Exhibit 99.1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income and shareholders’ equity, and of cash flows present fairly, in all material respects, the financial position of RTI International Metals, Inc. and its subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 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. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it calculates earnings per share under the two-class method in 2009.

A 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania

February 22, 2010, except insofar as it relates to the presentation of guarantor subsidiaries discussed in Note 19 for which the date is December 8, 2010

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(In thousands, except share and per share amounts)

		Years Ended December 31,
		2009				2008				2007
Net sales		$	407,978			$	609,900			$	626,799
Cost and expenses:
Cost of sales			352,167				442,626				418,671
Selling, general, and administrative expenses			63,490				77,762				65,317
Research, technical, and product development expenses			2,001				2,120				1,650
Asset and asset-related impairment			68,897				—				—
Goodwill impairment			8,699				—				—
Operating income (loss)			(87,276	)			87,392				141,161
Other income (expense)			2,056				1,527				(2,134	)
Interest income			1,511				3,262				4,764
Interest expense			(12,347	)			(4,206	)			(1,324	)
Income (loss) before income taxes			(96,056	)			87,975				142,467
Provision for (benefit from) income taxes			(28,817	)			32,280				49,836
Net income (loss)		$	(67,239	)		$	55,695			$	92,631
Earnings (loss) per share:
Basic		$	(2.67	)		$	2.42			$	4.01
Diluted		$	(2.67	)		$	2.41			$	3.99
Weighted-average shares outstanding:
Basic			25,029,976				22,872,075				22,930,768
Diluted			25,029,976				22,987,503				23,154,194

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

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

(In thousands, except share and per share amounts)

		December 31,
		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	56,216			$	284,449
Short-term investments			65,042				—
Receivables, less allowance for doubtful accounts of $646 and $2,260			60,924				79,778
Inventories, net			266,887				274,330
Deferred income taxes			21,237				29,456
Other current assets			21,410				11,109
Total current assets			491,716				679,122
Property, plant, and equipment, net			252,301				271,062
Goodwill			41,068				47,984
Other intangible assets, net			14,299				13,196
Deferred income taxes			53,814				15,740
Other noncurrent assets			1,537				2,099
Total assets		$	854,735			$	1,029,203
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	39,193			$	54,422
Accrued wages and other employee costs			9,796				20,452
Unearned revenues			21,832				22,352
Current portion of long-term debt			—				1,375
Current liability for post-retirement benefits			2,476				2,632
Current liability for pension benefits			140				121
Other accrued liabilities			30,518				18,167
Total current liabilities			103,955				119,521
Long-term debt			81				238,550
Noncurrent liability for post-retirement benefits			34,530				30,732
Noncurrent liability for pension benefits			28,102				26,535
Deferred income taxes			244				154
Other noncurrent liabilities			8,617				11,777
Total liabilities			175,529				427,269
Commitments and Contingencies
Shareholders’ equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 30,724,351 and 23,688,010 shares issued; 30,010,998 and 23,004,136 shares outstanding			307				237
Additional paid-in capital			439,361				307,604
Treasury stock, at cost; 713,353 and 683,874 shares			(16,996	)			(16,891	)
Accumulated other comprehensive loss			(33,563	)			(46,352	)
Retained earnings			290,097				357,336
Total shareholders’ equity			679,206				601,934
Total liabilities and shareholders’ equity		$	854,735			$	1,029,203

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

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

(In thousands)

		Years Ended December 31,
		2009				2008				2007
OPERATING ACTIVITIES:
Net income (loss)		$	(67,239	)		$	55,695			$	92,631
Adjustment for non-cash items:
Depreciation and amortization			21,163				20,201				15,712
Asset and asset-related impairment			68,897				—				—
Goodwill impairment			8,699				—				—
Deferred income taxes			(29,479	)			(18,186	)			(27,512	)
Stock-based compensation			4,399				5,155				6,686
Excess tax benefits from stock-based compensation activity			(39	)			(215	)			(4,235	)
Loss on disposal of property, plant, and equipment			127				2				506
Bad debt expense			194				1,722				(893	)
Changes in assets and liabilities:
Receivables			20,679				13,972				(6,843	)
Inventories			11,325				13,138				(50,985	)
Accounts payable			8,785				(6,352	)			10,659
Income taxes payable			(713	)			644				(242	)
Deferred revenue			(2,150	)			4,690				561
Other current assets and liabilities			(17,338	)			(6,972	)			17,378
Other assets and liabilities			5,689				(535	)			(7,785	)
Cash provided by operating activities			32,999				82,959				45,638
INVESTING ACTIVITIES:
Proceeds from disposal of property, plant, and equipment			22				—				523
Purchase of short-term investments			(105,000	)			—				(1,408	)
Proceeds from maturity of short-term investments			40,000				—				—
Proceeds from sale of investments			—				—				86,442
Capital expenditures			(82,285	)			(125,590	)			(64,934	)
Cash provided by (used in) investing activities			(147,263	)			(125,590	)			20,623
FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options			120				137				1,760
Borrowings on long-term debt			1,181				227,050				1,561
Repayments on long-term debt			(243,455	)			(1,081	)			(533	)
Excess tax benefits from stock-based compensation activity			39				215				4,235
Purchase of common stock held in treasury			(105	)			(9,090	)			(2,516	)
Proceeds from equity offering, net			127,423				—				—
Proceeds from government grants			—				2,842				—
Financing fees			(300	)			(1,313	)			(845	)
Cash provided by (used in) financing activities			(115,097	)			218,760				3,662
Effect of exchange rate changes on cash and cash equivalents			1,128				815				(2,444	)
Increase (decrease) in cash and cash equivalents			(228,233	)			176,944				67,479
Cash and cash equivalents at beginning of period			284,449				107,505				40,026
Cash and cash equivalents at end of period		$	56,216			$	284,449			$	107,505
Supplemental cash flow information:
Cash paid for interest		$	11,693			$	4,076			$	883
Cash paid for income taxes		$	6,092			$	61,705			$	80,782
Non-cash investing and financing activities:
Issuance of Common Stock for restricted stock awards		$	1,826			$	3,125			$	4,944
Capital lease obligations incurred		$	—			$	13			$	137

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

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income and Shareholders’ Equity

(In thousands, except share and per share amounts, unless otherwise indicated)

																						Accumulated Other
																						Comprehensive Income
																						(Loss)
																						Net Unrealized Gain
																						(Loss) From
		Common Stock								Additional																Available				Minimum				Foreign
		Shares								Paid-In				Treasury				Retained				Derivative				For Sale				Pension				Currency
		Outstanding				Amount				Capital				Stock				Earnings				Instruments				Investments				Liability				Translation				Total
Balance at December 31, 2006			22,972,025			$	234			$	289,448			$	(5,285	)		$	209,010			$	—			$	—			$	(33,410	)		$	2,184			$	462,181
Net income			—				—				—				—				92,631				—				—				—				—				92,631
Foreign currency translation			—				—				—				—				—				—				—				—				7,821				7,821
Change in unrecognized losses and prior service costs related to pension and postretirement benefit plans, net of tax			—				—				—				—				—				—				—				3,038				—				3,038
Comprehensive income																																							103,490
Shares issued for directors’ compensation			5,279				—				—				—				—				—				—				—				—				—
Shares issued for restricted stock award plans			57,946				1				—				—				—				—				—				—				—				1
Stock-based compensation expense recognized			—				—				6,686				—				—				—				—				—				—				6,686
Treasury stock purchased at cost			(32,195	)			—				—				(2,516	)			—				—				—				—				—				(2,516	)
Exercise of employee options			102,653				1				1,759				—				—				—				—				—				—				1,760
Tax benefits from stock-based compensation activity			—				—				4,182				—				—				—				—				—				—				4,182
Balance at December 31, 2007			23,105,708				236				302,075				(7,801	)			301,641				—				—				(30,372	)			10,005				575,784
Net income			—				—				—				—				55,695				—				—				—				—				55,695
Foreign currency translation			—				—				—				—				—				—				—				—				(13,711	)			(13,711	)
Unrecognized losses on derivatives (interest rate swaps), net of tax			—				—				—				—				—				(3,325	)			—				—				—				(3,325	)
Change in unrecognized losses and prior service costs related to pension and postretirement benefit plans, net of tax			—				—				—				—				—				—				—				(8,949	)			—				(8,949	)
Comprehensive income																																							29,710
Shares issued for directors’ compensation			11,912				—				—				—				—				—				—				—				—				—
Shares issued for restricted stock award plans			53,750				1				—				—				—				—				—				—				—				1
Stock-based compensation expense recognized			—				—				5,155				—				—				—				—				—				—				5,155
Treasury stock purchased at cost			(178,836	)			—				—				(9,090	)			—				—				—				—				—				(9,090	)
Exercise of employee options			11,602				—				137				—				—				—				—				—				—				137
Tax benefits from stock-based compensation activity			—				—				237				—				—				—				—				—				—				237
Balance at December 31, 2008			23,004,136				237				307,604				(16,891	)			357,336				(3,325	)			—				(39,321	)			(3,706	)			601,934
Net loss			—				—				—				—				(67,239	)			—				—				—				—				(67,239	)
Foreign currency translation			—				—				—				—				—				—				—				—				10,033				10,033
Unrecognized gains on investments, net of tax			—				—				—				—				—				—				42				—				—				42
Unrecognized gains on derivatives (interest rate swaps), net of tax			—				—				—				—				—				516				—				—				—				516
Recognized losses on derivatives (interest rate swaps), net of tax			—				—				—				—				—				2,809				—				—				—				2,809
Benefit plan amortization			—				—				—				—				—				—				—				(611	)			—				(611	)
Comprehensive income																																							(54,450	)
Shares issued for directors’ compensation			35,911				—				—				—				—				—				—				—				—				—
Shares issued for performance share award plans			53				—				—				—				—				—				—				—				—				—
Shares issued for restricted stock award plans			89,360				1				—				—				—				—				—				—				—				1
Stock-based compensation expense recognized			—				—				4,399				—				—				—				—				—				—				4,399
Shares issued for equity offering			6,900,000				69				127,647				—				—				—				—				—				—				127,716
Treasury stock purchased at cost			(6,823	)			—				—				(105	)			—				—				—				—				—				(105	)
Exercise of employee options			11,070				—				120				—				—				—				—				—				—				120
Forfeiture of restricted stock awards			(22,709	)			—				—				—				—				—				—				—				—				—
Tax benefits from stock-based compensation activity			—				—				(409	)			—				—				—				—				—				—				(409	)
Balance at December 31, 2009			30,010,998			$	307			$	439,361			$	(16,996	)		$	290,097			$	—			$	42			$	(39,932	)		$	6,327			$	679,206

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(In thousands, except share and per share amounts, unless otherwise indicated)

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

 

Note 1—ORGANIZATION AND OPERATIONS:

 

The accompanying Consolidated Financial Statements of RTI International Metals, Inc. and its subsidiaries (the “Company” or “RTI”) include the financial position and results of operations for the Company.

 

The Company is a leading producer and global supplier of titanium mill products and a manufacturer of fabricated titanium and specialty metal components for the international aerospace, defense, energy, and industrial and consumer markets. It is a successor to entities that have been operating in the titanium industry since 1951. The Company first became publicly traded on the New York Stock Exchange in 1990 under the name RMI Titanium Co. and the symbol “RTI”, and was reorganized into a holding company structure in 1998 under the name RTI International Metals, Inc.

 

The Company conducts business in three segments: the Titanium Group, the Fabrication Group, and the Distribution Group.

 

The Titanium Group melts, processes, and produces a complete range of titanium mill products which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial and consumer applications. With operations in Niles, Ohio; Canton, Ohio; and Hermitage, Pennsylvania; and a new facility under construction in Martinsville, Virginia, the Titanium Group has overall responsibility for the production of primary mill products including, but not limited to, bloom, billet, sheet, and plate. In addition, the Titanium Group produces ferro titanium alloys for its steel-making customers. The Titanium 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.

 

The Fabrication Group is comprised of companies with significant hard-metal expertise that extrude, fabricate, machine, and assemble titanium and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve commercial aerospace, defense, oil and gas, power generation, medical device, and chemical process industries, as well as a number of other industrial and consumer markets. With operations located in Houston, Texas; Washington, Missouri; Laval, Canada; and a representative office in China, the Fabrication Group provides value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and sub-assemblies, as well as engineered systems for deepwater oil and gas exploration and production infrastructure.

 

The Distribution Group stocks, distributes, finishes, cuts-to-size, and facilitates just-in-time delivery services of titanium, steel, and other specialty metal products, primarily nickel-based specialty alloys. With operations in Garden Grove, California; Windsor, Connecticut; Sullivan, Missouri; Staffordshire, England; and Rosny-Sur-Seine, France; the Distribution Group is in close proximity to its wide variety of commercial aerospace, defense, and industrial and consumer customers.

 

Both the Fabrication Group and the Distribution Group utilize the Titanium Group as their primary source of titanium mill products.

 

Note 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Principles of consolidation:

 

The Consolidated Financial Statements include the accounts of RTI International Metals, Inc. 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

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

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, inventories, duty drawback, property, plant, and equipment, goodwill, pensions, post-retirement benefits, worker’s compensation, derivative fair values, 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, unearned revenue, other accrued liabilities, and long-term debt, the carrying value approximates the fair value of these instruments and groupings.

 

The Financial Accounting Standards Board (“FASB”) defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy prioritizes the inputs utilized in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data and which requires the Company to develop its own assumptions. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including its cash equivalents.

 

The Company’s cash and cash equivalents and short-term investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

 

Listed below are the Company’s assets, and their fair values, that are measured at fair value on a recurring basis as of December 31, 2009.

 

 

As of December 31, 2009 the Company had no liabilities that were measured at fair value on a recurring basis.

 

Listed below are the Company’s assets, and their fair values, that are measured and recorded on a non-recurring basis as of December 31, 2009, and the losses recorded during the year ended December 31, 2009 on those assets:

 

 

The Company determined the fair value of goodwill at the Energy Fabrication reporting unit was zero using

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Level 3 inputs. For further information on the Company’s annual goodwill impairment test and the impairment of goodwill at its Energy Fabrication reporting unit, see the section titled “Goodwill and intangible assets” below. For further information on the Company’s asset and asset-related impairments, see Note 3 to the Company’s Consolidated Financial Statements.

 

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.

 

Short-term investments:

 

Short-term investments are investments with an original maturity greater than three months. Short-term investments consist of investments in certificates of deposit and ultra short-term municipal bond funds.

 

 

The Company’s short-term investments, all of which are classified as available-for-sale, are stated at fair value based on market quotes. Unrealized gains and losses, net of deferred taxes, are recorded as a component of Other comprehensive income. The Company had unrealized gains of $42 on its short-term investments during the year ended December 31, 2009.

 

During both the six months ended June 30, 2009 and the nine months ended September 30, 2009, the Company classified $20.0 million and $40.0 million, respectively, of short-term investments in certificates of deposit with six month maturities as cash and cash equivalents. Under current accounting guidance, investments with original maturities of greater than three months are not to be classified as cash and cash equivalents. This resulted in an understatement of the Company’s cash used by investing activities and an overstatement in cash and cash equivalents by the same amounts, respectively, for those periods. These short-term investments, which totaled $45.0 million, were properly classified on the Consolidated Balance Sheet and the purchases of these short-term investments were properly classified in cash used by investing activities for the year ended December 31, 2009.

 

Receivables:

 

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

 

 

Inventories:

 

Inventories are valued at cost as determined by the last-in, first-out (“LIFO”) method for approximately 64%

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

and 61% of the Company’s inventories as of December 31, 2009 and 2008, respectively. 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, 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. There was no LIFO decrement for the year ended December 31, 2009. The Company recorded a LIFO decrement of $3,631 for the year ended December 31, 2008.

 

Inventories consisted of the following:

 

 

As of December 31, 2009 and 2008, the current cost of inventories exceeded their carrying value by $76,015 and $79,104, respectively. The Company’s FIFO inventory value approximates current costs.

 

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 years ended December 31, 2009 and 2008, the Company capitalized $644 and $125, respectively, of interest expense related to its major capital expansion projects.

 

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

 

 

In December 2009, the Company indefinitely delayed the construction of its premium-grade titanium sponge facility in Hamilton, Mississippi. As a result, the Company recorded an asset and asset-related impairment of $68.9 million. The impaired assets were recorded in construction-in-progress at both December 31, 2009 and 2008. For further information on the Company’s asset and asset-related impairment, see Note 3 to the Consolidated Financial Statements.

 

In general, depreciation is determined using the straight-line method over the estimated useful lives of the various classes of assets. Depreciation expense for the years ended December 31, 2009, 2008, and 2007 was

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

$20,272, $19,218, and $14,764, respectively. Depreciation and amortization are generally recorded over the following useful lives:

 

 

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.

 

Goodwill and intangible assets:

 

The Company does not amortize goodwill; however, the carrying amount of goodwill is tested, at least annually, for impairment. Absent any events throughout the year which would indicate a potential impairment has occurred, the Company performs its annual impairment testing during the fourth quarter.

 

The Company performs its goodwill impairment testing at the reporting unit level. The Company’s five reporting units, which are one level below its operating segments, where appropriate, are as follows: 1) the Titanium reporting unit; 2) the Fabrication reporting unit; 3) the Energy Fabrication reporting unit; 4) the U.S. Distribution reporting unit; and 5) the Europe Distribution reporting unit.

 

The carrying value of goodwill at the Company’s five reporting units as of the Company’s October 1, 2009 annual impairment test were as follows:

 

 

Goodwill is tested annually during the fourth quarter and is assessed between annual tests if an event occurs or circumstances change that would indicate the carrying value of a reporting unit may exceed its fair value. These events and circumstances may include, but are not limited to: significant adverse changes in the business climate or legal factors; an adverse action or assessment by a regulator; unanticipated competition; a material negative change in relationships with significant customers; strategic decisions made in response to economic or competitive conditions; loss of key personnel; or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed.

 

The fair value of the Company’s five reporting units is calculated by averaging the fair values determined using a discounted cash flow model and a market approach. A discounted cash flow model is based on historical and projected financial information and provides a fair value estimate based upon each reporting unit’s long-term operating and cash flow performance. This approach also considers the impact of cyclical downturns that occur in

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

the titanium and aerospace industries. The market valuation approach applies market multiples, such as EBITA and revenue multiples, developed from a set of peer group companies to each reporting unit to determine its fair value. The Company considered the use of a cost approach but determined such an approach was not appropriate.

 

Utilizing a discounted cash flow model, the Company estimates its 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 business conditions, sales volumes and prices, costs of production, and working capital changes. The Company considers historical experience and available information at the time the reporting units’ fair values are estimated. Discount rates were developed using a Weighted-Average Cost of Capital (“WACC”) methodology. The WACC represents the blended average required rate of return for equity and debt capital based on observed market return data and reporting unit specific risk factors.

 

The discount rates used in the Company’s October 1, 2009 annual impairment test were as follows:

 

 

The discounted cash flow model used for the October 1, 2009 annual testing was consistent with the prior year’s annual test. Significant assumptions that changed from the prior year included overall decreases in operating profits and related cash flow projections due to the continued softness of the commercial aerospace and titanium markets. The Company reduced the Fabrication reporting unit’s cash flow projections approximately 10% from the prior year to reflect the near-term uncertainty in Boeing 787 Dreamliner^® production, offset by a more stable long-term production outlook. Income projections for the U.S. Distribution reporting unit were reduced approximately 50% from the prior year to reflect declining market prices and the spot nature of sales by the U.S. Distribution reporting unit. These reductions were somewhat offset by working capital improvements, including savings from the closing of two of the reporting units facilities in 2009. Similarly, income projections for the Energy Fabrication reporting unit were reduced approximately 65% from the prior year to reflect a reduction in orders from its energy market customers due increased competition in the market, continued pricing pressure on the unit’s steel products, and the decrease in energy prices from their record highs in 2008. Discount rates for the current year were generally one percentage point higher than those used in the prior year to reflect the continuing softness and uncertainty in the titanium industry. The current year assumptions led to lower overall valuations of the Company’s five reporting units, but did not indicate a potential impairment for the Company’s reporting units, except for the Energy Fabrication reporting unit discussed below.

 

A summary of the excess of the fair value over the carrying value for each of the Company’s five reporting units for its October 1, 2009 annual impairment test is as follows:

 

 

For the Fabrication reporting unit, a 2% increase in the discount rate, or a 15% decrease in expected operating

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

cash flows, would have indicated a potential impairment in its discounted cash flow analysis. For the U.S. Distribution reporting unit, a 1% increase in the discount rate, or a 5% decrease in expected operating cash flows, would have indicated a potential impairment in its discounted cash flow analysis.

 

The Company’s Energy Fabrication reporting unit has been significantly impacted by the decrease in the price of oil from its record highs in 2008, coupled with continued pricing pressures on steel products as well as further competition in this market that has led to a slowdown in the Company’s sales forecast to energy market customers. As a result, the Company’s step one valuation analysis indicated a potential impairment of goodwill. Under step two of the Company’s annual impairment test, the Company allocates the fair value calculated under step one to the reporting unit’s assets and liabilities and any unrecognized intangible assets. The remaining unallocated fair value of the reporting unit represents the implied fair value of the reporting unit’s goodwill. The difference between the carrying value and the implied fair value of the reporting unit’s goodwill is the amount of impairment. The Company’s step two impairment analysis indicated the carrying value of goodwill at the Company’s Energy Fabrication reporting unit was fully impaired. As such, the Company recorded an impairment charge of $8.7 million as of December 31, 2009.

 

There have been no impairments to date at the Company’s other reporting units; however, uncertainties or other factors that could result in a potential impairment in future periods may include continued long-term production delays or a significant decrease in expected demand related to the Boeing 787 Dreamliner^® program, as well as any cancellation of one of the other major aerospace programs the Company currently supplies, including the JSF program or the Airbus family of aircraft, including the A380 and A350XWB programs. In addition, the Company’s ability to ramp up its production of these programs in a cost efficient manner may also impact the results of a future impairment test.

 

Goodwill.  The carrying amount of goodwill attributable to each segment at December 31, 2007, 2008 and 2009 was as follows:

 

 

Intangibles.  Intangible assets consist of customer relationships as a result of the Company’s prior acquisitions. These finite-lived intangible assets, which were initially valued at fair value using an Income approach, are being amortized over 20 years. The Company believes that this approach is appropriate because it provides a fair value estimate based on the expected long-term cash flows associated with the revenues generated from these customer relationships. In the event that long-term demand or market conditions change and the expected future cash flows associated with these assets is reduced, a write-down or acceleration of the amortization period may be required. Amortization expense related to intangible assets subject to amortization was $891, $983, and $948 for the years ended December 31, 2009, 2008, and 2007. Estimated annual amortization expense is expected to be approximately $969 in each of the next five successive years.

 

There were no intangible assets attributable to our Titanium Group and Distribution Group at December 31,

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

2007, 2008 and 2009. The carrying amount of intangible assets attributable to our Fabrication Group at December 31, 2007, 2008 and 2009 was as follows:

 

 

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. 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. See Note 3 to Company’s Consolidated Financial Statements for a discussion of asset and asset-related impairments related to the indefinite delay of the Company’s sponge plant project.

 

Environmental:

 

The Company expenses environmental costs related to existing conditions from which no future benefit is determinable. Expenditures that enhance or extend the life of the asset 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 estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers.

 

Treasury stock:

 

The Company accounts for treasury stock under the cost method and includes such shares as a reduction of total shareholders’ equity.

 

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.

 

The Company uses the completed contract accounting method for long-term contracts which results in the deferral of costs. This amount is included in “Inventories” on the Consolidated Balance Sheets. This amount was $2,480 in 2009 and $5,033 in 2008. 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. Sales under the completed contract accounting method totaled $36,098, $57,633, and $47,187 in 2009, 2008, and 2007, respectively.

 

The Company recognizes revenue only upon the acceptance of a definitive agreement or purchase order and upon delivery in accordance with the delivery terms in the agreement or purchase order, and the price to the buyer is fixed and determinable and collection is reasonably assured.

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Shipping and handling fees and costs:

 

All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue. Costs incurred by the Company for shipping and handling, including transportation costs paid to third-party shippers to transport titanium and titanium mill products, are reported as a component of cost of sales.

 

Research and development:

 

Research and development costs are expensed as incurred. These costs amounted to $2,001, $2,120, and $1,650 for the years ended December 31, 2009, 2008 and 2007, respectively.

 

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 Company accounts for its defined benefit pension plans in accordance with FASB’s authoritative guidance, which requires amounts recognized in the financial statements to be determined on an actuarial basis, rather than as contributions are made to the plan, and requires recognition of the funded status of the Company’s plans in its Consolidated Balance Sheet. In addition, it also requires actuarial gains and losses, prior service costs and credits, and transition obligations that have not yet been recognized to be recorded as a component of Accumulated Other Comprehensive Income.

 

Other post-retirement 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 post-retirement health care and life insurance benefits.

 

The Company also sponsors another post-retirement plan covering certain employees. This plan provides health care benefits for eligible employees. These benefits are accounted for on an actuarial basis, rather than as benefits are paid.

 

The Company does not pre-fund post-retirement benefit costs, but rather pays claims as billed.

 

Income taxes:

 

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis 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 (“NOLs”) and tax credits which may be carried back to obtain refunds or carried forward to offset future cash tax liabilities.

 

The Company evaluates quarterly the available evidence supporting the realization of deferred tax assets and makes adjustments for a valuation allowance, as necessary.

 

Tax benefits related to uncertain tax provisions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the appropriate taxing authority has completed their examination

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

even though the statute of limitations remains open, or the statute of limitation expires. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

 

Foreign currencies:

 

For the Company’s foreign subsidiaries in the United Kingdom and France, 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 year. Resulting differences from the remeasurement process are recognized in income and reported as other income.

 

The functional currency of the Company’s Canadian subsidiary is the Canadian Dollar. Assets and liabilities are translated at year-end exchange rates. Income statement accounts are translated at the average rates of exchange prevailing during the year. Translation adjustments are reported as a component of shareholders’ equity and are not included in income.

 

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. Transaction gains and losses are included in net income for the period.

 

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.

 

For further information on the Company’s derivative financial instruments, see Note 16 to the Company’s Consolidated Financial Statements.

 

Stock-based compensation:

 

Stock-based compensation is accounted for as required by the FASB’s authoritative guidance. The Company has applied the modified-prospective-transition method. Under the modified-prospective-transition method, compensation costs recognized during all years presented included: (a) compensation cost for all share-based payment arrangements granted but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original stock-based compensation guidance, and (b) compensation cost for all share-based payment arrangements granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the current stock-based compensation guidance. The Company utilizes a “graded vesting” approach to recognize compensation expense over the vesting period of the stock award. For employees who have reached retirement age, the Company recognizes compensation expense at the date of grant. For employees approaching retirement eligibility, the Company amortizes compensation expense over the period from the grant date through the retirement eligibility date.

 

Cash flows resulting from the windfall tax benefits from tax deductions in excess of the compensation cost recognized (excess tax benefits) are classified as financing cash inflows. For the years ended December 31, 2009, 2008, and 2007, operating cash flows were decreased and financing cash flows were increased by $39, $215 and $4,235 respectively.

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Total compensation expense recognized in the Consolidated Statements of Operations for stock-based compensation arrangements was $4,399, $5,155, and $6,686 for the years ended December 31, 2009, 2008 and 2007, respectively. The total income tax benefit recognized in the Consolidated Statements of Operations for stock-based compensation arrangements was $1,320, $1,892, and $2,339 for the years ended December 31, 2009, 2008 and 2007, respectively. There was no compensation cost capitalized in inventory or fixed assets for the years ended December 31, 2009, 2008, and 2007.

 

New Accounting Standards:

 

In December 2007, the FASB revised the authoritative guidance for business combinations. The revised guidance establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. The revised guidance also establishes additional disclosure requirements related to the financial effects of a business combination. The revised guidance became effective as of January 1, 2009. The adoption of the revised guidance did not have an effect on the Company’s Consolidated Financial Statements.

 

In December 2007, the FASB issued authoritative guidance establishing accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The guidance also establishes disclosure requirements that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owners. The guidance became effective as of January 1, 2009. The adoption of the new guidance did not have an effect on the Company’s Consolidated Financial Statements.

 

In March 2008, the FASB issued authoritative guidance which provided for additional disclosure requirements for derivative instruments and hedging activities, including disclosures as to how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The new guidance became effective as of January 1, 2009. The additional disclosures required by the new guidance are included in Note 16 to the Company’s Consolidated Financial Statements.

 

In June 2008, the FASB issued authoritative guidance which clarified that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities to be included in the computation of earnings per share under the two-class method. The new guidance became effective as of January 1, 2009, and required retrospective application. The adoption of the new guidance did not have a material impact on the Company’s Consolidated Financial Statements. See Note 4 to the Company’s Consolidated Financial Statements for further information on the new guidance and the impact of its retroactive application to the Company’s historical earnings per share.

 

In December 2008, the FASB issued revised authoritative guidance which requires additional disclosures about the plan assets of an employer’s defined benefit or other postretirement plan, to include investment policies and strategies; associated and concentrated risks; major asset categories and their fair values; inputs and valuation techniques used to measure fair-value of plan assets; and the net periodic benefit costs recognized for each annual period. The revised guidance is effective for reporting periods ending after December 15, 2009. The additional disclosures required by the new guidance are included in Note 7 to the Company’s Consolidated Financial Statements.

 

In April 2009, the FASB issued authoritative guidance requiring disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The new guidance became effective for interim reporting periods ending after June 15, 2009. The disclosures required by the new guidance are included Note 2 to the Company’s Consolidated Financial Statements.

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

In May 2009, the FASB issued authoritative guidance establishing general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and disclosure of the date through which subsequent events have been evaluated. The new guidance became effective for interim reporting periods ending after June 15, 2009. The disclosures required by the new guidance are included in Note 18 to the Company’s Consolidated Financial Statements.

 

In June 2009, the FASB issued authoritative guidance that identifies the FASB Accounting Standards Codification (the “Codification”) as the sole source of U.S. GAAP recognized by the FASB. The Codification identifies only two levels of GAAP: authoritative and nonauthoritative. The new guidance became effective for interim periods ending after September 15, 2009. The Company is utilizing the plain-English method for disclosures when referencing accounting standards. The adoption of Codification did not have a material impact on the Company’s Consolidated Financial Statements.

 

 

In December 2009, the Company announced that it had indefinitely delayed the construction of its premium-grade titanium sponge production facility in Hamilton, Mississippi. The indefinite delay was identified as a triggering event for an asset impairment test. The Company reviewed the assets for recoverability and determined the assets were impaired. At the time, the Company had spent approximately $66.9 million related to the construction of this facility and had additional contractual commitments of approximately $7.8 million. The Company determined the fair value of the assets to be $5.8 million using a combination of a market approach and a cost approach. As a result, the Company recorded an asset and asset-related impairment of $68.9 million in December 2009. These assets were not placed into service, therefore no depreciation expense related to them has been recognized. The $7.8 million of additional contractual commitments is recorded within other accrued liabilities in the Company’s Consolidated Balance Sheet.

 

 

Earnings per share amounts for each period are presented in accordance with the FASB’s authoritative guidance which requires the presentation of basic and diluted earnings per share. Basic earnings per share was computed by dividing net income (loss) by the weighted-average number of shares of Common Stock outstanding for each respective period. Diluted earnings per share was calculated by dividing net income (loss) by the weighted-average of all potentially dilutive shares of Common Stock that were outstanding during the periods presented.

 

In June 2008, the FASB amended the existing guidance for determining whether certain instruments were participating securities under the existing guidance. The new guidance clarified that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities to be included in the computation of earnings per share under the two-class method. The new guidance was effective for the Company’s fiscal year beginning January 1, 2009 and was to be applied retrospectively. The Company’s restricted stock awards are considered participating securities under the new guidance. The adoption of the new guidance reduced basic EPS by $0.02 and $0.03 for the years ended December 31, 2008 and 2007, respectively, and reduced diluted EPS by $0.01 for both of the years ended December 31, 2008 and 2007.

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Actual weighted-average shares of Common Stock outstanding used in the calculation of basic and diluted earnings per share for the years ended December 31, 2009, 2008 and 2007, were as follows:

 

 

For the years ended December 31, 2009, 2008 and 2007, options to purchase 495,766, 192,724 and 58,185 shares of Common Stock, at an average price of $31.30, $57.79 and $77.57, respectively, have been excluded from the calculations of diluted earnings per share because their effects were antidilutive.

 

 

The “Provision for income taxes” caption in the Consolidated Statements of Operations includes the following income tax expense (benefit):

 

 

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

 

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

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

 

 

The effective tax rate in 2009 was less than the 35% U.S. federal tax rate principally due to an increase in unrecognized tax benefits and the effects of foreign operations. The effective tax rate in 2008 was greater than the 35% U.S. federal tax rate principally due to the effects of state and foreign income taxes offset by the benefit of the manufacturing deduction. Because we generated a net operating loss for tax purposes, we do not qualify for the manufacturing deduction in 2009.

 

The increase in the effective tax rate in 2008 compared to 2007 was primarily the result of changes in the relative mix of U.S. and foreign income, an absence of tax exempt investment income in 2008 that was present in 2007, and an increase in unrecognized tax benefits.

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Deferred tax assets and liabilities resulted from the following:

 

 

The valuation allowance at December 31, 2009 is entirely attributable to the state deferred tax asset pertaining to the asset and asset-related impairment.

 

The Company recognizes the deferred tax impact of the unrealized foreign exchange gain or loss on a US dollar denominated intercompany debt with its Canadian subsidiary in Other Comprehensive Income. At December 31, 2008, there was an unrealized foreign exchange loss which would be treated as a capital loss under Canadian tax law. Because the company did not anticipate that its Canadian subsidiary would generate sufficient capital gain income to realize a tax benefit of this loss, it recognized a full valuation allowance for the related deferred tax asset of $1.0 million in Other Comprehensive Income. Due to fluctuations in the exchange rate, the previous unrealized foreign exchange loss became an unrealized foreign exchange gain resulting in a net deferred tax liability of $0.7 million at December 31, 2009. Accordingly, the valuation allowance provided at December 31, 2008 was no longer necessary and was released to Other Comprehensive Income.

 

The Company’s Canadian subsidiary has generated losses over the past several years. Although recent losses generally indicate a risk that tax carryforwards may be impaired, management believes firm sales contracts, including a $1 billion supply contract with a major aerospace manufacturer that will be substantially sourced from its Canadian subsidiary, will generate sufficient taxable income to permit utilization of the loss carryforwards. The magnitude of the firm contracts, certain favorable contract terms that mitigate the risk of raw material price

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

fluctuations, and the length of time over which the losses are available to offset future income has led management to conclude that it is more likely than not that sufficient taxable income will exist in future periods to realize the subsidiary’s net deferred tax asset of $13.9 million. Management regularly reevaluates assumptions underlying this assessment and will make adjustments in future periods to the extent necessary.

 

As a result of its cumulative historical earnings, the Company continues to believe it is more likely than not that the remaining net domestic deferred tax asset of $60.7 million at December 31, 2009 will be realized.

 

A reconciliation of the total amounts of unrecognized tax benefits for the year ended December 31, 2009 is as follows:

 

 

The Company classifies interest and penalties as an element of tax expense. The amount of tax-related interest and penalties recognized in the Consolidated Statement of Operations for fiscal years 2009, 2008, and 2007, and the total of such amounts accrued in the Consolidated Balance Sheets at December 31, 2009, 2008 and 2007 were not material.

 

The Company’s U.S. Federal income tax returns for 2005 and prior are closed to examination; however, to the extent that the Company elects to carryback its current year loss pursuant to recently enacted legislation, tax years 2004 and 2005 may remain open to adjustment. For the Company’s Canadian subsidiary, tax years 2004 and prior are closed to examination. The Company is currently under examination by the Internal Revenue Service for tax years 2006 through 2008 and the Company’s Canadian subsidiary is currently under examination by the Canadian tax authorities for tax years 2006 and 2007.

 

The Company’s unrecognized tax benefits principally relate to the sale of products and provision of services by the U.S. companies to their foreign affiliates. Such previously unrecognized tax benefits may be adjusted within the next twelve months based upon the completion of the examinations and as additional data becomes available to permit an update of the Company’s most recently completed transfer pricing study. Because of the previously mentioned five year net operating loss carryback provision, it is not possible to estimate a range of change that may occur in the next twelve months as a result of these events.

 

Note 6—OTHER INCOME (EXPENSE):

 

Other income (expense) for the years ended December 31, 2009, 2008 and 2007 was $2,056, $1,527, and $(2,134) respectively. Other income (expense) consists primarily of foreign exchange gains and losses from the Company’s international operations and fair value adjustments related to the Company’s foreign currency forward contracts. Also included in other income (expense) in 2007 was a gain of $1,000 from the settlement of litigation against a former material supplier. See Note 16 to the Company’s Condensed Consolidated Financial Statements for further information on the Company’s use of foreign currency forward contracts.

 

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

(In thousands, except share and per share amounts, unless otherwise indicated)

 

 

Note 7—EMPLOYEE BENEFIT PLANS:

 

The Company provides defined benefit pension plans for certain of its salaried and represented workforce. Benefits for its salaried participants are generally based on participant’s years of service and compensation. Benefits for represented pension participants are generally determined based on an amount for years of service. Other Company employees participate in 401(k) plans whereby the Company may provide a match of employee contributions. The policy of the Company with respect to its defined benefit plans is to contribute at least the minimum amounts required by applicable laws and regulations. For the years ended December 31, 2009, 2008, and 2007, expenses related to 401(k) plans were approximately $1,324, $1,204, and $881, respectively.

 

The Company uses a December 31 measurement date for all plans. The following table, which includes the Company’s four qualified pension plans and two non-qualified pension plans, provides reconciliations of the changes in the Company’s pension and other post-employment benefit plan obligations, the values of plan assets, amounts recognized in Company’s financial statements, and principal weighted-average assumptions used: