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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to             
Commission File Number: 001-14437
RTI INTERNATIONAL METALS, INC.
(Exact name of registrant as specified in its charter)
 
Ohio
 
52-2115953
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
Westpointe Corporate Center One, 5th Floor
1550 Coraopolis Heights Road
Pittsburgh, Pennsylvania
 
15108-2973
(Address of principal executive offices)
 
(Zip Code)
(412) 893-0026
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
 
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨
 
(Do not check if a smaller company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No
Number of shares of the Corporation’s common stock (“Common Stock”) outstanding as of April 24, 2015 was 30,799,460.







RTI INTERNATIONAL METALS, INC. AND CONSOLIDATED SUBSIDIARIES
As used in this Quarterly Report on Form 10-Q, the terms “RTI,” “Company,” “Registrant,” “we,” “our,” and “us,” mean RTI International Metals, Inc., its predecessors, and consolidated subsidiaries, taken as a whole, unless the context indicates otherwise.


 
INDEX
 
 
 
 
 
Page
 
 
 
 
PART I—FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II—OTHER INFORMATION
 
Item 1
Item 1A.
Item 2.
Item 4.
Item 6.
 
 




PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share amounts)

 
 
Three Months Ended March 31,
 
 
2015
 
2014
Net sales
 
$
198,492

 
$
174,545

Cost and expenses:
 
 
 
 
Cost of sales
 
156,471

 
146,076

Selling, general, and administrative expenses
 
23,658

 
25,868

Merger-related expenses
 
4,734

 

Research, technical, and product development expenses
 
1,465

 
984

Operating income
 
12,164

 
1,617

Other (expense) income, net
 
(856
)
 
535

Interest income
 
135

 
50

Interest expense
 
(8,019
)
 
(7,607
)
Income (loss) before income taxes
 
3,424

 
(5,405
)
Benefit from income taxes
 
(1,109
)
 
(1,589
)
Net income (loss) attributable to continuing operations
 
$
4,533

 
$
(3,816
)
Net loss attributable to discontinued operations, net of tax
 

 
(365
)
Net income (loss)
 
$
4,533

 
$
(4,181
)
Earnings (loss) per share attributable to continuing operations:
 
 
 
 
Basic
 
$
0.15

 
$
(0.13
)
Diluted
 
$
0.15

 
$
(0.13
)
Loss per share attributable to discontinued operations:
 
 
 
 
Basic
 
$

 
$
(0.01
)
Diluted
 
$

 
$
(0.01
)
Weighted-average shares outstanding:
 
 
 
 
Basic
 
30,608,796

 
30,445,681

Diluted
 
30,869,836

 
30,445,681

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


1


RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands)
 
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Net income (loss)
 
$
4,533

 
$
(4,181
)
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation
 
(9,620
)
 
(4,093
)
Unrealized gain/(loss) on investments, net of tax of $16 and $(14)
 
30

 
(26
)
Changes in benefit plan accounts, net of tax of $581 and $678
 
966

 
1,105

Other comprehensive loss, net of tax
 
(8,624
)
 
(3,014
)
Comprehensive loss
 
$
(4,091
)
 
$
(7,195
)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


2


RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
 
 
March 31, 2015
 
December 31, 2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
209,025

 
$
182,059

Short-term investments
 
129,895

 
148,383

Receivables, less allowance for doubtful accounts of $866 and $694
 
111,417

 
117,745

Inventories, net
 
475,719

 
474,306

Costs in excess of billings
 
8,171

 
5,522

Deferred income taxes
 
30,632

 
30,632

Other current assets
 
23,817

 
19,803

Total current assets
 
988,676

 
978,450

Property, plant, and equipment, net
 
366,236

 
369,287

Goodwill
 
144,513

 
145,518

Other intangible assets, net
 
55,131

 
57,122

Other noncurrent assets
 
14,189

 
15,317

Total assets
 
$
1,568,745

 
$
1,565,694

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
113,121

 
$
111,645

Accounts payable
 
85,401

 
105,044

Accrued wages and other employee costs
 
24,132

 
26,874

Billings in excess of cost
 
11,777

 
9,962

Unearned revenues
 
22,042

 
7,623

Other accrued liabilities
 
26,582

 
18,724

Total current liabilities
 
283,055

 
279,872

Long-term debt
 
348,031

 
345,012

Liability for post-retirement benefits
 
48,935

 
48,295

Liability for pension benefits
 
16,673

 
16,986

Deferred income taxes
 
60,467

 
60,503

Unearned revenues
 
4,829

 
5,476

Other noncurrent liabilities
 
13,889

 
14,070

Total liabilities
 
775,879

 
770,214

Commitments and contingencies (Note 15)
 

 

Shareholders’ equity:
 
 
 
 
Common stock, $0.01 par value; 100,000,000 shares authorized; 31,672,731 and 31,585,696 shares issued; 30,794,405 and 30,729,784 shares outstanding
 
317

 
316

Additional paid-in capital
 
540,504

 
538,703

Treasury stock, at cost; 878,326 and 855,912 shares
 
(19,974
)
 
(19,649
)
Accumulated other comprehensive loss
 
(64,213
)
 
(55,589
)
Retained earnings
 
336,232

 
331,699

Total shareholders’ equity
 
792,866

 
795,480

Total liabilities and shareholders’ equity
 
$
1,568,745

 
$
1,565,694

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

3


RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
 
Three Months Ended March 31,
 
 
2015
 
2014
OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
4,533

 
$
(4,181
)
Adjustment for non-cash items included in net income:
 
 
 
 
Depreciation and amortization
 
11,244

 
10,986

Deferred income taxes
 
(52
)
 
(31
)
Stock-based compensation
 
993

 
1,295

Excess tax benefits from stock-based compensation activity
 
(36
)
 
(195
)
(Gain)/loss on sale of property, plant and equipment
 
195

 
(122
)
Amortization of discount on long-term debt
 
4,707

 
4,403

Amortization of debt issuance costs
 
490

 
456

Amortization of discounts on short-term investments and marketable securities
 
(35
)
 

Other
 
1,263

 
(181
)
Changes in assets and liabilities:
 
 
 
 
Receivables
 
2,445

 
(2,278
)
Inventories
 
(7,567
)
 
(21,757
)
Accounts payable
 
(16,349
)
 
1,093

Income taxes payable
 
166

 
(5,236
)
Unearned revenue
 
14,979

 
1,036

Costs in excess of billings
 
(835
)
 
(2,160
)
Other current assets and liabilities
 
3,931

 
(3,542
)
Other assets and liabilities
 
1,864

 
(301
)
Cash provided by (used in) operating activities
 
21,936

 
(20,715
)
INVESTING ACTIVITIES:
 
 
 
 
Purchase of investments
 
(44,977
)
 
(128,216
)
Maturity/sale of investments
 
63,500

 

Acquisitions, net of cash acquired
 

 
(21,797
)
Capital expenditures
 
(10,140
)
 
(6,850
)
Divestitures
 

 
3,281

Cash provided by (used in) investing activities
 
8,383

 
(153,582
)
FINANCING ACTIVITIES:
 
 
 
 
Repayments on long-term debt
 
(104
)
 
(484
)
Purchase of common stock held in treasury
 
(325
)
 
(850
)
Proceeds from exercise of employee stock options
 
1,208

 
539

Excess tax benefits from stock-based compensation activity
 
36

 
195

Cash provided by (used in) financing activities
 
815

 
(600
)
Effect of exchange rate changes on cash and cash equivalents
 
(4,168
)
 
(832
)
Increase (decrease) in cash and cash equivalents
 
26,966

 
(175,729
)
Cash and cash equivalents at beginning of period
 
182,059

 
343,637

Cash and cash equivalents at end of period
 
$
209,025

 
$
167,908

Non-cash investing and financing activities:
 
 
 
 
Increase in capital expenditures accrued in accounts payable
 
$
701

 
$
530

Issuance of common stock for restricted stock awards
 
$

 
$
1,658

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

4


RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)
Note 1—BASIS OF PRESENTATION:
The accompanying unaudited Condensed Consolidated Financial Statements of RTI International Metals, Inc. and its subsidiaries (the “Company” or “RTI”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and include the financial position and results of operations for the Company. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, these financial statements contain all of the adjustments of a normal and recurring nature considered necessary to state fairly the results for the interim periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for the year.
The Condensed Consolidated Balance Sheet at December 31, 2014 has been derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these Condensed Consolidated Financial Statements be read in conjunction with accounting policies and Notes to the Consolidated Financial Statements included in the Company’s 2014 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2015 (the “Annual Report”).
Note 2—ALCOA MERGER AGREEMENT:
On March 8, 2015, RTI and Alcoa Inc. ("Alcoa") entered into a definitive merger agreement pursuant to which Alcoa agreed to acquire RTI in a stock-for-stock transaction. Under the terms of the merger agreement, RTI shareholders will receive 2.8315 Alcoa shares for each RTI share. The merger, which has been approved by the boards of directors of both companies, is subject to customary conditions, including the receipt of European Union approval and RTI shareholder approval. Early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act has been granted. If the merger agreement is terminated under certain circumstances, RTI would be obligated to pay Alcoa a termination fee of $50 million.
Note 3—ORGANIZATION:
The Company is a leading producer and global supplier of advanced titanium mill products and a manufacturer of fabricated titanium and specialty metal components for the international aerospace, defense, energy, medical device, and other consumer and industrial 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.
On June 3, 2014, the Company acquired all of the issued and outstanding common stock of Dynamet Technology, Inc. (now known as “RTI Advanced Powder Materials”), an industry innovator in titanium powder metallurgy and a supplier of near-net shape titanium and titanium alloy preforms and components to commercial aerospace, defense, biomedical, and industrial customers.
On January 22, 2014, the Company acquired all of the issued and outstanding common stock of Directed Manufacturing, Inc. (now known as “RTI Directed Manufacturing”), a leader in additively manufacturing metals and plastics, using 3-D printing technology, for commercial production and engineering development applications.
On February 21, 2014, the Company completed the sale of the assets of the specialty metals business of Bow Steel Corporation (“RTI Connecticut”), for approximately $3.3 million in cash. The results of RTI Connecticut have been presented as discontinued operations for the three months ended March 31, 2014.
The Company conducts business in two segments: the Titanium Segment and the Engineered Products and Services (“EP&S”) Segment. The structure reflects the Company’s presence as an integrated supplier of advanced titanium mill products as well as engineered and fabricated components across the entire supply chain.

5

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

The Titanium Segment melts, processes, produces, forges, stocks, distributes, finishes, cuts-to-size, and facilitates just-in-time delivery services of 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 and Canton, Ohio; Martinsville, Virginia; Norwalk, California; Burlington, Massachusetts; Tamworth, England; and Rosny-Sur-Seine, France, the Titanium Segment has overall responsibility for the production and distribution of primary mill products including, but not limited to bloom, billet, sheet, and plate. In addition, the Titanium Segment produces ferro titanium alloys for its steelmaking customers. The Titanium Segment 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 EP&S Segment is comprised of companies with significant hard and soft-metal expertise that form, extrude, fabricate, additively manufacture, machine, micro machine, and assemble titanium, aluminum, and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve the commercial aerospace, defense, medical device, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. With operations in Minneapolis, Minnesota; Houston, Austin, and Spring, Texas; Sullivan and Washington, Missouri; Laval, Canada; and Welwyn Garden City and Bradford, England, the EP&S Segment provides value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and subassemblies, and components for the production of minimally invasive and implantable medical devices, as well as engineered systems for deepwater oil and gas exploration and production infrastructure. The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products.
Note 4—ACQUISITIONS:
RTI Advanced Powder Materials. On June 3, 2014, the Company purchased all of the outstanding common stock of RTI Advanced Powder Materials for total consideration of approximately $19.0 million, including $15.6 million in cash, $1.6 million in contingent consideration, and the assumption of $1.8 million in liabilities. RTI Advanced Powder Materials is an industry innovator in titanium powder metallurgy and a supplier of near-net shape titanium and titanium alloy preforms and components to commercial aerospace, defense, biomedical, and industrial customers. Subsequent to its acquisition, RTI Advanced Powder Materials was merged with and into RMI Titanium Company, which is part of the Titanium Segment.
The purchase price allocation is as follows:
Assets purchased:
 
Current assets, excluding inventory
$
324

Inventories
174

Plant and equipment
101

Intangible assets:
 
Customer relationships
3,250

Developed technology
850

Backlog
100

Goodwill
14,211

Liabilities assumed:
 
Current liabilities
(271
)
Deferred tax liabilities
(1,572
)
Contingent consideration
(1,600
)
Net assets acquired
$
15,567

Goodwill is primarily attributable to the Company’s exposure to new materials and production methods, which is expected to enhance the Company’s existing product offerings, and is not deductible for income tax purposes. Customer relationships and developed technology intangible assets are being amortized over a seven-year useful life, while the backlog intangible asset is being amortized over a one-year useful life.

6

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Pro forma financial information has not been prepared for the acquisition of RTI Advanced Powder Materials as the acquisition was not material to the Condensed Consolidated Financial Statements.
RTI Directed Manufacturing. On January 22, 2014, the Company purchased all of the outstanding common stock of RTI Directed Manufacturing for total consideration of approximately $22.8 million, including $22.5 million in cash and the assumption of $0.3 million in liabilities. RTI Directed Manufacturing additively manufactures plastic and metal, including titanium, components using 3-D printing technology for a variety of markets. The results of RTI Directed Manufacturing are reported in the EP&S Segment.
The purchase price allocation is as follows:
Assets purchased:
 
Current assets, excluding inventory
$
717

Inventories
452

Plant and equipment
1,973

Intangible assets:
 
Customer relationships
2,800

Directed Manufacturing trade name
1,000

Developed technology
1,100

Goodwill
14,712

Liabilities assumed:
 
Current liabilities
(285
)
Net assets acquired
$
22,469

Goodwill is primarily attributable to RTI Directed Manufacturing’s assembled workforce and exposure to new customers for the Company’s products. Customer relationships and developed technology are being amortized over a seven-year useful life. Trade names are not amortized as the Company believes that these assets have an indefinite life and the Company intends to continue the use of the Directed Manufacturing name indefinitely.
The Company has made a 338(h)(10) election under the Internal Revenue Code (the “I.R.C.”), which allowed the Company to step-up the tax basis of acquired assets to fair value as presented in the purchase price allocation. As a result of this election, a significant portion of the purchase price, including goodwill, is deductible for U.S. tax purposes under the provisions of I.R.C. Section 197.
Pro forma financial information has not been prepared for the acquisition of RTI Directed Manufacturing as the acquisition was not material to the Condensed Consolidated Financial Statements.

7

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Note 5—ACCUMULATED OTHER COMPREHENSIVE LOSS:
Accumulated other comprehensive loss is comprised of foreign currency exchange rate fluctuations at the Company’s Canadian subsidiary, changes in prior service costs and actuarial losses related to the Company’s pension plans, and unrealized gains and losses on short-term investments. The components of accumulated other comprehensive loss at March 31, 2015 and December 31, 2014 were as follows:
 
 
Foreign
Currency
Translation
 
Prior Service
Costs and
Actuarial Losses
on Benefit Plans
 
Unrealized
Losses
on
Investments
 
Total
Balance at December 31, 2014
 
$
(3,953
)
 
$
(51,595
)
 
$
(41
)
 
$
(55,589
)
Other comprehensive income/(loss) before reclassifications, net of tax
 
(9,620
)
 

 
30

 
(9,590
)
Amounts reclassified from accumulated other comprehensive loss, net of tax
 

 
966

 

 
966

Accumulated other comprehensive loss at March 31, 2015
 
$
(13,573
)
 
$
(50,629
)
 
$
(11
)
 
$
(64,213
)
Amounts reclassified from accumulated other comprehensive loss to net periodic pension expense during the three months ended March 31, 2015 and 2014 were as follows:
 
 
Three Months Ended
March 31,
 
 
2015
 
2014
Actuarial losses and prior service costs
 
$
1,547

 
$
1,782

Tax expense
 
(581
)
 
(677
)
Total reclassifications
 
$
966

 
$
1,105


These amounts have been used in the calculation of net periodic benefit cost for the three months ended March 31, 2015 and 2014. Refer to Note 14 for further information about the Company’s benefit plans.
Note 6—STOCK-BASED COMPENSATION:
Stock Options
A summary of the status of the Company’s stock options as of March 31, 2015, and the activity during the three months then ended, is presented below:
Stock Options
Options
Outstanding at December 31, 2014
528,680

Granted
167,204

Forfeited
(6,974
)
Expired
(8,808
)
Exercised
(46,523
)
Outstanding at March 31, 2015
633,579

Exercisable at March 31, 2015
382,822


8

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model based upon the assumptions noted in the following table:
 
2015
Risk-free interest rate
1.18
%
Expected dividend yield
0.00
%
Expected lives (in years)
5.0

Expected volatility
44.00
%
The weighted-average grant date fair value of stock option awards granted during the three months ended March 31, 2015 was $8.79.
Restricted Stock
A summary of the status of the Company’s nonvested restricted stock as of March 31, 2015, and the activity during the three months then ended, is presented below:
Nonvested Restricted Stock Awards
Shares
Nonvested at December 31, 2014
199,069

Granted

Vested
(60,536
)
Forfeited
(8,144
)
Nonvested at March 31, 2015
130,389

Restricted Stock Units
A summary of the status of the Company's nonvested restricted stock units as of March 31, 2015, and the activity during the three months then ended, is presented below:
Nonvested Restricted Stock Units
Shares
Nonvested at December 31, 2014

Granted
76,231

Vested

Forfeited

Nonvested at March 31, 2015
76,231

The fair value of restricted stock unit grants was calculated using the market value of the Company’s Common Stock on the date of issuance. The weighted-average grant date fair value of restricted stock units granted during the three months ended March 31, 2015 was $22.21.

9

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Performance Share Awards
A summary of the Company’s performance share awards as of March 31, 2015, and the activity during the three months then ended, is presented below:
Performance Share Awards
 
Awards
Activity
 
Maximum Shares
Eligible to
Receive
Outstanding at December 31, 2014
 
157,083

 
314,166

Granted
 
150,339

 
300,678

Vested
 
(43,804
)
 
(87,608
)
Forfeited
 
(9,527
)
 
(19,054
)
Outstanding at March 31, 2015
 
254,091

 
508,182

The performance awards granted in 2015 have market, performance, and service vesting conditions. The payout of fifty percent of the awards is based upon the Company’s total shareholder return ("TSR") compared to the TSR of a relative peer group. This portion of the award was valued using a Monte Carlo model. The payout of the remaining fifty percent of the awards is based upon the Company’s annual diluted earnings per share growth. This portion of the award was valued using the market value of the Company’s Common Stock on the date of issuance. Expense on this portion of the award will be recognized over the performance period and is determined based on the probability that the performance targets will be achieved. The weighted-average grant-date fair value of performance share awards granted during the three months ended March 31, 2015 was $24.85.
Note 7—INCOME TAXES:
Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items.

For the three months ended March 31, 2015, the estimated annual effective tax rate applied to ordinary income from continuing operations was 24.6%, compared to a rate of 26.3% for the three months ended March 31, 2014. The Company’s effective income tax rate decreased 1.7 percentage points from 2014 principally due to a decrease in non-deductible expenses and the mix of foreign and domestic income, whereby foreign income taxed at lower rates represents a larger portion of overall income. This decrease was partially offset by a reduced benefit for the U.S. domestic manufacturing deduction.
Due to its Canadian subsidiary’s cumulative losses over a number of years, the Company recorded a full valuation allowance at December 31, 2010 and for all subsequent periods, against its Canadian net deferred tax asset position, which is principally comprised of net operating losses. At March 31, 2015, the Company’s Canadian net deferred tax asset totaled $26.3 million, with an offsetting valuation allowance of the same amount.
For the three months ended March 31, 2015 and for the full 2015 calendar year, the Company’s Canadian subsidiary is expected to generate taxable income, which will not result in a tax charge for financial statement purposes, since no benefit was recognized in prior years for the net operating losses. The effect of utilizing these Canadian net operating losses, for which a benefit is not currently recognized in the financial statements, reduced the Company’s effective income tax rate by 6.0 percentage points.
Inclusive of discrete items, the Company recorded a benefit from income taxes of $1,109, or (32.4)% of pretax income from continuing operations, and $1,589, or 29.4% of pretax loss from continuing operations, for federal, state, and foreign income taxes for the three months ended March 31, 2015 and 2014, respectively. A discrete benefit of $1,951 was recorded for the three months ended March 31, 2015 and was primarily due to the effective settlement of a tax audit during the period. Discrete items for the three months ended March 31, 2014 were not material.

10

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Note 8—EARNINGS (LOSS) PER SHARE:
Basic earnings per share (“EPS”) was computed by dividing net income attributable to common shareholders by the weighted-average number of shares of Common Stock outstanding for each respective period. Diluted EPS was calculated by dividing net income attributable to common shareholders by the weighted-average of all potentially dilutive shares of Common Stock that were outstanding during the periods presented. The Company’s restricted stock awards are considered participating securities. As such, the Company uses the two-class method to compute basic and diluted EPS.
At March 31, 2015, the Company had outstanding $114.4 million aggregate principal amount of its 3.00% Convertible Senior Notes due December 2015 (the “2015 Notes”) and $402.5 million aggregate principal amount of its 1.625% Convertible Senior Notes due October 2019 (the “2019 Notes”). At both March 31, 2015 and 2014, shares underlying the 2015 Notes, shares underlying the 2019 Notes, and shares underlying certain stock options were excluded from the calculation of EPS as their effects were antidilutive.
Shares excluded from the calculation of EPS for the three months ending March 31, 2015 and 2014 were as follows:
 
 
Three Months Ended
March 31,
 
 
2015
 
2014
2015 Notes
 
3,185,213

 
3,185,213

2019 Notes
 
9,885,561

 
9,885,561

Antidilutive options (1)
 
345,161

 
579,029

(1)
Average option price of shares excluded from calculation of EPS were $40.29 and $34.57 for the three months ended March 31, 2015 and 2014, respectively.

11

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

The following illustrates the earnings allocation method utilized in the calculation of basic and diluted EPS. Actual weighted-average shares of Common Stock outstanding used in the calculation of basic and diluted EPS for the three months ended March 31, 2015 and 2014 were as follows:
 
 
Three Months Ended
March 31,
 
 
2015
 
2014
Numerator:
 
 
 
 
Net income (loss) from continuing operations before allocation of earnings to participating securities
 
$
4,533

 
$
(3,816
)
Less: Earnings allocated to participating securities
 
(22
)
 

Net income (loss) from continuing operations attributable to common shareholders, after earnings allocated to participating securities used in calculation of basic earnings per share
 
$
4,511

 
$
(3,816
)
Numerator—discontinued operations:
 
 
 
 
Net loss from discontinued operations before allocation of earnings to participating securities
 
$

 
$
(365
)
Less: Earnings allocated to participating securities
 

 

Net loss from discontinued operations attributable to common shareholders, after earnings allocated to participating securities
 
$

 
$
(365
)
Denominator:
 
 
 
 
Basic weighted-average shares outstanding
 
30,608,796

 
30,445,681

Effect of dilutive securities
 
261,040

 

Diluted weighted-average shares outstanding
 
30,869,836

 
30,445,681

Earnings (loss) per share attributable to continuing operations:
 
 
 
 
Basic
 
$
0.15

 
$
(0.13
)
Diluted
 
$
0.15

 
$
(0.13
)
Earnings (loss) per share attributable to discontinued operations:
 
 
 
 
Basic
 
$

 
$
(0.01
)
Diluted
 
$

 
$
(0.01
)
Note 9—CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
Cash and cash equivalents
The Company considers all highly-liquid 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 and corporate commercial paper with original maturities of less than 90 days.
Available-for-sale securities
Investments with maturities of less than one year are classified as available-for-sale, short-term investments and are recorded at fair value based on market quotes using the specific identification method, with unrealized gains and losses recorded as a component of accumulated other comprehensive loss until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis. The Company considers these investments to be available-for-sale as they may be sold to fund other investment opportunities as they arise.
The major categories of the Company’s cash equivalents and available-for-sale, short-term investments are as follows:
Commercial paper
The Company invests in high-quality commercial paper issued by highly-rated corporations and governments. By definition, the stated maturity on commercial paper obligations cannot exceed 270 days.

12

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Money market mutual funds
The Company invests in money market mutual funds that seek to maintain a stable net asset value of $1.00, while limiting overall exposure to credit, market, and liquidity risks.
Cash, cash equivalents, and short-term investments consist of the following:
 
 
March 31,
2015
 
December 31,
2014
Cash and cash equivalents:
 
 
 
 
Cash
 
$
58,964

 
$
73,495

Cash equivalents:
 
 
 
 
Commercial paper
 
28,598

 
19,996

Money market mutual funds
 
121,463

 
88,568

Total cash and cash equivalents
 
209,025

 
182,059

Short-term investments:
 
 
 
 
Commercial paper
 
129,895

 
148,383

Total short-term investments
 
129,895

 
148,383

Total cash, cash equivalents, and short-term investments
 
$
338,920

 
$
330,442

 The Company’s short-term investments at March 31, 2015 were as follows:
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
 
Gains  
 
Losses  
 
As of March 31, 2015:
 
 
 
 
 
 
 
 
Commercial Paper
 
$
129,912

 
$

 
$
17

 
$
129,895

Total
 
$
129,912

 
$

 
$
17

 
$
129,895

The Company’s short-term investments at December 31, 2014 were as follows:
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
 
Gains  
 
Losses  
 
As of December 31, 2014:
 
 
 
 
 
 
 
 
Commercial Paper
 
$
148,447

 
$

 
$
64

 
$
148,383

Total
 
$
148,447

 
$

 
$
64

 
$
148,383

The Company typically purchases its available-for-sale debt securities either at a premium or a discount. The premium or discount is amortized over the remaining term of each security using the interest method. Amortization is recorded as either a decrease to interest income for premiums or an increase to interest income for discounts. For the three months ended March 31, 2015, net amortization of premiums and discounts was immaterial.
The Company classifies investments maturing within one year as short-term investments. Investments maturing in excess of one year are classified as noncurrent. All of the Company’s investments had contractual maturities of less than one year at March 31, 2015.
As of March 31, 2015, no investments classified as available-for-sale had been in a continuous unrealized loss position for greater than twelve months. The Company believes that the unrealized losses on the available-for-sale portfolio as of March 31, 2015 are temporary in nature and are related to market interest rate fluctuations and not indicative of a deterioration in the creditworthiness of the issuers.

13

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Note 10—FAIR VALUE MEASUREMENTS:
For certain of the Company’s financial instruments and account groupings, including cash, short-term investments, accounts receivable, costs in excess of billings, accounts payable, accrued wages and other employee costs, billings in excess of cost, unearned revenue, and other accrued liabilities, the carrying value approximates fair value.
Listed below are the Company’s assets and liabilities and their fair values, which were measured at fair value on a recurring basis, as of March 31, 2015 and December 31, 2014. The Company uses trading prices near the balance sheet date to determine the fair value of its assets measured on a recurring basis. The fair value of contingent consideration payable that was classified as Level 3 relates to the Company's probability assessments of expected future revenues related to the RTI Advanced Powder Materials acquisition. The contingent consideration is to be paid over the next 10 years, and there is no limit to the potential amount of contingent consideration. There were no transfers between levels for the three months ended March 31, 2015.
The Company's assets and liabilities and their fair values as of March 31, 2015 were as follows:
 
 
Quoted
Market Prices
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
Assets measured on a recurring basis as of March 31, 2015:
 
 
 
 
 
 
 
 
Commercial Paper
 
$

 
$
129,895

 
$

 
$
129,895

Total
 
$

 
$
129,895

 
$

 
$
129,895

Liabilities measured on a recurring basis as of March 31, 2015:
 
 
 
 
 
 
 
 
Contingent Consideration
 
$

 
$

 
$
995

 
$
995

Total
 
$

 
$

 
$
995

 
$
995

The Company's assets and liabilities and their fair values as of December 31, 2014 were as follows:
 
 
Quoted
Market Prices
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
Assets measured on a recurring basis as of December 31, 2014:
 
 
 
 
 
 
 
 
Commercial Paper
 
$

 
$
148,383

 
$

 
$
148,383

Total
 
$

 
$
148,383

 
$

 
$
148,383

Liabilities measured on a recurring basis as of December 31, 2014:
 
 
 
 
 
 
 
 
Contingent Consideration
 
$

 
$

 
$
1,000

 
$
1,000

Total
 
$

 
$

 
$
1,000

 
$
1,000

The carrying amounts and fair values of financial instruments for which the fair value option was not elected were as follows:
 
 
March 31, 2015
 
December 31, 2014
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and cash equivalents
 
$
209,025

 
$
209,025

 
$
182,059

 
$
182,059

Current portion of long-term debt
 
$
113,121

 
$
127,372

 
$
111,645

 
$
119,522

Long-term debt
 
$
348,031

 
$
473,702

 
$
345,012

 
$
405,886


14

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

The fair value of long-term debt was estimated based on significant observable inputs, including recent trades and trading levels of the outstanding debt on March 31, 2015 and December 31, 2014 (Level 2).
Note 11—INVENTORIES:
Inventories were valued at cost as determined by the last-in, first-out (“LIFO”) method for approximately 56% and 55% of the Company’s inventories at March 31, 2015 and December 31, 2014, 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). As of March 31, 2015 and December 31, 2014, the current FIFO cost of inventories exceeded their LIFO carrying value by $25,893 and $30,481, respectively. When market conditions indicate an excess of carrying cost over market value, a lower-of-cost-or-market provision is recorded. Inventories consisted of the following:
 
 
March 31,
2015
 
December 31,
2014
Raw materials and supplies
 
$
136,958

 
$
172,214

Work-in-process and finished goods
 
364,654

 
332,573

LIFO reserve
 
(25,893
)
 
(30,481
)
Total inventories, net
 
$
475,719

 
$
474,306

Note 12—GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill. 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.
While there were no impairments during the first three months of 2015, uncertainties or other factors that could result in a potential impairment in future periods include:
 
the Company’s ability to improve the operational performance of its Medical Device Fabrication reporting unit,
unfavorable changes in program pricing, reductions in expected demand, or future production delays related to the Boeing 787 Pi Box program, and
any cancellation of one of the other major aerospace programs in which the Company currently participates, including the Joint Strike Fighter program, the Airbus family of aircraft, including the A380 and A350XWB programs, or the Boeing 747-8 program.
At both March 31, 2015 and December 31, 2014, the EP&S Segment had accumulated goodwill impairment losses of $22,858, while the Titanium Segment had no accumulated goodwill impairment losses. The carrying amounts of goodwill attributable to each segment at December 31, 2014 and March 31, 2015 were as follows:
 
 
Titanium
Segment
 
Engineered
Products and
Services
Segment
 
Total
December 31, 2014
 
$
23,873

 
$
121,645

 
$
145,518

Translation adjustment
 

 
(1,005
)
 
(1,005
)
March 31, 2015
 
$
23,873

 
$
120,640

 
$
144,513


15

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Intangibles. Intangible assets consist primarily of customer relationships, trade names, and developed technology acquired through various business combinations. The fair values of these intangible assets were originally determined at acquisition. In the event that long-term demand or market conditions change and the expected future cash flows associated with these assets are reduced, a write-down or acceleration of the amortization period may be required. Trade names are not amortized, as the Company believes that these assets have an indefinite life as the Company currently intends to continue use of the Remmele and Directed Manufacturing names indefinitely. Other intangible assets are being amortized over the following periods:
Intangible Asset
Amortization
Period
Customer relationships
7-20 years
Developed technology
7-20 years
Backlog
2 years or less
The carrying amounts of intangible assets attributable to each segment at December 31, 2014 and March 31, 2015 were as follows:
 
 
Titanium
Segment
 
Engineered
Products and
Services
Segment
 
Total
December 31, 2014
 
$
3,800

 
$
53,322

 
$
57,122

Amortization
 
(171
)
 
(1,097
)
 
(1,268
)
Translation adjustment
 

 
(723
)
 
(723
)
March 31, 2015
 
$
3,629

 
$
51,502

 
$
55,131

Note 13—LONG-TERM DEBT:
Long-term debt consisted of:
 
 
March 31, 
2015
 
December 31, 
2014
$402.5 million aggregate principal amount 1.625% Convertible Senior Notes due 2019
 
$
335,192

 
$
331,998

$114.4 million aggregate principal amount 3.000% Convertible Senior Notes due 2015
 
110,281

 
108,792

Capital leases
 
15,679

 
15,867

Total debt
 
461,152

 
456,657

Less: Current portion of long-term debt
 
(110,281
)
 
(108,792
)
Less: Current portion of capital leases
 
(2,840
)
 
(2,853
)
Total long-term debt
 
$
348,031

 
$
345,012

During the three months ended March 31, 2015 and 2014, the Company recorded, as a component of interest expense, long-term debt discount amortization of $4,707 and $4,403, respectively. Interest expense from the amortization of debt issuance costs was $490 and $455 for the three months ended March 31, 2015 and 2014, respectively. No interest was capitalized for the three months ended March 31, 2015 and 2014.

16

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Note 14—EMPLOYEE BENEFIT PLANS:
Components of net periodic pension and other post-retirement benefit costs for the three months ended March 31, 2015 and 2014 for those salaried and hourly covered employees were as follows:
 
 
Pension Benefits
 
Other Post-Retirement Benefits
 
 
Three Months Ended
March 31,
 
Three Months Ended
March 31,
 
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
632

 
$
527

 
$
319

 
$
239

Interest cost
 
1,787

 
1,966

 
494

 
534

Expected return on plan assets
 
(2,843
)
 
(2,825
)
 

 

Amortization of prior service cost
 
228

 
228

 

 
172

Amortization of actuarial loss
 
1,223

 
1,358

 
95

 
24

Net periodic benefit cost
 
$
1,027

 
$
1,254

 
$
908

 
$
969

Additionally, the Company recognized $966, net of tax, as a component of accumulated other comprehensive loss related to amortization of actuarial losses and prior service costs, for the three months ended March 31, 2015.
The Company made no contributions to its qualified defined benefit plans during the three months ended March 31, 2015. The Company is not required to make any additional contributions to its Company-sponsored pension plans during the remainder of 2015.
Note 15—COMMITMENTS AND CONTINGENCIES:
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 the Company’s opinion, the ultimate liability, if any, resulting from these matters will have no significant effect on its Condensed 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 $500 million, which includes grounding liability.
Environmental Matters
Based on available information, the Company believes that its share of possible environmental-related costs is in a range from $0.5 million to $2.1 million in the aggregate. At both March 31, 2015 and December 31, 2014, the amount accrued for future environmental-related costs was $1.2 million. Of the total amount accrued at March 31, 2015, $0.1 million was expected to be paid within the next twelve months, and was included as a component of other accrued liabilities on the Company’s Condensed Consolidated Balance Sheet. The remaining $1.1 million was recorded as a component of other noncurrent liabilities. During the three months ended March 31, 2015, there were no payments made related to environmental liabilities.
Other Matters
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 Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of the operations, cash flows, or the financial position of the Company.
Note 16—TRANSACTIONS WITH RELATED PARTIES:
On October 30, 2014, David P. Hess was elected to the Company’s Board of Directors. Mr. Hess had been employed as President of Pratt & Whitney, a subsidiary of United Technologies Corporation ("UTC"), until his retirement in 2014.
On January 20, 2015, Mr. Hess was appointed Senior Vice President, Aerospace Business Development at UTC.
The Company is a party to a long-term titanium mill product supply agreement, announced in September 2013, with three UTC business units, under which it supplies titanium sheet products used primarily in the manufacture of engine nacelle

17

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

components, rotor-quality billet, and a range of titanium mill products for various rotary-wing platforms. Sales to UTC and third-party fabricators under UTC platforms during the three months ended March 31, 2015 and 2014 were $6,347 and $7,333, respectively.
Note 17—SEGMENT REPORTING:
The Company has two reportable segments: the Titanium Segment and the EP&S Segment. The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products. Reportable segments are measured by the Company’s Chief Operating Decision Maker based on revenues and 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 deferred taxes. A summary of financial information by reportable segment is as follows:
 
 
Three Months Ended
March 31,
 
 
2015
 
2014
Net sales:
 
 
 
 
Titanium Segment
 
$
83,500

 
$
76,980

Intersegment sales
 
23,858

 
25,046

Total Titanium Segment sales
 
107,358

 
102,026

 
 
 
 
 
EP&S Segment
 
114,992

 
97,565

Intersegment sales
 
19,647

 
27,966

Total EP&S Segment sales
 
134,639

 
125,531

 
 
 
 
 
Eliminations
 
43,505

 
53,012

Total consolidated net sales
 
$
198,492

 
$
174,545

Operating income:
 
 
 
 
Titanium Segment before corporate allocations
 
$
14,388

 
$
10,429

Corporate allocations
 
(4,698
)
 
(4,527
)
Total Titanium Segment operating income
 
9,690

 
5,902

 
 
 
 
 
EP&S Segment before corporate allocations
 
12,911

 
1,811

Corporate allocations
 
(5,703
)
 
(6,096
)
Total EP&S Segment operating income (loss)
 
7,208

 
(4,285
)
 
 
 
 
 
Merger-related expenses
 
(4,734
)
 

Total consolidated operating income
 
12,164

 
1,617

Other (expense) income, net
 
(856
)
 
535

Interest expense, net
 
(7,884
)
 
(7,557
)
 
 
 
 
 
Total consolidated income (loss) before income taxes
 
$
3,424

 
$
(5,405
)
 
 
March 31,
2015
 
December 31,
2014
Total assets:
 
 
 
 
Titanium Segment
 
$
673,333

 
$
685,306

EP&S Segment
 
613,486

 
614,309

General corporate assets
 
281,926

 
266,079

Total consolidated assets
 
$
1,568,745

 
$
1,565,694


18

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Note 18—NEW ACCOUNTING STANDARDS:
In April 2015, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2015-04, "Compensation—Retirement Benefits—Practical Expedient for the Measurement Date of Employer's Defined Benefit Obligation and Plan Assets." For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this ASU provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year. For an entity that has a significant event in an interim period that calls for a remeasurement of defined benefit plan assets and obligations, the amendments in this ASU also provide a practical expedient that permits the entity to remeasure defined benefit plan assets and obligations using the month-end that is closest to the date of the significant event. This ASU, which should be applied prospectively, is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect that the adoption of the ASU will have a material impact on its Condensed Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-03, "Interest—Imputation of Interest—Simplifying the Presentation of Debt Issuance Costs." The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU, which should be applied on a retrospective basis, is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the impact of the adoption of this ASU on its Condensed Consolidated Financial Statements.
In February 2015, the FASB issued ASU 2015-02, "Consolidation—Amendments to the Consolidation Analysis." The amendments in this ASU modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities; eliminate the presumption that a general partner should consolidate a limited partnership; affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with certain requirements.This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect that the adoption of the ASU will have a material impact on its Condensed Consolidated Financial Statements.
In January 2015, the FASB issued ASU 2015-01, "Income Statement—Extraordinary and Unusual Items—Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items." This ASU eliminates from U.S. GAAP the concept of extraordinary items. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect that the adoption of the ASU will have a material impact on the Company's Condensed Consolidated Financial Statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern—Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendment requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosures. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect that the adoption of the ASU will have a material impact on its Condensed Consolidated Financial Statements.
In June 2014, the FASB issued ASU 2014-12, “Compensation—Stock Compensation—Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect that the adoption of the ASU will have a material impact on its Condensed Consolidated Financial Statements.

19

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this ASU on its Condensed Consolidated Financial Statements.
In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU amends the requirements for reporting discontinued operations to include only disposals of a component or groups of components of an entity if the disposal represents a strategic shift that has or will have a major effect on the entity’s operations and financial results. The amendment requires additional disclosure regarding disposals that meet the criteria for discontinued operations in the ASU, and is effective for all disposals within annual and interim periods beginning on or after December 15, 2014. The adoption of this guidance during the first quarter of 2015 did not have a material impact on the Company's Condensed Consolidated Financial Statements.
Note 19—GUARANTOR SUBSIDIARIES:
The 2015 Notes and 2019 Notes (together, the “Notes”) are jointly and severally, fully and unconditionally (subject to the customary exceptions discussed below) guaranteed by several 100% owned subsidiaries (the “Guarantor Subsidiaries”) of RTI International Metals, Inc. (the “Parent”). Each Guarantor Subsidiary would be automatically released from its guarantee of the Notes if either (i) it ceased to be a guarantor under the Parent’s Second Amended and Restated Credit Agreement or (ii) it ceased to be a direct or indirect subsidiary of the Parent. Separate financial statements of the Parent and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional (subject to the aforementioned customary exceptions) and the Guarantor Subsidiaries are jointly and severally liable. The Company believes separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors in the Notes.
There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above, except, however, the obligations of each Guarantor Subsidiary under its guarantee will be limited to the maximum amount as will result in obligations of such Guarantor Subsidiary under its guarantee not constituting a fraudulent conveyance or fraudulent transfer for purposes of bankruptcy law, the Uniform Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law.

20

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

The following tables present Condensed Consolidating Financial Statements as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014:
Condensed Consolidating Statement of Operations and Comprehensive Income
Three Months Ended March 31, 2015

 
 
RTI
International
Metals, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
 
$

 
$
123,972

 
$
131,417

 
$
(56,897
)
 
$
198,492

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Cost of sales
 

 
104,146

 
109,222

 
(56,897
)
 
156,471

Selling, general, and administrative expenses (1)
 
(312
)
 
11,869

 
12,101

 

 
23,658

Merger expenses
 
4,734

 

 

 

 
4,734

Research, technical, and product development expenses
 

 
1,465

 

 

 
1,465

Operating income (loss)
 
(4,422
)
 
6,492

 
10,094

 

 
12,164

Other income (expense), net
 
(2
)
 
38

 
(892
)
 

 
(856
)
Interest income (expense), net
 
(7,940
)
 
1,014

 
(958
)
 

 
(7,884
)
Equity in earnings of subsidiaries
 
11,036

 
720

 
44

 
(11,800
)
 

Income (loss) before income taxes
 
(1,328
)
 
8,264

 
8,288

 
(11,800
)
 
3,424

Provision for (benefit from) income taxes
 
(5,861
)
 
2,538

 
2,214

 

 
(1,109
)
Net income
 
$
4,533

 
$
5,726

 
$
6,074

 
$
(11,800
)
 
$
4,533

Comprehensive income (loss)
 
$
(4,091
)
 
$
6,614

 
$
(3,546
)
 
$
(3,068
)
 
$
(4,091
)
 
(1)
The Parent allocates selling, general, and administrative expenses (“SG&A”) to the subsidiaries based upon its budgeted annual expenses. A credit in Parent SG&A is offset by an equal debit amount in the subsidiaries’ SG&A.

21

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Condensed Consolidating Statement of Operations and Comprehensive Income
Three Months Ended March 31, 2014

 
 
RTI 
International
Metals, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
 
$

 
$
114,123

 
$
114,289

 
$
(53,867
)
 
$
174,545

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Cost of sales
 

 
102,120

 
97,823

 
(53,867
)
 
146,076

Selling, general, and administrative expenses (1)
 
947

 
12,158

 
12,763

 

 
25,868

Research, technical, and product development expenses
 

 
984

 

 

 
984

Operating income (loss)
 
(947
)
 
(1,139
)
 
3,703

 

 
1,617

Other income (expense)
 
1,490

 
(838
)
 
(117
)
 

 
535

Interest expense, net
 
(5,815
)
 
(1,202
)
 
(540
)
 

 
(7,557
)
Equity in earnings of subsidiaries
 
1,458

 
348

 
975

 
(2,781
)
 

Income (loss) before income taxes
 
(3,814
)
 
(2,831
)
 
4,021

 
(2,781
)
 
(5,405
)
Provision for (benefit from) income taxes
 
2

 
(1,530
)
 
(61
)
 

 
(1,589
)
Net income (loss) attributable to continuing operations
 
$
(3,816
)
 
$
(1,301
)
 
$
4,082

 
$
(2,781
)
 
$
(3,816
)
Net loss attributable to discontinued operations, net of tax
 
(365
)
 

 
(365
)
 
365

 
(365
)
Net income (loss)
 
$
(4,181
)
 
$
(1,301
)
 
$
3,717

 
$
(2,416
)
 
$
(4,181
)
Comprehensive loss
 
$
(7,195
)
 
$
(346
)
 
$
(376
)
 
$
722

 
$
(7,195
)
 
(1)
The Parent allocates SG&A to the subsidiaries based upon its budgeted annual expenses.

22

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Condensed Consolidating Balance Sheet
As of March 31, 2015
 
 
RTI
International
Metals, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
627

 
$
149,052

 
$
59,346

 
$

 
$
209,025

Short-term investments
 

 
129,895

 

 

 
129,895

Receivables, net
 
1,600

 
60,707

 
79,914

 
(30,804
)
 
111,417

Inventories, net
 

 
321,248

 
154,471

 

 
475,719

Cost in excess of billings
 

 
4,271

 
3,900

 

 
8,171

Deferred income taxes
 
25,589

 
2,755

 
2,288

 

 
30,632

Other current assets
 
7,333

 
11,528

 
4,956

 

 
23,817

Total current assets
 
35,149

 
679,456

 
304,875

 
(30,804
)
 
988,676

Property, plant, and equipment, net
 
9,520

 
275,243

 
81,473

 

 
366,236

Goodwill
 

 
94,769

 
49,744

 

 
144,513

Other intangible assets, net
 

 
32,221

 
22,910

 

 
55,131

Other noncurrent assets
 
8,145

 
883

 
5,161

 

 
14,189

Intercompany investments (1)
 
1,292,438

 
161,557

 
68,244

 
(1,522,239
)
 

Total assets
 
$
1,345,252

 
$
1,244,129

 
$
532,407

 
$
(1,553,043
)
 
$
1,568,745

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
110,281

 
$
541

 
$
2,299

 
$

 
$
113,121

Accounts payable
 
1,847

 
56,512

 
57,846

 
(30,804
)
 
85,401

Accrued wages and other employee costs
 
5,322

 
12,269

 
6,541

 

 
24,132

Billings in excess of cost
 

 
1,814

 
9,963

 

 
11,777

Unearned revenue
 

 
14,661

 
7,381

 

 
22,042

Other accrued liabilities
 
7,552

 
7,398

 
11,632

 

 
26,582

Total current liabilities
 
125,002

 
93,195

 
95,662

 
(30,804
)
 
283,055

Long-term debt
 
335,191

 
474

 
12,366

 

 
348,031

Intercompany debt
 
18,832

 
63,320

 
237,065

 
(319,217
)
 

Liability for post-retirement benefits
 

 
48,935

 

 

 
48,935

Liability for pension benefits
 
6,714

 
9,799

 
160

 

 
16,673

Deferred income taxes
 
57,405

 

 
3,062

 

 
60,467

Unearned revenue
 

 

 
4,829

 

 
4,829

Other noncurrent liabilities
 
9,242

 
4,370

 
277

 

 
13,889

Total liabilities
 
552,386

 
220,093

 
353,421

 
(350,021
)
 
775,879

Shareholders’ equity
 
792,866

 
1,024,036

 
178,986

 
(1,203,022
)
 
792,866

Total liabilities and shareholders’ equity
 
$
1,345,252

 
$
1,244,129

 
$
532,407

 
$
(1,553,043
)
 
$
1,568,745

 
(1)
Intercompany investments include equity investments and intercompany loans receivable from legal entities not included within the same consolidation.

23

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts, unless otherwise indicated)

Condensed Consolidating Balance Sheet
As of December 31, 2014
 
 
RTI
International
Metals, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
117,086

 
$
64,973

 
$

 
$
182,059

Short-term investments
 

 
148,383

 

 

 
148,383

Receivables, net
 
928

 
78,436

 
70,911

 
(32,530
)
 
117,745

Inventories, net
 

 
319,107

 
155,199

 

 
474,306

Costs in excess of billings
 

 
2,393

 
3,129

 

 
5,522

Deferred income taxes
 
25,591

 
2,754

 
2,287

 

 
30,632

Other current assets
 
1,307

 
13,345

 
5,151

 

 
19,803

Total current assets
 
27,826

 
681,504

 
301,650

 
(32,530
)
 
978,450

Property, plant, and equipment, net
 
2,028

 
280,805

 
86,454

 

 
369,287

Goodwill
 

 
94,769

 
50,749

 

 
145,518

Other intangible assets, net
 

 
32,897

 
24,225

 

 
57,122

Other noncurrent assets
 
8,635

 
948

 
5,734

 

 
15,317

Intercompany investments (1)
 
1,290,173

 
148,432

 
66,101

 
(1,504,706
)
 

Total assets
 
$
1,328,662

 
$
1,239,355

 
$
534,913

 
$
(1,537,236
)
 
$
1,565,694

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
108,767

 
$
721

 
$
2,157

 
$

 
$
111,645

Accounts payable
 
1,559

 
81,055

 
54,960

 
(32,530
)
 
105,044

Accrued wages and other employee costs
 
6,345