RTI INTERNATIONAL METALS INC - 10-Q Quarterly Report

Back to GetFilings.com

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------------

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, 2003.

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, 2003, 20,834,165 shares of common stock of the registrant were
outstanding.

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

RTI INTERNATIONAL METALS, INC.

FORM 10-Q
QUARTER ENDED MARCH 31, 2003

INDEX

PART I -- FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED 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.

4

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)

(DOLLARS IN THOUSANDS)

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

5

RTI INTERNATIONAL METALS, INC.

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1--ORGANIZATION AND 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 presentation of the results for
the interim periods presented. The results for the interim periods are not
necessarily indicative of the results to be expected for the year.

Beginning with the first quarter of 2003, RTI changed its segment reporting
structure to represent its current method of marketing and selling products.
Segment information for the prior period contained in these financial statements
has been reclassified to conform to the current period presentation.

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.

In November, 1996, USX completed a public offering of its 6 3/4% notes (the
"Notes") which were exchangeable in February, 2000, for 5,483,600 shares of RTI
common stock owned by USX. On February 1, 2000, the trustee under the note
indenture delivered 5,483,600 of RTI common stock to the note holders in
exchange for the Notes terminating USX's ownership interest in RTI.

NOTE 3--STOCK OPTION AND RESTRICTED STOCK AWARD PLANS

1995 STOCK PLAN

The 1995 Stock Plan, which was approved by a vote of the Company's
shareholders at the 1995 Annual Meeting of Shareholders, replaced both the 1989
Stock Option Incentive Plan and the 1989 Employee Restricted Stock Award Plan.
The Plan permits the grant of any or all of the following types of awards in any
combination: a) stock options; b) stock appreciation rights; and c) restricted
stock. The plan does not permit the granting of options with exercise prices
that are less than the market value on the date the options are granted. A
committee appointed by the Board of Directors administers the Plan, and
determines the type or types of grants to be made

6

under the Plan and sets forth in each such Grant the terms, conditions and
limitations applicable to it, including, in certain cases, provisions relating
to a possible change in control of the Company.

During the first quarter of 2003, 207,750 option shares were granted at an
exercise price of $10.22. 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. 207,750 of the option shares
granted in 2003 were outstanding at March 31, 2003.

During the first quarter of 2003, 75,220 shares of restricted stock were
granted under the 1995 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 income and
earnings per share for the quarter ended March 31, 2003 would have been as
follows:

Included in the Company's income for the quarters ended March 31, 2003 and
2002 is stock-based compensation expense amounting to $228 and $240,
respectively.

NOTE 4--INCOME TAXES

In the three months ended March 31, 2003, the Company recorded an income
tax expense of $2.7 million, or 38% of pre-tax income compared to an expense of
$5.1 million, or 39% for the three months ended March 31, 2002. The first
quarter 2003 rate of 38% reflects the effective tax rate for all of 2002. The
effective tax rate for the three-month periods ended March 31, 2003 of 38% and
March 31, 2002 of 39% exceeded the federal statutory rate of 35% primarily as a
result of state income taxes.

7

NOTE 5--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, 2003 and 2002 are as follows (in thousands
except number of shares and per share amounts):

1,095,571 and 914,512 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, 2003 and 2002, respectively, because the
exercise price of the options exceeded the weighted average market price of the
Company's common stock during those periods.

NOTE 6--INVENTORIES

NOTE 7--BILLINGS IN EXCESS OF COSTS AND ESTIMATED REVENUES

The Company reported a liability for billings in excess of costs and
estimated revenues of $2.5 million as of March 31, 2003 and $2.4 million as of
December 31, 2002. These amounts primarily represent payments, received in
advance from energy market customers on long-term orders, which the Company has
not recognized as revenues. The increase reflects the Company fulfilling
obligations and recognizing revenue relating to advanced payments.

NOTE 8--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. 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.

8

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. 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 predict accurately 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 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.

At March 31, 2003 and December 31, 2002, the amount accrued for future
environmental-related costs was $1.7 million. Of the total amount accrued at
December 31, 2002, $0.3 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 $1.4 million is recorded in Other non current liabilities. Based on
available information, RMI believes its share of potential environmental-related
costs, before expected contributions from third parties, is in a range from $3.1
million to $7.3 million, in the aggregate. The amount accrued is net of expected
contributions from third parties (other than insurers) of approximately $0.5 to
$2.2 million, which the Company believes are probable. 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 projects.

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
for 1999, 2000, 2001, and 2002, ordering 0.9 million pounds, 1.1 million pounds,
0.9 million pounds, and 0.5 million pounds, respectively.

The Company made 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 revenue of approximately $6 million in 2000 and 2001, and
approximately $7 million in 2002, for each of the preceding years claims upon
receipt of the cash. The Company recognized approximately $8 million in the
first quarter of 2003 when Boeing satisfied the claim for 2002. In all years,
revenue recognized from these cash receipts was presented as other income in the
financial statements.

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.

9

NOTE 9--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 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.

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 three-month periods ended March 31, 2003 and
2002 is as follows:

On January 1, 2003 the Company realigned its two operating segments to
better reflect its strategy for achieving higher value-added sales and has
modified results for 2002 to reflect this realignment. Included in the
realignment was the transfer from the Titanium Group to the Fabrication and
Distribution Group of the

10

Company's commercially pure products business, grinding operations at the
Company's Washington, MO., facility and marketing and sales responsibility for
most sheet and plate products.

NOTE 10--NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 143 ("SFAS No. 143"),
"Accounting for Asset Retirement Obligations." SFAS No. 143 prescribes the
accounting for retirement obligations associated with tangible long-lived
assets, including: (1) the timing of liability recognition; (2) initial
measurement of the liability; (3) allocation of the cost of the obligation to
expense; (4) measurement and recognition of subsequent changes to the liability;
and (5) financial statement disclosures. SFAS No. 143 requires that an asset
retirement cost be capitalized as part of the cost of the related long-lived
asset and subsequently allocated to expense using a systematic and rational
method. The standard is required to be adopted in fiscal years beginning after
June 15, 2002. At adoption, any transition adjustment required will be reported
as a cumulative effect of a change in accounting principle. The Company adopted
this standard in the first quarter of 2003 and it did not result in a material
adjustment to the financial statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS No. 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Under EITF Issue 94-3, a liability for an
exit activity was recognized at the date of an entity's commitment to an exit
plan. SFAS No. 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred. SFAS No. 146
is effective for exit or disposal activities that are initiated after December
31, 2002. SFAS No. 146 will impact the timing of the recognition of costs
associated with an exit or disposal activity but is not expected to have a
material impact on the Company.

In January 2003, the FASB issued Statement of Financial Accounting
Standards No. 148 ("SFAS No. 148"), "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS 148 amends current disclosure
requirements and requires prominent disclosures on both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
statement is effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. See Note 3 for the
disclosures required by this standard.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The recognition and measurement
provisions are effective on a prospective basis to guarantees issued or modified
after December 31, 2002. The adoption of this interpretation is not expected to
have a material impact on the Company.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 provides guidance on the
identification of entities for which control is achieved through means other
than through voting rights, variable interest entities, and how to determine
when and which business enterprises should consolidate variable interest
entities. This interpretation applies immediately to variable interest entities
created after January 31, 2003. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The adoption of this interpretation will not have an impact on the Company.

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 ("SFAS No. 149"), "Amendment of Statement 133 on Derivative Instruments
and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments

11

embedded in other contracts, and for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, with some
exceptions. The adoption of this standard will not have a material impact on the
Company.

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

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 "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 ultimate determination of pending trade petitions, global
economic conditions, the Company's order backlog and the conversion of that
backlog into revenue, labor relations, 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, copies
of which are available from the SEC or may be obtained upon request from the
Company.

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002

NET SALES

Net sales decreased to $58.5 million for the three months ended March 31,
2003 compared to net sales of $65.7 million in the corresponding 2002 period.
Sales for the Company's Titanium Group amounted to $14.2 million in the three
months ended March 31, 2003 compared to $21.8 million in the same period of
2002. Titanium Group net sales decreased as a result of a decrease in mill
product shipments, partially offset by higher average realized prices as product
mix shifted to higher value-added rolled products. Shipments of titanium mill
products were 1.4 million pounds in the three months ended March 31, 2003,
compared to 2.8 million pounds for the same period in 2002. Mill product
shipments in the three months ended March 31, 2003 were lower than those in 2002
as demand for forged mill products for commercial aerospace markets declined.
Included in mill product shipments are intersegment shipments from the Titanium
Group to the Fabrication and Distribution Group (F&D). Shipments to F&D
decreased over the same period last year reflecting reduced demand for titanium
products through the Fabrication and Distribution Group as well as intentional
inventory reductions within certain F&D businesses. Average realized prices on
mill products for the three months ended March 31, 2003 increased to $16.58 per
pound from $13.22 per pound in 2002. The increase in average realized prices for
mill products resulted primarily from an increased mix of higher value-added
rolled mill products when compared to 2002. Sales for the Company's Fabrication
and Distribution Group amounted to $44.3 million in the three months ended March
31, 2003, compared to $43.9 million in the same period of 2002. This increase
reflects an increase in energy market sales, partially offset by reduced demand
in fabrication, and U.S. and European distribution sales.

GROSS PROFIT

Gross profit amounted to $6.4 million, or 10.9% of sales for the three
months ended March 31, 2003 compared to a gross profit of $13.8 million or 21.0%
for the comparable 2002 period. Gross margin declined as a result of the decline
in mill product shipments and reduced volume in fabrication, and U.S. and
European distribution sales, partially offset by increased sales in energy
markets.

12

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses amounted to $7.6 million or
13.0% of sales for the three months ended March 31, 2003, compared to $9.1
million or 13.8% of sales for the same period in 2002. The decrease in selling,
general and administrative expenses primarily reflects reductions in employee
benefit liabilities of $0.6 million and employee bonus compensation of $0.3
million.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES

Research, technical and product development expenses amounted to $0.4
million in 2003 and 2002.

OPERATING INCOME

Operating loss for the three months ended March 31, 2003 amounted to $1.6
million, or 2.8% of sales compared to operating income of $4.4 million, or 6.7%
of sales, in the same period of 2002. This decline consists of a decrease in
operating income from the Titanium Group of $8.2 million primarily due to a
decrease in mill product shipments. This decrease is partially offset by an
increase in operating income in the Fabrication and Distribution Group of $1.9
million due to an increase in energy market sales, partially offset by a
decrease in demand in fabrication, and U.S. and European distribution sales.

OTHER INCOME

Other income for the three months ended March 31, 2003 and March 31, 2002
amounted to $8.8 and $8.9 million, respectively. Other income primarily reflects
the receipt of liquidated damages from the Boeing Airplane Group of $8.4 million
in 2003 and $7.1 million in 2002. 2002 also reflects a $2.1 million gain from
the receipt of a common stock distribution in connection with the
demutualization of one of the Company's insurance carriers.

INTEREST EXPENSE

Interest expense for the three months ended March 31, 2003 and March 31,
2002 amounted to $0.2 million and $0.1 million, respectively. Interest expense
for both periods are primarily the result of fees associated with the unused
capacity on the Company's credit facility. The Company had no bank debt at March
31, 2003 and 2002.

INCOME TAXES

In the three months ended March 31, 2003, the Company recorded an income
tax expense of $2.7 million compared to a $5.1 million expense recorded in the
same period in 2002. The first quarter 2003 rate of 38% reflects the effective
tax rate for all of 2002. The effective tax rate of 38% for the three months
ended March 31, 2003 and 39% for the three months ended March 31, 2002 was
greater than the federal statutory rate of 35% primarily due to state income
taxes.

NET INCOME

Net income for the three months ended March 31, 2003 amounted to $4.3
million or 7.4% of sales, compared to $8.0 million or 12.2% of sales in the
comparable 2002 period. This decline consists of a decrease in operating income
from the Titanium Group of $8.2 million primarily due to a decrease in mill
product shipments. This decrease is partially offset by an increase in operating
income in the Fabrication and Distribution Group of $1.9 million due to an
increase in energy market sales, partially offset by a decrease in demand in
fabrication, and U.S. and European distribution sales.

OUTLOOK

The terrorist attacks of September 11, 2001, and their effect on the
general economy had a significant adverse influence on business conditions. The
war in Iraq and the worldwide outbreak of Severe Acute

13

Respiratory Syndrome ("SARS") have added further downward pressure. There
remains a high degree of uncertainty on how long these conditions will last.

Commercial Aerospace Markets

The largest impact of these events has been on commercial aerospace
markets, which provided approximately 30% of RTI's sales in 2002. Airline
operators experienced a dramatic drop in travel immediately following September
11, which resulted in significant losses within their industry causing a reduced
demand for new aircraft. The primary builders of large commercial aircraft,
Boeing and Airbus, adjusted their build rates beginning in 2002 downward
approximately 20% to reflect the expected change in demand. The exact magnitude
of the downturn on commercial aerospace remains uncertain for 2003, but it will
be further exacerbated by the war in Iraq and the outbreak of SARS affecting
world travel, particularly to and from the Far East.

Titanium mill products that are ordered by the prime aircraft producers and
their subcontractors are generally ordered in advance of final aircraft
production by 6 to 18 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. Given reduced activity by aircraft builders, it is expected that
shipments from RTI to this segment will be reduced in 2003.

The effect of the reduction in commercial aircraft demand on RTI will be
partially mitigated by the long-term agreement RMI entered into with Boeing on
January 28, 1998. Under this agreement, RMI supplies Boeing and its family of
commercial suppliers with up to 4.5 million pounds of titanium products
annually. The agreement, which began in 1999, has an initial term of five years
and, is subject to review by the parties prior to expiration at year-end 2003.
Under the accord, Boeing receives firm prices in exchange for RMI receiving a
minimum volume commitment of 3.25 million pounds per year. If volumes fall short
of the minimum commitment, the contract contains provisions for financial
compensation. In accordance with the agreement, and as a result of volume
shortfalls in 1999, 2000, and 2001, Boeing settled claims of approximately $6
million in both 2000 and 2001 and $7 million in 2002. The claim for 2002 was
settled during the first quarter of 2003 for approximately $8 million. Given the
state of the commercial aircraft industry, it is not expected that Boeing will
meet the minimum in 2003, the final year of the contract, and accordingly, a
similar payment will be called for in early 2004. Beginning in 2004, business
between the companies not covered by other contracts will be conducted on a
non-committed basis, that is, no volume commitment by Boeing and no commitment
of capacity or price by RMI.

RTI, through its RTI Europe subsidiary, entered into an agreement with the
European Aeronautic Defense and Space Company ("EADS") in April 2002 to supply
value-added titanium products and parts to the EADS group of companies,
including Airbus. The contract is in place through 2004, subject to extension.

Defense Markets

The importance of military markets to RTI, approximately 30% of 2002
revenues, is expected to rise in 2003 and beyond due to increased defense
budgets, and increased hardware purchases by the U.S. Government, partially
brought about by the events of September 11, 2001 and the war in Iraq. It is
estimated that overall titanium consumption will be increased within this
segment in 2003 globally, but it is not expected to completely offset the
decrease in the market caused by the drop in the commercial aerospace sector.
RTI believes it is well positioned to provide mill products and fabrications to
this segment if increased consumption is required to support defense needs. RTI
supplies titanium and other materials to most military aerospace programs,
including the F-22, C-17, F/A-18, F-15, F-16, 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 is expected
to begin in 2003 and continue through 2010. 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 800 guns may be produced.
Sales under this contract could potentially exceed $100 million.

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
Joint Strike Fighter program. The aircraft, which will be used by

14

all branches of the military, is expected to consume 25,000 to 30,000 pounds of
titanium per airplane. 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 over the next five years.

Industrial and Consumer Markets

40% of RTI's sales are generated in various industrial and consumer
markets, where business conditions are expected to be mixed over the next year
or two.

Revenues from Oil and Gas markets achieved new highs for RTI in 2002, and
forecasts for 2003 indicate continued strong demand, due to the increase in deep
water projects predicted over the next several years. Despite the weak economy,
the Company believes that oil and gas exploration will continue at an
accelerated pace for the next several years.

In April 2002, RTI Energy Systems, Inc. was selected by Unocal to provide
production riser equipment in connection with their West Seno project off the
coast of Indonesia. RTI is providing the high-fatigue riser engineering design,
in addition to the manufacture of components using a combination of titanium and
steel. This project, which was completed in the first quarter, is expected to
lead to other opportunities in Indonesia over the next several years.

If the general economy declines, demand from industrial market customers,
such as chemical processing companies, may decrease.

BACKLOG

The Company's order backlog for all market segments decreased to $89.0
million as of March 31, 2003, from $100.0 million at December 31, 2002,
principally due to a reduction in demand for titanium mill products from
commercial aerospace markets.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows from operating activities totaled $7.6 million for the three
months ended March 31, 2003 and 2002. Net cash flows from operations for the
three months ended March 31, 2003, when compared to the three months ended March
31, 2002, reflect approximately $4 million less net income, offset by reduced
increases in working capital and other balance sheet line items of $4 million.
At March 31, 2003, working capital and other balance sheet line items remained
unchanged from December 31, 2002, compared to the same period in 2002 which
reflected an increase of $4 million. The Company's working capital ratio was
10.2 to 1 at March 31, 2003, compared to 9.4 at December 31, 2002.

During the quarters ended March 31, 2003 and 2002, the Company's cash flow
requirements for capital expenditures were funded with cash provided by
operations. The Company anticipates that it will be able to fund its capital
expenditure requirements for 2003 with funds generated by operations.

At March 31, 2003, the Company had a borrowing capacity equal to $83.1
million, the amount of the facility, or a borrowing base equal to the sum of 85%
of qualifying accounts receivable and 60% of qualifying inventory whichever is
less.

On September 9, 1999, RTI filed a universal shelf registration with the
Securities and Exchange Commission. This registration permits RTI to issue up to
$100 million of debt and/or equity securities at an unspecified future date. The
proceeds of any such issuance could be utilized to finance acquisitions, capital
investments or other general purposes; however, RTI has not issued any
securities to date and has no immediate plans to do so.

While there is no guarantee that the Company will be able to generate
sufficient cash flow from operations to fund its operations and capital
expenditures in 2003, the Company believes it can maintain adequate liquidity
through a combination of cash reserves and available borrowing capacity. Also,
as RTI currently has no debt, and

15

based on the expected strength of 2003 cash flows, the Company does not believe
there is any material near-term risks relating to fluctuations in interest
rates.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Following is a summary of the Company's contractual obligations and other
commercial commitments as of March 31, 2003:

The Company's other commercial commitments at March 31, 2003 represent
standby letters of credit primarily related to commercial performance
guarantees.

CREDIT AGREEMENT

At March 31, 2003, the Company maintained a credit agreement entered into
on April 26, 2002, which provides a $100 million three-year unsecured revolving
credit facility. This agreement replaced the previously existing $100 million
five-year unsecured revolving credit facility entered into September 30, 1998.
The Company can borrow up to the lesser of $100 million or a borrowing base
equal to the sum of 85% of qualifying accounts receivable and 60% of qualifying
inventory.

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 shareholders' equity required, the minimum cash flow
required, and the maximum leverage ratio permitted. At March 31, 2003, there was
$4.9 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 $83.1 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. 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 predict accurately the ultimate effect these changing laws and
regulations may have on the Company in the future.

At March 31, 2003 and 2002, the amount accrued for future
environmental-related costs was $1.7 million. Of the total amount accrued at
December 31, 2002, $0.3 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 $1.4 million is recorded in Other non current liabilities. Based on
available information, RMI believes its share of potential environmental-related
costs, before expected contributions from third parties, is in a range from $3.1
million to $7.3 million, in the aggregate. The amount accrued is net of expected
contributions from third parties (other than insurers) of approximately $0.5 to
$2.2 million, which the Company believes are probable. The Company has been
receiving

16

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 projects.

The ultimate resolution of these environmental matters 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.

CAPITAL EXPENDITURES

Gross capital expenditures for the quarter ended March 31, 2003 amounted to
$1.3 million compared to $1.5 million in the quarter ended March 31, 2002. In
both quarters, capital spending primarily reflected equipment additions and
improvements as well as information system projects.

Capital spending for 2003 is budgeted at approximately $10.0 million.

NEW ACCOUNTING STANDARDS

In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 143 ("SFAS No. 143"),
"Accounting for Asset Retirement Obligations." SFAS No. 143 prescribes the
accounting for retirement obligations associated with tangible long-lived
assets, including: (1) the timing of liability recognition; (2) initial
measurement of the liability; (3) allocation of the cost of the obligation to
expense; (4) measurement and recognition of subsequent changes to the liability;
and (5) financial statement disclosures. SFAS No. 143 requires that an asset
retirement cost be capitalized as part of the cost of the related long-lived
asset and subsequently allocated to expense using a systematic and rational
method. The standard is required to be adopted in fiscal years beginning after
June 15, 2002. At adoption, any transition adjustment required will be reported
as a cumulative effect of a change in accounting principle. The Company adopted
this standard in the first quarter of 2003 and it did not result in a material
adjustment to the financial statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS No. 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Under EITF Issue 94-3, a liability for an
exit activity was recognized at the date of an entity's commitment to an exit
plan. SFAS No. 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred. SFAS No. 146
is effective for exit or disposal activities that are initiated after December
31, 2002. SFAS No. 146 will impact the timing of the recognition of costs
associated with an exit or disposal activity but is not expected to have a
material impact on the Company.

In January 2003, the FASB issued Statement of Financial Accounting
Standards No. 148 ("SFAS No. 148"), "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS 148 amends current disclosure
requirements and requires prominent disclosures on both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
statement is effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. See Note 3 for the
disclosures required by this standard.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The recognition and measurement
provisions are effective on a prospective basis to guarantees issued or modified

17

after December 31, 2002. The adoption of this interpretation is not expected to
have a material impact on the Company.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 provides guidance on the
identification of entities for which control is achieved through means other
than through voting rights, variable interest entities, and how to determine
when and which business enterprises should consolidate variable interest
entities. This interpretation applies immediately to variable interest entities
created after January 31, 2003. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The adoption of this interpretation will not have an impact on the Company.

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 ("SFAS No. 149"), "Amendment of Statement 133 on Derivative Instruments
and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
with some exceptions. The adoption of this standard will 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 on March 12, 2003.

ITEM 4. CONTROLS AND PROCEDURES

As of a date within 90 days prior to the filing of this report (the
"Evaluation Date"), the Chief Executive Officer and Chief Financial Officer
evaluated the Company's disclosure controls and procedures pursuant to Exchange
Act Rule 13a-14 and 15d-14. They have concluded that the Company's disclosure
controls and procedures are effective in ensuring that all material information
required to be filed in this quarterly report has been made known to them in a
timely fashion. In addition, there have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
those internal controls, including any corrective actions with regard to
significant differences and material weaknesses, subsequent to the Evaluation
Date.

18

PART II--OTHER INFORMATION

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

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

(b) Reports on Form 8-K

None.

19

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 13, 2003

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

20

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Timothy G. Rupert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of RTI International
Metals, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

/s/ TIMOTHY G. RUPERT
--------------------------------------
Timothy G. Rupert
President and Chief Executive Officer

21

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Lawrence W. Jacobs, certify that:

1. I have reviewed this quarterly report on Form 10-Q of RTI International
Metals, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

/s/ LAWRENCE W. JACOBS
--------------------------------------
Lawrence W. Jacobs
Vice President and Chief Financial
Officer

22