RTI INTERNATIONAL METALS INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2004 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 of Incorporation) (I.R.S. Employer Identification No.)

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

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 330-544-7700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2004: $230,615,319. The amount shown is based on the
closing price of the registrant's common stock on the New York Stock Exchange on
that date. Shares of common stock known by the registrant to be beneficially
owned by officers or directors of the registrant or persons who have filed a
report on Schedule 13D or 13G are not included in the computation. The
registrant, however, has made no determination that such persons are
"affiliates" within the meaning of Rule 12b-2 under the Securities Exchange Act
of 1934.

Number of shares of common stock outstanding at March 15, 2005: 22,188,759

DOCUMENTS INCORPORATED BY REFERENCE:

Selected Portions of the Proxy Statement for the 2005 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report.

RTI INTERNATIONAL METALS, INC.
AND CONSOLIDATED SUBSIDIARIES

As used in this report, the terms "RTI," "Company" and "Registrant" mean
RTI International Metals, Inc., its predecessors and consolidated subsidiaries,
taken as a whole, unless the context indicates otherwise.

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

TABLE OF CONTENTS

INTRODUCTORY NOTE

This Annual Report on Form 10-K does not include management's report on
internal control over financial reporting or the Company's independent
registered public accounting firm's attestation report on management's
assessment of the internal control over financial reporting which are both
required to be so included as a result of Section 404 of the Sarbanes-Oxley Act
of 2002 and Item 308(a) and (b) of Regulation S-K. For more information see Item
9A below. The Company intends to amend this Form 10-K to include the omitted
reports once it has completed its assessment on internal control over financial
reporting.

PART I

ITEM 1. BUSINESS

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.

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 under the symbol "RTI".

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.

On October 1, 1998, RTI acquired all of the capital stock of New Century
Metals, Inc. ("NCM") of Solon, Ohio. NCM was a manufacturer and distributor of
high temperature and corrosion resistant alloys including titanium, stainless
steel and nickel, in long bar form, for use in the aerospace, chemical
processing, oil exploration and production, and power generation industries. In
addition to manufacturing facilities acquired as part of the NCM capital stock
acquisition, the Company built and installed a 5,000 ton press in leased space
in Houston, Texas. NCM operated four distribution centers which now operate as
part of the Distribution unit of the Fabrication & Distribution Group.

Also on October 1, 1998, RTI acquired the assets of Weld-Tech Engineering,
L.P. ("Weld-Tech"). Weld-Tech, based in Houston, Texas operates as part of the
Energy unit of the Fabrication & Distribution Group. The Energy unit provides
engineered and fabricated products, systems and services for the oil and gas
industry, including weld design, fabrication and repair, as well as materials
engineering and testing services. The Energy unit includes the assets of the
acquired Weld-Tech as well as the former engineering and business assets
initially organized as part of RMI. The Energy unit is headquartered and
operates production facilities in Houston, Texas.

On December 14, 2000, the Company purchased the remaining 60% of the
outstanding shares of Reamet, S.A. ("Reamet"). Since 1992, the Company had owned
40% of the outstanding shares of Reamet. Reamet, located in Villette, France, is
a premier distributor of titanium products to the French market, serving
aerospace, military and industrial customers. Reamet's largest customer is
Airbus, with which it has a contract to supply

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titanium, principally in the form of cut plate. Reamet, a wholly owned
subsidiary of RTI France, S.A.S., now operates as part of the Fabrication &
Distribution Group.

On October 1, 2004, RTI acquired all of the stock of Claro Precision, Inc.,
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
agreement provides for an adjustment to a target equity of $9.7 million based on
the finalization of a closing balance sheet at the date of closing.

The purchase was made with available cash on hand and newly issued common
stock. The results of operations are included in the quarter beginning October
1, 2004 (date of purchase). Claro operates and reports under the Company's
Fabrication and Distribution segment. Claro Precision, Inc., is a manufacturer
of precision-machined components and complex mechanical and electrical
assemblies for the aerospace industry.

INDUSTRY OVERVIEW

Titanium is one of the newest specialty metals. Its physical
characteristics include high strength-to-weight ratio, high temperature
performance and superior corrosion and erosion resistance. The first major
commercial application of titanium occurred in the early 1950's when it was used
in components in aircraft gas turbine engines. Subsequent applications were
developed to use the material in other aerospace component parts and in airframe
construction. Historically, a majority of the U.S. titanium industry's output
has been used in aerospace applications. However, in recent years similar
significant quantities of the industry's output are used in nonaerospace
applications, such as the global chemical processing industry, oil and gas
exploration and production, geothermal energy production, consumer products and
non-aerospace military applications.

Weak U.S. and global economies, the terrorist attacks of September 11,
2001, the ongoing conflicts in the Middle East, and the worldwide outbreak of
Severe Acute Respiratory Syndrome ("SARS") had a significant adverse effect on
the overall titanium industry through 2003. Beginning in 2004, however the world
economies began to improve. Air traffic demand rose significantly (12.5%) in the
commercial aircraft segment and defense spending continued to grow, leading to a
rebound in the demand for titanium and speciality metal products.

COMMERCIAL AEROSPACE AND DEFENSE

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
approximately 65% of titanium consumption. The Company's sales to this market
represented 35% of total sales in 2004 up from 27% in 2003 due to a greater
participation in the regional and business jet market with the acquisition of
Claro Precision in Canada completed in October 2004.

Due to reduced demand, Boeing and Airbus reduced their build rates for
large commercial aircraft to 586 planes in 2003, a 13.5% reduction from the
prior year. However, a turnaround began in 2004, with 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 is now producing the world's largest commercial aircraft, the A380,
and Boeing has launched the development of a new aircraft, the 787. In addition,
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. The commercial aerospace sector is
expected 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.

Defense markets represented approximately 30% of RTI's revenues in 2004.
The major programs that require extensive use of titanium in the jet engine and
airframe structure are fighter aircraft such as the F/A-22, F/A-18, F-15, Joint
Strike Fighter ("JSF"), and in Europe, the Mirage, Rafale, and
Eurofighter-Typhoon, and in military transports like the C-17 and A400M.
Military demand is expected to remain at high levels again in 2005 due to a
robust defense budget and significant hardware purchases by the U.S. Government
and European nations. It is estimated that global military demand for titanium
will increase to as much as 24% of the total titanium

2

market in 2005. RTI supplies products to all the programs mentioned above. The
company entered into a new agreement with BAE Systems in January 2005 to provide
value added flat rolled products for the Eurofighter aircraft through 2009.

Historically, the cyclical nature of the aerospace and defense industries
has been the principal cause of the fluctuations in performance of companies
engaged in the titanium industry. Over the past 20 years, U.S. titanium mill
products shipments registered cyclical peaks of 65 million pounds in 1997 to a
low of 32 million pounds in 1983. The U.S. titanium industry's reported
shipments were approximately 52 million pounds in 2000 and 2001, 36 million
pounds in 2002, 34 million pounds in 2003 and are estimated to be approximately
42 million pounds in 2004. Due to increased demand from commercial aerospace,
shipments are expected to grow further in 2005.

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. Therefore, titanium demand from commercial aerospace is likely to
precede any expected increase in aircraft production.

INDUSTRIAL AND CONSUMER

RTI manufactures and distributes high temperature and corrosion resistant
alloys such as titanium, stainless steel and nickel based alloys to the chemical
processing, oil and gas, power generation, and consumer markets for sports and
recreation industries. The Company also provides engineered and fabricated parts
and provides services to the oil and gas industry, including weld design,
fabrication repair, as well as materials engineering and testing services. It is
estimated that the global demand for non-aerospace markets industry-wide is
approximately 50% of the total mill product market.

As part of our commercial products operation, which supplied commercially
pure titanium products to various customers for use in industrial applications,
RTI's welded tubing operations were designated as discontinued in 2004 due to
our inability to obtain the necessary raw material in the form of rolled,
narrow-width skelp. RTI's normal supplier, Uniti Titanium, advised that it was
unable to meet orders due to insufficient titanium supplies from Russia. The
physical facilities, previously utilized for the production of welded tube, are
being used to support other areas of RTI's operations.

Industrial and Consumer markets provided approximately 35% of RTI's revenue
in 2004. In the energy market, the demand for RTI's products for oil and gas
deepwater exploration and production remained strong in 2004. This demand is
expected to grow over the next several years as a consequence of increased oil
and gas demand from deep water and hostile environments. The Company recently
announced that its Houston-based subsidiary, RTI Energy Systems, Inc., has been
selected to provide titanium stress joints to BP for its Shah Deniz project
located in the Caspian Sea, Azerbaijan.

PRODUCTS AND MARKETS

The Company's products are produced and marketed by two operating segments:
(1) the Titanium Group and (2) the Fabrication & Distribution Group (F&D).

The Titanium Group's products consist primarily of titanium mill products
and specialty alloys for use in the ferrous and nonferrous metals industries.
Such titanium mill products consist of basic mill shapes including ingot, slab,
bloom, billet, bar, plate and sheet. These products are sold to a customer base
consisting primarily of manufacturing and fabrication companies in the aerospace
and nonaerospace markets such as prime aircraft manufacturers and subcontractors
including metal fabricators, forge shops, machine shops and metal distribution
companies. Titanium mill products are semi-finished goods and most often
represent the raw or starting material for these customers, who then form,
fabricate, machine or further process them into finished or semi-finished parts.
A significant amount of titanium mill products are sold to the Company's
Fabrication & Distribution Group (65% in 2004) where value-added services are
performed for ultimate shipment to the customer. This Group also manufactures
titanium powders and sells specialty alloys used by the ferrous and nonferrous
metal industries. Included in this group are activities related to the Group's
former Extrusion Plant in Ashtabula, Ohio which was used to extrude spent
uranium under a contract with the Department of Energy (DOE) where, since 1993,
RTI has been the Prime Contractor to the DOE for the remediation and restoration
of the site.

3

The Fabrication & Distribution Group consists primarily of businesses
engaged in the fabrication and distribution of titanium and other specialty
metals such as stainless steel and nickel-based alloys in both the United States
and Europe. Such titanium mill products include alloy, plate, sheet and bar,
engineered tubular products, hot-formed and superplastically formed parts, cut
shapes, and various specialized cut-to-size programs. Included in this unit were
activities related to the now discontinued welded tubing operations. The
Fabrication unit extrudes numerous shapes and sizes of specialty metals for use
in aerospace and nonaerospace applications. The Energy unit fabricates
components such as connectors, subsea manifolds and riser systems which are used
in offshore oil and gas production. The Energy unit also designs and markets
offshore riser systems, stress joints and keel joints. The Distribution unit
operates a number of domestic metal distribution facilities, which stock and
deliver cut-to-size titanium products, as well as other specialty metals. The
RTI Europe business unit operates distribution facilities in Europe which stock
and deliver cut-to-size titanium products and other specialty metals.

In 2004 RTI expanded its capability to offer precision machining and
complex assemblies for the commercial aerospace sector through its acquisition
of Claro Precision, Inc. in Montreal, Canada.

The amount of sales and the percentage of the Company's consolidated sales
for continuing operations represented by each Group during each of the years
beginning in 2002 were as follows (dollars in millions):

Operating profit (loss) for continuing operations and the percentage of
consolidated operating profit contributed by each Group during each of the years
beginning in 2002 were as follows (dollars in millions):

The amount of the Company's consolidated assets identified with each Group
for each of the years ended December 31 were as follows (dollars in millions):

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

(1) Excludes $101 million, $91 million and $107 million of intercompany sales
primarily to the Fabrication and Distribution Group in 2004, 2003 and 2002,
respectively.

(2) Includes United States Department of Energy ("DOE") remediation and
restoration contract.

(3) Consists primarily of unallocated cash, short-term investments and deferred
tax assets.

(4) Excludes the effect of Discontinued Operations.

RTI SALES BY MARKET

4

TITANIUM GROUP

The Titanium Group produces a full range of titanium mill products which
are used in both the aerospace and nonaerospace markets.

Commercial Aerospace. The Group's products are certified and approved for
use by all major domestic and most international manufacturers of commercial
aircraft and jet engines. Products such as sheet, plate, bar, billet and ingot
are fabricated into parts and are utilized in aircraft structural sections such
as landing gear parts, fasteners, tail sections, wing support and carry-through
structures and various engine components including rotor blades, vanes, discs,
rings and engine cases.

According to The Airline Monitor, the leading manufacturers of commercial
aircraft, Airbus and Boeing, reported an aggregate of 2,589 aircraft under order
at the end of 2004, a 1.3% increase from the prior year. The backlog represents
approximately four years production at current build rates.

The Airline Monitor also reported deliveries of large commercial aircraft
by Airbus and Boeing totaling 605 planes for 2004 compared to 586 in 2003. They
project that deliveries will be 680 in 2005, 760 in 2006, 790 aircraft in 2007
and 815 aircraft in 2008.

According to Boeing and Airbus, the long term outlook for this segment over
the next 20 years is that over 21,000 large jets and 4,200 regional jets, as new
and replacement aircraft, will be required to support the expected demand of
increased passenger and freight traffic.

Defense. The Company's products are certified and approved for use by all
major and most international manufacturers of military aircraft and jet engines.
The various mill products are fabricated into parts and are utilized in aircraft
structural sections, wing skins, fasteners, wing carry-through structures and
various engine components including rotor blades, vanes, discs, rings and engine
cases, and armor for military vehicles. Product from this segment is utilized in
programs such as the C-17 military transport, fighter aircraft such as the
F/A-18, F-15, F-16, F/A-22, and the Joint Strike Fighter (F-35). Internationally
it is used on European fighters such as the Tornado, Mirage, Eurofighter, and
the A-400 transport.

Other. The remainder of the Group's revenue comes from sales of alloy
additions to the ferrous and non-ferrous industry and the Department of Energy.
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 demand is expected to be strong
again in 2005. The Group's former extrusion plant in Ashtabula, Ohio was used to
extrude uranium under a contract with the Department of Energy ("DOE") from 1962
through 1990. Since 1993, RMI has been the prime contractor to the DOE for the
remediation and restoration of the site. The Group recognized revenues of $5.5
million, $14.5 million, and $17.3 million, in 2004, 2003, and 2002,
respectively. 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.

FABRICATION & DISTRIBUTION GROUP

Fabricated products include seamless and welded pipe, engineered tubular
products and extrusions for oil and gas exploration and production and
geothermal energy production industries. Fabricated products also include
hot-formed and superplastically formed parts, machined, assembled, and cut
shapes and extrusions for aerospace (commercial and defense) applications.

The Company owns and operates a number of distribution facilities, both
foreign and domestic. These centers stock titanium as well as other nonferrous
and ferrous metals to fill customer needs for smaller quantity and quick
delivery orders. These centers also provide cutting and light fabrication
services. In addition, four locations: St. Louis, Los Angeles, Birmingham,
England, and Villette, France, operate significant stocking and cut-to-size
programs designed to meet the needs of commercial aerospace, defense, and
industrial and consumer product customers for multi-year requirements.

The Fabrication & Distribution Group was the largest customer for RTI's
Titanium Group's mill products in 2004. Sales to F&D represented 65% of the
Titanium Group's mill product revenue.

5

In an effort to expand the fabrication and distribution business, the
Company made two strategic acquisitions during the fourth quarter of 1998. On
October 1, RTI acquired NCM of Solon, Ohio. NCM manufactured and distributed
high temperature and corrosion resistant alloys such as titanium, stainless
steel and nickel to the aerospace, chemical processing, oil exploration and
production, and power generation industries. In addition to the manufacturing
facilities acquired as part of the NCM capital stock acquisition, the Company
built and installed a 5,000 ton press in leased space in Houston, Texas in late
2001.

Additionally, in order to enhance and further expand its already
significant efforts to develop new markets for titanium in the oil and gas
exploration and production and geothermal energy production industries, RTI
acquired the assets of Weld-Tech of Houston, Texas on October 1, 1998. RTI
Energy Systems (Weld-Tech), operating as part of the Energy unit of the
Fabrication & Distribution Group, provides engineering and fabrication services
to the oil and gas industry, including weld design, fabrication and repair, as
well as materials engineering and testing services. RTI increased its investment
in RTI Energy Systems with the addition of a machining center. This addition
expanded capabilities and provided additional fabrication services to its
expanding customer base in titanium and other specialty metals, as well as
various steels. RTI Energy Systems specializes in the design, engineering and
marketing of offshore riser systems, connectors, stress joints and drill pipe
made of titanium and other metals.

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.

EXPORTS

The majority of the Company's exports consist of titanium mill products and
extrusions used in aerospace markets. Also, significant exports to energy market
customers are beginning to occur as deepwater oil and gas exploration increases.
The Company's export sales were 20% of sales in 2004, 22% of sales in 2003, and
18% of sales in 2002. Such sales were made primarily to the European market,
where the Company is a leader in supplying flat-rolled titanium alloy mill
products. Most of the Company's export sales are denominated in U.S. dollars,
which minimizes exposure to foreign currency fluctuations.

The Company supplies flat-rolled titanium alloy mill products to the
European market, through RTI Europe, the Company's network of European
distribution companies, which secures contracts to furnish mill products to the
major European aerospace manufacturers. In order to enhance its presence in the
European market, in 1992 the Company acquired a 40% ownership interest in its
French distributor, Reamet. In 2000, RTI purchased the remaining 60% of Reamet.
In addition, the Company expanded its operations in the United Kingdom to
include a distribution and service center facility in Birmingham, England. RTI,
through its French subsidiary, Reamet, was chosen by Airbus as a major supplier
of titanium flat rolled products through 2008.

BACKLOG

The Company's order backlog for all market segments increased to $237.9
million as of December 31, 2004, up from $92.3 million at December 31, 2003,
principally from titanium mill product markets. Of the backlog at December 31,
2004, $36.8 million is not likely to be filled in 2005. The Company includes in
its backlog those orders from customers that are represented by a bona-fide
purchase order or an executable contract. In most cases, prior to the Company
incurring production cost to complete an order, a customer may cancel the order
without penalty. If the Company has incurred cost for a customer order the
customer is liable to reimburse the Company for out of pocket expenses. In the
case of certain high dollar RTI Energy System contracts the contract normally
provides for damages and fees based on particular milestones.

RAW MATERIALS

The principal raw materials used in the production of titanium mill
products are titanium sponge (a porous metallic material, so called due to its
appearance), titanium scrap, and alloying agents. RTI acquires its raw materials
from a number of domestic and foreign suppliers, under long-term contracts and
other negotiated transactions. The majority of sponge requirements are sourced
from foreign suppliers. Requirements for sponge and scrap vary depending upon
the volume and mix of final products. The Company's cold hearth melting facility

6

permits the Company flexibility to consume a wider range of metallics in its
primary melting facility, thus reducing the need for purchased titanium sponge.
Based on the current levels of customer demand, current production schedules,
and the level of inventory on hand, the Company estimates its purchases of
sponge and scrap will increase during 2005.

The Company has entered into two long-term sponge supply agreements. One of
the agreements is with a Japanese supplier and permits the Company to purchase
up to four million pounds of sponge per year through 2007, either at market
price or the price in effect under the contract plus changes in certain of the
supplier's costs. In addition, this contract permits the Company to purchase up
to an additional two million pounds of sponge at negotiated prices. The other
agreement is with a supplier from Kazakhstan and permits the Company to purchase
up to eight million pounds of sponge annually through 2006 at a fixed price.

In addition, the Company makes spot purchases of raw materials from other
sources. The Company believes it has adequate sources of supply for titanium
sponge, scrap, alloying agents and other raw materials.

Companies in the Fabrication & Distribution Group obtain the majority of
their titanium mill product requirements from the Titanium Group. These
transactions are priced at amounts approximating arm's length prices. Other
metallic requirements are generally sourced from the best available producer at
competitive market prices.

COMPETITION AND OTHER MARKET FACTORS

The titanium metals industry is highly competitive on a worldwide basis.
Titanium competes with other materials of construction, including certain
stainless steel, nickel-based high temperature, and corrosion resistant alloys,
and composites. A metal manufacturing company with rolling and finishing
facilities could participate in the mill product segment of the industry. It
would either have to acquire intermediate product from an existing source, or
further integrate to include vacuum melting and forging operations to provide
the starting stock for further rolling. In addition, many end use applications,
especially in aerospace, require rigorous testing and approvals prior to
purchase, which would require a significant investment of time and capital,
coupled with extensive technical expertise.

The aerospace consumers of titanium products tend to be highly
concentrated. The Boeing Company, Airbus, and Lockheed manufacture airframes.
General Electric, Pratt Whitney and Rolls Royce build jet engines. Through the
direct purchase from these companies and their families of subcontractors, these
companies and subcontractors consume most of the aerospace products. Shipments
of aerospace products represented approximately 72% in 2004 and 89% in 2003 of
RMI's mill product shipments of which 34% in 2004 and 50% in 2003 were used in
defense applications. Producers of titanium mill products are located primarily
in the U.S., Japan, Russia, Europe and China.

Competition for the Fabrication & Distribution Group is primarily on the
basis of price, quality, timely delivery and customer service. RTI Energy
Systems ("RTIES") competes with a number of other fabricators, some of which are
significantly larger, in the offshore oil and gas exploration and production
industry. However, the Company does not believe that any of these possess RTIES'
level of expertise in the use of titanium. The Company believes the businesses
in the Fabrication & Distribution group are well positioned to remain
competitive and grow in size due to the range of goods and services offered and
the increasing synergy with the Titanium Group for product and technical
support.

TRADE AND LEGISLATIVE FACTORS

Imports of titanium mill products from countries that receive the normal
trade relations ("NTR") tariff rate are subject to a 15% tariff. The tariff rate
applicable to imports from countries that do not receive NTR treatment is 45%.
However, under the Trade Act of 1974, as amended, certain countries may be
designated for tariff preferences under the Generalized System of Preferences
program ("GSP"). The U.S. Trade Representative ("USTR") administers the GSP
program and makes recommendations to the President through an interagency
committee that conducts annual reviews of petitions by interested parties, and
by self initiated actions, to add or remove GSP eligibility for individual
products or countries. Effective October 18, 1993, the USTR extended the
benefits of GSP treatment to Russia. Consequently, certain wrought titanium
products from Russia, including

7

sheet and plate, were granted duty free access into the U.S. markets, up to a
Competitive Needs Limit ("CNL"), which effectively restricts the volume of
imports of these products. Unwrought products from Russia, such as sponge and
ingot, were not granted GSP status.

In the fall of 1997, VSMPO, the integrated Russian titanium manufacturer,
petitioned the USTR for a waiver of the CNL on the wrought products, and also
filed a petition seeking to have unwrought products granted GSP status. The CNL
was actually exceeded by this producer in 1997, 1998, 1999, 2000, 2001, and
2003, but not for 2002. In July of 1998, the USTR granted the waiver of the CNL
on the wrought products, allowing unlimited imports of Russian mill products
into the domestic market. The petition from Russia on the unwrought products was
denied in the fall of 2003.

On December 3, 2002, Titanium Metals Corporation ("Timet") and RTI filed a
joint petition before the USTR seeking removal of GSP status for the Russian
wrought products and/or a reinstatement of the CNL. Allegheny Technologies
Incorporated actively supported this petition. In addition, a sponge
manufacturer from the Commonwealth of Independent States also filed a petition
on December 2, 2002, seeking GSP status of unwrought titanium products from
Kazakhstan. RTI supported the granting of this petition. Hearings on both of
these petitions were held in April of 2003 before the Court of International
Trade and the GSP Subcommittee. Subsequent to the hearings, in July of 2003, the
Kazakhstan petition on unwrought products was denied. Thus, a 15% tariff still
remains on unwrought titanium products entering the U.S., including titanium
sponge. The Timet/RTI petition concerning wrought products which was granted on
September 7, 2004 provided that effective November 7, 2004, wrought products
from Russia would have the 15% duty reinstated.

The United States Government is required by the Berry Amendment Specialty
Metals Clause of 1973 to require the use of domestically melted titanium in all
military procurement. Several waivers of this requirement were recently granted.
In addition, during the 2003 congressional legislative session, the Department
of Defense proposed legislation that would have amended the Berry Amendment and
allowed foreign sourced titanium to be used on military aircraft and other
military equipment. RTI, along with Timet and Allegheny Technologies, jointly
lobbied against any such modification of the law. If substantive waivers of this
type were to continue to be granted, or the requirements of the Berry Amendment
were to be modified, it could have a negative effect on future military
business, and would allow foreign titanium to be used on military aircraft. RTI
believes that improper waivers are harmful to national defense and, along with
other domestic companies, is challenging the granting of future waivers, as well
as any legislative attempt to weaken the Berry Amendment.

MARKETING AND DISTRIBUTION

RTI markets its titanium mill products and related products and services
worldwide. The majority of the Company's sales are made through its own sales
force primarily assigned to the F&D Group. RTI's domestic sales force has
offices in Niles, Ohio; Houston, Texas; Los Angeles, California; Indianapolis,
Indiana; Hartford, Connecticut; Salt Lake City, Utah, and also in Montreal,
Canada. Technical marketing personnel are available to service these offices and
to assist in new product applications and development. In addition, the
Company's Customer Technical Service and Research and Development departments,
both located in Niles, Ohio, provide extensive customer support. Sales of
products and services provided by companies in the Fabrication & Distribution
Group are made by personnel at each plant location as well as a group level
sales force. Fabrication & Distribution Group locations include: Hartford,
Connecticut; Montreal, Canada; Indianapolis, Indiana; Los Angeles, California;
Houston, Texas; Sullivan and Washington, Missouri; Birmingham, England;
Villette, France; Dusseldorf, Germany; Milan, Italy; and Guangzhou, China.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT

The Company conducts research, technical and product development activities
for the Titanium Group, as well as for other RTI subsidiaries, at its facilities
in Niles, Ohio. The Company is conducting research for the U.S. Army and has
entered into discussions with both the U.S. Army and Department of Defense on
other research projects. The principal goals of the Company's research program,
aside from U.S. Army and Department of Defense projects, are advancing technical
expertise in the production of titanium mill and fabricated products and
providing technical support in the development of new markets and products.
Research, technical and product development costs borne by the Company totaled
$1.2 million in 2004, $1.3 million in

8

2003 and $1.2 million in 2002. Additional development activities conducted at
customer expense (not included above) totaled $0.3, $0.2 and $0.3 for 2004, 2003
and 2002, respectively.

PATENTS AND TRADEMARKS

The Company possesses a substantial body of technical know-how and trade
secrets and owns a number of U.S. patents applicable primarily to product
formulations and uses. The Company considers its expertise, trade secrets and
patents important to conduct its business, although no individual item is
considered to be material to the Company's current business.

EMPLOYEES

As of December 31, 2004, the Company and its subsidiaries employed 1,185
persons, 383 of whom were classified as administrative and sales personnel. 613
of the total number of employees were in the Titanium Group, while 572 were
employed in the Fabrication & Distribution Group.

The United Steelworkers of America represents 332 of the hourly, clerical
and technical employees at RMI's plant in Niles, Ohio and 2 hourly employees at
RMI Environmental Services in Ashtabula, Ohio. No other Company employees are
represented by a union.

The Labor Agreement with the United Steel Workers at the Niles, Ohio
facility expired on October 15, 2003. The contract was extended twice as local
management and the union negotiated the terms of a new contract. On October 25,
2003 union members voted to reject management's final proposal and a work
stoppage commenced. Non-represented employees operated the plant until an
agreement was reached December 1, 2004. The new contract provides for job
combinations, changes in health care coverage and pension benefits for new
employees and other cost savings measures. It includes a two year wage freeze
with modest increases in wages and pensions thereafter. The new contract expires
January 31, 2010.

EXECUTIVE OFFICERS OF THE REGISTRANT

Listed below are the executive officers of the Company, together with their
ages and titles as of December 31, 2004.

Mr. Rupert was elected President and Chief Executive Officer in July 1999.
He had served as Executive Vice President and Chief Financial Officer since June
of 1996 and Vice President and Chief Financial Officer since September 1991. He
is also a Director of the Company.

Mr. Odle was elected Executive Vice President in June 1996. He previously
was Senior Vice President-Commercial of RMI and its predecessor since 1989 and
served as Vice President-Commercial from 1978 until 1989. Prior to that, Mr.
Odle served as General Manager-Sales. He is also a Director of the Company.

Mr. Jacobs was elected Vice President, Chief Financial Officer, and
Treasurer in July 1999, having served as Vice President and Treasurer since
March 1998. Mr. Jacobs had been Senior Vice President of PNC Bank, N.A. in
Pittsburgh, Pennsylvania, where he was the segment executive for the bank's
metal industry clients.

Mrs. Hickton was elected Vice President and General Counsel in June 1997.
She was elected Secretary in April, 2004. Mrs. Hickton had been an Assistant
Professor of Law at The University of Pittsburgh School of Law and was
associated with the Pittsburgh law firm of Burns, White and Hickton.

Mr. Berkstresser was elected Vice President and Controller in October 1999.
Mr. Berkstresser joined RTI in February 1999 as Group Controller of the
Fabrication and Distribution Group. Prior to that, he was Senior Vice

9

President Finance and Administration of ERI Services Inc., a wholly owned
subsidiary of Equitable Resources Inc. Formerly, he worked for Aristech Chemical
Corporation, Pittsburgh, Pennsylvania. Mr. Berkstresser is a Certified Public
Accountant.

AVAILABLE INFORMATION

Our Internet address is www.rtiintl.com. We make available, free of charge
through our website, our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such documents are
electronically filed with or furnished to the SEC. All filings are available via
the Securities and Exchange Commission's website, the Internet address of which
is www.sec.gov.

ITEM 2. PROPERTIES

MANUFACTURING FACILITIES

The Company has approximately 1.3 million square feet of manufacturing
facilities, exclusive of distribution centers and office space. The Company's
principal manufacturing plants, the principal products produced at such plants
and their aggregate capacities, are set forth below.

MANUFACTURING FACILITIES

The Company leases the facilities in Sullivan, Missouri; Houston, Texas;
Los Angeles, California; Hartford, Connecticut; Birmingham, England; Montreal,
Quebec, Canada; and certain buildings and property at Washington, Missouri,
Canton, Ohio and Guangzhou, China. All other facilities are owned. The plants
have been constructed at various times over a long period, many of the buildings
have been remodeled or expanded and additional buildings have been constructed
from time to time.

10

CONVERSION SERVICES

The Company utilizes third-party converters to sonic test, anneal,
condition, bloom or finish approximately 55% of its mill products. The use of
these converters raises the Company's effective processing capacity. Certain
mill products, such as hot band and cold rolled strip and oversized plate, are
finished entirely by such converters using semi-finished titanium mill products
supplied by outside sources. However, the Company is responsible for inspecting
and delivering these products to customers. The Company maintains long-term
relationships with many of these conversion companies. The Company believes
that, if necessary, it could provide these products by utilization of other
methods and sources of conversion, or in the case of certain commercially pure
products, obtain them in the open market.

ITEM 3. 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. 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. There are currently no material
pending or threatened claims against the Company, other than the environmental
matters discussed below.

ENVIRONMENTAL

The Company is subject to federal, state and local laws and regulations
concerning environmental matters. During 2004, 2003, and 2002, the Company spent
approximately $1.2 million, $1.0 million and $1.1 million, respectively, for
environmental remediation, compliance, and related services.

Active Investigative or Cleanup Sites. The Company is involved in
investigative or cleanup projects at certain waste disposal sites, including
those discussed below.

Fields Brook Superfund Site. The Company is involved in a superfund site
known as Fields Brook in Ashtabula, Ohio. Cleanup was completed in 2002. The
Company estimates its share of the remaining Operation, Maintenance and
Monitoring work to cost $0.2 million. The Company has accrued an amount for this
matter. See Note 17 to the consolidated financial statements.

Resource Conservation and Recovery Act ("RCRA") Proceedings-Ashtabula
Sodium Plant. In October 2003, the Company completed Ohio EPA-required repair
of the closed landfill cap. Future monitoring and maintenance work is estimated
at $0.02 million annually. The Company has accrued an amount for this matter.
See Note 17 to the consolidated financial statements.

Ashtabula River. The Ashtabula River Partnership ("ARP"), a group of
public and private entities including, among others, the Company, the EPA, the
Ohio EPA, and the U.S. Army Corps of Engineers was formed to bring about the
navigational dredging and environmental restoration of the river. The ARP has
issued a Comprehensive Management Plan with an estimated cost of $48 million.
The ARP expects to obtain funding at a level of approximately 65% from the
federal government under the Great Lakes Legacy Act and the Water Resources
Development Act, plus $7 million pledged by Ohio. In 2004, the Company joined
thirteen other companies to reorganize as the Ashtabula River Cooperating Group
II (ARCG II), which collectively agreed on a cost allocation, in order to fund
the private share of the work. In addition, the ARCG II, and others, have
received a notice of claim for Natural Resource Damages to the River and the
amount of that claim remains to be negotiated with the Natural Resource
Trustees. The Company has accrued an amount for this matter based on its best
estimate of its share of the currently proposed remediation plan. See Note 17 to
the consolidated financial statements.

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.

11

At December 31, 2004 the amount accrued for future environmental-related
costs was $3.8 million. Of the total amount accrued at December 31, 2004, $0.6
million is expected to be paid out during 2005 and is included in the other
accrued liabilities line of the balance sheet. The remaining $3.2 million is
recorded in other non current liabilities.

Based on available information, RMI believes that its share of potential
environmental-related costs is in a range from $2.9 to $7.7 million in the
aggregate. The company has included in its other noncurrent assets $2.2 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 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 it 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 its
contractual obligation.

Reserve Environmental Services Landfill. In 1998 the Company and eight
others entered into a Settlement Agreement regarding a closed landfill near
Ashtabula Ohio known as Reserve Environmental Services (RES). USEPA recently
issued a consent decree to RES and it appears final design will occur in 2005
and remediation in 2006 and 2007. The Company estimates its share of the expense
to be $0.4 million and has accrued an amount for this matter based on its best
estimate of its share of the currently proposed remediation plan.

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

None.

12

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK DATA:

Principal market for common stock: New York Stock Exchange

Holders of record of common stock at March 15, 2005: 778

RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK FOR 2004

RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK FOR 2003

The Company has not paid dividends on its common stock. The declaration of
dividends is at the discretion of the Board of Directors of the Company. The
declaration and payment of future dividends and the amount thereof will be
dependent upon the Company's results of operations, financial condition, cash
requirements for its business, future prospects and other factors deemed
relevant by the Board of Directors.

The Company did not repurchase any common stock in 2004 and 2003 except for
those shares repurchased as part of the executive compensation tax liabilities
for shares awarded under the 1995 stock plan. Common stock repurchased to
satisfy tax liabilities in 2004 and 2003 equaled 19,275 and 57,489 shares
respectively. The shares repurchased were acquired in accordance with the 1995
stock plan which requires shares of this nature to be purchased at the average
of the days high and low price on the New York Stock Exchange.

13

ITEM 6. SELECTED FINANCIAL DATA

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

(1) Includes the effect of an approximately $9 million gain for settlement of a
contractual claim.

(2) Includes the effect of an approximately $1 million gain from the sale of one
of the Company's Ashtabula, Ohio facilities previously used for storage.

(3) Includes the effect of an approximately $8 million gain from the settlement
of a contractual claim.

(4) Includes the effect of an approximately $7 million gain from the settlement
of a contractual claim and a $2.1 million gain resulting from the sale of
common stock received by the Company in connection with the demutualization
of one of its insurance carriers.

(5) Includes the effect of an approximately $6 million gain from the settlement
of a contractual claim and a $5.2 million gain related to a stock
distribution to the Company in connection with the demutualization of one of
its insurance carriers in which it was a participant.

(6) Includes the effect of an approximately $6 million gain from the settlement
of a contractual claim.

ITEM 7. 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 "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

14

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 activities, 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, copies
of which are available from the SEC or may be obtained upon request from the
Company.

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 annual
report on Form 10-K. Based upon that evaluation, including all matters discussed
in Item 9A below, they have concluded that as of December 31, 2004, the
Company's disclosure controls and procedures were not effective in ensuring that
all material information required to be filed in reports that the Company files
with the Securities and Exchange Commission ("SEC") is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC. In light of the deficiencies described in Item 9A below, the Company
performed additional post-closing procedures to ensure its consolidated
financial statements are prepared in accordance with generally accepted
accounting principles. Accordingly, management believes that the financial
statements presented in Item 8 below which form the basis of this discussion and
analysis fairly present, in all material respects, the Company's financial
condition, results of operations and cash flows for the periods presented.

OVERVIEW

RTI International Metals, Inc. conducts its operations in two segments: the
Titanium Group and the Fabrication & Distribution Group. The Titanium Group,
with primary operations in Niles, Ohio and Canton, Ohio, has overall
responsibility for the production of primary mill products including, but not
limited to, bloom, billet, sheet and plate. This Group also focuses on the
research and development of evolving technologies relating to raw materials,
melting and other production processes and the application of titanium in new
markets. F&D, with operations located throughout the U.S., Europe and Canada and
representative offices in Germany, Italy and China, concentrates its efforts on
maximizing its profitability by offering value-added products and services such
as engineered tubulars and extrusions, fabricated and machine components and
sub-assemblies, as well as engineered systems for energy-related markets,
accessing the Titanium Group as its primary source of mill products.
Approximately 65% of the Titanium Group's sales in 2004 were to F&D.

While 35% of RTI's sales in 2004 were directed to the commercial aerospace
market, approximately 50% of all U.S. titanium production is shipped to this
segment. In 2004, the world economies began to improve, air traffic demand rose
significantly (12.5%) in the commercial aircraft segment and defense spending
continued to grow, leading to a rebound from 2003 in the demand for titanium and
speciality metal products.

An agreement with the United Steelworkers of America ("USWA") expired on
October 15, 2003 at the Company's Niles, Ohio facility where the Union
represents 357 hourly and clerical workers. After two extensions and a union
rejection vote on October 25, 2003 a work stoppage commenced and non-represented
employees began operating the facility. Non-represented employees operated the
facility until a new 62-month agreement was reached on December 1, 2004.

The diversification offered by F&D has allowed management to de-emphasize
commodity titanium products and move the Company up the value chain, as well as
pursue growth opportunities through acquisitions. Supply chain management is a
capability that is becoming more important in F&D's targeted markets and RTI
intends to enhance this core competency.

Much of the deployed capital within RTI relates to inventory, primarily
work-in-process, necessitated by the nature of processing titanium to demanding
metallurgical and physical specifications. However, significant

15

investments in raw materials, such as titanium sponge and master alloys, have
also been made in order to insure uninterrupted supply and to accommodate surges
in demand. As a result, management has put in place various goals aimed at
optimizing inventory levels, thereby freeing cash resources to be invested in
other areas of the company.

In conjunction with the close monitoring of our working capital position,
an emphasis is also made on capital expenditures. It is not the intent of
management to match these with depreciation expense but rather identify those
opportunities that will result in the highest return to our shareholders. Over
the past few years, capital outlays have been less than depreciation however, in
2004 the company acquired RTI Claro for the sum of $23.6 million plus 358,908
shares of RTI stock. The cash position at the year end 2004 stood at $62.7
million against $67.9 million at 2003. As for the ultimate disposition of this
cash, the RTI Board of Directors regularly considers such options as dividends,
stock repurchases in excess of an approved $15 million program, acquisitions or
strategic combinations. Given the uncertainty and competitive pressures in the
current marketplace, as well as the Company's growth strategy, management
believes that a net cash position with no long-term debt is currently the most
desirable capital structure.

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 19, 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.

At December 31, 2004 the Company impaired certain Tube Mill assets and
provided for certain contingencies which resulted in an after tax charge of $0.7
million. This charge and the required balance sheet adjustments were reflected
in the net loss from discontinued operations for the period ended December 31,
2004.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
(Dollars in millions)

NET SALES

16

Titanium Group

Sales for the Company's Titanium Group amounted to $154.8 million,
including intercompany sales of $101.2 million, in the year ended December 31,
2004 compared to $147.9 million, including intercompany sales of $91.2 million,
in the same period of 2003. The increase in sales of $6.9 million or an increase
of 5% was mainly due to an increase in mill product shipments of 445 thousand
pounds. Shipments in 2004 of mill products were 5.4 million pounds versus the
year ago period of 4.9 million pounds. The increase in shipments was due to
higher levels of bloom and sheet sales from the year ago period and resulted in
increased revenue of approximately $2.6 million. Increased demand from the steel
industry for ferro titanium and increased intercompany shipments of electrodes
generated $12.2 million in increased revenue. The termination of the Company's
contract with the U.S. Department of Energy resulted in reduced revenues of
$(7.9) million.

Sales for the Company's Titanium Group amounted to $147.9 million,
including intercompany sales of $91.2 million, in the year ended December 31,
2003 compared to $196.7 million, including intercompany sales of $107.8 million,
in the same period of 2002. The Group's 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 flat rolled products.
Shipments of titanium mill products were 5.9 million pounds in the year ended
December 31, 2003, compared to 10.0 million pounds for the same period in 2002.
Averaged realized prices increased to $15.95 per pound compared to the same
period in 2002 of $14.96 per pound. The net effect of the reduced mill shipments
offset by increased prices was $(46.0) million. Revenue was lower at the groups
RMI environmental services business based as a result of reduced remediation
activity by $(2.2) million.

Fabrication and Distribution Group

Sales in F&D amounted to $193.0 million, including intercompany sales of
$32.0 million in the year ended December 31, 2004 compared to $148.9 million
including intercompany sales of $10.6 million in the same period in 2003. The
increase of $44.1 million or 30% reflected increased customer demand for smaller
quantity lots and custom sizes from the several distribution centers throughout
the country. Small quantity and custom size lots resulted in increased revenue
of $16.5 million. Sales through the Group's European outlets were increased $5.0
million and the Company's acquisition of Claro Precision, Inc., added $4.0
million. Sales from the Group's fabrication units primarily through intercompany
channels added $20.0 million in increased revenue from the year ago period.

Sales through F&D amounted to $148.9 million, including intercompany sales
of $10.6 million in the year ended December 31, 2003 compared to $181.4 million
including intercompany sales of $12.3 million in the same period in 2002. The
decrease of $32.5 million or 18% was a result of reduced demand from aerospace
customers in both the United States and Europe. Of the decrease of $32.5 million
approximately 78% was reduced revenue in the United States and 22% in Europe.

GROSS PROFIT/(LOSS)

Titanium Group

Gross profit/(loss) decreased to a $(0.1) million loss in 2004 from a gross
profit of $7.8 million in 2003 or a change of $7.9 million. Reduced prices on
mill products net of mix effects resulted in a reduction in product margins of
$3.0 million. Prices were reduced from the year ago period by over $2.00 per
pound as prices dropped to an average of $14.59 from the prior period of $16.91
per pound. The reduced prices were partially due to the effect of lower price
mix of goods sold. Inventory reductions in LIFO inventories resulted in
increased cost of sales of $1.2 million; increased metallics costs equaled $1.0
million and the effect of the contract cancellation

17

with the DOE resulted in reduced gross profits of $2.3 million. Other cost
increases of $0.3 million included increased healthcare and pension costs.

Gross profit decreased to $7.8 million in 2003 from a gross profit of $22.7
million in 2002 or a change of $14.9 million. The decrease in gross profit was a
result of a reduction in mill product shipments of 4.1 million pounds. The
reduced titanium shipment level necessitated temporary production outages as the
Company's Niles, Ohio facility maintained inventory balances in line with lower
shipment levels. The reduced shipment level occurred primarily in heavy shapes
as demand for these products from forging companies for use in commercial
aircraft and certain industrial applications fell.

Fabrication and Distribution Group

Gross profit increased to $26.2 million in 2004 from a gross profit of
$22.0 million in 2003 or a favorable change of $4.2 million. Most of the
favorable change was a result of increased revenues in the Group's Distribution
Businesses as a 25% increase in revenue from these businesses resulted in
improved margins of $5.4 million. The Company made a Canadian acquisition in the
fourth quarter which increased gross profit by $0.4 million. The effect of
reduced revenues for energy projects of $2.4 partially offset the Distribution
Business and Canadian improvements.

Gross profit decreased to $22.0 million in 2003 from a gross profit of
$25.8 million in 2002 or an unfavorable change of $3.8 million. The unfavorable
change of 15% was due to the Group's Energy business in 2002 concluding work on
a major project that provided significantly higher margins in 2002. The
reduction in Energy caused a reduction in gross profits of 4%. Reduced demand
from aerospace customers in the United States and Europe resulted in a reduction
of gross profits by approximately 5%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Titanium Group

Selling, general and administrative expenses, increased $0.8 million in
2004 from the same period in 2003. The increase was primarily due to the
Company's cost associated with the implementation of the Sarbanes-Oxley Act,
Section 404 (SOX 404) which amounted to $2.6 million. Partially offsetting the
increased expense was the effect of the elimination of most SG&A activities at
the Group's Ashtabula site which had been notified in December of 2003 that the
DOE contract was being terminated by the DOE for convenience and reduced legal
and rent expenses. It is not known at this time what role, if any, RMI will play
in the balance of the cleanup although discussions are ongoing. The reduction of
the Ashtabula SG&A expenses equaled $1.3 million and the legal and rent expenses
amounted to $0.5 million.

Selling, general and administrative expenses, decreased $2.8 million in
2003 from the same period in 2002. The decrease reflected a reduction in
corporate overhead charges that are allocated based on a formula which among
several factors includes sales as a percent of the total Company. The larger
percentage reduction in sales from 2002 to 2003 resulted in a lower amount of
Corporate costs charged to the Titanium Group and a correspondingly higher
amount charged to the Fabrication and Distribution Group.

Fabrication and Distribution Group

SG&A increased $7.8 million in 2004 from 2003 in the F&D group. The
increase was primarily due to the implementation of SOX 404 resulting in
increased expenses in the group of $3.9 million. The group, primarily the
distribution business, experienced significant growth in sales resulting in the
addition of additional personnel, increased compensation and increased overhead
equaling $1.8 million. The Company acquired a Canadian

18

company in the fourth quarter of 2004, expanded sales and marketing efforts into
mainland China during the year and increased its sales and marketing efforts in
energy, and Europe resulting in increased expenses of $2.1 million.

Selling, general and administrative expenses, increased $1.7 million in
2003 from the same period in 2002 as a result of the allocation issue described
in the Titanium Group. Additionally, the increase was partially offset as
certain depreciation expense previously recorded in SG&A in 2002 was
reclassified to cost of sales and bad debt expense was $0.2 million higher in
2002 than in 2003.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES

Additional development activities conducted at customer expense (not
included above) totaled $0.3, $0.2 and $0.3 for 2004, 2003 and 2002,
respectively.

Titanium Group

There was no change in expenses for the group in 2004, 2003 or 2002.

Fabrication and Distribution Group

In 2004 the group did not incur expenses related to R&D, which represented
a decrease of $0.1 million from the prior year 2003. R&D expenditures in this
group are primarily in the energy business area. The decrease in 2004
represented the completion of an R&D project in the energy business in 2003.

The change in R&D expenditures from 2003 to 2002 represented an Energy
business project completed in 2003.

OTHER OPERATING INCOME

Titanium Group

Other operating income decreased $0.5 million in 2004 from the same period
in 2003. The decrease was a result of a gain recorded in 2003 of $1.0 million on
the sale of certain buildings at the Company's Ashtabula facility. In 2004 the
Company sold its site in Salt Lake City, Utah and recorded a gain of $0.4
million.

Other operating income increased $1.0 million in 2003 from the same period
in 2002. The increase was a result of the net gain on a sale lease back of
certain buildings and land at the Company's Ashtabula, Ohio facility.

Fabrication and Distribution Group

The group did not have any activity in other operating income for the
periods reported.

19

OPERATING (LOSS) INCOME

Titanium Group

Operating losses increased in 2004 to a loss of $(11.0) million from a loss
of $(2.0) million in 2003. The increase of $9.0 million in loss was a result of
reduced selling prices on product of $3.0 million, LIFO inventory liquidations
of $1.2 million, increased metallics cost of $1.0 million and the effect of the
DOE contract cancellation in 2004 of $2.3 million. Additional expenses for
healthcare and pension expense resulted in an increase in expenses of $0.3
million. SG&A expenses were increased by $0.8 million primarily related to
application of SOX 404 net of reduced expenses from the DOE contract termination
and reduced legal and rent expenses.

Operating losses in 2003 equaled $(2.0) million in 2003 compared to a
reported income in 2002 of $11.0 million or a change of $(13.0) million
unfavorable. The unfavorable change reflects a decrease in mill product
shipments due to a decline in forged mill products demand from the commercial
aerospace market, partially offset by a $1.0 million gain on the sale of one of
the Company's Ashtabula, Ohio facilities.

Fabrication and Distribution Group

Operating losses in 2004 equaled $(3.5) million in 2004 compared to an
income in 2003 of $0.8 million or an unfavorable change of $(4.3) million. The
unfavorable change was due to an increase in SG&A expenses of $7.8 million
caused by the expenses associated with the implementation of SOX 404 of $3.9
million, increased compensation of $1.8 million and the expansion of marketing
efforts internationally and the acquisition of a Canadian Company which totaled
$1.4 million. Offsetting the increased SG&A was increased gross profits of $3.5
million primarily on increased revenues.

Operating income equaled $0.8 million in 2003 compared to operating income
of $4.4 million in 2002 or an unfavorable change of $3.6 million. The change was
due to weak demand for products sold to commercial aerospace and a reduction in
the profitability of the group's energy business principally due to timing of
the completion of long-term orders.

OTHER INCOME

Other income increased by $0.7 million in 2004 compared to the same period
in 2003. The increase was caused in part by an increase in the amount received
from Boeing for liquidated damages on a long-term contract.

Other income for the year ended December 31, 2003 was $8.9 million compared
to other income of $9.4 million in 2002 or an unfavorable change of $(0.5)
million. The unfavorable change was due to the receipt in 2002 of a $2.1 million
common stock distribution in connection with the demutualization of one of the
Company's insurance carriers. This amount was partially offset by the increase
in the amount received for liquidated damages from Boeing of $1.3 million.

INTEREST INCOME (EXPENSE), NET

20

Interest income/(expense), net changed $0.3 million favorable as interest
income of $0.1 million was recorded in 2004 compared to interest expense in 2002
of $(0.2) million. The favorable change was the result of interest income earned
on cash balances in excess of bank fees incurred on the unused capacity of the
Company's credit revolver.

Interest income/(expense), net changed $0.2 million favorable as interest
expense of $(0.2) million was recorded in 2003 compared to interest expense in
2002 of $(0.4) million. 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 (BENEFIT) EXPENSE

Income tax benefit for 2004 was $2.6 million compared to $2.8 million in
expense for the same period in 2003. The effective income tax rate in 2004 was
55% compared to a rate of 37% in 2003. The rate was increased as a result of
adjustments of prior year taxes from three sources: normal revisions in
estimates from filing 2003 tax returns; tax reserve adjustments related to a
reassessment of potential exposures identified in prior years, and adjustments
to certain deferred tax assets and liabilities and the release of current
liabilities identified in reconciling deferred tax temporary differences.

Income taxes decreased by $6.5 million as a result of a decrease in pretax
income and a decrease of 1% in the effective tax rate. The effective income tax
rate in 2003 was 37% compared to a rate of 38% in 2002. The rate was reduced as
a result of the net effect of a reduction in the amount of estimated tax
provision for previously recorded federal income taxes.

(LOSS) 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. The Company recorded a $(0.8)
million net of tax expense in 2004 compared to breakeven results net of tax in
2003. The breakeven results net of tax in 2003 is a presentation of the prior
years effect of the tubing operations. The unfavorable change of $(0.8) million
was the result of a net of tax loss on disposal of $(0.7) million and an
unfavorable change in net of tax income of $(0.1) million.

The favorable change of $0.1 million in net of tax income as restated
reflects the change from a net of tax loss in 2002 of $(0.1) million to a
breakeven result net of tax in 2003.

NET (LOSS) INCOME

Net income (loss) changed unfavorably by $(7.7) million in 2004 compared to
the same period in 2003. The net loss of $(3.0) million in 2004 represented 1.4%
of sales compared to a net profit of $4.7 million in 2003 or 2.4% of sales.

Net income changed unfavorably by $(10.4) million in 2003 compared to the
same period in 2002. Net income of $4.7 million in 2003 or 2.4% of sales
compares to net income of $15.1 million in 2002 or 5.9% of sales.

21

OUTLOOK

OVERVIEW

Beginning in 2001, a confluence of events including the weak U.S. and
global economies, combined with the terrorist attacks of September 11, followed
by ongoing conflicts in the Middle East and the worldwide outbreak of Severe
Acute Respiratory Syndrome ("SARS"), had a significant adverse affect 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 rebound in the demand for titanium and speciality metal products.

According to the U.S. Geological Survey, U.S. shipments of titanium mill
products declined from a high of approximately 65 million pounds in 1997 to
approximately 34 million pounds in 2003. The Company believes shipment levels in
2004 increased due to an inventory replenishment cycle along with improved
demand in all market segments, and expect U.S. shipments to reach approximately
42 million pounds in 2005. Aircraft manufactures, 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 the Company's belief 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
approximately 65% of titanium consumption. The Company's sales to this market
represented 35% of total sales in 2004, up from 27% in 2003 due to a greater
participation in the regional and business jet market with the acquisition of
Claro Precision, Inc. in Canada which was completed in October, 2004.

Due to reduced demand, Boeing and Airbus reduced their build rates for
large commercial aircraft to 586 planes in 2003, a 13.5% reduction from the
prior year. However, a turnaround began in 2004, with 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 is now producing the world's largest commercial aircraft, the A380,
and Boeing has launched a new composite and titanium aircraft, the 787. In
addition, 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 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 agreement with Boeing on January 28, 1998.
Under this agreement, RMI agreed to supply Boeing and its family of commercial
suppliers with up to 4.5 million pounds of titanium products annually. The
agreement, which began in 1999, had an initial term of five years and concluded
at the end of 2003. Under the accord, Boeing received firm prices in exchange
for RMI receiving a minimum volume commitment of 3.25 million pounds per year.
If volumes fell short of the minimum commitment, the contract contained
provisions for financial compensation. In accordance with the agreement, and as
a result of volume shortfalls in 1999, 2000, 2001, 2002 and 2003, 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. Boeing ordered 0.4 million pounds in 2003, the final
year of the contract, and accordingly, the Company received a payment of $9.1
million in March 2004 when Boeing satisfied the final claim under the contract.
Beginning in January of 2004, business between the companies not covered by
other

22

contracts 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
continue 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 a percent of
total sales in 2005 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 any increase in 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") and in Europe,
the Mirage, Rafale and Eurofighter-Typhoon.

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 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 5,000 planes
over the life of the program. 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.

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.

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. 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.

INDUSTRIAL AND CONSUMER MARKETS

35% of RTI's 2004 revenues were generated in various industrial and
consumer markets where business conditions are expected to experience increased
demand over the next twelve months due to the demand for oil and gas products in
the deep water and more hostile environments. Revenues from oil and gas markets
are expected to be increased in 2005 and beyond due to continued activity in
deep water projects.

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.

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

23

needed to deal with the strong currents in the development area. Fabrication
will begin in 2005 and shipments will be made over the next 10-14 months.

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 demand is expected to be strong
again in 2005.

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 and beyond as economic conditions continue to show
improvement.

BACKLOG

The Company's order backlog for all market segments increased to $237.9
million as of December 31, 2004, up from $92.3 million at December 31, 2003,
principally from titanium mill product markets. The 158% increase in the
backlog, is primarily due to increased demand from the aerospace industry. Of
the backlog at December 31, 2004, $36.8 million is not likely to be filled in
2005. The Company includes in its backlog those orders from customers that are
represented by a bona-fide purchase order or an executable contract. In most
cases, prior to the Company incurring production cost to complete an order, a
customer may cancel the order without penalty. If the Company has incurred cost
for a customer order the customer is liable to reimburse the Company for
out-of-pocket expenses. In the case of certain high dollar energy contracts the
contract normally provides for damages and fees based on particular milestones.

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 provided by operating activities

The decrease in net cash flows from operations for the year ended December
31, 2004 compared to the year ended December 31, 2003 primarily reflects a
decrease in net income of $7.7 million due to a decline in business operating
results as mentioned in the "Results of Operations" section of Management's
Discussion and Analysis. The remainder of the decrease is primarily due to a
decrease in cash generated from reductions in working capital and other balance
sheet line items. The most significant items driving the decrease in cash
generated from changes in working capital and other balance sheet line items
when comparing 2004 to 2003 are accounts receivable, inventory and the liability
for billings in excess of costs and estimated earnings. Changes in accounts
receivable decreased cash generated as billings exceeded cash collections in
2004 compared to 2003. The increase in billings reflects an improvement in
market conditions in the last quarter of 2004 compared to 2003. Changes in
inventory levels generated cash as the value of shipments exceeded purchases in
2004. Changes in the liability for billings in excess of costs and estimated
earnings generated less cash in 2004 than in 2003 as it decreased due primarily
to the Company fulfilling obligations and recognizing revenue relating to
advanced payments on long-term orders.

The decrease in net cash flows from operations for the year ended December
31, 2003 compared to the year ended December 31, 2002 primarily reflects a
decrease in net income of $10.4 million due to decline in business operating
results as mentioned in the "Results of Operations" section of Management's
Discussion and Analysis. The remainder of the decrease is primarily due to a
decrease in cash generated from reductions in working capital and other balance
sheet line items. The most significant items driving the decrease in cash
generated from changes in working capital and other balance sheet line items
when comparing 2003 to 2002 are accounts

24

receivable, inventory and the liability for billings in excess of costs and
estimated earnings. Changes in accounts receivable generated cash as cash
collections exceeded billings in 2003. The decrease in billings reflected the
general decline in the commercial aerospace industry though the decrease was
greater in 2002. Changes in inventory levels also generated cash as the value of
shipments exceeded purchases in both 2003 and 2002, as a result of management's
efforts to match inventory levels to the decline in business, though the
decrease was greater in 2002. Changes in the liability for billings in excess of
costs and estimated earnings generated less cash in 2003 than in 2002 as it
increased due to the Company receipt of cash payments in advance of work
completed on additional long-term orders.

The Company's working capital ratio was 8.2 to 1 and 7.8 to 1 at December
31, 2004 and 2003, respectively.

Cash used in investing activities

Gross capital expenditures for the year ended December 31, 2004 amounted to
$5.8 million compared to $5.4 million in 2003 and $7.6 million in 2002. In all
periods, capital spending primarily reflected equipment additions and
improvements as well as information systems projects. Partially offsetting the
capital expenditures in 2004 were proceeds of $.5 million relating to the sale
of property and equipment at the Company's Salt Lake City, Utah facilities.

During the years ended December 31, 2004, 2003 and 2002, 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 $13.3 million and will be funded with cash generated by
operations.

Acquisitions net of cash acquired amount to $24.2 million. $22.0 million
related to the acquisitions of Claro Precision, Inc., the remaining $2.2 million
being the acquisition of the outstanding minority interest in Galt Alloys.

At December 31, 2004, the Company had a borrowing capacity equal to $33.8
million.

Cash provided by (used in) financing activities

The favorable change in cash flows from financing activities for the year
ended December 31, 2004 compared to the year ended December 31, 2003 primarily
reflects an increase in proceeds from the exercise of employee stock options of
$5.4 million in 2004 compared to $1.5 million in 2003.

The favorable change in cash flows from financing activities for the year
ended December 31, 2003 compared to the year ended December 31, 2002 is
primarily reflects an increase in proceeds from exercise of employee stock
options of $1.4 million in 2003.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND POST-RETIREMENT BENEFITS

Following is a summary of the Company's contractual obligations and other
commercial commitments as of December 31, 2004 (dollars in thousands):

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

(1) See Note 12 to the Company's Financial Statements.

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

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

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

(5) 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 amended 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 December 31, 2004 the Company had $4.2 million of standby letters of
credit outstanding under the facility.

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 years ended December 31, 2004, 2003 and
2002, the Company spent approximately $1.2 million, $1.0 million and $1.1
million, respectively, for environmental remediation, compliance, and related
services. The Company estimates environmental-related expenditures, including
capital items and compliance costs, will total approximately $2.0 million for
2005 and $1.3 million for 2006. 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

26

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 December 31, 2004, the amount accrued for future environmental-related
costs was $3.8 million. Of the total amount accrued at December 31, 2004, $0.6
million is expected to be paid out during 2005 and is included in the other
accrued liabilities line of the balance sheet. The remaining $3.2 million is
recorded in other non current liabilities.

The Company has included in other non-current assets $2.2 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 its accrued amount of $3.8 million.

Based on available information, RMI believes that its share of potential
environmental-related costs, before expected contributions form third parties,
is in a range from $2.9 to $7.7 million in the aggregate. 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
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 it 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 the 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.

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 109-1,
"Application of FASB Statement No. 109, "Accounting for Income Taxes," to the
Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004," (FSP FAS 109-1) which states that the FASB staff believes
that the

27

qualified production activities deduction provided by the American Jobs Creation
Act of 2004 (the Act) should be accounted for as a special deduction in
accordance with FASB Statement No. 109 (FAS 109). This FSP was effective upon
issuance. FAS 109-1 will not likely have a material impact on the Company.

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 January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (revised December 2003), "Consolidation of Variable
Interest entities, an interpretation of ARB No. 51," (FIN 46) which addresses
consolidation by business enterprises of variable interest entities that do not
have sufficient equity investment to permit the entity to finance its activities
without additional subordinated financial support from other parties or whose
equity investors lack characteristics of a controlling financial interest. The
Interpretation provides guidance related to identifying variable interest
entities and determining whether such entities should be consolidated. It also
provides guidance related to the initial and subsequent measurement of assets,
liabilities and noncontrolling interests in newly consolidated variable interest
entities and requires disclosures for both the primary beneficiary of a variable
interest entity and other beneficiaries of the entity. FIN 46 must be applied to
all entities subject to this Interpretation as of March 31, 2004. However, prior
to the required application of this Interpretation, FIN 46 must be applied to
those entities that are considered to be special-purpose entities as of December
31, 2003. There was no financial statement impact from the application at
December 31, 2003. However, prior to the required application of this
Interpretation, FIN 46 must be applied to those entities that are considered to
be special-purpose entities as of December 31, 2003. There was no financial
statement impact from the application of this standard.

In December 2004, the Financial Accounting Standards (FASB) issued
Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R),
Share-Based Payment. SFAS 123R requires the mandatory expensing of share-based
payments, including employee stock options, based on their fair value. The
Company is required to adopt the provision of SFAS 123R effective as of the
beginning of the third quarter in 2005. 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.

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) "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug Improvement and
Modernization Act of 2003" which provides guidance on the accounting for the
effects of the Act. FASB Staff Position 106-2 was effective for the first
interim or annual period beginning after June 15, 2004. The Company's retiree
health care plans are capped at predetermined out-of-pocket spending limits. The
out-of-pocket limits provide for both retiree medical and prescription drug
benefits under one limit without specification of the amount for medical versus
drug benefit. In order for the Company to receive a subsidy under the Act the
prescription drug benefits provided by the Company must be actuarially
equivalent to the Act. Because of the Company's cap on retiree health care and
prescription drug benefits, the Company does not believe its prescription drug
benefits are actuarially equivalent to the Act. Accordingly, the measure of its
Accumulated Postretirement Benefit Obligation (APBO) and net periodic benefit
cost do not reflect any potential effects of the Act.

ACQUISITIONS

RTI continues to evaluate potential acquisition candidates to determine if
they are likely to increase the Company's earnings and value. RTI evaluates such
potential acquisitions on the basis of their ability to enhance

28

or improve the Company's existing operations or capabilities, as well as the
ability to provide access to new markets and/or customers for its products. RTI
may make acquisitions using its available cash resources, borrowings under its
existing credit facility, new debt financing, the Company's common stock, joint
venture/ partnership arrangements or any combination of the above.

On October 1, 2004, RTI acquired all of the stock of Claro Precision, Inc.,
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 fair value of $7.0 million. The
agreement provides for an adjustment to a target equity of $9.7 million based on
the finalization of a closing balance sheet at the date of closing. In
accordance with the agreement the Company determined that an adjustment to the
purchase price of $0.2 million was due the Company and has been included to the
allocated purchase price.

The purchase was made with available cash on hand and newly issued common
shares. The results of operations are included in the quarter beginning October
1, 2004. Claro will operate and report under the Company's Fabrication and
Distribution segment.

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

CRITICAL ACCOUNTING POLICIES

RTI's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. These principles
require management to make estimates and assumptions that have a material impact
on the amounts recorded for assets and liabilities and resulting revenue and
expenses. Management estimates are based on historical evidence and other
available information, which in management's opinion provide the most reasonable
and likely result under the current facts and circumstances. Under different
facts and circumstances expected results may differ materially from the facts
and circumstances applied by management.

Of the accounting policies described in Note 2 of the Company's Financial
Statements and others not expressly stated but adopted by management as the most
appropriate and reasonable under the current facts and circumstances, the effect
upon the Company of the policy of goodwill and intangible assets, long-lived
assets, income taxes, employee benefit plans, environmental liabilities and
certain valuation accounts described below would be most critical if management
estimates were incorrect. Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities.
Actual results could differ from these estimates. Significant items subject to
such estimates and assumptions include the carrying values of valuation accounts
receivable, duty drawback property, plant and equipment, goodwill, pensions,
post-retirement benefits, workers compensation, environmental liabilities and
income taxes.

Goodwill and Intangible Assets. In the case of goodwill and long-lived
assets, if future product demand or market conditions reduce management's
expectation of future cash flows from these assets, a write-down of the carrying
value of goodwill or long-lived assets may be required. Intangible assets were
valued at fair value with the assistance of outside experts. In the event that
demand or market conditions change and the expected future cash flows associated
to these assets is reduced, a write-down or acceleration of the amortization
period may be required. Intangible assets are amortized over 20 years.

Management evaluates the recoverability of goodwill by comparing the fair
value of each reporting unit with its carrying value. The fair values of the
reporting units are determined using a discounted cash flow analysis based on
historical and projected financial information. The carrying value of goodwill
at December 31, 2004 was $46.6 million and $35.7 million at December 31, 2003,
representing 12% and 9% total assets, respectively. Management relies on its
estimate of cash flow projections using business and economic data available at
the time the projection is calculated. A significant number of assumptions and
estimates are involved in the application of the discounted cash flow model to
forecast operating cash flows, including overall conditions, sales volumes and
prices, costs of production, and working capital changes. The discounted cash
flow evaluation is completed annually in the fourth quarter, absent any events
throughout the year which would indicate an impairment. If an event were to
occur that indicates a potential impairment, the Company would perform a
discounted cash flow

29

evaluation prior to the fourth quarter. At December 31, 2004 the results of
management's assessment did not indicate an impairment. Results of the test in
2003 did indicate that the difference between carrying value and discounted cash
flows had been reduced from prior years for one of the Company's reportable
units. No events occurred during 2004 that would indicate a potential impairment
exists.

Long-Lived Assets. Management evaluates the recoverability of property
plant, and equipment whenever events or changes in circumstances indicate the
carrying amount of any such asset may not be fully recoverable in accordance
with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Changes in circumstances may include technological changes, changes in our
business model, capital structure, economic conditions, or operating
performance. Our evaluation is based upon, among other items, our assumptions
about the estimated undiscounted cash flows these assets are expected to
generate. When the sum of the undiscounted cash flows is less than the carrying
value, the Company will recognize an impairment loss. Management applies its
best judgment when performing these evaluations to determine the timing of the
testing, the undiscounted cash flows associated with the assets, and the fair
value of the asset.

Income Taxes. In the case of deferred tax assets, management has provided
under current facts and circumstances what it believes to be adequate allowances
for reduced value. Similar to goodwill and long-lived assets, should the future
benefit of deferred tax assets become impaired because of the possibility of
reduced utilization, an increase to the valuation allowance and corresponding
charge to expense may be required.

The future tax benefit arising from net deductible temporary differences
was $4.2 million at December 31, 2004 and $10.9 million at December 31, 2003.
The Company has provided a valuation allowance to fully offset deferred tax
assets at one of its foreign entities as it became uncertain that those assets,
consisting principally of net operating losses, would be utilized (see Note 8).
Deferred tax assets can be impacted by changes to tax laws, statutory tax rates
and future taxable income levels. In the event the Company were to determine
that it would not be able to realize all or a part of its deferred tax assets in
the future, the Company would reduce such amounts through a charge to income or
equity, as appropriate, in the period in which the determination were made.

Employee Benefit Plans. Included in the Company's accounting for its
defined benefit pension plans are assumptions on future discount rates, expected
return on assets and rate of future compensation changes. The Company considers
current market conditions, including changes in interest rates and plan asset
investment returns, as well as longer-term assumptions in determining these
assumptions. Actuarial assumptions may differ materially from actual results due
to changing market and economic conditions, higher or lower withdrawal rates or
longer or shorter life spans of participants. These differences may result in a
significant impact to the amount of net pension expense or income recorded in
the future.

The discount rate is used to determine the present value of future
payments. In general, the Company's liability increases as the discount rate
decreases and decreases as the discount rate increases. The Company considers a
variety of sources that provide rates on high quality (Aaa-Aa) corporate bonds
and other sources in order to select a discount rate that best matches its
pension investment profile. The Company reduced its discount rate at December
31, 2004 and 2003 to determine its future benefit obligation. The discount rate
at December 31, 2004 was 5.75% and at December 31, 2003 was 6.0%.

The discount rate is a significant factor in determining the amounts
reported. A one quarter percent change in the discount rate of 5.75% at December
31, 2004 would have the following effect in millions of dollars:

Decreases in the level of plan assets have a direct impact on the amount of
periodic pension expense the Company records. During 2004 the value of the
Company's plan assets increased as improved returns occurred particularly on
equities held by the fund. The Company assumed an 8.5% expected rate of return
to record expense during 2004, which was the same as 2003. The Company is
expected to use 8.5% in 2005.

At December 31, 2004, the estimated accumulated benefit obligation related
to plan assets exceeded the value of those assets. The reduction in the discount
rate from 6.0% to 5.75% and a decrease on the return of plan

30

assets from 2003 to 2004 resulted in an adjustment to equity to reflect an
increase in the additional minimum liability of $3.8 million, net of deferred
taxes. Pension expense in 2005 will increase $1.0 million.

The Company currently does not have any minimum funding obligations under
ERISA but continually evaluates whether the best use of its cash may include a
contribution to the pension plans. If the Company chooses to make a contribution
prior to the 2004 funding deadline, the increase in pension expense for 2005
will likely decrease.

Environmental Liabilities. The Company provides for environmental
liabilities when these liabilities become probable and can be reasonably
determined. The Company regularly evaluates and assesses its environmental
responsibilities. Should facts and circumstances indicate that a liability
exists or that previously evaluated and assessed liabilities have changed, the
Company will record the liability or adjust the amount of an existing liability.

ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the Company is exposed to market risk and
price fluctuations related to the purchases of certain materials and supplies
used in its manufacturing operations. The Company obtains competitive prices for
materials and supplies when available. The majority of the Company's raw
material purchases for titanium sponge are made under long-term contracts with
negotiated prices.

The Company's long-term credit arrangement is based on rates that float
with LIBOR based rates or bank prime rates and the carrying value approximates
fair value. At December 31, 2004, the Company had no outstanding obligations
under this credit arrangement.

The Company is subject to foreign currency exchange exposure for purchases
of materials, equipment and services, including wages, which are denominated in
currencies other than the U.S. dollar, as well as non-dollar denominated sales.
From time to time the Company may use forward exchange contracts to manage these
risks, although they are generally considered to be minimal. The majority of the
Company's sales are made in U.S. dollars, which minimizes exposure to foreign
currency fluctuation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

31

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of RTI International Metals,
Inc.:

We were engaged to perform an integrated audit of RTI International Metals,
Inc.'s December 31, 2004 consolidated financial statements and of its internal
control over financial reporting as of December 31, 2004 in accordance with the
standards of the Public Company Accounting Oversight Board (United States). We
have audited the Company's 2004, 2003 and 2002 consolidated financial statements
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Our opinion on the consolidated financial statements,
based on our audits of those consolidated financial statements, is presented
below. However, as explained more fully below, the scope of our work was not
sufficient to enable us to express, and we do not express, an opinion on the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2004.

CONSOLIDATED FINANCIAL STATEMENTS

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of RTI International Metals, Inc. and its subsidiaries at December 31,
2004 and 2003, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company has not reported on its assessment of the effectiveness of
internal control over financial reporting. Accordingly, the scope of our work
was not sufficient to enable us to express, and we do not express, an opinion on
the effectiveness of the Company's internal control over financial reporting.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Although management has not reported on its assessment of the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2004, management has identified the following material weaknesses
as of December 31, 2004:

(i) The Company did not maintain effective control over the period-end
closing process. Specifically, due to resource constraints, the Company was
unable to timely and accurately complete its work needed to close its books
and prepare financial statements in accordance with accounting principles
generally accepted in the United States of America. This control deficiency
resulted in audit adjustments to the Company's 2004 financial statements.
Additionally, this control deficiency could result in a misstatement of the
Company's financial statements that would result in a material misstatement
to annual or interim financial statements that would not be prevented or
detected. Accordingly, management determined that this control deficiency
constitutes a material weakness.

(ii) The Company did not maintain effective internal control over the
accuracy of certain spreadsheets. Specifically, spreadsheets used in the
period-end closing process, and other spreadsheets supporting financial
reporting, were not effectively protected at December 31, 2004. This
control deficiency resulted in audit adjustments to the Company's 2004
financial statements. Additionally, this control deficiency could

32

result in misstatements that would result in a material misstatement to
annual or interim financial statements that would not be prevented or
detected. Accordingly, management determined that this control deficiency
constitutes a material weakness.

(iii) The Company did not maintain effective control over the
effectiveness of controls at a third-party service organization. The
service organization processes health care claims for Company employees and
retirees. Such processes are considered part of the Company's internal
control over financial reporting specifically as to the existence and
completeness of health care claims liability and the related expense.
Management was unable to obtain evidence about the effectiveness of
controls over financial reporting at the service organization which
represents a control deficiency. This control deficiency did not result in
a misstatement to the Company's consolidated financial statements. However,
it could result in a misstatement of health care claims liability and the
related expense that would result in a material misstatement to annual or
interim financial statements that would not be prevented or detected.
Accordingly, management determined that this control deficiency constitutes
a material weakness.

(iv) The Company did not maintain effective control over the
accounting for property, plant and equipment. Specifically, the Company did
not maintain effective control over the completeness and accuracy of
accounting for property, plant and equipment. This control deficiency did
not result in a misstatement to the Company's consolidated financial
statements. However, it could result in a misstatement of the accounting
for property, plant and equipment and the related depreciation expense that
would result in a material misstatement to annual or interim financial
statements that would not be prevented or detected. Accordingly, management
determined that this control deficiency constitutes a material weakness.

The existence of one or more material weaknesses as of December 31, 2004
would preclude a conclusion the Company's internal control over financial
reporting was effective as of that date. These material weaknesses were
considered in determining the nature, timing, and extent of audit tests applied
in our audit of the 2004 consolidated financial statements, and our disclaimer
of opinion regarding the effectiveness of the Company's internal control over
financial reporting does not affect our opinion on those consolidated financial
statements.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
April 14, 2005

33

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these Consolidated Financial
Statements.
34

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS)

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

35

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these Consolidated Financial
Statements.
36

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

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

(a) Charges to minimum pension liability adjustments in 2004, 2003 and 2002 are
net of tax benefits of $2,042, $56 and $5,567, respectively.

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

37

RTI INTERNATIONAL METALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)

NOTE 1-- ORGANIZATION AND OPERATIONS:

The consolidated financial statements of RTI International Metals, Inc.
(the "Company") include the financial position and results of operations for the
Company and its subsidiaries.

The Company is a successor to entities that have been operating in the
titanium industry since 1951. The Company is engaged in the manufacture of
titanium mill products and the fabrication and distribution of titanium and
other specialty metal products for use in the aerospace, oil and gas exploration
and production, geo-thermal energy production, chemical processing, and other
industries.

NOTE 2-- SUMMARY OF SIGNIFICANT ACCOUNT POLICIES:

Principles of consolidation:

The consolidated financial statements include the accounts of RTI
International Metals, Inc. and its majority owned and wholly-owned subsidiaries.
All significant intercompany accounts and transactions are eliminated.

Use of estimates:

Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at year-end
and the reported amounts of revenues and expenses during the year. Actual
results could differ from these estimates. Significant items subject to such
estimates and assumptions include the carrying values of accounts receivable,
duty drawback, property, plant and equipment, goodwill, pensions,
post-retirement benefits, worker's compensation, environmental liabilities and
income taxes.

Fair Value:

For certain of the Company's financial instruments and account groupings,
including cash, accounts receivable, accounts payable, accrued wages and other
employee costs, billings in excess of costs and estimated earnings and other
accrued liabilities, the carrying value approximates fair value due to the short
maturities of the instruments and groupings.

Employees:

At December 31, 2004, a portion of the Company's employees were covered by
a collective bargaining agreement. On October 25, 2003 certain union members
voted to reject management's final contract proposal and a work stoppage
commenced. Non-represented employees operated the plant until an agreement was
reached December 1, 2004. The new contract expires January 31, 2010. The
contract for the hourly employees at the facilities in Ashabula expires in
January 2006.

Cash equivalents:

The Company considers all cash investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents principally
consist of investments in short-term money market funds.

Accounts Receivable:

Accounts receivable are carried at net realizable value. Estimates are made
as to the Company's ability to collect outstanding accounts receivable, taking
into consideration the amount, customer financial condition and age of the debt.
The Company ascertains the net realizable value of amounts owed and provides an
allowance when collection becomes doubtful. Accounts receivable are expected to
be collected in the normal course of business.

38

Inventories:

Inventories are valued at cost as determined by the last-in, first-out
(LIFO) method for approximately 57% for both 2004 and 2003 of the Company's
inventories. The remaining inventories are valued at cost determined by a
combination of the first-in, first-out (FIFO) and weighted average cost methods.
Inventory costs generally include materials, labor costs and manufacturing
overhead (including depreciation). When market conditions indicate an excess of
carrying cost over market value, a lower-of-cost-or-market provision is
recorded.

U.S. Customs Recovery--Other Current Assets:

The Company maintains a program through its authorized agent to recapture
duty paid by the Company on imported titanium sponge as an offset against
exports by its customers. The agent who matches the Company's duty paid with
export shipments of its customers through filings with the U.S. Customs Service
performs the recapture process. The Company has entered into multiple sharing
arrangements with its export customers.

The Company takes a credit to cost of sales when it receives notification
from its agent that the claim has been accepted by the U.S. Customs Department.
In 2004, the Company recognized cost reduction amounts of $763,000 and $244,000
in 2003. There was no recognized cost reduction in 2002. The Company assesses
the net realizable value of its amount owed based on the age of the claim and
may provide for an allowance for amounts not received in a timely manner. At
December 31, 2004, the Company was owed $2.0 million and at December 31, 2003,
the Company was owed $2.2 million from U.S. Customs. In 2004, the Company
provided an allowance of $219,000, $381,000 in 2003.

Property, plant and equipment:

The cost of property, plant and equipment includes all direct costs of
acquisition and capital improvements. Applicable amounts of interest on
borrowings outstanding during the construction or acquisition period for major
capital projects are capitalized. During the periods included in the financial
statements the Company did not capitalize interest expense. During all periods
presented, the Company did not have any long-term debt and interest expense
incurred was related to fees on unused capacity for the Company's unsecured
credit facility.

In general, depreciation of properties is determined using the
straight-line method over the estimated useful lives of the various classes of
assets. For financial accounting purposes, depreciation and amortization are
provided over the following useful lives:

Building and improvements................................... 20-25 years
Machinery and equipment..................................... 10-14 years
Furniture and fixtures...................................... 3-10 years
Computer hardware and software.............................. 3-10 years

The cost of properties retired or otherwise disposed of, together with the
accumulated depreciation provided thereon, is eliminated from the accounts. The
net gain or loss is recognized in operating income.

Leased property and equipment under capital leases are amortized using the
straight-line method over the term of the lease.

Routine maintenance, repairs and replacements are charged to operations.
Expenditures that materially increase values, change capacities or extend useful
lives are capitalized.

Under the provisions of Statement of Position No. 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use," the Company
capitalizes costs associated with software developed or obtained for internal
use when both the preliminary project stage is completed and management has
authorized further funding for the project which it deems probable will be
completed and used to perform the function intended. Capitalized costs include
only (1) external direct costs of materials and services consumed in developing
or obtaining internal-use software, (2) payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use software project, and (3) internal costs incurred, when material,
while developing internal-use software. Capitalization of such costs ceases no
later than the point at which the project is substantially complete and the
software is ready for its intended purpose.

39

Goodwill and Intangible Assets:

Goodwill arising from business acquisitions, which represents the excess of
the purchase price over the fair value of the assets acquired, is recorded as an
asset.

Prior to adoption of Statement of Financial Accounting Standards No. 142
("SFAS No. 142), "Goodwill and Intangible Assets," goodwill was amortized using
the straight-line method over the economic life of the asset acquired, not to
exceed 25 years. Under SFAS No. 142, goodwill amortization ceased and the
carrying amount of goodwill is tested at least annually for impairment. Absent
any events throughout the year which would indicate an impairment, the Company
performs annual impairment testing during the fourth quarter. There have been no
impairments to date. In the case of goodwill and long-lived assets, if future
product demand or market conditions reduce management's expectation of future
cash flows from these assets, a write-down of the carrying value of goodwill or
long-lived assets may be required.

Intangible assets were valued at fair value with the assistance of outside
experts. In the event that demand or market conditions change and the expected
future cash flows associated to these assets is reduced, a write-down or
acceleration of the amortization period may be required. Intangible assets are
amortized over 20 years.

Other Long-Lived Assets:

The Company evaluates the potential impairment of other long-lived assets
including property plant and equipment when events or circumstances indicate
that a change in value may have occurred. Pursuant to SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets," if the carrying value of
the assets exceeds the sum of the undiscounted expected future cash flows, the
carrying value of the asset is written down to fair value.

Environmental:

The Company expenses environmental expenditures related to existing
conditions from which no future benefit is determinable. Expenditures that
enhance or extend the life of the assets are capitalized. The Company determines
its liability for remediation on a site by site basis and records a liability
when it is probable and can be reasonably estimated. The Company has included in
other noncurrent assets an amount that it expects to collect from third parties.
This amount represents the contributions from third parties in conjunction with
the Company's most likely estimate of its environmental liabilities. The
estimated liability of the Company is not discounted or reduced for possible
recoveries from insurance carriers.

Revenue and cost recognition:

Revenues from the sale of products are recognized upon passage of title,
risk of loss, and risk of ownership to the customer. Title, risk of loss and
ownership in most cases coincides with shipment from the Company's facilities.
On occasion, the Company may use shipping terms of FOB-Destination or Ex-Works.

From time to time the Company may enter into a long-term, fixed-price
contract whereby the Company will recognize revenue based on
percentage-of-completion accounting. The Company will use percentage-of-
completion accounting when it deems that this method more accurately reflects
the timing and reporting of the Company's earnings process.

Other contracts for which percentage-of-completion accounting is not used
results in the deferral of costs and estimated earnings on uncompleted
contracts, net of progress billings. This amount is included in "Inventories" on
the consolidated balance sheet. In 2004, this amount was $2.4 million and in
2003 equaled $6.5 million. Contract costs comprise all direct material and labor
costs, including outside processing fees, and those indirect costs related to
contract performance. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.

The Company recognizes revenue only upon the acceptance of a definitive
agreement or purchase order and with the exception of percentage-of-completion
contracts upon delivery in accordance with the delivery terms on the agreement
or purchase order, and the price to the buyer is fixed and collectibility is
reasonably assured.

40

Research and Development:

Research and development costs are expensed as incurred.

Pensions:

The Company and its subsidiaries have a number of pension plans which cover
substantially all employees. Most employees in the Titanium Group are covered by
defined benefit plans in which benefits are based on years of service and annual
compensation. Contributions to the defined benefit plans, as determined by an
independent actuary in accordance with applicable regulations, provide not only
for benefits attributed to date but also for those expected to be earned in the
future. The Company's policy is to fund pension costs at amounts equal to the
minimum funding requirements of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended, for U.S. plans plus additional amounts as may be
approved from time to time.

The majority of employees in the Fabrication and Distribution Group
participate in defined contribution or money purchase plans. Employees of
Tradco, Inc., a company that operates as part of the Fabrication and
Distribution Group, participated in a defined benefit plan until June 30, 2004.
Effective July 1, 2004 those employees were switched to a defined contribution
plan and those benefits that had accrued under the prior defined benefit plan
were frozen and no other benefits were subject to future accrual. The freezing
of the benefits under the plan resulted in a curtailment of the plan under SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination of Benefits" (SFAS No. 88) See Note
11.

Postretirement benefits:

The Company provides health care benefits and life insurance coverage for
certain of its employees and their dependents. Under the Company's current
plans, certain of the Company's employees will become eligible for those
benefits if they reach retirement age while working with the Company. In
general, employees of the Titanium Group are covered by postretirement health
care and life insurance benefits.

The Company does not prefund postretirement benefit costs, but rather pays
claims as presented.

Income taxes:

In connection with the 1990 Reorganization and Initial Public Offering, the
tax basis of RMI Titanium Company's assets at that time reflected the fair
market value of the common stock then issued by RMI. The new tax basis was
allocated to all assets of RMI based on federal income tax rules and
regulations, and the results of an independent appraisal. For financial
statement purposes, these assets are carried at historical cost. As a result,
the tax basis of a significant portion of RMI's assets exceeds the related book
values, and depreciation and amortization for tax purposes exceeds the
corresponding financial statement amounts.

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities
multiplied by the enacted tax rates which will be in effect when these
differences are expected to reverse. In addition, deferred tax assets may arise
from net operating losses ("NOL's") and tax credits which may be carried back to
obtain refunds or carried forward to offset future cash tax liabilities.

Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes," requires a valuation allowance when it is "more
likely than not" that some portion or all of the deferred tax assets will not be
realized. The Company continually evaluates the available evidence supporting
the realization of deferred tax assets and adjusts the valuation allowance
accordingly. (See Note 8).

Foreign currencies:

For foreign subsidiaries whose functional currency is the U.S. dollar,
monetary assets and liabilities are remeasured at current rates, non-monetary
assets and liabilities are remeasured at historical rates, and revenues and
expenses are translated at average rates on a monthly basis throughout the
period. Resulting differences from the remeasurement process are recognized in
income and reported as other income.

The functional currency of the Company's newly acquired Canadian subsidiary
is the local currency. Assets and liabilities are translated at year-end
exchange rates. Income statement accounts are translated at the average
41

rates of exchange prevailing during the year. Translation adjustments are
reported as a component of shareholders equity and are not included in income.
Foreign currency transaction gains and losses are included in net income for the
period.

Transactions and balances denominated in currencies other than the
functional currency of the transacting entity are remeasured at current rates
when the transaction occurs and at each balance sheet date.

Derivative financial instruments:

The Company may enter into derivative financial instruments only for
hedging purposes. Derivative instruments are used as risk management tools. The
Company does not use these instruments for trading or speculation. Derivatives
used for hedging purposes must be designated and effective as a hedge of the
identified risk exposure upon inception of the instrument. If a derivative
instrument fails to meet the criteria as an effective hedge, gains and losses
are recognized currently in income. There were no derivatives for hedge
accounting in 2004 and 2003.

Stock-based compensation:

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 three years ended December 31, 2004 would have been
as follows:

Fair values of options at grant date were estimated using a Black-Scholes
model and the assumptions listed below:

In addition to the assumptions above, the Company adjusts for the
non-exercisability as the options vest ratably over the initial 3 year term and
adjusts for factors associated to attrition amongst awardees.

42

Included in the Company's income for the years 2004, 2003 and 2002 is
stock-based compensation expense amounting to $811, $928, and $962,
respectively. Net of tax, these amounts were $365, $586, and $596, respectively.

New accounting standards:

In December 2004, the Financial Accounting Standards (FASB) issued
Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R),
Share-Based Payment. SFAS 123R requires the mandatory expensing of share-based
payments, including employee stock options, based on their fair value. The
Company is required to adopt the provision of SFAS 123R effective as of the
beginning of the third quarter in 2005. 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.

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 costs 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 109-1,
"Application of FASB Statement No. 109, "Accounting for Income Taxes," to the
Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004," (FSP FAS 109-1) which states that the FASB staff believes
that the qualified production activities deduction provided by the American Jobs
Creation Act of 2004 (the Act) should be accounted for as a special deduction in
accordance with FASB Statement No. 109 (FAS 109). This FSP was effective upon
issuance.

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.

In January 2003, the FASB issued Interpretation No. 46 (revised December
2003), "Consolidation of Variable Interest entities, an interpretation of ARB
No. 51," (FIN 46) which addresses consolidation by business enterprises of
variable interest entities that do not have sufficient equity investment to
permit the entity to finance its activities without additional subordinated
financial support from other parties or whose equity investors lack
characteristics of a controlling financial interest. The Interpretation provides
guidance related to identifying variable interest entities and determining
whether such entities should be consolidated. It also provides guidance related
to the initial and subsequent measurement of assets, liabilities and
noncontrolling interests in newly consolidated variable interest entities and
requires disclosures for both the primary beneficiary of a variable interest
entity and other beneficiaries of the entity. FIN 46 must be applied to all
entities subject to this Interpretation as of March 31, 2004. However, prior to
the required application of this Interpretation, FIN 46 must be applied to those
entities that are considered to be special-purpose entities as of December 31,
2003. There was no financial statement impact from the application of this
standard.

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. RTI has not
completed analyzing the effects of the Act. Accordingly, the measure of its
Accumulated Postretirement Benefit Obligation (APBO) and net periodic benefit
cost do not reflect any potential effects of the Act.
43

Reclassifications:

Certain amounts in the 2003 and 2002 financial statements have been
reclassified to be consistent with the 2004 presentation. Refer to Note 21.

NOTE 3--ACQUISITIONS

On October 1, 2004, RTI acquired all of the stock of Claro Precision, Inc.,
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
agreement provided for an audit period after the purchase on October 1, 2004 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 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. The results of operations are included in the quarter beginning October
1, 2004. Claro will operate and report under the Company's Fabrication and
Distribution segment.

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.

44

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 on January 1, 2003.

Pro forma adjustments include the amortization of intangible assets
with an assigned value of $16.2 million. The amortization period is equal
to 20 years. The amortization expense over the next five years is $4.1
million. The intangible assets represent the assigned value of customer
relationships. Goodwill of $10.4 million resulted resulted from the
acquisition and is non deductive for income tax purposes in Canada.
Included in the pro forma information above is the write-off of a step up
in inventory values which is not expected to occur beyond each of the one
year periods shown. 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 of each year presented, or of future results of the
consolidated entities.

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 of each year presented, or of future results of the
consolidated entities.

45

NOTE 4-- 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 each of the years ended December 31, 2004, 2003, and 2002, follows (in
thousands except number of shares and per share amounts):

451,230, 957,202, and 914,066 shares of common stock issuable upon exercise
of employee stock options have been excluded from the calculation of diluted
earnings per share in 2004, 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 5-- ACCOUNTS RECEIVABLE:

NOTE 6-- INVENTORIES:

The Company used a LIFO valuation method for approximately 57% of its
inventories in 2004 and 2003. The remaining inventories are valued using a
combination of FIFO and weighted average cost methods.

46

A reduction of LIFO inventories (decrements) resulted in reducing pretax
income $1,150 in 2004, $600 in 2003 and $200 in 2002.

NOTE 7-- PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment is stated at cost and consists of the
following:

NOTE 8-- INCOME TAXES:

The "(Benefit) Provision for income taxes" caption in the Consolidated
Statement of Income includes the following income tax expense (benefit) from
continuing operations:

The following table sets forth the components of income (loss) before
income taxes by jurisdiction:

A reconciliation of the expected tax at the federal statutory tax rate to
the actual provision follows:

47

The results for 2003 included the impact of a settlement with the IRS
related to examinations performed on RTI's 1998 through 2001 tax years. As a
result of this settlement, the Company is now closed with the IRS in respect to
all years through 2001.

Deferred tax assets and liabilities resulted from the following:

During 2004, a valuation allowance of $577,000 was established for net
deferred tax assets of the Company's wholly-owned United Kingdom subsidiary,
which consist principally of Net Operating Loss carryforwards of $450,000 that
have no expiration date. Nevertheless, because of cumulative losses generated by
the subsidiary in recent years, the Company believes that more likely than not,
a benefit will be not realized for these deferred tax assets. The Company
expects to generate sufficient future taxable income from future operations in
the appropriate periods to realize the benefit of its remaining deferred tax
assets.

On October 22, 2004, the President signed the American Jobs Creation Act of
2004 (the "Act"). The Act provides a deduction for income from qualified
domestic production activities, which will be phased in from 2005 through 2010.
In return, the Act also provides for a two-year phase-out of the existing
extra-territorial income exclusion (ETI) for foreign sales that was viewed to be
inconsistent with international trade protocols by the European Union. The
Company expects the net effect of the phase out of the ETI and the phase in of
this new deduction to have an immaterial effect on the Company's tax rate but
the Company has not completed its evaluation.

Under the guidance in FASB Staff Position No. FAS 109-1, Application of
FASB Statement No. 109, "Accounting for Income Taxes," to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004, the deduction will be treated as a "special deduction" as described in
FASB Statement No. 109. As such, the special deduction has no effect on deferred
tax assets and liabilities existing at the enactment date. Rather, the impact of
this deduction will be reported in the period in which the deduction is claimed
on our tax return.

The Act also creates a temporary incentive for U.S. corporations to
repatriate accumulated income earned abroad by providing an 85 percent dividends
received deduction for certain dividends from controlled foreign corporations
for an effective rate of tax of 5.25% before potential applicable foreign tax
credits. The deduction is

48

subject to a number of limitations and, as of today, uncertainty remains as to
how to interpret numerous provisions in the Act. As such, we are not yet in a
position to decide on whether, and to what extent, we 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 to $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.

While the Company is currently studying the impact of these one-time
favorable dividend provisions, the Company intends to indefinitely reinvest
undistributed retained earnings of its wholly-owned French and United Kingdom
subsidiaries, which amounted to $3,967,000 at December 31, 2004. Accordingly, no
deferred U.S. tax liability has been recorded with respect to this amount, and
the Company believes it is not practicable to estimate the amount of incremental
taxes that might be payable if these earnings were repatriated.

NOTE 9-- OTHER OPERATING INCOME AND OTHER INCOME:

For the years ended December 31, 2004, 2003 and 2002, the components of
other operating income and other income are as follows (dollars in millions):

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

(1) Other operating income in 2004 reflected the gain on the sale of the
Company's RMI Metals (MICRON) site in Salt Lake City, Utah, of $0.4 million
and the income from a deferred gain on a sale/leaseback of one of the
Company's Ashtabula, Ohio facilities previously used for storage of $0.1
million. In 2003 the Company sold the Ashtabula facility and recorded a gain
of $1.0 million and deferred the gain on the leaseback portion to coincide
with the term of the lease, which was five years with a five-year renewal
option.

(2) These gains were financial settlements from Boeing Commercial Airplane Group
relating to Boeing's failure to meet minimum order requirements under terms
of a long-term agreement between RTI and Boeing. The long-term agreement
between RTI and Boeing expired December 31, 2003.

(3) This gain was due to the receipt of a common stock distribution in
connection with the demutualization of one of the Company's insurance
carriers.

NOTE 10-- LONG-TERM DEBT:

At December 31, 2004, the Company maintained a credit agreement entered
into on April 26, 2002, which provides a $100 million three-year unsecured
revolving credit facility. 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 subject to terms of the credit
agreement disclosed below.

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 December 31, 2004, there
was $4.2 million of standby

49

letters of credit outstanding under the facility, the Company believes it was in
compliance with all covenants, and had a borrowing capacity equal to $33.8
million.

The Company generated net interest income in 2004 of $0.1 million as cash
deposits and resulting interest income exceeded bank fees on the unused
facility. Net interest expense in 2003 and 2002 equaled $0.2 million and $0.4
million, respectively. The Company had no bank debt at December 31 for any of
the balance sheets presented in this report.

NOTE 11-- EMPLOYEE BENEFIT PLANS:

The following table provides reconciliations of the changes in the
Company's pension and other postemployment benefit plan obligations and the
values of plan assets for the years ended December 31, 2004 and 2003, and a
statement of the funded status as of December 31, 2004 and 2003. The Company
uses a December 31 measurement date for all plans. All amounts in thousands
unless specifically stated.

Included as an amendment to the Pension Plan of RMI Titanium Company was an
increase in the multiplier of $4 per hour for all service in excess of fifteen
years.

CHANGE IN PLAN ASSETS:
Fair value of plan assets January 1.......... $ 90,930 $ 83,103
Actual return on plan assets................. 5,646 12,089
Employer contributions....................... -- 3,000
Benefits paid................................ (7,687) (7,262)
-------- --------
Fair value of plan assets December 31........ $ 88,889 $ 90,930
======== ========

Included in the aggregate disclosures above are four plans for which the
projected benefit obligation for each plan exceeds the fair value of each plan's
assets at December 31, 2004 by $25.1 million.

The Company froze benefits under one of its defined benefit plans, The
TRADCO Pension Plan, effective June 30, 2004 and replaced it by enhancing an
existing 401(k) Plan. In the case of a second plan, the Eligible Salaried Plan,
the termination of the DOE contract at Ashtabula (see Note 17) resulted in an
elimination of future services earlier than expected. As a result, the Plan was
accounted for as curtailed at December 31, 2004. The

50

effect of the TRADCO curtailment was a charge to operating income of $37
thousand, which was partially offset by a gain on the Eligible Salaried Plan of
$33 thousand.

Amounts recognized in the Consolidated Balance Sheets at December 31
consist of the following:

Net periodic benefit costs as determined by independent actuaries, include
the following components:

The accumulated benefit obligation for all defined benefit pension plans
was $110 million and $103.4 million at December 31, 2004 and 2003, respectively.

Qualified domestic pension plan benefits comprise 100% of the projected
benefit obligation in each of the years 2004 and 2003. Benefits for unionized
pension participants are generally determined based on an amount for years of
service. Benefits for salaried participants are generally based on participants'
years of service and compensation.

The Company did not make a cash contribution in 2004. In 2003 the Company
contributed $3.0 million to its deferred benefit plans. The 2003 cash
contribution occurred as a result of contributing the proceeds derived from the
sale of stock acquired under the demutualization of one of the Company's
insurance carriers.

Assumptions used in the determination of the benefit obligations and other
postretirement obligations include the following:

51

The discount rate is a significant factor in determining the amounts
reported. A one quarter percent change in the discount rate of 5.75% at December
31, 2004 would have the following effect in millions of dollars:

In determining the expected return on plan assets, the Company considers
the relative weighting of plan assets, the historical performance of total plan
assets and individual asset classes, economic and other indicators of future
performance. Additionally, the Company may consult with and consider the
information available from financial and other professionals in forecasting an
appropriate return.

Management of the plan assets includes consideration of the needs of
diversification to reduce interest rate and market risk and liquidity to meet
immediate and future benefit payments.

The allocation of pension plan assets is as follows:

The Company's investment strategy provides that 40% to 60% of the plan
assets are invested in common stock, 40% to 60% in debt securities and 0% to 5%
in real estate investments. The policy of the Plan prohibits investment of any
equity securities in the Company's stock. Assets are evaluated once a quarter in
consideration of targets and relative risk and performance.

The Company has not completed its evaluation for making a contribution to
its Retirement Plans in 2005. The Company evaluates contributions to its plans
based on a review of all investment alternatives including business investments.
The Company will make its investment decision based on a result, which is in the
best interest of the plans and the Company.

The following benefit payments which will be paid by the Plan, reflect
expected future service as appropriate are:

2005 $ 7,364
2006 7,471
2007 7,576
2008 7,781
2009 7,826
2010 - 2014 42,387

For those employees not covered by a defined benefit pension plan, the
Company sponsors a 401(k) plan whereby the Company may provide a match of
employee contributions. The Company's matching contributions for the years ended
December 31, 2004, 2003 and 2002 were approximately $394,000, $355,000 and
$398,000, respectively.

The Company has a supplemental pension program ("Program") for certain key
employees. The Program is unfunded. The actuarial present value of the projected
benefit obligations related to the Program was $2.3 million

52

and $3.0 million at December 31, 2004 and 2003 respectively. Accrued pension
costs, which are reflected as a liability in other non-current liabilities, were
$1.2 million and $0.7 million at December 31, 2004 and 2003 respectively. Net
periodic benefit costs related to the Program were $0.5 million for 2004, $0.4
million for 2003 and $0.2 million for 2002. Actuarial assumptions are the same
as those used for the Company's defined benefit plans except that the rate of
future bonus increases is equal to 2.0%.

Postretirement Benefit Plans. The ultimate costs of certain of the
Company's retiree health care plans are capped at predetermined out-of-pocket
spending limits. The annual rate of increase in the per capita costs for these
plans is limited to the predetermined spending cap. As of December 31, 2004 and
2003, the predetermined limits had been reached and, as a result, increases in
claim cost rates will have no impact on the reported accumulated postretirement
benefit obligation or net periodic expense.

The following benefit payments which reflect future participants retired
times the cap in effect in 2004 are expected as follows. All of the benefit
payments are expected to be paid from company assets. These estimates are based
on current benefit plan coverages and, in accordance with the Company's rights
under the plan, these coverages may be modified, reduced or terminated in the
future.

2005 $ 1,866
2006 1,881
2007 1,894
2008 1,915
2009 1,934
2010 - 2014 10,096

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. The Act incorporates
a plan sponsor subsidy based on a percentage of a beneficiary's annual
prescription drug benefits, within certain limits, and opportunity for a retiree
to obtain prescription drug benefits under Medicare.

Since the Company has had an established cap on its postretirement medical
benefits, any reductions in postretirement benefit costs resulting from the Act
are not expected to be material although the Company will evaluate the effect of
the Act during the two year transitional period provided under the Act.

NOTE 12-- LEASES:

The Company and its subsidiaries have entered into various operating and
capital leases for the use of certain equipment, principally office equipment
and vehicles. The operating leases generally contain renewal options and provide
that the lessee pay insurance and maintenance costs. The total rental expense
under operating leases amounted to $4.0 million in 2004, $3.3 million in 2003
and $2.9 million in 2002. Amounts recognized as capital lease obligations are
reported in other accrued liabilities and other non-current liabilities in the
consolidated balance sheet.

The Company's future minimum commitments under operating and capital leases
for years after 2004 are as follows (in thousands):

53

NOTE 13-- BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS:

The Company reported a liability for billings in excess of costs and
estimated earnings of $4.7 million as of December 31, 2004 and $7.5 million as
of December 31, 2003. These amounts primarily represent payments, received in
advance from energy market customers on long-term orders, which the Company has
not recognized as revenues.

NOTE 14-- OTHER CURRENT ASSETS:

NOTE 15-- 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 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.
Approximately $40,000 was incurred in the 2004 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.

In accordance with the purchase agreement of Reamet S.A. located in
Villette, France from December of 2000, 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. The Company
had previously disclosed that the residence was worth approximately $500,000
without closing costs.

There were no related party transactions in 2003 and 2002.

NOTE 16-- 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 & 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; and cut, forged, extruded and
rolled shapes; and

54

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. Claro Precision, Inc., which was acquired in the fourth quarter
of 2004 is reported in this group.

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. Assets of general corporate activities include unallocated cash and
short-term investments, and deferred taxes.

On January 1, 2003 the Company realigned its two operating segments to
better reflect its strategy for achieving higher value-added sales. Prior period
information presented herein has been restated to reflect this realignment.
Included in the realignment was the transfer from the Titanium Group to the
Fabrication & Distribution Group of the 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.

Segment information has been restated to eliminate the effect of
discontinued operations.

Segment information for the three years ended December 31, 2004 is as
follows:

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

(1) Allocated on a three factor formula based on sales, assets and payrolls.

55

56

The following geographic area information includes trade sales based on
product shipment destination, and property, plant and equipment based on
physical location.

In the years ended December 31, 2004, 2003 and 2002, export sales were
$43.3 million, $43.3 million, and $46.1 million, respectively, principally to
customers in Western Europe.

Substantially all of the Company's sales and operating revenues are
generated from its U.S. and European operations. A significant portion of the
Company's sales are made to customers in the aerospace industry. The
concentration of aerospace customers may expose the Company to cyclical, credit
and other risks generally associated with the aerospace industry. In the three
years ended December 31, 2004, no single customer accounted for as much as 10%
of consolidated sales, although Boeing Company, Airbus and their subcontractors
together consume in excess of 10% of the Company's sales and are the ultimate
consumers of a significant portion of the Company's commercial aerospace
products. Trade accounts receivable are generally not secured or collateralized.

NOTE 17-- 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 years ended December 31, 2004, 2003 and
2002, the Company spent approximately $1.2 million, $1.0 million and $1.1
million, respectively, 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

57

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 December 31, 2004, the amount accrued for future environmental-related
costs was $3.8 million. Of the total amount accrued at December 31, 2004, $0.6
million is expected to be paid out during 2005 and is included in the other
accrued liabilities line of the balance sheet. The remaining $3.2 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 $2.2 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 $3.8 million. These
third parties include prior owners of RMI property and prior customers of RMI,
that are expected to partially reimburse the Company for their portion of
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
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 it 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 claim against Boeing in accordance with the provisions of
the long-term contract for each of the years. 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.

In accordance with the application of SFAS No. 5, the Company recorded
income of $6 million in each of 2000 and 2001, approximately $7 million in 2002,
$8 million in 2003 and $9 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.

58

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.

Other accrued liabilities have increased by $3.3 million to $6.5 million.
The principal components of the increase are increased audit and legal fees
relating to Sarbanes-Oxley compliance of $2.4 million and liabilities of Claro
Precision, Inc., acquired in the year of $0.4 million.

NOTE 18-- STOCK OPTION AND RESTRICTED STOCK AWARD PLANS:

2004 STOCK PLAN

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 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 requires the exercise price of stock options, stock
appreciation rights and other similar instruments awarded under the plan may not
be less than the fair market value of RTI stock on the date of the grant award.

The plan prohibits the repricing of stock options and stock appreciation
rights. A committee appointed by the Board of Directors administers the Plan,
and determines the type or types of grants to be made 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 2004, 184,000 option shares were granted at an exercise price of
$14.96. In 2003, 207,750 option shares were granted at an exercise price of
$10.22. In 2002, 238,000 option shares were granted at an exercise price of
$9.575. 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. 181,400 of the option shares granted in 2004 were
outstanding at December 31, 2004.

During 2004, 2003 and 2002, 87,430 shares, 93,508 shares and 68,912 shares,
respectively, of restricted stock were granted. 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.

59

The following table presents a summary of stock option activity under the
plans described above for the years ended December 31, 2002 through 2004:

At December 31, 2004 the weighted average exercise price and weighted
average remaining contractual life for all outstanding options are reflected in
the following tables:

NOTE 19-- 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 operating results of
the Tube Mill Operations have been classified as discontinued operations for all
the periods presented. The Tube Mill Operation was included in the Company's F&D
segment. In the fourth quarter of 2004 the Company impaired certain assets,
terminated operations and provided for certain contingencies which

60

resulted in an after-tax charge of $692 thousand. The remaining residual assets
were assumed by other RTI subsidiaries.

NOTE 20-- SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

The following table sets forth selected quarterly financial data for 2004
and 2003. All amounts in thousands except for per share numbers.

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

(1) Net income from continuing operations included the favorable effect of $5.9
million and $5.2 million, net of tax in 2004 and 2003, respectively in
liquidated damages from Boeing. The liquidated damages were a result of
Boeing's failure to meet minimum order requirements under a long-term
purchase agreement that expired on December 31, 2003. The first quarter 2004
payment was the final payment under the agreement.

61

(2) Net income was unfavorably affected by $.8 million due to the discontinuance
of operations at the Company's Tube Mill Operations. The effect of the
discontinuance of operations is more fully described in Note 19.

(3) Operating income was favorably affected by a gain of approximately $1
million from the sale of one of the Company's Ashtabula, Ohio facilities
previously used for storage.

NOTE 21-- RECLASSIFICATION OF ENVIRONMENTAL LIABILITY AND GOODWILL (IN
THOUSANDS):

The Company had classified its environmental liabilities net of recoveries
from third parties in prior periods. For the period ended December 31, 2004 the
Company has shown environmental liabilities gross without recoveries from third
parties. It has shown the amount of recoveries from third parties as other
non-current assets. For comparative purposes the Company has reclassified prior
periods.

The Company had included in other accrued liabilities goodwill related to
the 1997 purchase of its 90% ownership in Galt Alloys, Inc., of $1,560. In the
fourth quarter the Company reclassified goodwill previously shown as other
accrued liabilities.

The effect of the above reclassifications for the prior period 12/31/03 is
shown:

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. The Company's management, with the
participation of the Company's Disclosure Committee and the Company's 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
annual report on Form 10-K. Based upon that evaluation, including all matters
discussed in the paragraphs below, they have concluded that as of December 31,
2004, the Company's disclosure controls and procedures were not effective in
ensuring that all material information required to be disclosed in reports that
the Company files with the Securities Exchange Commission ("SEC") is recorded,
processed, summarized and reported within the time periods specified in the
rules and the forms of the SEC.

As discussed below the Company has not yet completed its assessment of
internal control over financial reporting required by Item 308 of Regulation
S-K. However, the Company has determined that it had several control
deficiencies each representing a material weakness. In light of the deficiencies
described below, the Company performed additional post-closing procedures to
ensure its consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Accordingly, management believes that
the financial statements presented in Item 8 of this Form 10-K fairly present,
in all material respects, the Company's financial position, results of
operations and cash flows for the periods presented.

Status of Management's Report on Internal Control Over Financial
Reporting. Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404") and
related rules of the SEC require management of public companies
62

to periodically assess the effectiveness of internal control over financial
reporting and to annually report their conclusions, including the disclosure of
all material weaknesses in internal control over financial reporting. In
addition, SOX 404 requires the company to provide a report of its independent
registered public accounting firm on management's annual assessment of the
effectiveness of the Company's internal control over financial reporting.

As an "accelerated filer," the Company is required to comply with SOX 404
for the year ended December 31, 2004 and thus management's report on its
internal control assessment as of the end of the year, as well as the
attestation report of the Company's independent registered public accounting
firm on management's annual assessment, must be included in the Form 10-K for
the year ended December 31, 2004. The Company was unable to file this Form 10-K
on its due date of March 16, 2004 and filed a Form 12b-25 on March 17, 2005
disclosing, among other things, the fact that its closing process was not then
complete. The Company was still unable to complete the closing process by March
31, 2005 and filed a Form 8-K disclosing such on April 1, 2005.

Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company's internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles ("GAAP"). Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions or that the degree of compliance with the policies or
procedures may deteriorate.

The Company is in the process of conducting an evaluation of its internal
control over financial reporting as of December 31, 2004. In making its
assessment of internal control over financial reporting, management is using the
criteria described in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. As stated above, the Company has not yet completed the process of
evaluating identified deficiencies against the Company's internal control
framework. The Company is thus filing this Form 10-K without completing its
assessment on internal control over financial reporting required by Item 308 of
Regulation S-K. The Company will amend this Form 10-K once its has completed its
assessment.

However, the Company's management met with its Audit Committee on March 29,
2005 and they have concluded that the Company did not maintain effective control
over the period-end closing process, certain spreadsheets, a third-party service
organization and our fixed asset accounting process. Accordingly, management and
the Audit Committee determined that these control deficiencies each represent
material weaknesses in the Company's internal control over financial reporting
as of December 31, 2004. Further discussion of these material weaknesses
follows:

Period-end Closing Process

The Company did not maintain effective control over the period-end closing
process. Specifically, due to resource constraints, the Company was unable to
timely and accurately complete its work needed to close its books and prepare
financial statements in accordance with accounting principles generally accepted
in the United States of America. This control deficiency resulted in audit
adjustments to the Company's 2004 financial statements. Additionally, this
control deficiency could result in a misstatement of the Company's financial
statements that would result in a material misstatement to annual or interim
financial statements that would not be prevented or detected. Accordingly,
management determined that this control deficiency constitutes a material
weakness.

63

Spreadsheets

The Company did not maintain effective internal control over the accuracy
of certain spreadsheets. Specifically, spreadsheets used in the period-end
closing process, and other spreadsheets supporting financial reporting, were not
effectively protected at December 31, 2004. This control deficiency resulted in
audit adjustments to the Company's 2004 financial statements. Additionally, this
control deficiency could result in misstatements that would result in a material
misstatement to annual or interim financial statements that would not be
prevented or detected. Accordingly, management determined that this control
deficiency constitutes a material weakness.

Third Party Health Care Administrator

Anthem Blue Cross Blue Shield is a third party service provider that the
Company contracts annually to process all health care claims for Company
employees and retirees. The Company has traditionally received from Anthem an
independent audit report, referred to as a Type 2 SAS-70 report, regarding the
effectiveness of certain controls at Anthem. While Anthem represented to the
Company's management as late as the Fall of 2004 that Anthem would provide a
SAS-70 report, on January 12, 2005, the Company received notice that Anthem's
SAS-70 report for the 2004 policy year would not be available. The notice
stated: "Since Anthem has committed significant resources to assure its Section
404 compliance, we would like to delay our SAS-70 review of our Facets system
until end of 2005-policy year." As a result, the Company did not maintain
effective control over the effectiveness of controls at Anthem. Anthem's
processes are considered part of the Company's internal control over financial
reporting specifically as to the existence and completeness of health care
claims liability and the related expense. Management was unable to obtain
evidence about the effectiveness of controls over financial reporting at Anthem
which represents a control deficiency. This control deficiency did not result in
a misstatement to the Company's consolidated financial statements. However, it
could result in a misstatement of health care claims liability and the related
expense that would result in a material misstatement to annual or interim
financial statements that would not be prevented or detected. Accordingly,
management determined that this control deficiency constitutes a material
weakness.

Fixed Asset System

The Company did not maintain effective control over the accounting for
property, plant and equipment. Specifically, the Company did not maintain
effective control over the completeness and accuracy of accounting for property,
plant and equipment. This control deficiency did not result in a misstatement to
the Company's consolidated financial statements. However, it could result in a
misstatement of the accounting for property, plant and equipment and the related
depreciation expense that would result in a material misstatement to annual or
interim financial statements that would not be prevented or detected.
Accordingly, management determined that this control deficiency constitutes a
material weakness.

***

Finally, as described above, the Company is still in the process of
conducting an evaluation of its internal control over financial reporting as of
December 31, 2004. In connection with its ongoing process the Company has
identified certain other internal control deficiencies some of which may also be
determined to be material weaknesses including: (i) the Company had several
individuals that had unrestricted access to its Enterprise Resource Planning
("ERP") system; and (ii) there were a number of other deficiencies which
individually or when aggregated could possibly be material weaknesses.
Additionally, once we have completed our evaluation of all deficiencies (those
identified to date and those that may be identified as we complete our
evaluation) we may determine that the deficiencies, either alone or in
combination with others, constitute one or more material weaknesses.

The existence of one or more material weaknesses as of December 31, 2004
would preclude a conclusion that the Company's internal control over financial
reporting was effective as of such date. As a result of the material weaknesses
set forth above, the Company's management expects that when its report on the

64

effectiveness of internal control over financial reporting is published in the
Company's amended Form 10-K, management will conclude that the Company's
internal control over financial reporting was ineffective as of December 31,
2004. Thus, the Company expects that its independent registered public
accounting firm will issue an adverse opinion on the effectiveness of the
Company's internal control as of December 31, 2004.

Changes in Internal Control Over Financial Reporting. There were no
changes in the Company's internal control over financial reporting during the
quarter ended December 31, 2004, other than as described above, that materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

ITEM 9(B). OTHER INFORMATION

None.

65

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In addition to the information set forth under the caption "Executive
Officers of the Registrant" in Part I, Item 1 of this report, information
concerning the directors of the Company and the committees of the Board of
Directors is incorporated by reference to "The Board of Directors" and "Election
of Directors" in the 2005 Proxy Statement, to be filed at a later date.

Information concerning RTI's Code of Ethical Business Conduct is
incorporated by reference to "Corporate Governance and Business Ethics" in the
2005 Proxy Statement to be filed at a later date and applies to all of its
directors and officers, including its principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions.

Information concerning the Audit Committee and its financial expert is
incorporated and made part hereof by reference to the material appearing under
the headings "Audit Committee" "Audit Committee Report" in the 2005 Proxy
Statement, to be filed at a later date.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to "The
Board of Directors--Compensation of Directors" and "Executive Compensation" in
the 2005 Proxy Statement, to be filed at a later date.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference to "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of Directors and
Executive Officers" in the 2005 Proxy Statement, to be filed at a later date.

EQUITY COMPENSATION PLAN INFORMATION

Note (i): The numbers in columns (a) and (c) reflect all shares that could
potentially be issued under the RTI International Metals Inc., 2004
Stock Plan as of December 31, 2004. For more information, see Note
18 to the Financial Statements. The Company's 2004 Stock Plan
replaces the prior plans and provides for grants of 2,500,000 over
its 10-year term as determined by the plan administrator. The 2004
Stock Plan was approved by shareholder vote on April 30, 2004. In
2004, 18,179 shares were awarded under the plan.

Note (ii): Prior to December 31, 2004, RTI International Metals Inc., had one
plan that had not been approved by security holders called the 2002
Non-employee Director Stock Option Plan. This plan has since been
terminated and replaced by the 2004 Stock Plan. See above Note (i).

Note (iii): The 2004 Stock Plan permits grants of stock options, stock
appreciation rights, restricted stock and other stock based awards
that may include awards of restricted stock units. There were a
total of

66

2,500,000 shares available for issue under the plan, but only
1,250,000 shares may be issued in the form of restricted stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference to "The
Board of Directors" and "Executive Compensation" in the 2005 Proxy Statement, to
be filed at a later date.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is incorporated by reference to "Proposal
No. 2 -- Ratification of Independent Registered Public Accounting Firm" in the
Proxy Statement for the 2005 Annual Meeting of Stockholders.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this report:

1. The financial statements contained in Item 8 hereof;

2. The financial statement schedules contained in Item 8 hereof; and

3. The following Exhibits:

67

EXHIBITS

The exhibits listed on the Index to Exhibits are filed herewith or are
incorporated by reference.

69

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.

By /s/ LAWRENCE W. JACOBS

------------------------------------
Lawrence W. Jacobs
Vice President,
Chief Financial Officer & Treasurer

Dated: April 14, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

70

RTI INTERNATIONAL METALS, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

S-1