selective in where we do it.

A lot of what's driving our capacity addition is our growth and the core markets that we have. Strategically, we expect pricing to hold up in those areas as we meet the increased demand for what's out there.

Same thing as we develop new applications, some of the capacity additions that we're talking about are new application-related, and some of the strains we're having on capacity right now are because of the new applications we've created. Things like HAYNES 282, we're going to sell about 4 times more HAYNES 282 this year than we did 2 years ago.

So that's a -- there's a new alloy, high temperature alloy that's clearly gaining traction, C-22HS, the numbers would astound you. 5 years ago, that was close to nothing in revenue, and I'll tell you that now, it's 1 of our top 20 alloys in sales.

So again, as we develop new applications, you have bit more pricing leverage and that's our intention is to keep managing the mix and driving the company towards more value add.

Thanks very much everybody. We appreciate your time today.

As we have mentioned, the short term visibility is very cloudy right now. Long term, we think we're in great markets with great products, and our people have really stepped up on the production side, especially, but also on the commercial side.

A lot of challenges out there right now, a lot of moving parts, but I think that we're positioning ourselves extremely well with our account base and positioning ourselves extremely well with new applications with our new materials. So again, thanks for your time, your interest and support of Haynes, and we'll look forward to talking to you next quarter.