RTI INTERNATIONAL METALS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005.

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ____________ to____________

Commission file number 001-14437

RTI INTERNATIONAL METALS, INC.
(Exact name of registrant as specified in its charter)

OHIO 52-2115953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1000 WARREN AVENUE, NILES, OHIO 44446
(Address of principal executive offices)

(330) 544-7700
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO ___

At May 1, 2005, 22,166,934 shares of common stock of the registrant were
outstanding.

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RTI INTERNATIONAL METALS, INC.

FORM 10-Q
QUARTER ENDED MARCH 31, 2005

INDEX

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these Consolidated Financial
Statements.

2

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED BALANCE SHEET
(UNAUDITED)

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these Consolidated Financial
Statements.
3

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these Consolidated Financial
Statements.
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RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The accompanying notes are an integral part of these Consolidated Financial
Statements.

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RTI INTERNATIONAL METALS, INC.

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

The consolidated financial statements included herein have been prepared by
RTI International Metals, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
consolidated financial statements include the accounts of RTI International
Metals, Inc. and its majority owned subsidiaries. All significant intercompany
transactions have been eliminated. The financial information presented reflects
all adjustments, consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented. The financial statements should be read in
conjunction with accounting policies and notes to consolidated financial
statements included in the Company's 2004 Annual Report on Form 10-K and 10-K/A.
Certain prior period amounts have been reclassified to conform to the current
period presentation. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.

NOTE 2-- ORGANIZATION

RTI International Metals, Inc. is a leading U.S. producer of titanium mill
products and fabricated metal parts for the global market. The Company conducts
business in two segments: the Titanium Group and the Fabrication and
Distribution Group. The Titanium Group melts and produces a complete range of
titanium mill products, which are further processed by its customers for use in
a variety of commercial, aerospace, defense, and industrial applications. The
Fabrication and Distribution Group is comprised of companies that process and
distribute titanium and other specialty metals. Its products, many of which are
engineered parts and assemblies, serve aerospace, oil and gas, power generation,
and chemical process industries, as well as a number of other industrial and
consumer markets.

On September 30, 1998, the shareholders of the Company's now wholly-owned
subsidiary RMI Titanium Company ("RMI") approved a proposal to reorganize into a
holding company structure (the "1998 Reorganization"). Pursuant to this
reorganization, the Company became the parent company of RMI, and shares of RMI
common stock were automatically exchanged on a one-for-one (1:1) basis for
shares of RTI. Shares of RTI began trading on the New York Stock Exchange on
October 1, 1998.

The Company is a successor to entities that have been operating in the
titanium industry since 1951. In 1990, USX Corporation ("USX") and Quantum
Chemical Corporation ("Quantum") transferred their entire ownership interest in
RMI's immediate predecessor, RMI Company, an Ohio general partnership, to the
Company in exchange for shares of the Company's common stock (the "1990
Reorganization"). Quantum sold its shares of common stock to the public while
USX retained ownership of its shares. USX terminated its ownership interest in
RTI in 2000.

NOTE 3 -- ACQUISITIONS

On October 1, 2004, RTI acquired all of the stock of Claro Precision, Inc.,
("Claro") of Montreal, Quebec, Canada. The aggregate purchase price was $30.6
million consisting of cash of $23.6 million less cash acquired of $1.6 million
and 358,908 shares of RTI common stock with a fair value of $7.0 million. The
purchase agreement provided for a post-closing audit period for adjustments to
the purchase price to finalize and determine whether the target equity amount of
$9.7 million existed on the closing date. In accordance with the purchase
agreement the Company determined that an adjustment to the purchase price of
$0.2 million was due the Company and has been included as a reduction to the
allocated purchase price.

The purchase was made with available cash on hand and newly issued common
shares. Claro will operate and report under the Company's Fabrication and
Distribution segment.

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Claro Precision, Inc., is a manufacturer of precision-machined components
and complex mechanical and electrical assemblies for the aerospace industry.

The following is a summary of the allocation of the purchase price to the
assets acquired and liabilities assumed based on their fair market values as of
October 1, 2004. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations," the purchase price was assigned to
the assets and liabilities acquired based on fair value. Fair value is defined
in SFAS 141 as the "amount at which that asset (or liability) could be bought
(or incurred) or sold (or settled) in a current transaction between willing
parties, that is, other than in a forced liquidation sale.

The following unaudited pro forma information for RTI is provided to
include the results of Claro Precision, Inc. as if the acquisition had been
consummated at the beginning of the period presented,

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The $16.2 million of intangible assets represent the assigned value of
customer relationships with an estimated useful life of approximately 20 years.
Accumulated amortization at March 31, 2005 and December 31, 2004 related to
these intangible assets was $361 thousand and $160 thousand, respectively.
Goodwill of $10.5 million resulted from the acquisition and is non-deductible
for income tax purposes in Canada. Additionally, fixed assets were stepped-up to
approximate fair market value and are being depreciated over 10 years in
accordance with Company accounting policies. The preliminary purchase price
allocations are subject to adjustment and may be modified within one year from
the acquisition. Subsequent changes are not expected to have a material effect
on the Company's consolidated financial position.

The pro forma combined financial results have been prepared for comparative
purposes only and include certain adjustments as described above. The pro forma
information does not purport to be indicative of the results of operations that
actually would have resulted had the combination occurred on January 1, 2004, or
of future results of the consolidated entities.

NOTE 4-- STOCK OPTION AND RESTRICTED STOCK AWARD PLANS

The 2004 Stock Plan, which was approved by a vote of the Company's
shareholders at the 2004 Annual Meeting of Shareholders, replaced the 1995 Stock
Plan and the 2002 Non-Employee Director Stock Option Plan.

The 2004 Plan limits the number of shares available for issuance to
2,500,000 (plus any shares covered by options already outstanding under the 1995
Plan and 2002 Plan that expire or are terminated without being exercised and any
shares delivered in connection with the exercise of any outstanding awards under
the 1995 Plan and 2002 Plan) during its ten-year term and limits the number of
shares available for grants of restricted stock to 1,250,000. The plan expires
after ten years and require that the exercise price of stock options, stock
appreciation rights and other similar instruments awarded under the plan are not
less than the fair market value of RTI stock on the date of the grant award.

During the first quarter of 2005, options to purchase up to 84,500 shares
were granted at an exercise price of $21.50 per share. All option exercise
prices were equal to the common stock's fair market value on the date of the
grant. Options are for a term of ten years from the date of the grant, and vest
ratably over the three-year period beginning with the date of the grant. All
84,500 shares underlying options granted in 2005 were outstanding at March 31,
2005.

During the three months ended March 31, 2005, 63,000 shares of restricted
stock were granted under the 2004 Stock Plan. Compensation expense equal to the
fair market value on the date of the grant is recognized ratably over the
vesting period of each grant which is typically five years.

As permitted by the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), the Company has elected to measure stock-based
compensation under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), and to adopt the
disclosure-only alternative described in SFAS No. 123. For restricted stock
awards, the Company records deferred stock-based compensation based on the fair
market value of common stock on the date of the award. Such deferred stock-based
compensation is amortized over the vesting period of each individual award.

If compensation expense for the Company's stock options granted had been
determined based on the fair value at the grant date for the awards in
accordance with SFAS No. 123, the effect on the Company's net

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income and earnings per share for the quarter ended March 31, 2005 and 2004
would have been as follows (dollars in thousands; except per share amounts):

Included in the Company's income for the quarters ended March 31, 2005 and
2004 is stock-based compensation expense relating to restricted stock grants
amounting to $260 and $147, respectively. Net of tax, these amounts were $163
and $97, respectively.

NOTE 5-- INCOME TAXES

Three months ended March 31, 2005, the Company recorded an income tax
expense of $4.9 million, or 37% of pre-tax income compared to an expense of $1.4
million, or 34% for the three months ended March 31, 2004. The first quarter
2005 rate of 37% was greater than the federal statutory rate of 35% primarily
due to state income taxes partially offset by lower foreign tax rates, the
utilization of previously impaired foreign net operating losses, and beneficial
effects of the American Jobs Creation Act (discussed below). The first quarter
2004 rate was less than the federal statutory rate of 35% primarily as a result
of foreign tax credits partially offset by state income taxes.

On October 22, 2004, the President signed the American Jobs Creation Act of
2004 (the "Act"). The Company has estimated that the deduction attributable to
qualified production activities will decrease its annual effective tax rate by
approximately 1%. Other effects of the Act include the one-time deduction of 85%
of foreign earnings that are repatriated to the United States, as defined by the
Act. The deduction is subject to a number of limitations and at this time there
is uncertainty on how to interpret numerous provisions in the Act. As such, the
Company is not in a position to decide on whether, and to what extent, the
Company might repatriate foreign earnings that have not yet been remitted to the
U.S. Based on our analysis to date, however, it is reasonably possible that we
may repatriate some amount between $0 and $3 million, with the respective tax
liability ranging from $0 to $1 million. We expect to be in a position to
finalize our assessment by the fourth quarter of 2005.

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NOTE 6-- EARNINGS PER SHARE

A reconciliation of the income and weighted average number of outstanding
common shares used in the calculation of basic and diluted earnings per share
for the quarters ended March 31, 2005 and 2004 are as follows (in thousands
except number of shares and per share amounts):

109,500 and 451,618 shares of common stock issuable upon exercise of
employee stock options have been excluded from the calculation of diluted
earnings per share for the quarters ended March 31, 2005 and 2004, respectively;
because the exercise price of the options exceeded the weighted average market
price of the Company's common stock during those periods.

NOTE 7-- INVENTORIES

Inventories consisted of (dollars in thousands):

NOTE 8-- GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill and other intangible assets attributable to
each segment at December 31, 2004 and March 31, 2005 is as follows (in
thousands):

Goodwill

During the three months ended March 31, 2005, additional goodwill was added
to the Titanium Group through the finalization of the acquisition of the
minority interest in Galt Alloys, Inc.

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Intangibles

The components of other intangible assets comprised of customer
relationships and their estimated useful lives is as follows:

NOTE 9-- BILLINGS IN EXCESS OF COSTS AND ESTIMATED REVENUES

The Company reported a liability for billings in excess of costs and
estimated revenues of $4.9 million as of March 31, 2005 and $4.7 million as of
December 31, 2004. These amounts primarily represent payments, received in
advance from energy market customers, and Fabrication and Distribution Group
customers on long-term orders, which the Company has not recognized as revenues.

NOTE 10-- OTHER INCOME

For the three months ended March 31, 2005 and 2004, the components of other
income are as follows (dollars in millions):

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(1) These gains were financial settlements from Boeing Airplane Group relating
to Boeing's failure to meet minimum order requirements under terms of a
long-term agreement between RTI and Boeing. Boeing satisfied the final claim
under this agreement during the first quarter of 2004.

NOTE 11--PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company provides defined benefit pension plans for certain of its
salaried and represented workforce. Benefits for its salaried participants are
generally based on participant's years of service and compensation. Benefits for
represented pension participants are generally determined based on an amount for
years of service. Other Company employees participate in 401(k) plans whereby
the Company may provide a match of employee contributions. These plans are
generally not significant to the Company. The policy of the Company with respect
to its defined benefit plans is to contribute at least the minimum amounts
required by applicable laws and regulations.

The cost of the Company's retiree health care plans (Other Postretirement
Benefits) is capped at predetermined out-of-pocket spending limits. Retiree
health care is available to participants in the defined benefit pension plans.
Benefit payments are made from company assets. Other Postretirement Benefits are
not funded.

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The 2005 and 2004 amounts shown below reflect the defined benefit pension
and other postretirement benefit expense for the three months ended March 31 for
each year for those salaried and hourly covered employees (dollars in
thousands):

RTI International Metals also has a Supplemental Pension Program
("Program") for certain key employees. The Program is unfunded. The first
quarter net periodic benefit cost related to the Program was approximately
$93,000 for 2005 and 129,000 for 2004.

NOTE 12-- COMMITMENTS AND CONTINGENCIES

In connection with the 1990 Reorganization, the Company agreed to indemnify
USX and Quantum against liabilities related to their ownership of RMI and its
immediate predecessor, Reactive Metals, Inc., which was formed by USX and
Quantum in 1964.

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. In our opinion,
the ultimate liability, if any, resulting from these matters will have no
significant effect on our consolidated financial statements. Given the critical
nature of many of the aerospace end uses for the Company's products, including
specifically their use in critical rotating parts of gas turbine engines, the
Company maintains aircraft products liability insurance of $250 million, which
includes grounding liability.

Environmental Matters

The Company is subject to environmental laws and regulations as well as
various health and safety laws and regulations that are subject to frequent
modifications and revisions. During the three months ended March 31, 2005, the
Company spent approximately $0.2 million for environmental remediation,
compliance, and related services. While the costs of compliance for these
matters have not had a material adverse impact on the Company in the past, it is
impossible to accurately predict the ultimate effect these changing laws and
regulations may have on the Company in the future. The Company continues to
evaluate its obligations for environmental related costs on a quarterly basis
and makes adjustments in accordance with provisions of Statement of Position No.
96-1, "Environmental Remediation Liabilities."

The Company is involved in investigative or cleanup projects under federal
or state environmental laws at a number of waste disposal sites, including the
Fields Brook Superfund Site and the Ashtabula River Area of Concern. Given the
status of the proceedings with respect to these sites, ultimate investigative
and remediation costs cannot presently be accurately predicted, but could, in
the aggregate be material. Based on the information available regarding the
current ranges of estimated remediation costs at currently active sites, and
what the Company believes will be its ultimate share of such costs, provisions
for environmental-related costs have been recorded.

Given the status of the proceedings at certain of these sites, and the
evolving nature of environmental laws, regulations, and remediation techniques,
the Company's ultimate obligation for investigative and remediation costs cannot
be predicted. It is the Company's policy to recognize environmental costs in its

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financial statements when an obligation becomes probable and a reasonable
estimate of exposure can be determined.

At March 31, 2005 and December 31, 2004, the amount accrued for future
environmental-related costs was $3.7 million and $3.8 million, respectively. Of
the total amount accrued at March 31, 2005, $0.6 million is expected to be paid
out within one year and is included in the other accrued liabilities line of the
balance sheet. The remaining $3.1 million is recorded in other non-current
liabilities.

Based on available information, RMI believes that its share of potential
environmental-related costs, before expected contributions from third parties,
is in a range from $2.9 to $7.7 million in the aggregate. The Company has
included in its other noncurrent assets $2.1 million as expected contributions
from third parties. This amount represents the contributions from third parties
in conjunction with the company's most likely estimate of $3.7 million. These
third parties include prior owners of RMI property and prior customers of RMI,
that have agreed to partially reimburse the Company for certain
environmental-related costs. The Company has been receiving contributions from
such third parties for a number of years as partial reimbursement for costs
incurred by the Company.

As these proceedings continue toward final resolution, amounts in excess of
those already provided may be necessary to discharge the Company from its
obligations for these sites.

Former Ashtabula Extrusion Plant

The Company's former extrusion plant in Ashtabula, Ohio was used to extrude
depleted uranium under a contract with the DOE from 1962 through 1990. In
accordance with that agreement, the DOE retained responsibility for the cleanup
of the facility when the facility was no longer needed for processing government
material. Processing ceased in 1990, and in 1993 RMI was chosen as the prime
contractor for the remediation and restoration of the site by the DOE. Since
then, contaminated buildings have been removed and approximately two-thirds of
the site has been free released by the Ohio Department of Health, to RMI, at DOE
expense.

In December, 2003, in accordance with its terms, the Department of Energy
terminated the contract "for convenience." It is not known at this time what
role, if any, RMI will play in the balance of the cleanup although discussions
are ongoing. Remaining soil removal is expected to take approximately 18-24
months. As license holder and owner of the site, RMI is responsible to the state
of Ohio for complying with soil and water regulations. However, remaining
cleanup cost is expected to be borne by the DOE in accordance with their
contractual obligation.

Gain Contingency

As part of Boeing Commercial Airplane Group's long-term supply agreement
with the Company, Boeing was required to order a minimum of 3.25 million pounds
of titanium in each of the five years beginning in 1999. They failed to do so in
all five years of the contract.

The Company made a claim against Boeing in accordance with the provisions
of the long-term contract for each of the years in which the minimum was not
achieved. Revenue under the provisions of Statement of Financial Accounting
Standards No. 5 ("SFAS No. 5"), "Accounting for Contingencies" was deemed not
realized until Boeing settled the claims. Accordingly, the claims were treated
as a gain contingency dependent upon realization.

As a result of the application of SFAS No. 5 as to gain contingencies, the
Company recorded other income of approximately $6 million in 2000 and 2001, and
approximately $7 million in 2002, $8 million in 2003 and $9.1 million in 2004.
In all years, revenue recognized from these cash receipts was presented as other
income in the financial statements. The agreement with Boeing has since expired
as the final payment was received in 2004.

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Purchase Commitments

The Company has purchase commitments for materials, supplies, and machinery
and equipments as part of the ordinary course of business. A few of these
commitments extend beyond one year. The Company believes these commitments are
not at prices in excess of current market.

Other

The Company is also the subject of, or a party to, a number of other
pending or threatened legal actions involving a variety of matters incidental to
its business.

The ultimate resolution of these foregoing contingencies could,
individually or in the aggregate, be material to the consolidated financial
statements. However, management believes that the Company will remain a viable
and competitive enterprise even though it is possible that these matters could
be resolved unfavorably.

NOTE 13-- TRANSACTIONS WITH RELATED PARTIES

In accordance with a stock purchase agreement dated October 1, 2004 the
Company purchased all of the shares of Claro Precision Inc., from Mr. Jean-Louis
Mourain and Mr. Daniel Molina. The purchase agreement provided for a lease
agreement whereby the Company would lease space in two buildings, owned
indirectly by Mr. Mourain and Mr. Molina, for three years from October 1, 2004
with an option to extend for an additional three years. The annual rental is
approximately $160,000 at current exchange rates. Rental expense of
approximately $40,000 was incurred in the quarter ended March 31, 2005 financial
statements. Mr. Mourain was engaged by the Company as a consultant and Mr.
Molina was made President of Claro Precision Inc. The Company believes that the
rental cost is representative of market conditions around the Montreal area.

The Company acquired Reamet S.A., located in Villette, France, in December
2000. In accordance with the purchase agreement, the Company was obligated to
acquire a residence located on the previously acquired land. The owner of the
residence and his immediate family have been involved in the management of the
business before and since the acquisition. The residence was acquired for
$581,000 (the fair value as appraised) including closing costs in February 2004.

NOTE 14-- SEGMENT REPORTING

The Company's reportable operating segments are the Titanium Group and the
Fabrication and Distribution Group.

The Titanium Group manufactures and sells a wide range of titanium mill
products to a customer base consisting primarily of manufacturing and
fabrication companies in the aerospace and nonaerospace markets. Titanium mill
products consist of basic mill shapes such as ingot, slab, bloom, billet, bar,
plate and sheet. Titanium mill products are sold primarily to customers such as
metal fabricators, forge shops and, to a lesser extent, metal distribution
companies. Titanium mill products are usually raw or starting material for these
customers, who then form, fabricate or further process mill products into
finished or semi-finished components or parts. The Titanium Group also operates
a facility that produces ferro-titanium, an additive to certain grades of steel.
The Group also includes the activities related to the clean up and remediation
of a former titanium extrusion facility operated by the Company under a contract
from the U.S. Department of Energy.

The Fabrication and Distribution Group is engaged primarily in the
fabrication of titanium, specialty metals and steel products, including pipe and
engineered tubular products, for use in the oil and gas and geo-thermal energy
industries; hot and superplastically formed parts; cut, forged, extruded and
rolled shapes; and commercially pure titanium strip and welded tube for
aerospace and nonaerospace applications. This segment also provides warehousing,
distribution, finishing, cut-to-size and just-in-time delivery services of
titanium, steel and other metal products.

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Intersegment sales are accounted for at prices which are generally
established by reference to similar transactions with unaffiliated customers.
Reportable segments are measured based on segment operating income after an
allocation of certain corporate items such as general corporate overhead and
expenses.

Segment information for the quarters ended March 31, 2005 and 2004 is as
follows (dollars in thousands):

NOTE 15-- DISCONTINUED OPERATIONS

In December of 2004, the Company terminated operations at the Company's
Tube Mill operations as it had determined that its raw material source was
inadequate to maintain commercially viable operations. The

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operating results of Tube Mill for the three months ended March 31, 2004, as
summarized below, have been reclassified and are presented as discontinued
operations.

NOTE 16-- NEW ACCOUNTING PRONOUNCEMENTS

In December 2004 the Financial Accounting Standards Board (FASB) issued
SFAS No. 151, Inventory Costs (SFAS 151). The Company is required to adopt SFAS
151 on a prospective basis as of January 1, 2006. SFAS 151 clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling
cost, and wasted material. SFAS 151 requires that those items--if abnormal--be
recognized as expenses in the period incurred. SFAS 151 requires the allocation
of fixed production overheads to the cost of conversion based upon the normal
capacity of the production facilities. The Company has not yet determined what
effect SFAS 151 will have on its financial statements.

In December 2004, the FASB issued FASB Staff Position No. FAS 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004," which states that the
FASB staff believes that the lack of clarification of certain provisions within
the Act and the timing of the enactment necessitate a practical exemption to the
FAS 109 requirement to reflect in the period of enactment the effect of a new
tax law. Accordingly, an enterprise is allowed time beyond the financial
reporting period of enactment to evaluate the effect of the Act on its plan for
reinvestment or repatriation of foreign earnings for purposes of applying FAS
109. The Company is evaluating the impact of earnings repatriation and once
concluded will apply its action in accordance with FAS 109.

In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. In March
2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the
SEC Staff's interpretation of SFAS 123R and provides the Staff's views regarding
interactions between SFAS 123R and certain SEC rules and regulations and
provides interpretations of the valuation of share-based payments for public
companies. SFAS 123R requires the mandatory expensing of share-based payments,
including employee stock options, based on their fair value. In April 2005, the
SEC approved the delay for implementation of FAS 123R. The delay will affect all
awards granted subsequent to January 1, 2006. As a result the standard will be
adopted for the Company's 2006 fiscal year. SFAS 123R provides alternative
methods of adoption including prospective and modified retroactive applications.
The Company is currently evaluating the financial impact, including the
available alternatives under SFAS 123R and SAB 107.

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act introduced a
prescription drug benefit under Medicare (Medicare Part D), as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. On May 19, 2004,
FASB issued Staff Position FSP FAS 106-2 (FSP 106-2), which supercedes FSP 106-1
and provides guidance on accounting for the effects of the new Medicare
prescription drug legislation for employers whose prescription drug benefits are
actuarially equivalent to the drug benefit under Medicare Part D. The effect of
the Act did not have a material impact on the company.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in connection with the information
contained in the Consolidated Financial Statements and Notes to Consolidated
Financial Statements. The following information contains

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"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are subject to the safe harbor created by
that Act. Such forward-looking statements may be identified by their use of
words like "expects," "anticipates," "intends," "projects," or other words of
similar meaning. Forward-looking statements are based on expectations and
assumptions regarding future events. In addition to factors discussed throughout
this report, the following factors and risks should also be considered,
including, without limitation, statements regarding the future availability and
prices of raw materials, competition in the titanium industry, demand for the
Company's products, the historic cyclicality of the titanium and aerospace
industries, increased defense spending, the success of new market development,
long-term supply agreements, the outcome of proposed "Buy American" legislation,
global economic conditions, the Company's order backlog and the conversion of
that backlog into revenue, the long-term impact of the events of September 11,
and the continuing war on terrorism, and other statements contained herein that
are not historical facts. Because such forward-looking statements involve risks
and uncertainties, there are important factors that could cause actual results
to differ materially from those expressed or implied by such forward-looking
statements. These and other risk factors are set forth below in the "Outlook"
section, as well as in the Company's other filings with the Securities and
Exchange Commission ("SEC") over the last 12 months. All filings are available
via the Securities and Exchange Commission's website, the Internet address of
which is www.sec.gov, or may be obtained upon request from the Company.

RTI International Metals, Inc. (the "Company" or "RTI") is a leading U.S.
producer of titanium mill products and fabricated metal parts for the global
market. The Company conducts business in two segments: the Titanium Group and
the Fabrication & Distribution Group ("F&D"). The Titanium Group melts and
produces a complete range of titanium mill products, which are further processed
by its customers for use in a variety of aerospace and industrial applications.
The Fabrication and Distribution Group is comprised of companies that fabricate,
machine, assemble and distribute titanium and other specialty metal parts and
components. Its products, many of which are engineered parts and assemblies,
serve aerospace, oil and gas, power generation, and chemical process industries,
as well as a number of other industrial and consumer markets.

DISCONTINUED OPERATIONS

The Company disclosed in a news release dated September 30, 2004 that its
Tube Mill operations had stopped soliciting new orders because of a shortage of
skelp, which is the key raw material in manufacturing titanium strip.

The decision to halt the solicitation of new orders was to continue until a
search for other sources of skelp was concluded. In December 2004 the Company
terminated its search for other skelp sources and decided to terminate
production activity and discontinue the titanium strip product line and utilize
the facility for other purposes unrelated to the manufacture of welded tubing.
Tube Mill operations had been reported within the F&D segment.

Discontinued operations, which represent operating results of the Tube Mill
operations for which further information is included in Note 15, reported trade
sales of $14.4 million, $10.5 million and $12.9 million for the years ended
December 31, 2004, 2003, and 2002, respectively.

17

RESULTS OF OPERATIONS

QUARTERS ENDED MARCH 31, 2005 AND 2004
(Dollars in millions)

NET SALES

Titanium Group

Sales for the Titanium Group amounted to $66.4 million, including
intercompany sales of $41.4 million, in the three months ended March 31, 2005
compared to $37.7 million including intercompany sales of $24.6 million, in the
same period of 2004. Of the $28.7 million increase $17.8 million was a result of
higher billet, bloom, and ingot mill product shipments and $10 million was a
result of increased sales of ferro titanium and titanium electrodes.

Shipment of titanium mill products were 2.3 million pounds in the three
months ended March 31, 2005, compared to 1.5 million pounds for the same period
in 2004. Average realized prices on mill products for the three months ended
March 31, 2005 decreased to $14.30 per pound from a $15.03 per pound in 2004.
The decrease in average realized prices for mill products resulted primarily
from an increase of billet, bloom, and ingot within the 2005 product mix.

Fabrication and Distribution Group

Sales for F&D amounted to $60.3 million, including intercompany sales of
$11.8 million, in the three months ended March 31, 2005, compared to $41.5
million, including intercompany sales of $4.1 million in the same period of
2004. The increase of $18.8 million occurred primarily in the fabrication
businesses as a result of a Canadian acquisition in the fourth quarter of 2004
and increased intercompany shipments. Improved market conditions were reflected
in increased sales in the distribution and European units of $9.4 million. These
increases were offset by a decrease of $2.1 million in the completion of several
energy contracts from the first quarter of 2004.

GROSS PROFIT/(LOSS)

18

Titanium Group

Gross profit increased to $12.6 million in 2005 from a gross profit loss of
$(1.5) million in 2004. During the quarter, increased production activity
resulting in a 20% increase in inventory resulted in a favorable effect on
throughput and mill efficiency equaling approximately $6.0 million. An increase
in mill product shipments in 2005 of 2.3 million pounds from 1.5 million pounds
in 2004 resulted in an increase in gross profits of $4.4 million. Included in
the favorable change of $4.4 million was the effect of a reduction in price from
$15.03 in the year ago quarter to $14.30 per pound in the first quarter of 2005.
The decrease in selling price was a reflection of mix from quarter to quarter as
current selling prices are increased over the year ago quarter. In the year ago
quarter, input material shortages in flat-rolled product production resulted in
excess costs of $1.5 million. Included in the favorable change was an
improvement of $2.7 million in gross profit on ferro titanium as a result of
increased pricing of $1.02 per pound.

Fabrication and Distribution Group

Gross profit increased to $11.9 million for the three months ended March
31, 2005 from a gross profit of $4.8 million for the same period of 2004 or a
favorable change of $7.1 million. Increased revenue from the Company's
distribution sales markets of 36% resulted in an increase in margins of $3.2
million. The Company's recently acquired Canadian business and increased sales
and profitability in Europe resulted in increased gross profits of $2.5 million.
Sales and margin improvement in the energy markets resulted in an improvement in
gross profit of $1.4 million.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Titanium Group

Accounting and audit expenses increased costs by $0.6 million, offset by a
decrease of $0.2 million due to termination of the Department of Energy
contract.

Fabrication and Distribution Group

SG&A increased $2.5 million from the three months ended March 31, 2005
compared to the same period in 2004. The Canadian acquisition and increased
expenses in the Distribution facilities increased SG&A costs by $1.6 million.
Accounting and audit expenses increased the costs of the group by $.9 million
for the quarter.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES

Titanium Group

Research and development costs increased $0.1 million for the three months
ended March 31, 2005 compared to the same period in 2004. This increase is
largely due to additional employee expenses.

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Fabrication and Distribution Group

There were no R&D expenses for the group in 2005 or 2004.

OPERATING INCOME (LOSS)

Titanium Group

Operating income for the three months end March 31, 2005 increased to $9.5
million compared to a loss of $(4.2) million for the same period in 2004. The
increase of $13.7 million resulted from improved gross profit of $14.1 million
due to increased sales and margin, offset by increased SG&A costs of $0.4
million.

Fabrication and Distribution Group

Operating income for the three months ended March 31, 2005 increased to
$3.5 million compared to a loss of $(1.1) million for the same period in 2004.
The increase of $4.6 million was primarily from the increase in revenue from
distribution sales due to an increase in market conditions and increased
revenues. The remainder of the change was from the energy unit's improvement in
operating costs from the previous year and increased income from fabrication and
European revenue increases.

OTHER INCOME

Other income decreased by $9.2 million in 2005 compared to the same period
in 2004. The decrease was due to the expiration of payments received relating to
the Boeing long-term contract expiring in 2004. Final payment was received in
2004.

INTEREST INCOME, NET

Interest income, net changed $0.2 million favorable as interest income of
$0.2 million was recorded in 2005 compared to zero in 2004. The favorable change
was the result of the net effect of interest income earned on cash balances
partially offsetting interest expense as a result of unused capacity fees on the
Company's credit revolver.

INCOME TAX EXPENSE

Income tax expense for 2005 was $4.9 million compared to $1.4 million in
expense for the same period in 2004. The effective income tax rate in 2005 was
37% compared to a rate of 34% in 2004. The first quarter 2005 rate of 37% was
greater that the federal statutory rate of 35% primarily due to state income
taxes partially offset by lower foreign tax rates, the utilization of previously
impaired foreign net operating losses, and

20

beneficial effects of the American Jobs Creation Act (discussed below). The
first quarter 2004 rate was less than the federal statutory rate of 35%
primarily as a result of foreign tax credits partially offset by state taxes.

On October 22, 2004, the President signed the American Jobs Creation Act of
2004 (the "Act"). The Company has estimated that the deduction attributable to
qualified production activities will decrease its annual effective tax rate by
approximately 1%. Other effects of the Act include the one-time deduction of 85%
of foreign earnings that are repatriated to the United States, as defined by the
Act. The deduction is subject to a number of limitations and at this time there
is uncertainty on how to interpret numerous provisions in the Act. As such, the
Company is not in a position to decide on whether, and to what extent, the
Company might repatriate foreign earnings that have not yet been remitted to the
U.S. Based on our analysis to date, however, it is reasonably possible that we
may repatriate some amount between $0 and $3 million, with the respective tax
liability ranging from $0 to $1 million. We expect to be in a position to
finalize our assessment by the fourth quarter of 2005.

INCOME FROM DISCONTINUED OPERATIONS

The operations of the Company's welded tubing operations were deemed a
discontinued operation in the fourth quarter of 2004 as the operation was unable
to source input material to satisfy its customers.

NET INCOME

Net income changed favorably by $5.6 million in 2005 compared to the same
period in 2004. The net income of $8.4 million in 2005 represented 11% of sales
compared to a net profit of $2.8 million in 2004 or 5% of sales.

OUTLOOK

Overview

Beginning in 2001, a confluence of events including weak U.S. and global
economies, combined with the terrorist attacks of September 11, 2001, followed
by the ongoing conflicts in the Middle East, and the worldwide outbreak of
Severe Acute Respiratory Syndrome ("SARS") had significant adverse effects on
the overall titanium industry through 2003. Beginning in 2004 however, the world
economies began to improve, air traffic demand rose significantly in the
commercial aircraft segment, and defense spending continued to grow, leading to
a strong rebound in the demand for titanium and specialty metal products.

According to the U.S. Geological Survey, U.S. shipments of titanium mill
products in 2004 increased to 42 million pounds from 34 million pounds in 2003.
Aircraft manufacturers, as well as aerospace forecasters, all predict that the
growth in commercial aerospace, and therefore titanium, will continue to
increase in 2005 and beyond.

The following is a discussion of what is happening within each of the three
major markets in which RTI participates.

Commercial Aerospace Markets

Aerospace demand is classified into two sectors: commercial aerospace and
defense programs. Demand from these two sectors comprises approximately 50% of
the worldwide consumption for titanium products and in the U.S. comprises in
excess of 65% of titanium consumption. The Company's sales to this market
represented 35% of total sales in 2004, up from 27% in 2003.

21

Boeing and Airbus reduced their build rates for aircraft to 586 planes in
2003, a 13.5% reduction from prior year. However, a turnaround began in 2004,
with the two major producers delivering 605 new aircraft. According to The
Airline Monitor, the combined production of large commercial aircraft by Boeing
and Airbus is forecast to reach 680 aircraft in 2005, 760 aircraft in 2006, 790
aircraft in 2007, and 815 aircraft in 2008.

Airbus has announced the launch of a large widebody aircraft, the A380, and
Boeing is expected to launch a new aircraft, the 787. Airbus has approved
another new aircraft, the A350, to compete with Boeing's 787 model. All three of
these aircraft are expected to use large quantities of titanium, in the second
half of this decade. Longer term, the commercial aerospace sector is expected to
continue to be a very significant consumer of titanium products over the next 20
years due to the expected long-term growth of worldwide traffic and the need to
repair and replace aging commercial fleets.

Titanium mill products that are ordered by the prime aircraft producers and
their subcontractors are generally ordered in advance of final aircraft
production by six to eighteen months. This is due to the time it takes to
produce a final assembly or part that is ready for installation in an airframe
or jet engine.

RMI entered into a long-term mill product agreement with Boeing on January
28, 1998. Under this agreement, Boeing agreed to purchase a minimum of 3.25
million pounds annually. The agreement, which began in 1999, had an initial term
of five years and concluded at the end of 2003. If volumes fell short of the
minimum commitment, the contract contained provisions for financial
compensation. Boeing failed to make minimum purchases in each of the five years,
making its final compensation payment in the first quarter of 2004. Beginning in
January of 2004, business between the companies, which is not covered by other
contracts within RTI, is being conducted on a non-committed basis, that is, no
volume commitment by Boeing and no commitment of capacity or price by RMI.

RTI acquired Claro Precision, Inc., Montreal, Canada, in October of 2004.
Claro supplies precision machining and complex sub-assemblies to the aerospace
industry, primarily Bombardier. The acquisition provides RTI with additional
manufacturing capabilities as well as access to the regional and business jet
markets.

RTI, through its RTI Europe subsidiary, entered into an agreement with the
European Aeronautic Defense and Space Company ("EADS") in January 2005 to supply
value-added titanium products and parts to the EADS group of companies,
including Airbus. The contract is in place through 2008, subject to extension.
The new Airbus A380 is expected to utilize more titanium per aircraft than any
commercial plane yet produced. In 2003, Airbus became the world's largest
producer of commercial aircraft and this continued in 2004.

Defense Markets

Shipments to military markets represented approximately 30% of the
Company's 2004 revenues and are expected to remain significant as U.S. and other
countries' defense budgets remain strong. In fact, the latest U.S. Department of
Defense budget figures for Research, Development Testing and Evaluation (RDT&E)
and Procurement reflect an increase of 21% from 2005 through 2009.

RTI believes it is well positioned to supply mill products and fabrications
required for projected demand from this market. RTI currently supplies titanium
and other materials to most military aerospace programs, including the F/A-22,
C-17, F/A-18, F-15, F-16, Joint Strike Fighter ("JSF") (F-35) and in Europe, the
Mirage, Rafale and Eurofighter-Typhoon.

The Company was chosen by BAE Systems RO Defence UK to supply the titanium
components for the new XM-777 lightweight 155 mm Howitzer. Delivery began late
in 2003 and will continue through 2010. Production approval for 495 units was
awarded to BAE in March 2005. Initial deliveries will be to the U.S. Marine
Corps, followed by deliveries to the U.S. Army and the Italian and British armed
forces. It is anticipated that over 1,000 guns may be produced. Sales under this
contract could potentially exceed $70 million.

The Company entered into a new agreement with BAE Systems in January 2005
to provide value added titanium flat rolled products for the Eurofighter
Aircraft through 2009.

22

Lockheed Martin, a major customer of the Company, was awarded the largest
military contract ever on October 26, 2001, for the military's $200 billion JSF
program. The aircraft, which will be used by all branches of the military, is
expected to consume 30,000 to 40,000 pounds of titanium per airplane depending
on the model specified. Timing and order patterns, which are likely to extend
well into the future for this program, have not been quantified, but may be as
many as 3,000 to 6,000 planes over the next 30 to 40 years. The Company has
entered into agreements with Lockheed and its teaming partner, BAE Systems, to
be the supplier of titanium sheet and plate for the design and development phase
of the program.

Industrial and Consumer Markets

35% of RTI's 2004 revenues were generated in various industrial and
consumer markets where increased demand is expected over the next twelve months.

Revenues from oil and gas markets are expected to increase in 2005 and
beyond due to continued activity in deep water projects. In January 2005, RTI
Energy Systems was selected by BP to provide titanium stress joints for its Shah
Deniz project located in the Caspian Sea, Azerbaijan. Titanium was chosen
because both strength and flexibility will be needed to deal with the strong
currents in the development area. Fabrication will begin in 2005 and shipments
will be made over the next 9-12 months.

RTI serves a number of other industrial and consumer markets through its
distribution businesses. The products sold and applications served are numerous
and varied. The resulting diversity tends to provide sales stability through
varying market conditions. The Company believes demand from these markets will
continue to improve in 2005.

The Company operates a facility that produces ferro-titanium, an additive
to certain grades of steel. The recent world wide demand for steel has
significantly increased demand for ferro-titanium. Sales of ferro-titanium
constituted over 10% of total sales in 2004 and strong demand is expected to
continue into 2005.

The Company's welded tubing operations supplied commercially pure titanium
products to various customers for use in industrial operations. The Company's
normal supplier advised that it was unable to meet orders due to their inability
to obtain raw materials from their suppliers. The Company was unable to find
alternate sources of material and had no choice but to declare the welded tubing
operations a discontinued business in 2004. The physical facilities, previously
utilized for the production of welded tube, are being used to support other
areas of RTI's operations.

Backlog

The Company's order backlog for all markets increased to approximately $269
million as of March 31, 2005, up from $238 million at December 31, 2004,
principally due to increased demand from the commercial aerospace industry. Of
the backlog at March 31, 2005, approximately $200 million will be realized in
2005.

LIQUIDITY AND CAPITAL RESOURCES
(Dollars in millions)

The Company believes it will generate sufficient cash flow from operations
to fund operations and capital expenditures in 2005. In addition, RTI has cash
reserves and available borrowing capacity to maintain adequate liquidity. RTI
currently has no debt, and based on the expected strength of 2005 cash flows,
the Company does not believe there are any material near-term risks related to
fluctuations in interest rates.

Cash (used) provided by operating activities

The decrease in net cash flows from operating activities for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004
primarily reflects an increase in inventory levels due to the improved demand in
all market segments as mentioned in the "Outlook" section of Management's
Discussion and Analysis. The overall decrease in cash flows from operating
activities, due to increased inventory levels, was partially offset from cash
generated due to increases in net income, accounts payable and other balance
sheet line items. The Company's income tax liability substantially increased in
the quarter

23

ended March 31, 2005 as a result of improved operating income. The liability for
billings in excess of costs increased during the quarter as new work on projects
increased over the prior period.

The Company's working capital ratio was 6.3 and 8.2 to 1 at March 31, 2005
and December 31, 2004, respectively.

Cash used in investing activities

Gross capital expenditures for the three months ended March 31, 2005
amounted to $1.8 million compared to $1.9 million in 2004. In February 2005, the
Company amended its purchase of the minority interest in Galt Alloys, Inc. from
the prior owners agreeing to pay an additional $0.3 million. Additional capital
spending for all periods primarily reflected equipment additions and
improvements as well as information systems projects.

During the three months ended March 31, 2005 and 2004, the Company's cash
flow requirements for capital expenditures were funded with cash provided by
operations. The Company anticipates that its capital expenditures for 2005 will
total approximately $13 million and will be funded with cash generated by
operations.

At March 31, 2005 and December 31, 2004, the Company had a borrowing
capacity equal to $64.3 and $33.8 million, respectively.

Cash provided by financing activities

The favorable change in cash flows from financing activities for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004
primarily reflects an increase in proceeds from the exercise of employee stock
options of $4.2 million.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND POST-RETIREMENT BENEFITS

Following is a summary of the Company's contractual obligations and other
commercial commitments as of March 31, 2005 (dollars in thousands):

- ---------------

(1) Amounts represent commitments for which contractual terms exceed twelve
months.

(2) Amounts primarily represent purchase commitments under purchase orders.

24

(3) Amounts represent standby letters of credit primarily related to commercial
performance and insurance guarantees.

(4) The Company does not fund its other post-retirement employee benefits
obligation but instead pays amounts when incurred. However, these estimates
are based on current benefit plan coverage and are not contractual
commitments in as much as the Company retains the right to modify, reduce,
or terminate any such coverage in the future. Amounts shown in the years
2005 through 2008 are based on actuarial estimates of expected future cash
payments. The Company is not forecasting or required to make a pension
contribution in 2005. As in past years, the Company may make voluntary
contributions when there is an economic advantage to contribute to the fund.
Future contributions to the fund, if required, will be provided based on
actuarial evaluation.

CREDIT AGREEMENT

The Company amended its former $100 million, three-year credit agreement on
June 4, 2004. The amendment provides for $90 million of standby credit through
May 31, 2008. The Company has the option to increase the available credit to
$100 million with the addition of another bank, without the approval of the
existing bank group. The terms and conditions of the amended facility remain
unchanged with the exception that the tangible net worth covenant in the
replaced facility was eliminated.

Under the terms of the facility, the Company, at its option, will be able
to borrow at (a) a base rate (which is the higher of PNC Bank's prime rate or
the Federal Funds Effective Rate plus 0.5% per annum), or (b) LIBOR plus a
spread (ranging from 1.0% to 2.25%) determined by the ratio of the Company's
consolidated total indebtedness to consolidated earnings before interest, taxes,
depreciation and amortization. The credit agreement contains restrictions, among
others, on the minimum cash flow required, and the maximum leverage ratio
permitted. At March 31, 2005, there was $1.6 million of standby letters of
credit outstanding under the facility, the Company was in compliance with all
covenants, and had a borrowing capacity equal to $64.3 million.

ENVIRONMENTAL MATTERS

The Company is subject to environmental laws and regulations as well as
various health and safety laws and regulations that are subject to frequent
modifications and revisions. During the three months ended March 31, 2005, the
Company spent approximately $0.2 million for environmental remediation,
compliance, and related services. While the costs of compliance for these
matters have not had a material adverse impact on the Company in the past, it is
impossible to accurately predict the ultimate effect these changing laws and
regulations may have on the Company in the future. The Company continues to
evaluate its obligations for environmental related costs on a quarterly basis
and makes adjustments in accordance with provisions of Statement of Position No.
96-1, "Environmental Remediation Liabilities."

The Company is involved in investigative or cleanup projects under federal
or state environmental laws at a number of waste disposal sites, including the
Fields Brook Superfund Site and the Ashtabula River Area of Concern. Given the
status of the proceedings with respect to these sites, ultimate investigative
and remediation costs cannot presently be accurately predicted, but could, in
the aggregate be material. Based on the information available regarding the
current ranges of estimated remediation costs at currently active sites, and
what the Company believes will be its ultimate share of such costs, provisions
for environmental-related costs have been recorded.

Given the status of the proceedings at certain of these sites, and the
evolving nature of environmental laws, regulations, and remediation techniques,
the Company's ultimate obligation for investigative and remediation costs cannot
be predicted. It is the Company's policy to recognize environmental costs in its
financial statements when an obligation becomes probable and a reasonable
estimate of exposure can be determined.

At March 31, 2005, the amount accrued for future environmental-related
costs was $3.7 million. Of the total amount accrued at March 31, 2005, $0.6
million is expected to be paid out within one year and is included in the other
accrued liabilities line of the balance sheet. The remaining $3.1 million is
recorded in other non-current liabilities.

25

Based on available information, RMI believes that its share of potential
environmental-related costs, before expected contributions from third parties,
is in a range from $2.9 to $7.7 million in the aggregate. The Company has
included in its other noncurrent assets $2.1 million as expected contributions
from third parties. These third parties include prior owners of RMI property and
prior customers of RMI, that have agreed to partially reimburse the Company for
certain environmental-related costs. The Company has been receiving
contributions from such third parties for a number of years as partial
reimbursement for costs incurred by the Company.

As these proceedings continue toward final resolution, amounts in excess of
those already provided may be necessary to discharge the Company from its
obligations for these sites.

Former Ashtabula Extrusion Plant

The Company's former extrusion plant in Ashtabula, Ohio was used to extrude
depleted uranium under a contract with the DOE from 1962 through 1990. In
accordance with that agreement, the DOE retained responsibility for the cleanup
of the facility when the facility was no longer needed for processing government
material. Processing ceased in 1990, and in 1993 RMI was chosen as the prime
contractor for the remediation and restoration of the site by the DOE. Since
then, contaminated buildings have been removed and approximately two-thirds of
the site has been free released by the Ohio Department of Health, to RMI, at DOE
expense.

In December, 2003, in accordance with its terms, the Department of Energy
terminated the contract "for convenience." It is not known at this time what
role, if any, RMI will play in the balance of the cleanup although discussions
are ongoing. Remaining soil removal is expected to take approximately 18-24
months. As license holder and owner of the site, RMI is responsible to the state
of Ohio for complying with soil and water regulations. However, remaining
cleanup cost is expected to be borne by the DOE in accordance with their
contractual obligation.

EMPLOYEES

As of March 31, 2005, the Company and its subsidiaries employed 1,193
persons, 373 of whom were classified as administrative and sales personnel. 605
of the total number of employees were in the Titanium Group, while 588 were
employed in the Fabrication & Distribution Group.

The United Steelworkers of America represents 311 of the hourly clerical
and technical employees at RMI's plant in Niles, Ohio and 1 hourly employee at
RMI Environmental Services in Ashtabula, Ohio. No other Company employees are
represented by a union.

NEW ACCOUNTING STANDARDS

In December 2004 the FASB issued SFAS No. 151, Inventory Costs. The Company
is required to adopt SFAS 151 on a prospective basis as of January 1, 2006. SFAS
151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling cost, and wasted material. SFAS 151 requires that those
items--if abnormal--be recognized as expenses in the period incurred. SFAS 151
requires the allocation of fixed production overheads to the cost of conversion
based upon the normal capacity of the production facilities. The Company has not
yet determined what effect SFAS 151 will have on its financial statements.

In December 2004, the FASB Issued FASB Staff Position No. FAS 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004," which states that the
FASB staff believes that the lack of clarification of certain provisions within
the Act and the timing of the enactment necessitate a practical exemption to the
FAS 109 requirement to reflect in the period of enactment the effect of a new
tax law. Accordingly, an enterprise is allowed time beyond the financial
reporting period of enactment to evaluate the effect of the Act on its plan for
reinvestment or repatriation of foreign earnings for purposes of applying FAS
109. The Company is evaluating the impact of earnings repatriation and once
concluded will apply its action in accordance with FAS 109.

In December 2004, the Financial Accounting Standards (FASB) issued
Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R),
Share-Based Payment. In March 2005, the SEC issued Staff Accounting Bulletin No.
107 (SAB 107) regarding the SEC Staff's interpretation of

26

SFAS 123R and provides the Staff's views regarding interactions between SFAS
123R and certain SEC rules and regulations and provides interpretations of the
valuation of share-based payments for public companies. SFAS 123R requires the
mandatory expensing of share-based payments, including employee stock options,
based on their fair value. Recently, the FASB delayed mandatory implementation
for fiscal years beginning after December 15, 2005. As a result the standard
will be adopted for the Company's 2006 fiscal year. SFAS 123R provides
alternative methods of adoption including prospective and modified retroactive
applications. The Company is currently evaluating the financial impact,
including the available alternatives under SFAS 123R and SAB 107.

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act introduced a
prescription drug benefit under Medicare (Medicare Part D), as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. On May 19, 2004,
FASB issued Staff Position FSP FAS 106-2 (FSP 106-2), which supercedes FSP 106-1
and provides guidance on accounting for the effects of the new Medicare
prescription drug legislation for employers whose prescription drug benefits are
actuarially equivalent to the drug benefit under Medicare Part D. The effect of
the Act did not have a material impact on the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to the Company's exposure to market
risk since the Company filed its Form 10-K/A on May 6, 2005.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Chief Executive
officer and Chief Financial Officer, evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly
report on Form 10-Q. Based upon that evaluation they have concluded that the
Company's disclosure controls and procedures are not effective in ensuring that
all material information required to be filed in reports that the Company files
with the Securities and Exchange Commission is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Commission because of material weaknesses in its internal control over financial
reporting as discussed in the Company's Form 10-K/A filed on May 9, 2005.

In light of material weaknesses described in our Form 10-K/A, we performed
additional analysis and other post-closing procedures to ensure our Condensed
Consolidated Financial Statements are prepared in accordance with generally
accepted accounting principles. Accordingly, management believes that the
financial statements included in this report fairly present in all material
respects our financial condition, results of operations and cash flows for the
period presented.

(b) Changes in Internal Control over Financial Reporting

The Company reported material weaknesses in its Form 10-K/A. The Company
has begun to implement a remediation program to address those material
weaknesses during 2005.

There were no changes in the Company's internal control over financial
reporting during the quarter ended March 31, 2005, other than those as described
below that are interim measures until all planned control measures are
implemented. Additionally, the Company replaced the Director of Corporate
Accounting and Consolidation. In the Company's 10-K/A filed May 9, 2005 the
Company identified numerous control improvements over its disclosure controls
and procedures that the Company plans to implement in 2005. Those control
improvements that were implemented in the quarter ended March 31, 2005 included:

- Reduction in the number of SAP users with unrestricted access;

- Direction of the Company's internal audit department to concentrate on
examination, evaluation and testing of reported material weaknesses.

27

Interim measures used in the quarter ended March 31, 2005 and until
remediation is effective over all control weaknesses identified in the Company's
10-K/A are implemented include:

- Re-testing of material internal control weaknesses identified in 2004 to
determine their effectiveness in the current quarter;

- Substantive testing for certain of its transactions to ensure their
accuracy and compliance with GAAP and;

- Enhanced review of critical transactions and balances to ensure their
accuracy.

These matters have been discussed with the Company's Audit Committee, and
the Company is taking appropriate, diligent action to continually improve its
internal control over financial reporting.

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PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. There are
currently no material pending or threatened claims against the Company. However,
given the critical nature of many of the aerospace end uses for the Company's
product, including specifically their use in critical rotating parts of gas
turbine engines, the Company maintains aircraft products liability insurance of
$250 million, which includes grounding liability.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities:

RTI International Metals, Inc. share repurchase program was approved by
RTI's Board of Directors on April 30, 1999. The program authorizes the
repurchase of up to 15 million dollars of RTI common stock from time to time.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

Indemnification Agreements. On May 6, 2005, the Officers and Directors of
the Company entered into individual indemnification agreements in the form as
set forth in Exhibit 10.1. The agreements are identical in their terms and
provide, in summary, that the Company shall indemnify the directors or officer
against any and all expenses, including attorneys fees, judgments, fines, and
amounts paid in settlements, incurred as a result of threatened, pending, or
completed legal actions in which the director or officer is a party as a result
of actions or inactions taken in their official capacities on behalf of the
Company. The contractual indemnification is subject to the statutory provisions
of the laws of the State of Ohio where the Company is incorporated, and excludes
from indemnification any remuneration that is in violation of law, and further
excludes any act or omission undertaken by an officer or director with
deliberate intent to cause injury to the Company or with reckless disregard for
the best interests of the Company.

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ITEM 6. EXHIBITS

(a) Exhibits

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

RTI INTERNATIONAL METALS, INC.
--------------------------------------
(Registrant)

Date: May 10, 2005

By: /s/ L. W. JACOBS
------------------------------------
L. W. Jacobs
Vice President & Chief Financial
Officer

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