Edgar Filing: RTI INTERNATIONAL METALS INC

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

FORM 10-K/A
(AMENDMENT NO. 1)

(Mark One)

|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2004 or

|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to

Commission file number: 001-31463

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of exchange on which registered
------------------- ------------------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE

Securities registered pursuant to Section 12(b) of the Act: NONE

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

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

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

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

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

Documents Incorporated by Reference:

SELECTED PORTIONS OF THE PROXY STATEMENT FOR THE 2005 ANNUAL MEETING OF
SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THE REPORT.

EXPLANATORY NOTE

RTI International Metals, Inc. (the "Company" or "RTI") is filing this
Amendment No. 1 (the "Amendment") to its Annual Report on Form 10-K for the
fiscal year ended December 31, 2004, which was originally filed with the United
States Securities and Exchange Commission (the "SEC") on April 14, 2005 (the
"Original Filing"), to (i) amend and restate Item 9A to include, among other
things, Management's Report on Internal Control Over Financial Reporting and
(ii) amend and restate Item 8 to include the report (the "Auditors' Report") of
the Company's independent registered public accounting firm relating to the
Company's financial statements and management's report on internal control over
financial reporting. This Amendment also contains the required consent of the
Company's independent registered public accounting firm and re-executed
certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of
2002. While Item 8 is being reproduced in its entirety, the financial statements
contained therein have not been modified and are consistent with those filed in
the Original Filing.

Except for the amendments discussed above, this Amendment does not
modify or update other disclosures in or exhibits to the Original Filing. With
the exception of the matters disclosed in Items 9A and the Auditors' Report,
this Amendment continues to speak as of the date of the Original Filing and the
Company has not updated the disclosure contained therein to reflect events that
have occurred since the date of the Original Filing. This Amendment should be
read in connection with any current reports filed during such time period.

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS
Page
----

Report of Independent Registered Public Accounting Firm.................. 3
FINANCIAL STATEMENTS:
Consolidated Statement of Operations for the years
ended December 31, 2004, 2003, and 2002.................... 8
Consolidated Balance Sheet at December 31, 2004 and 2003........ 9
Consolidated Statement of Cash Flows for the years
ended December 31, 2004, 2003 and 2002..................... 10
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 2004, 2003 and 2002....... 11
Notes to Consolidated Financial Statements...................... 12
FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts................. S-1

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have completed an integrated audit of RTI International Metals,
Inc.'s 2004 consolidated financial statements and of its internal control over
financial reporting as of December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.

CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

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

INTERNAL CONTROL OVER FINANCIAL REPORTING

Also, we have audited management's assessment, included in Management's Report
on Internal Control Over Financial Reporting appearing under Item 9A, that RTI
International Metals, Inc. did not maintain effective internal control over
financial reporting as of December 31, 2004, because (1) the Company did not
maintain a sufficient complement of personnel with an appropriate level of
accounting knowledge, experience and training in the application of generally
accepted accounting principles commensurate with the Company's financial
reporting requirements. This material weakness contributed to the following
individual material weaknesses: (a) the Company did not maintain effective
controls over account reconciliations or journal entries; (b) the Company did
not maintain effective controls over the selection and application of generally
accepted accounting principles (GAAP); (c) the Company did not maintain
effective controls over consolidation and elimination adjustments; (d) the
Company did not maintain effective controls over the segregation of duties; (e)
the Company did not maintain effective controls over the timely and accurate
preparation and review of its financial statements in accordance with GAAP; (f)
the Company did not maintain effective controls over spreadsheets; and (g) the
Company did not maintain effective controls over the accounting for income
taxes, (2) the Company did not maintain effective control over the effectiveness
of controls at two third-party service organizations, (3) the Company did not
maintain effective control over the accounting for property, plant and equipment
and (4) the Company did not maintain an effective control environment 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 maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express opinions on
management's assessment and on the effectiveness of the Company's internal
control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding of
internal control over financial reporting, evaluating management's assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

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.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weaknesses have been identified and included
in management's assessment.

1) As of December 31, 2004, the Company did not maintain a sufficient
complement of personnel with an appropriate level of accounting knowledge,
experience and training in the application of generally accepted accounting
principles commensurate with the Company's financial reporting
requirements. This material weakness contributed to the following
individual material weaknesses:

a) The Company did not maintain effective controls over account
reconciliations or journal entries. Specifically, the Company did not
have effective controls over the preparation, review and approval of
certain account reconciliations or journal entries for balance sheet
or income statement accounts including: (i) payroll and payroll
related accounts, (ii) import duty recovery accounts, and (iii)
workers compensation accrual accounts. These control deficiencies
resulted in audit adjustments to the Company's consolidated financial
statements.

b) The Company did not maintain effective controls over the selection and
application of GAAP. Specifically, the Company incorrectly applied
GAAP in accounting for: (i) supplemental employment and other
post-retirement benefit liabilities and expense by incorrectly
accounting for unvested vacation and holiday pay expenses and
incorrectly accounting for their other post-retirement benefit
liability, (ii) leases by depreciating leasehold improvements over a
period of time greater than the lease term, (iii) business
combinations by incorrectly determining the appropriate value of stock
used in acquisitions, and (iv) foreign currency translation by
incorrectly translating the financial statements of a foreign
subsidiary. This control deficiency resulted in audit adjustments to
the Company's consolidated financial statements.
c) The Company did not maintain effective controls over consolidation and
elimination adjustments. Specifically, the Company did not have
controls over the completeness or accuracy of consolidating
information to ensure that all required consolidation and elimination
adjustments were prepared, approved and recorded, including the proper
accounting for a minority interest. This control deficiency resulted
in audit adjustments to the Company's consolidated financial
statements.
d) The Company did not maintain effective controls over the segregation
of duties. Specifically, certain of the Company's personnel had
incompatible duties that permitted unrestricted access to various
financial application programs and data beyond that needed to perform
their individual job responsibilities, nor were there effective
controls in place to monitor user access. These applications impact
all business processes, including accounts receivable, accounts
payable, payroll and inventory. This control deficiency did not result
in a misstatement to the Company's consolidated financial statements.
e) The Company did not maintain effective controls over the timely and
accurate preparation and review of its financial statements in
accordance with GAAP. Specifically, the Company did not have effective
controls over the process for identifying and accumulating all
required supporting information to ensure the completeness and
accuracy of its footnote disclosures, and to ensure that balances in
the financial statements agreed to supporting details. These control
deficiencies resulted in audit adjustments to the Company's
consolidated financial statements.
f) The Company did not maintain effective controls over certain
spreadsheets. Specifically, the Company's controls over the
completeness, accuracy, validity, and restricted access and the review
of certain spreadsheets used in the period-end financial statement
preparation and reporting process were either not designed
appropriately or did not operate as designed. These control
deficiencies did not result in a misstatement to the Company's
consolidated financial statements.
g) The Company did not maintain effectively designed controls over the
accounting for income taxes including income taxes payable, deferred
income tax assets and liabilities and the related income tax
provision. Specifically, due to an insufficient complement of
personnel with an appropriate level of accounting knowledge,
experience and training in accounting for income taxes in accordance
with GAAP, a lack of clarity in the roles and responsibilities related
to income tax accounting, insufficient and/or ineffective review and
approval practices, and the lack of internal control and review
processes to ensure the accuracy of data used in income tax
computations, the Company was unable to accurately determine its
income tax liability and related provision. This control deficiency
resulted in audit adjustments to the Company's consolidated financial
statements.

Each of these control deficiencies could result in a misstatement of
account balances or disclosures that would result in a material
misstatement to the annual or interim financial statements that would not
be prevented or detected. Accordingly, management has determined that each
control deficiency constitutes a material weakness.

2) As of December 31, 2004, the Company did not maintain effective control
over the effectiveness of controls at two third-party service
organizations. The service organizations process payroll for certain
Company employees as well as health care claims for both Company employees
and retirees. Such processes are considered part of the Company's internal
control over financial reporting specifically as to the existence and
completeness of payroll and health care claims liabilities as well as the
related expenses. Management was unable to obtain evidence about the
effectiveness of controls over financial reporting at these service
organizations which represents a control deficiency. This control
deficiency did not result in a misstatement to the Company's consolidated
financial statements. However, it could result in the misstatement of
payroll and health care claims liabilities as well as the related expenses
that would result in a material misstatement to annual or interim financial
statements that would not be prevented or detected. Accordingly, management
determined that this control deficiency constitutes a material weakness.

3) As of December 31, 2004, the Company did not maintain effective controls
over the accounting for property, plant and equipment. Specifically, the
Company's controls to ensure the complete and accurate processing of
additions, disposals, maintenance of useful lives and the calculation of
depreciation were not designed effectively. This control deficiency did not
result in a misstatement to the Company's consolidated financial
statements. However, it could result in a misstatement of property, plant
and equipment and the related depreciation expense that would result in a
material misstatement to annual or interim financial statements that would
not be prevented or detected. Accordingly, management determined that this
control deficiency constitutes a material weakness.

4) As of December 31, 2004, the Company did not maintain an effective control
environment based on criteria established in "Internal Control--Integrated
Framework" issued by the COSO. The financial reporting organizational
structure was not adequate to support the size, complexity, operating
activities or locations of the Company. Deficiencies, such as an
insufficient complement of personnel with an appropriate level of
accounting knowledge, experience and training in the application of
generally accepted accounting principles have resulted in adjustments to
the consolidated financial statements as discussed in item 1 above. Item 1,
together with the material weaknesses described in items 2 and 3 above,
indicate that the Company did not maintain an effective control
environment. These control deficiencies could result in a misstatement of
accounts and disclosures that would result in a material misstatement to
annual or interim financial statements that would not be prevented or
detected. Accordingly, management determined that this control deficiency
constitutes a material weakness.

These material weaknesses were considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2004 consolidated
financial statements, and our opinion regarding the effectiveness of the
Company's internal control over financial reporting does not affect our opinion
on those consolidated financial statements.

As described in Management's Report on Internal Control Over Financial
Reporting, management has excluded Claro Precision, Inc. from its assessment of
internal control over financial reporting as of December 31, 2004 because it was
acquired by the Company through a purchase business combination in October 2004.
We have also excluded Claro Precision, Inc. from our audit of internal control
over financial reporting. Claro Precision, Inc. is a wholly-owned subsidiary
whose total assets and total revenues represent approximately 9% and
approximately 2%, respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2004.

In our report dated April 14, 2005, we stated that the Company had not
reported on its assessment of the effectiveness of internal control over
financial reporting and, accordingly, the scope of our work was not sufficient
to enable us to express, and we did not express, an opinion on the effectiveness
of the Company's internal control over financial reporting. The Company has now
reported on its assessment of the effectiveness of internal control over
financial reporting and we have completed our audit thereof. Accordingly, our
present report insofar as it relates to the Company's internal control over
financial reporting as of December 31, 2004, as presented herein, is different
from our previous report.

In our opinion, management's assessment that RTI International Metals,
Inc. did not maintain effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on criteria
established in "Internal Control--Integrated Framework" issued by the COSO.
Also, in our opinion, because of the effects of the material weaknesses
described above on the achievement of the objectives of the control criteria,
RTI International Metals, Inc. has not maintained effective internal control
over financial reporting as of December 31, 2004, based on criteria established
in "Internal Control--Integrated Framework" issued by the COSO.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
May 6, 2005

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

YEARS ENDED DECEMBER 31,
------------------------------
2004 2003 2002
-------- -------- --------

Sales....................................................... $214,591 $195,000 $257,954
Operating costs:
Cost of sales............................................... 188,430 165,170 209,477
Selling, general and administrative expenses................ 40,004 30,706 31,812
Research, technical and product development expenses (Note
2)........................................................ 1,181 1,306 1,251
-------- -------- --------
Total operating costs.................................. 229,615 197,182 242,540
-------- -------- --------
Other operating income (Note 9)............................. 538 967 --
-------- -------- --------
Operating (loss) income..................................... (14,486) (1,215) 15,414
Other income (Note 9)....................................... 9,633 8,878 9,428
Interest income (expense), net.............................. 142 (172) (367)
-------- -------- --------
Income (loss) from continuing operations before income
taxes..................................................... (4,711) 7,491 24,475
(Benefit) Provision for income taxes (Note 8)............... (2,583) 2,763 9,300
-------- -------- --------
Net (loss) income from continuing operations................ (2,128) 4,728 15,175
Net (loss) from discontinued operations (Note 19)........... (829) (14) (50)
-------- -------- --------
Net (loss) income........................................... $ (2,957) $ 4,714 $ 15,125
======== ======== ========
Basic (loss) earnings per common share (Note 4):
Continuing operations..................................... $ (0.10) $ 0.23 $ 0.73
Discontinued operations................................... (0.04) -- --
-------- -------- --------
Net (loss) Income......................................... $ (0.14) $ 0.23 $ 0.73
======== ======== ========
Diluted (loss) earnings per common share (Note 4):
Continuing operations..................................... $ (0.10) $ 0.23 $ 0.73
Discontinued operations................................... (0.04) (0.01) (0.01)
-------- -------- --------
Net (loss) Income......................................... $ (0.14) $ 0.22 $ 0.72
======== ======== ========

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

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS)

DECEMBER 31,
-------------------
2004 2003
-------- --------

ASSETS
ASSETS:
Cash and cash equivalents................................... $ 62,701 $ 67,970
Receivables, less allowance for doubtful accounts of $1,704
and $1,759 (Note 5)....................................... 44,490 30,855
Inventories, net (Note 6)................................... 133,512 153,497
Current deferred income tax asset (Note 8).................. 1,145 5,251
Income tax receivable....................................... 3,321 --
Other current assets (Note 14).............................. 3,597 3,284
-------- --------
Total current assets...................................... 248,766 260,857
Property, plant and equipment, net (Note 7)................. 82,593 85,505
Goodwill.................................................... 46,618 35,693
Other intangible assets, net (Note 3)....................... 16,040 --
Noncurrent deferred income tax asset (Note 8)............... 3,012 5,616
Intangible pension asset (Note 11).......................... 3,365 3,186
Other noncurrent assets..................................... 3,099 2,918
-------- --------
Total assets.............................................. $403,493 $393,775
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable............................................ $ 14,253 $ 14,008
Accrued wages and other employee costs...................... 4,863 5,568
Billings in excess of costs and estimated earnings (Note
13)....................................................... 4,708 7,502
Income taxes payable........................................ -- 4,759
Other accrued liabilities (Note 17)......................... 6,498 3,216
-------- --------
Total current liabilities................................. 30,322 35,053
Long-term debt (Note 10).................................... -- --
Accrued postretirement benefit cost (Note 11)............... 20,811 20,428
Accrued pension cost (Note 11).............................. 21,090 12,445
Other noncurrent liabilities (Note 17)...................... 7,312 8,189
-------- --------
Total liabilities......................................... 79,535 76,115
-------- --------
Commitments and Contingencies (Note 17)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value; 50,000,000 shares authorized;
21,351,116 and 21,337,002 shares issued; and 21,772,730
and 20,934,663 shares outstanding......................... 221 213
Additional paid-in capital.................................. 258,526 244,860
Deferred compensation....................................... (2,499) (2,009)
Treasury stock, at cost; 421,614 and 402,339 shares......... (3,906) (3,618)
Accumulated other comprehensive (loss)...................... (22,759) (19,118)
Retained earnings........................................... 94,375 97,332
-------- --------
Total shareholders' equity................................ 323,958 317,660
-------- --------
Total liabilities and shareholders' equity................ $403,493 $393,775
======== ========

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

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS)

YEARS ENDED DECEMBER 31,
----------------------------
2004 2003 2002
-------- ------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $ (2,957) $ 4,714 $15,125
Net loss from discontinued operations....................... 137 14 50
Loss on disposal of discontinued operations................. 692 -- --
-------- ------- -------
Net (loss) income from continuing operations................ (2,128) 4,728 15,175
Adjustment for non-cash items included in net income:
Depreciation and amortization............................. 12,461 12,036 12,221
Deferred income taxes..................................... 2,565 (4,184) 6,297
Stock-based compensation and other........................ 1,216 1,736 2,487
Gain from sale of common stock............................ -- -- (2,105)
Gain on sale of property, plant and equipment............. (349) (967) --
Changes in assets and liabilities (net of effects of
businesses acquired):
Receivables............................................... (10,136) 6,922 9,744
Inventories............................................... 19,868 (3,746) 3,920
Accounts payable.......................................... (938) (728) (2,591)
Income taxes payable...................................... (9,623) 4,759 (29)
Billings in excess of costs and estimated earnings........ (2,794) 5,114 (3,745)
Other current liabilities................................. 4,098 (373) (3,030)
Other assets and liabilities.............................. 2,173 (116) 2,139
-------- ------- -------
Cash provided by continuing operating activities....... 16,413 25,181 40,483
Cash provided by discontinued operating activities..... 2,933 5,140 776
-------- ------- -------
Cash provided by operating activities.................. 19,346 30,321 41,259
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired, and other investing... (24,225) -- --
Proceeds from disposal of property, plant and equipment... 595 1,437 --
Capital expenditures...................................... (5,771) (5,402) (7,603)
-------- ------- -------
Cash used in investing activities...................... (29,401) (3,965) (7,603)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options.......... 5,359 1,534 129
Purchase of common stock held in treasury................. (288) (586) (420)
Deferred charges related to credit facility............... (285) -- (735)
-------- ------- -------
Cash provided by (used in) financing activities........ 4,786 948 (1,026)
-------- ------- -------
(Decrease)increase in cash and cash equivalents............. (5,269) 27,304 32,630
Cash and cash equivalents at beginning of period............ 67,970 40,666 8,036
-------- ------- -------
Cash and cash equivalents at end of period.................. $ 62,701 $67,970 $40,666
======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)......... $ 426 $ 443 $ 373
======== ======= =======
Cash paid for income taxes.................................. $ 6,086 $ 3,165 $ 5,812
======== ======= =======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for restricted stock awards........ $ 1,301 $ 955 $ 478
======== ======= =======
Capital lease obligations incurred.......................... $ 6 $ 40 $ --
======== ======= =======
Common stock issued in acquisition.......................... $ 7,014 -- --
======== ======= =======

The accompanying notes are an integral part of these Consolidated Financial
Statements.
10

RTI INTERNATIONAL METALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ACCUMULATED
ADDT'L. TREASURY OTHER
SHARES COMMON PAID-IN DEFERRED COMMON RETAINED COMPREHENSIVE
OUTSTANDING STOCK CAPITAL COMPENSATION STOCK EARNINGS INCOME (LOSS) TOTAL
----------- ------- -------- ------------ -------- -------- ------------- --------

Balance at December 31,
2001....................... 20,730,604 $ 210 $241,579 $(2,278) $(2,612) $77,493 $ (7,417) $306,975
Shares issued for directors'
compensation............... 18,912 -- 187 (187) -- -- -- --
Shares issued for restricted
Stock award plans.......... 50,000 1 478 (479) -- -- -- --
Compensation expense
recognized................. -- -- -- 962 -- -- -- 962
Treasury common stock
purchased at cost.......... (40,000) -- -- -- (420) -- -- (420)
Exercise of employee stock
options including tax
benefit.................... 16,467 -- 129 -- -- -- 129
Net income................... -- -- -- -- -- 15,125 -- 15,125
Adjustment to excess minimum
pension liability(a)....... -- -- -- -- -- -- (10,338) (10,338)
Unrealized gains on
investments held for
sale....................... -- -- -- -- -- -- (1,260) (1,260)
Comprehensive income.........
---------- ------- -------- ------- ------- ------- -------- --------
Balance at December 31,
2002....................... 20,775,983 $ 211 $242,373 $(1,982) $(3,032) $92,618 $(19,015) $311,173
Shares issued for directors'
compensation............... 18,213 -- 186 (186) -- -- -- --
Shares issued for restricted
Stock award plans.......... 75,220 1 768 (769) -- -- -- --
Compensation expense
recognized................. -- -- -- 928 -- -- -- 928
Treasury common stock
purchased at cost.......... (57,489) -- -- -- (586) -- -- (586)
Exercise of employee stock
options including tax
benefit of stock plans..... 122,736 1 1,533 -- -- -- -- 1,534
Net income................... -- -- -- -- -- 4,714 -- 4,714
Adjustment to excess minimum
pension liability(a)....... -- -- -- -- -- -- (103) (103)
Comprehensive income.........
---------- ------- -------- ------- ------- ------- -------- --------
Balance at December 31,
2003....................... 20,934,663 $ 213 $244,860 $(2,009) $(3,618) $97,332 $(19,118) $317,660
Shares issued for directors'
compensation............... 18,179 -- 265 (265) -- -- -- --
Shares issued for restricted
Stock award plans.......... 69,250 1 1,035 (1,036) -- -- -- --
Compensation expense
recognized................. -- -- -- 811 -- -- -- 811
Treasury common stock
purchased at cost.......... (19,275) -- -- -- (288) -- -- (288)
Exercise of employee stock
options including tax
benefit.................... 411,005 3 5,356 -- -- -- -- 5,359
Net loss..................... -- -- -- -- -- (2,957) -- (2,957)
Stock issued in Claro
purchase................... 358,908 4 7,010 -- -- -- -- 7,014
Adjustment to excess minimum
pension liability(a)....... -- -- -- -- -- -- (3,794) (3,794)
Foreign currency
translation................ -- -- -- -- -- -- 153 153
Comprehensive income
(loss).....................
---------- ------- -------- ------- ------- ------- -------- --------
Balance at December 31,
2004....................... 21,772,730 $ 221 $258,526 $(2,499) $(3,906) $94,375 $(22,759) $323,958
========== ======= ======== ======= ======= ======= ======== ========

COMPREHENSIVE
INCOME (LOSS)
-------------

Balance at December 31,
2001.......................
Shares issued for directors'
compensation...............
Shares issued for restricted
Stock award plans..........
Compensation expense
recognized.................
Treasury common stock
purchased at cost..........
Exercise of employee stock
options including tax
benefit....................
Net income................... $ 15,125
Adjustment to excess minimum
pension liability(a)....... (10,338)
Unrealized gains on
investments held for
sale....................... (1,260)
--------
Comprehensive income......... $ 3,527
========
Balance at December 31,
2002.......................
Shares issued for directors'
compensation...............
Shares issued for restricted
Stock award plans..........
Compensation expense
recognized.................
Treasury common stock
purchased at cost..........
Exercise of employee stock
options including tax
benefit of stock plans.....
Net income................... $ 4,714
Adjustment to excess minimum
pension liability(a)....... (103)
--------
Comprehensive income......... $ 4,611
========
Balance at December 31,
2003.......................
Shares issued for directors'
compensation...............
Shares issued for restricted
Stock award plans..........
Compensation expense
recognized.................
Treasury common stock
purchased at cost..........
Exercise of employee stock
options including tax
benefit....................
Net loss..................... $ (2,957)
Stock issued in Claro
purchase...................
Adjustment to excess minimum
pension liability(a)....... (3,794)
Foreign currency
translation................ 153
--------
Comprehensive income
(loss)..................... $ (6,598)
========
Balance at December 31,
2004.......................

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

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

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

RTI INTERNATIONAL METALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)

NOTE 1-- ORGANIZATION AND OPERATIONS:

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

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

NOTE 2-- SUMMARY OF SIGNIFICANT ACCOUNT POLICIES:

Principles of consolidation:

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

Use of estimates:

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

Fair Value:

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

Employees:

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

Cash equivalents:

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

Accounts Receivable:

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

Inventories:

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

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

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

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

Property, plant and equipment:

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

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

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

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

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

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

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

Goodwill and Intangible Assets:

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

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

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

Other Long-Lived Assets:

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

Environmental:

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

Revenue and cost recognition:

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

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

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

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

Research and Development:

Research and development costs are expensed as incurred.

Pensions:

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

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

Postretirement benefits:

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

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

Income taxes:

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

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

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

Foreign currencies:

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

The functional currency of the Company's newly acquired Canadian subsidiary
is the local currency. Assets and liabilities are translated at year-end
exchange rates. Income statement accounts are translated at the average
15

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

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

Derivative financial instruments:

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

Stock-based compensation:

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

If compensation expense for the Company's stock options granted had been
determined based on the fair value at the grant date for the awards in
accordance with SFAS No. 123, the effect on the Company's net income and
earnings per share for the three years ended December 31, 2004 would have been
as follows:

2004 2003 2002
---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Net (loss) income....................................... $(2,957) $4,714 $15,125
Add: Stock-based employee compensation expense included
in reported net (loss) income, net of related tax
effects............................................... 365 586 596
Deduct: Total stock-based employee compensation expense
determined under fair value methods for all awards,
net of related tax effects............................ (761) (1,091) $(1,127)
Pro forma net (loss) income............................. $(3,353) $4,209 $14,594
Net income (loss) per share:
-As reported -basic................................... $ (0.14) $ 0.23 $ 0.73
-diluted................................. $ (0.14) $ 0.22 $ 0.72
-Pro forma -basic..................................... $ (0.16) $ 0.20 $ 0.70
-diluted................................. $ (0.16) $ 0.20 $ 0.70

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

2004 2003 2002
------ ----- -----

Expected life (years)....................................... 5 5 5
Risk-free interest rate..................................... 3.3% 3.0% 3.0%
Expected volatility......................................... 38.0% 40.0% 40.0%
Expected weighted average fair value of options granted
during the year........................................... $ 5.21 $ 3.65 $ 3.42

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

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

New accounting standards:

In December 2004, the Financial Accounting Standards (FASB) issued
Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R),
Share-Based Payment. SFAS 123R requires the mandatory expensing of share-based
payments, including employee stock options, based on their fair value. The
Company is required to adopt the provision of SFAS 123R effective as of the
beginning of the third quarter in 2005. SFAS 123R provides alternative methods
of adoption including prospective and modified retroactive applications. The
Company is currently evaluating the financial impact, including the available
alternatives, under SFAS 123R.

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

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

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

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

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act introduced a
prescription drug benefit under Medicare (Medicare Part D), as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. On May 19, 2004,
FASB issued Staff Position FSP FAS 106-2 (FSP 106-2), which supercedes FSP 106-1
and provides guidance on accounting for the effects of the new Medicare
prescription drug legislation for employers whose prescription drug benefits are
actuarially equivalent to the drug benefit under Medicare Part D. RTI has not
completed analyzing the effects of the Act. Accordingly, the measure of its
Accumulated Postretirement Benefit Obligation (APBO) and net periodic benefit
cost do not reflect any potential effects of the Act.
17

Reclassifications:

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

NOTE 3--ACQUISITIONS

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

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

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

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

ALLOCATED
PURCHASE
PRICE
(IN THOUSANDS) ---------

Acquired assets:
Cash........................................................ $ --
Accounts receivable......................................... 2,802
Inventories................................................. 4,728
Other assets................................................ 46
Property, plant & equipment................................. 3,836
Goodwill.................................................... 10,529
Intangible assets........................................... 16,200
-------
Total assets........................................... 38,141
Acquired liabilities:
Accounts payable............................................ 1,010
Income taxes payable........................................ 1,543
Current deferred income taxes liability..................... 1,145
Other accrued liabilities................................... 160
Noncurrent deferred income taxes............................ 5,414
-------
Total liabilities...................................... 9,272
-------
Net assets acquired.................................... 28,869
=======
Purchase price
Cash................................................. 22,014
RTI common stock..................................... 7,016
Target equity adjustment............................. (161)
-------
$28,869
=======

The following unaudited pro forma information for RTI is provided to
include the results of Claro Precision, Inc. as if the acquisition had been
consummated on January 1, 2003.

PRO FORMA PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2003
(UNAUDITED) --------- ---------

Net sales................................................... $235,999 $219,941
Net income from continuing operations....................... $ 434 $ 8,338
Net income (loss) from continuing operations per common
share
Basic..................................................... 0.02 0.40
Diluted................................................... 0.02 0.40
Net income (loss)........................................... $ (533) $ 8,338
Net income (loss) per common share
Basic..................................................... (0.03) 0.40
Diluted................................................... (0.03) 0.40

Pro forma adjustments include the amortization of intangible assets
with an assigned value of $16.2 million. The amortization period is equal
to 20 years. The amortization expense over the next five years is $4.1
million. The intangible assets represent the assigned value of customer
relationships. Goodwill of $10.4 million resulted from the acquisition and
is non deductive for income tax purposes in Canada. Included in the pro
forma information above is the write-off of a step up in inventory values
which is not expected to occur beyond each of the one year periods shown.
Additionally, fixed assets were stepped-up to approximate fair market value
and are being depreciated over 10 years in accordance with Company
accounting policies. The preliminary purchase price allocations are subject
to adjustment and may be modified within one year from the acquisition.
Subsequent changes are not expected to have a material effect on the
Company's consolidated financial position.

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

NOTE 4-- EARNINGS PER SHARE:

A reconciliation of the income and weighted average number of outstanding
common shares used in the calculation of basic and diluted earnings per share
for each of the years ended December 31, 2004, 2003, and 2002, follows (in
thousands except number of shares and per share amounts):

NET EARNINGS
INCOME SHARES PER SHARE
------- ---------- ---------

For the year ended December 31, 2004
Basic EPS............................................ $(2,957) 21,309,737 $(0.14)
Effect of potential common stock:
Stock options...................................... -- 358,339 --
------- ---------- ------
Diluted EPS.......................................... $(2,957) 21,668,076 $(0.14)
======= ========== ======
For the year ended December 31, 2003
Basic EPS............................................ $ 4,714 20,829,796 $ 0.23
Effect of potential common stock:
Stock options...................................... -- 166,498 (0.01)
------- ---------- ------
Diluted EPS.......................................... $ 4,714 20,996,294 $ 0.22
======= ========== ======
For the year ended December 31, 2002
Basic EPS............................................ $15,125 20,772,994 $ 0.73
Effect of potential common stock:
Stock options...................................... -- 151,149 (0.01)
------- ---------- ------
Diluted EPS.......................................... $15,125 20,924,143 $ 0.72
======= ========== ======

451,230, 957,202, and 914,066 shares of common stock issuable upon exercise
of employee stock options have been excluded from the calculation of diluted
earnings per share in 2004, 2003 and 2002, respectively, because the exercise
price of the options exceeded the weighted average market price of the Company's
common stock during those periods.

NOTE 5-- ACCOUNTS RECEIVABLE:

DECEMBER 31,
-----------------
2004 2003
------- -------

Trade and commercial customers.............................. $43,058 $31,151
U.S. Government--Department of Energy....................... 3,136 1,463
------- -------
46,194 32,614
Less--Allowance for doubtful accounts....................... (1,704) (1,759)
------- -------
$44,490 $30,855
======= =======

NOTE 6-- INVENTORIES:

DECEMBER 31,
-------------------
2004 2003
-------- --------

Raw materials and supplies.................................. $ 40,459 $ 49,248
Work-in-process and finished goods.......................... 112,010 120,718
LIFO Reserve................................................ (18,957) (16,469)
-------- --------
$133,512 $153,497
======== ========

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

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

NOTE 7-- PROPERTY, PLANT AND EQUIPMENT:

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

DECEMBER 31,
---------------------
2004 2003
--------- ---------

Land........................................................ $ 969 $ 1,028
Buildings and improvements.................................. 44,296 43,509
Machinery and equipment..................................... 165,008 150,496
Computer hardware and software, furniture and fixtures, and
other..................................................... 40,566 45,562
Construction in progress.................................... 3,750 1,066
--------- ---------
254,589 241,661
Less--Accumulated depreciation.............................. (171,996) (156,156)
--------- ---------
$ 82,593 $ 85,505
========= =========

NOTE 8-- INCOME TAXES:

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

DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
---------------------------- --------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------- ------- -------- ------ ------- -------- ------

Federal.............. $(6,107) $3,008 $(3,099) $3,212 $ (721) $2,491 $2,982 $5,593 $8,575
State................ 116 (249) (133) 384 (141) 243 300 306 606
Foreign.............. 630 19 649 418 (389) 29 278 (159) 119
------- ------ ------- ------ ------- ------ ------ ------ ------
Total.............. $(5,361) $2,778 $(2,583) $4,014 $(1,251) $2,763 $3,560 $5,740 $9,300
======= ====== ======= ====== ======= ====== ====== ====== ======

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

YEAR ENDED DECEMBER 31
--------------------------
2004 2003 2002
------- ------ -------

United States............................................. $(4,203) $8,267 $25,353
Foreign................................................... (508) (776) (878)
------- ------ -------
$(4,711) $7,491 $24,475
======= ====== =======

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

DECEMBER 31,
-------------------------
2004 2003 2002
------- ------ ------

Statutory rate of 35% applied to income before income
taxes.................................................... $(1,649) $2,621 $8,569
State income taxes, net of federal benefit (loss).......... (127) 159 394
Adjustments of prior years' income taxes................... (850) (123) 280
Effects of foreign operations.............................. (604) 40 (11)
Nondeductible expenses..................................... 70 66 68
Valuation allowance........................................ 577 -- --
------- ------ ------
Total provision.......................................... $(2,583) $2,763 $9,300
======= ====== ======
Effective tax rate......................................... 55% 37% 38%
======= ====== ======

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

Deferred tax assets and liabilities resulted from the following:

DECEMBER 31,
-------------------
2004 2003
-------- --------

DEFERRED TAX ASSETS
Inventories............................................... $ 5,575 $ 4,739
Postretirement benefit costs.............................. 8,053 7,801
Employment costs.......................................... 1,631 2,026
Foreign tax credits (Expires 12/31/14).................... 150 --
Environmental related costs............................... 621 638
Pension costs............................................. 6,123 2,962
Foreign tax loss carryforwards............................ 450 --
Other..................................................... 1,464 4,634
-------- --------
Gross deferred tax assets.............................. 24,067 22,800
Valuation allowance....................................... (577) --
-------- --------
Total deferred tax assets.............................. 23,490 22,800
DEFERRED TAX LIABILITIES
Property, plant and equipment............................. (12,848) (11,933)
Intangible assets......................................... (6,485) --
Unremitted foreign earnings............................... -- --
-------- --------
Total deferred tax liabilities......................... (19,333) (11,933)
-------- --------
Net deferred tax asset...................................... $ 4,157 $ 10,867
======== ========

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

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

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

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

subject to a number of limitations and, as of today, uncertainty remains as to
how to interpret numerous provisions in the Act. As such, we are not yet in a
position to decide on whether, and to what extent, we might repatriate foreign
earnings that have not yet been remitted to the U.S. Based on our analysis to
date, however, it is reasonably possible that we may repatriate some amount
between $0 to $3 million, with the respective tax liability ranging from $0 to
$1 million. We expect to be in a position to finalize our assessment by the
fourth quarter of 2005.

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

NOTE 9-- OTHER OPERATING INCOME AND OTHER INCOME:

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

YEAR ENDED DECEMBER 31,
------------------------
2004 2003 2002
---- ----- -----

Other Operating Income
Gain on disposal of plant sites............................. $0.5(1) $ 1.0(1) $ --
==== ===== =====
Other Income
Gain on receipt of liquidated damages....................... $9.1(2) $ 8.4(2) $ 7.1(2)
Gain on receipt of a common stock distribution.............. -- -- 2.1(3)
Loss on disposal of other assets............................ -- (0.2) (0.4)
Foreign exchange gains and other............................ 0.5 0.7 0.6
---- ----- -----
$9.6 $ 8.9 $ 9.4
==== ===== =====

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

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

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

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

NOTE 10-- LONG-TERM DEBT:

At December 31, 2004, the Company maintained a credit agreement entered
into on April 26, 2002, which provides a $100 million three-year unsecured
revolving credit facility. The Company can borrow up to the lesser of $100
million or a borrowing base equal to the sum of 85% of qualifying accounts
receivable and 60% of qualifying inventory subject to terms of the credit
agreement disclosed below.

Under the terms of the facility, the Company, at its option, will be able
to borrow at (a) a base rate (which is the higher of PNC Bank's prime rate or
the Federal Funds Effective Rate plus 0.5% per annum), or (b) LIBOR plus a
spread (ranging from 1.0% to 2.25%) determined by the ratio of the Company's
consolidated total indebtedness to consolidated earnings before interest, taxes,
depreciation and amortization. The credit agreement contains restrictions, among
others, on the minimum shareholders' equity required, the minimum cash flow
required, and the maximum leverage ratio permitted. At December 31, 2004, there
was $4.2 million of standby

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

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

NOTE 11-- EMPLOYEE BENEFIT PLANS:

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

OTHER POSTRETIREMENT
PENSION BENEFIT PLANS BENEFIT PLANS
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------

CHANGE IN BENEFIT OBLIGATION:
Benefit obligation January 1................. $109,305 $103,274 $27,996 $25,177
Service cost................................. 2,289 2,307 381 400
Interest cost................................ 6,338 6,489 1,626 1,584
Amendment.................................... 794 -- -- --
Curtailment.................................. (830) -- -- --
Actuarial loss............................... 3,780 4,497 1,539 2,540
Benefits paid................................ (7,687) (7,262) (2,080) (1,705)
======== ======== ======= =======
Benefit obligation December 31............... $113,989 $109,305 $29,462 $27,996
======== ======== ======= =======

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

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

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

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

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

PENSION OTHER POSTRETIREMENT
BENEFIT PLANS BENEFIT PLANS
------------------- ---------------------
2004 2003 2004 2003
-------- -------- --------- ---------

FUNDED STATUS:
Funded status December 31................... $(25,100) $(18,375) $(29,462) $(27,996)
Unrecognized (gain) loss.................... 39,293 35,385 7,426 6,168
Unrecognized prior service cost............. 3,362 3,145 1,225 1,400
-------- -------- -------- --------
Net amount recognized....................... $ 17,555 $ 20,155 $(20,811) $(20,428)
======== ======== ======== ========

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

PENSION OTHER POSTRETIREMENT
BENEFIT PLANS BENEFIT PLANS
------------------- ---------------------
2004 2003 2004 2003
-------- -------- --------- ---------

Intangible asset............................ $ 3,365 $ 3,186 $ -- $ --
Accrued benefit liability................... (21,090) (12,445) (20,811) (20,428)
Accumulated other comprehensive income...... 35,280 29,414 -- --
-------- -------- -------- --------
Net amount recognized....................... $ 17,555 $ 20,155 $(20,811) $(20,428)
======== ======== ======== ========

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

OTHER POSTRETIREMENT
PENSION BENEFIT PLANS BENEFIT PLANS
--------------------------- ------------------------
2004 2003 2002 2004 2003 2002
------- ------- ------- ------ ------ ------

Service cost.................... $ 2,289 $ 2,307 $ 2,028 $ 381 $ 400 $ 262
Interest cost................... 6,338 6,489 6,450 1,626 1,584 1,344
Expected return on assets....... (8,023) (8,190) (8,629) -- -- --
Prior service cost
amortization.................. 572 577 666 193 175 175
Amortization of actuarial
loss.......................... 1,418 808 163 373 101 --
------- ------- ------- ------ ------ ------
Net periodic benefit cost....... $ 2,594 $ 1,991 $ 678 $2,573 $2,260 $1,781
======= ======= ======= ====== ====== ======

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

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

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

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

BENEFIT
OBLIGATION
-----------
2004 2003
---- ----

Discount rate...................... 5.75% 6.0%
Expected return on plan assets..... 8.5% 8.5%
Rate of increase in compensation... 3.8% 4.2%

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

-.25% +.25%
----- -----

Effect on total projected benefit obligation (PBO) (in
millions)................................................. +$3.2 -$3.1
Effect on subsequent years periodic pension expense (in
millions)................................................. +$0.3 -$0.3

PERIODIC BENEFIT COST
---------------------
2004 2003 2002
----- ----- -----

Discount rate............................................... 6.0% 6.5% 7.0%
Rate of increase in compensation............................ 4.2% 4.8% 4.8%
Expected return on plan assets.............................. 8.5% 8.5% 9.0%

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

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

The allocation of pension plan assets is as follows:

ACTUAL
ALLOCATION
-----------
2004 2003
---- ----

Equity securities........................................... 59% 58%
Debt securities............................................. 40% 39%
Real estate................................................. 1% 3%
--- ---
100% 100%
=== ===

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

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

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

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

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

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

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

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

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

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

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

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

NOTE 12-- LEASES:

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

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

OPERATING CAPITAL
--------- -------

2005........................................................ $2,373 $144
2006........................................................ 2,002 47
2007........................................................ 1,716 27
2008........................................................ 1,026 3
2009........................................................ 737 --
Thereafter.................................................. 830 --
------ ----
Total lease payments................................... $8,684 221
======
Less interest portion.................................................. 16
----
Amount recognized as capital lease obligations......................... $205
====

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

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

NOTE 14-- OTHER CURRENT ASSETS:

DECEMBER 31,
---------------
2004 2003
------ ------
(DOLLARS IN
THOUSANDS)

Receivable from U.S. Customs for recovery of import duties,
less allowance for uncollectible accounts of $219 and
$381, respectively........................................ $1,779 $1,686
Miscellaneous non-trade receivable.......................... 161 --
Prepaid insurance........................................... 750 908
Other prepayments........................................... 907 690
------ ------
$3,597 $3,284
====== ======

NOTE 15-- TRANSACTIONS WITH RELATED PARTIES:

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

In accordance with the purchase agreement of Reamet S.A. located in
Villette, France from December of 2000, the Company was obligated to acquire a
residence located on the previously acquired land. The owner of the residence
and his immediate family have been involved in the management of the business
before and since the acquisition. The residence was acquired for $581,000 (the
fair value as appraised) including closing costs in February 2004. The Company
had previously disclosed that the residence was worth approximately $500,000
without closing costs.

There were no related party transactions in 2003 and 2002.

NOTE 16-- SEGMENT REPORTING:

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

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

The Fabrication & Distribution Group is engaged primarily in the
fabrication of titanium, specialty metals and steel products, including pipe and
engineered tubular products, for use in the oil and gas and geo-thermal energy
industries; hot and superplastically formed parts; and cut, forged, extruded and
rolled shapes; and

commercially pure titanium strip and welded tube for aerospace and nonaerospace
applications. This segment also provides warehousing, distribution, finishing,
cut-to-size and just-in-time delivery services of titanium, steel and other
metal products. Claro Precision, Inc., which was acquired in the fourth quarter
of 2004 is reported in this group.

Intersegment sales are accounted for at prices which are generally
established by reference to similar transactions with unaffiliated customers.
Reportable segments are measured based on segment operating income after an
allocation of certain corporate items such as general corporate overhead and
expenses. Assets of general corporate activities include unallocated cash and
short-term investments, and deferred taxes.

On January 1, 2003 the Company realigned its two operating segments to
better reflect its strategy for achieving higher value-added sales. Prior period
information presented herein has been restated to reflect this realignment.
Included in the realignment was the transfer from the Titanium Group to the
Fabrication & Distribution Group of the Company's commercially pure products
business, grinding operations at the Company's Washington, MO., facility and
marketing and sales responsibility for most sheet and plate products.

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

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

2004 2003 2002
-------- -------- --------

TOTAL SALES:
Titanium Group..................................... $154,855 $147,976 $196,648
Fabrication & Distribution Group................... 193,029 148,852 181,367
-------- -------- --------
Total........................................... 347,884 296,828 378,015
Inter and intra segment sales
Titanium Group..................................... 101,236 91,238 107,787
Fabrication & Distribution Group................... 32,057 10,590 12,274
-------- -------- --------
Total........................................... 133,293 101,828 120,061
Total sales to external customers
Titanium Group..................................... 53,619 56,738 88,861
Fabrication & Distribution Group................... 160,972 138,262 169,093
-------- -------- --------
Total........................................... $214,591 $195,000 $257,954
======== ======== ========
OPERATING (LOSS) INCOME:
Titanium Group....................................... $(10,964) $ (1,989) $ 11,026
Fabrication & Distribution Group..................... (3,522) 774 4,388
-------- -------- --------
Total........................................... $(14,486) $ (1,215) $ 15,414
======== ======== ========
Allocated corporate items included in segment
operating income (1):
Titanium Group....................................... $ (5,227) $ (2,946) $ (4,436)
Fabrication & Distribution Group..................... (12,457) (6,712) (5,603)
-------- -------- --------
Total........................................... $(17,684) $ (9,658) $(10,039)
======== ======== ========
INCOME (LOSS) BEFORE INCOME TAXES:
Titanium Group....................................... $ (1,206) $ 7,875 $ 21,521
Fabrication & Distribution Group..................... (3,505) (384) 2,954
-------- -------- --------
Total........................................... $ (4,711) $ 7,491 $ 24,475
======== ======== ========

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

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

2004 2003 2002
--------- -------- ---------

ASSETS:
Titanium............................................ $ 153,585 $163,594
Fabrication & distribution.......................... 197,886 166,784
General corporate assets............................ 52,022 63,397
--------- --------
Total consolidated assets......................... $ 403,493 $393,775
========= ========
CAPITAL EXPENDITURES:
Titanium............................................ $ 3,555 $ 2,530 $ 4,440
Fabrication & distribution.......................... 2,216 2,872 3,163
--------- -------- ---------
Total capital spending............................ $ 5,771 $ 5,402 $ 7,603
========= ======== =========
DEPRECIATION AND AMORTIZATION:
Titanium............................................ $ 9,126 $ 9,294 $ 9,592
Fabrication & distribution.......................... 3,335 2,742 2,629
--------- -------- ---------
Total depreciation and amortization............... $ 12,461 $ 12,036 $ 12,221
========= ======== =========
CARRYING VALUE OF GOODWILL:
Titanium............................................ $ 1,955 $ 1,560 $ --
Fabrication & distribution.......................... 44,663 34,133 34,133
--------- -------- ---------
Total carrying value of goodwill.................. $ 46,618 $ 35,693 $ 34,133
========= ======== =========

2004 2003 2002
--------- -------- ---------

REVENUE BY MARKET INFORMATION:
Titanium Group
Aerospace......................................... $ 95,818 $ 93,071 $ 124,200
Nonaerospace...................................... 59,033 54,905 72,448
--------- -------- ---------
Total.......................................... $ 154,851 $147,976 $ 196,648
Fabrication & Distribution Group
Aerospace......................................... $ 110,935 $101,534 $ 137,347
Nonaerospace...................................... 82,097 47,318 44,020
--------- -------- ---------
Total.......................................... $ 193,032 $148,852 $ 181,367
Eliminations
Aerospace......................................... $(106,308) $(86,478) $(101,004)
Nonaerospace...................................... (26,984) (15,350) (19,057)
--------- -------- ---------
Total net sales................................ $ 214,591 $195,000 $ 257,954
========= ======== =========

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

2004 2003 2002
-------- -------- --------

Geographic location of trade sales:
United States...................................... $171,325 $151,646 $211,823
England............................................ 11,726 9,065 12,322
France............................................. 13,099 12,216 13,972
Canada............................................. 6,854 -- --
Germany............................................ 3,158 -- --
Korea.............................................. -- 7,819 --
Rest of world...................................... 8,429 14,254 19,837
-------- -------- --------
Total........................................... $214,591 $195,000 $257,954
======== ======== ========
Gross property, plant and equipment:
United States...................................... $241,813 $239,082
England............................................ 2,200 2,318
France............................................. 800 261
Canada............................................. 9,776 --
Accumulated depreciation........................... (171,996) (156,156)
-------- --------
Net property, plant and equipment............... $ 82,593 $ 85,505
======== ========

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

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

NOTE 17-- COMMITMENTS AND CONTINGENCIES:

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

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

Environmental Matters

The Company is subject to environmental laws and regulations as well as
various health and safety laws and regulations that are subject to frequent
modifications and revisions. During the years ended December 31, 2004, 2003 and
2002, the Company spent approximately $1.2 million, $1.0 million and $1.1
million, respectively, for environmental remediation, compliance, and related
services. While the costs of compliance for these matters have not had a
material adverse impact on the Company in the past, it is impossible to
accurately predict the ultimate effect these changing laws and regulations may
have on the Company in the future. The Company continues to evaluate its
obligations for environmental related costs on a quarterly basis and makes
adjustments in accordance with provisions of Statement of Position No. 96-1,
"Environmental Remediation Liabilities".

The Company is involved in investigative or cleanup projects under federal
or state environmental laws at a number of waste disposal sites, including the
Fields Brook Superfund Site and the Ashtabula River Area of

Concern. Given the status of the proceedings with respect to these sites,
ultimate investigative and remediation costs cannot presently be accurately
predicted, but could, in the aggregate be material. Based on the information
available regarding the current ranges of estimated remediation costs at
currently active sites, and what the Company believes will be its ultimate share
of such costs, provisions for environmental-related costs have been recorded.

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

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

Based on available information, RMI believes that its share of potential
environmental-related costs, before expected contributions from third parties,
is in a range from $2.9 to $7.7 million in the aggregate. The Company has
included in its other noncurrent assets $2.2 million as expected contributions
from third parties. This amount represents the contributions from third parties
in conjunction with the Company's most likely estimate of $3.8 million. These
third parties include prior owners of RMI property and prior customers of RMI,
that are expected to partially reimburse the Company for their portion of
certain environmental-related costs. The Company has been receiving
contributions from such third parties for a number of years as partial
reimbursement for costs incurred by the Company.

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

Former Ashtabula Extrusion Plant

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

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

Gain Contingency

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

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

In accordance with the application of SFAS No. 5, the Company recorded
income of $6 million in each of 2000 and 2001, approximately $7 million in 2002,
$8 million in 2003 and $9 million in 2004. In all years, revenue recognized from
these cash receipts was presented as Other Income in the financial statements.
The agreement with Boeing has since expired as the final payment was received in
2004.

Other

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

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

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

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

2004 STOCK PLAN

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

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

The plan prohibits the repricing of stock options and stock appreciation
rights. A committee appointed by the Board of Directors administers the Plan,
and determines the type or types of grants to be made under the Plan and sets
forth in each such grant the terms, conditions and limitations applicable to it,
including, in certain cases, provisions relating to a possible change in control
of the Company.

During 2004, 184,000 option shares were granted at an exercise price of
$14.96. In 2003, 207,750 option shares were granted at an exercise price of
$10.22. In 2002, 238,000 option shares were granted at an exercise price of
$9.575. All option exercise prices were equal to the common stock's fair market
value on the date of the grant. Options are for a term of ten years from the
date of the grant, and vest ratably over the three-year period beginning with
the date of the grant. 181,400 of the option shares granted in 2004 were
outstanding at December 31, 2004.

During 2004, 2003 and 2002, 87,430 shares, 93,508 shares and 68,912 shares,
respectively, of restricted stock were granted. Compensation expense equal to
the fair market value on the date of the grant is recognized ratably over the
vesting period of each grant which is typically five years.

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

WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------

Balance January 1, 2002................................... 1,400,120 $14.62
Granted................................................... 238,000 $ 9.58
Exercised................................................. (16,467) $ 7.81
Forfeited or Expired...................................... (4,050) $11.87
---------
Balance December 31, 2002................................. 1,617,603 $13.95
Granted................................................... 207,750 $10.22
Exercised................................................. (122,736) $ 8.86
Forfeited or Expired...................................... -- --
---------
Balance December 31, 2003................................. 1,702,617 $13.87
Granted................................................... 184,000 $14.96
Exercised................................................. (411,005) $ 9.78
Forfeited or Expired...................................... (3,900) $13.38
---------
Balance December 31, 2004................................. 1,471,712 $15.15
=========

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

OPTIONS OUTSTANDING
--------------------------------------------------------------------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICE NUMBER REMAINING LIFE EXERCISE PRICE
------------------------------------------- --------- ---------------- ----------------

$7.31 - $10.22............................. 516,228 6.96 $ 9.63
$12.50 - $15.78............................ 503,382 3.51 $14.52
$20.19 - $25.56............................ 452,102 2.02 $22.16
---------
1,471,712 4.14 $15.15
=========

OPTIONS EXERCISABLE
--------------------------------------------------------------------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICE NUMBER REMAINING LIFE EXERCISE PRICE
------------------------------------------- --------- ---------------- ----------------

$7.31 - $10.22............................. 313,600 6.45 $ 9.39
$12.50 - $15.78............................ 321,982 4.92 $14.28
$20.19 - $25.56............................ 452,102 2.02 $22.16
---------
1,087,684 4.16 $16.15
=========

NOTE 19-- DISCONTINUED OPERATIONS:

In December of 2004, the Company terminated operations at the Company's
Tube Mill operations as it had determined that its raw material source was
inadequate to maintain commercially viable operations. The operating results of
the Tube Mill Operations have been classified as discontinued operations for all
the periods presented. The Tube Mill Operation was included in the Company's F&D
segment. In the fourth quarter of 2004 the Company impaired certain assets,
terminated operations and provided for certain contingencies which

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

2004 2003 2002
------- ------- -------
(IN THOUSANDS)

Net sales............................................... $14,427 $10,527 $12,936
Loss before income taxes................................ (211) (20) (80)
Provision for income taxes.............................. 74 6 30
------- ------- -------
Net loss from discontinued operations................... (137) (14) (50)
Loss on disposal........................................ (1,064)
Provision for income taxes.............................. 372
-------
Loss on discontinued operations, net of tax............. $ (829)
=======

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

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

1ST 2ND 3RD 4TH
2004 QUARTER(1) QUARTER QUARTER QUARTER(2)
---- ---------- ------- ------- ----------

Sales........................................ $50,530 $51,809 $50,951 $61,301
Gross profit................................. 3,344 7,710 7,649 7,458
Operating (loss)............................. (5,281) (531) (2,276) (6,398)
Net income (loss) from continuing
operations................................. 2,644 326 (2,067) (3,031)
Net income (loss) from discontinued
operations................................. 131 107 (100) (967)
Net income (loss)............................ 2,775 433 (2,167) (3,998)
Net income (loss) from continuing operations
per share
Basic...................................... $ 0.13 $ 0.02 $ (0.10) $ (0.14)
Diluted.................................... $ 0.12 $ 0.02 $ (0.10) $ (0.14)
Net income (loss) per share
Basic...................................... $ 0.13 $ 0.02 $ (0.10) $ (0.18)
Diluted.................................... $ 0.13 $ 0.02 $ (0.10) $ (0.18)

1ST 2ND 3RD 4TH
2003 QUARTER(1) QUARTER(3) QUARTER QUARTER
---- ---------- ---------- ------- ----------

Sales....................................... $55,232 $47,274 $46,830 $45,664
Gross profit................................ 6,687 8,274 3,845 11,024
Operating (loss) income..................... (1,145) 1,444 (4,433) 2,919
Net income (loss) from continuing
operations................................ 4,666 919 (2,690) 1,833
Net (loss) income from discontinued
operations................................ (333) 92 165 62
Net income (loss)........................... 4,333 1,011 (2,525) 1,895
Net income (loss) from continuing operations
per share
Basic..................................... $ 0.22 $ 0.04 $ (0.13) $ 0.09
Diluted................................... $ 0.22 $ 0.04 $ (0.13) $ 0.09
Net income (loss) per share
Basic..................................... $ 0.21 $ 0.05 $ (0.12) $ 0.09
Diluted................................... $ 0.21 $ 0.05 $ (0.12) $ 0.09

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

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

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

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

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

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

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

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

AS REPORTED EFFECT OF EFFECT OF RECLASSIFIED
AT ENVIRONMENTAL GOODWILL AT
12/31/2003 RECLASSIFICATION RECLASSIFICATION 12/31/2003
----------- ---------------- ---------------- ------------

Goodwill................................... $ 34,133 -- $1,560 $ 35,693
Other non-current assets................... 637 2,281 -- 2,918
Total Assets............................... 389,934 2,281 1,560 393,775
Other accrued liabilities.................. 1,492 164 1,560 3,216
Total current liabilities................ 33,329 164 1,560 35,053
Other noncurrent Liabilities............... 6,072 2,117 -- 8,189
Total liabilities........................ 72,274 2,281 1,560 76,115
Total liabilities and shareholders'
equity................................ $389,934 $2,281 $1,560 $393,775

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES.

The Company's management, with the participation of the Company's
Disclosure Committee and the Company's Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this amended annual report on
Form 10-K/A. Based upon that evaluation, including all matters discussed in the
paragraphs below, they have concluded that as of December 31, 2004, the
Company's disclosure controls and procedures were not effective in ensuring that
all material information required to be disclosed in the reports that the
Company files with the Securities and Exchange Commission ("SEC") is recorded,
processed, summarized, and reported within the time periods specified in the
rules and the forms of the SEC.

As set forth in detail below, management has now completed its
assessment of internal control over financial reporting for the year ended
December 31, 2004, as required by Item 308 of Regulation S-K and has determined
that it had several control deficiencies that each represented a material
weakness. In light of the deficiencies described below, the Company performed
additional post-closing procedures to ensure its consolidated financial
statements, reported and filed on Form 10-K on April 14, 2005, were prepared in
accordance with generally accepted accounting principles. Accordingly,
management believes that the Company's financial statements as presented in Item
8 of the Form 10-K filed on April 14 fairly present, in all material respects,
the Company's financial position, results of operations and cash flows for the
periods presented.

Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404") and related
rules of the SEC requires management of public companies to periodically assess
the effectiveness of internal control over financial reporting and to annually
report their conclusions, including the disclosure of all material weaknesses in
internal control over financial reporting. In addition, SOX 404 requires the
Company to provide a report of its independent registered public accounting firm
on management's annual assessment of the effectiveness of the Company's internal
control over financial reporting.

As an "accelerated filer," the Company was required to comply with SOX
404 for the year ended December 31, 2004, and thus management's report on its
internal control assessment, as well as the attestation report of the Company's
independent registered public accounting firm on management's annual assessment,
as of the end of the year 2004, was to have been included in the Form 10-K
for the year ended December 31, 2004. Because management had not completed its
review and report by the Form 10-K original due date of March 16, 2005, the
Company filed a Form 12b-25 on March 17, 2005, disclosing, among other things,
that its review and report were not completed. The Company did complete it's
year end closing process and filed its Form 10-K on April 14, 2005. However, as
of the date of the filing of the Form 10-K, management had still not completed
its report and review on its internal control for the year

ended 2004, and so indicated in the Form 10-K. Management has now completed
that review and reports its conclusions as follows:

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.

Management is responsible for establishing and maintaining adequate
internal control over financial reporting. Management has assessed the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2004. In making its assessment of internal control over financial
reporting, management used the criteria described in "Internal
Control--Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO").

b) The Company did not maintain effective controls over the selection and
application of generally accepted accounting principles ("GAAP").
Specifically, the Company incorrectly applied GAAP for: (i)
supplemental employment and other post-retirement benefit liabilities
and expense by incorrectly accounting for unvested vacation and
holiday pay expenses and incorrectly accounting for its other
post-retirement benefit liability, (ii) leases by depreciating
leasehold improvements over a period of time greater than the lease
term, (iii) business combinations by incorrectly determining the
appropriate value of stock used in acquisitions, and (iv) foreign
currency translation by incorrectly translating the financial
statements of a foreign subsidiary. This control deficiency resulted
in audit adjustments to the Company's consolidated financial
statements.

c) The Company did not maintain effective controls over consolidation and
elimination adjustments. Specifically, the Company did not have
controls over the completeness or accuracy of consolidating
information to ensure that all required consolidation and elimination
adjustments were prepared, approved and recorded, including the proper
accounting for a minority interest. This control deficiency resulted
in audit adjustments to the Company's consolidated financial
statements.

d) The Company did not maintain effective controls over the segregation
of duties. Specifically, certain of the Company's personnel had
incompatible duties that permitted unrestricted access to various
financial application programs and data beyond that needed to perform
their individual job responsibilities, nor were there effective
controls in place to monitor user access. These applications impact
all business processes, including accounts receivable, accounts
payable, payroll and inventory. This control deficiency did not result
in a misstatement to the Company's consolidated financial statements.

e) The Company did not maintain effective controls over the timely and
accurate preparation and review of its financial statements in
accordance with GAAP. Specifically, the Company did not have effective
controls over the process for identifying and accumulating all
required supporting information to ensure the completeness and
accuracy of its footnote disclosures, and to ensure that balances in
the financial statements agreed to supporting details. These control
deficiencies resulted in audit adjustments to the Company's
consolidated financial statements.

f) The Company did not maintain effective controls over certain
spreadsheets. Specifically, the Company's controls over the
completeness, accuracy, validity, and restricted access and the review
of certain spreadsheets used in the period-end financial statement
preparation and reporting process were either not designed
appropriately or did not operate as designed. These control
deficiencies resulted in audit adjustments to the Company's
consolidated financial statements.

g) The Company did not maintain effectively designed controls over the
accounting for income taxes including income taxes payable, deferred
income tax assets and liabilities and the related income tax
provision. Specifically, due to an insufficient complement of
personnel with an appropriate level of accounting knowledge,
experience and training in accounting for income taxes in accordance
with GAAP, a lack of clarity in the roles and responsibilities related
to income tax accounting, insufficient and/or ineffective review and
approval practices, and the lack of internal control and review
processes to ensure the accuracy of data used in income tax
computations, the Company was unable to accurately determine its
income tax liability and related provision. This control deficiency
resulted in audit adjustments to the Company's consolidated financial
statements.

Each of these control deficiencies could result in a misstatement of
account balances or disclosures that would result in a material
misstatement to the annual or interim financial statements that would
not be prevented or detected. Accordingly, management has determined
that each control deficiency constitutes a material weakness.

3) As of December 31, 2004, the Company did not maintain effective control
over the accounting for property, plant and equipment. Specifically, the
Company's controls to ensure the complete and accurate processing of
additions, disposals, maintenance of useful lines and the calculation of
depreciation were not designed effectively. This control deficiency did not
result in a misstatement to the Company's consolidated financial
statements. However, it could result in a misstatement of property, plant
and equipment and the related depreciation expense that would result in a
material misstatement to annual or interim financial statements that would
not be prevented or detected. Accordingly, management determined that this
control deficiency constitutes a material weakness.

4) As of December 31, 2004, the Company did not maintain an effective control
environment based on criteria established in "Internal Control--Integrated
Framework" issued by the

COSO. The financial reporting organizational structure was not adequate to
support the size, complexity, operating activities or locations of the
Company. Deficiencies, such as an insufficient complement of personnel with
an appropriate level of accounting knowledge, experience and training in
the application of generally accepted accounting principles have resulted
in adjustments to the consolidated financial statements as discussed in
item 1 above. Item 1, together with the material weaknesses described in
items 2 and 3 above, indicate that the Company did not maintain an
effective control environment. These control deficiencies could result in a
misstatement of accounts and disclosures that would result in a material
misstatement to annual or interim financial statements that would not be
prevented or detected. Accordingly, management determined that this control
deficiency constitutes a material weakness.

Because of the material weaknesses described above, management has
concluded that the Company did not maintain effective internal control over
financial reporting as of December 31, 2004, based upon the criteria established
in "Internal Control - Integrated Framework" issued by COSO.

We have excluded Claro Precision, Inc. from our assessment of internal
control over financial reporting as of December 31, 2004 because it was
acquired by the Company through a purchase business combination in October
2004. Claro Precision Inc. is a wholly-owned subsidiary whose total assets and
total revenues represent approximately 9% and approximately 2%, respectively, of
the related consolidated financial statement amounts as of and for the
year-ended December 31, 2004. Our conclusion in this Annual Report on Form 10K/A
regarding the effectiveness of our internal control over financial reporting as
of December 31, 2004 does not include the internal control over financial
reporting of Claro Precision, Inc.

Management's assessment of the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004 has been audited by the
Company's independent registered public accounting firm, as stated in their
report which appears herein.

MANAGEMENT'S REMEDIATION INITIATIVES.

The Company is implementing enhancements and changes to its internal
control over financial reporting to provide reasonable assurance that errors and
control deficiencies in its accounting will not recur. These remediation
initiatives, some of which have already commenced, and others that are intended
to be implemented during the course of 2005, represent the Company's plans to
remediate the material weaknesses identified above, with some of the remediation
plans impacting only one material weakness, while other remediation plans will
remedy several of the material weaknesses after their implementation.

Period-ending financial reporting process, identified as material weaknesses
1(a) through (g) above:

The Company's planned remediation measures are intended to address
material weaknesses in internal controls related to the period-end financial
reporting process that have the potential of preventing the accurate preparation
and review of the Company's consolidated financial statements in future
financial periods. The Company's planned remediation measures include the
following:

o The Company plans to implement new and enhanced procedures to ensure that
non-routine transactions are identified and reviewed during the period-end
financial reporting process to ensure proper accounting treatment.

o The Company plans to enhance its period-end closing procedures by
implementing critical reviews of account reconciliations, controls over
spreadsheets and standardized checklists to ensure such procedures are
consistently and effectively applied throughout the organization. In
addition, the Company has enhanced supervisory reviews over journal
entries, including non-standard journal entries.

o Spreadsheet Controls:

- Management plans to implement the appropriate end user computing
controls and to ensure that spreadsheets used in the period-end
financial reporting process are appropriately controlled.

o Period End Consolidation Process

- The Company plans on implementing an automated consolidation system.
In the interim, the Company is increasing its supervisory review of
the consolidation process.

o Segregation of Duties:

- Management plans to implement the following remediation activities:

o Reduced the number of business information system ("SAP") users
with unrestricted access

o Implemented a plan to utilize an automated review of all SAP user
accesses

o Expand the use of automated controls to monitor and detect
inappropriate access and transaction execution within the
information system

o Review the organizational structure to implement compensating
or redundant controls by supervisory personnel in those
situations where segregation of duties are not adequately
established due to limited resources

o Tax Accounting:

- The Company plans to implement the following remediation activities:

o Create and staff the position of tax accounting manager in the
accounting and finance organization to provide oversight over the
income tax accounting performed by the organization and
strengthen the income tax accounting function within the
accounting and finance organization

o Implement definitive standards and procedures for the detailed
review and approval of documentation and reconciliations
supporting all tax accounts and related journal entries by
subject matter experts

o Enhance internal audit procedures performed over the accounting
for income taxes

o External Financial Statement Preparation and Reporting Process

- The Company's planned remediation measures are intended to address
material weaknesses related to the external financial statement
preparation and reporting process. The Company plans to implement the
following remediation measures:

o Enhance the communication and distribution of its accounting
policies and procedures

o Develop a process to more effectively accumulate and analyze
information required for financial statement disclosures

- Personnel

o The Company plans to ensure that the Company will have sufficient
personnel with knowledge, experience and training in the
application of

generally accepted accounting principles commensurate with the
Company's financial reporting requirements by performing the
following:

o The Company's chief financial officer, with assistance from
senior financial staff, will review and adapt the overall
organizational design and reporting structure of the finance
organization within the Company to ensure the appropriately
skilled and adequate staffing to support the Company's
financial reporting responsibilities

o Retain and to continue to retain the services of outside
consultants, other than the Company's independent registered
public accounting firm, with relevant accounting experience,
skills and knowledge to work under the supervision and
direction of the Company's management and to supplement the
Company's existing accounting personnel

Third Party Service Providers, identified as material weakness 2 above:

To address the material weakness related to management's inability to
evaluate controls over financial reporting at the two third party service
organizations, the Company will use its best efforts to pursue one of the
following three courses of action; (a) obtain appropriate Type 2 SAS 70 service
auditor's reports from the service organizations; (b) perform an evaluation of
the relevant internal control over financial reporting at the service
organizations; or (c) replace the service organizations with other third-party
service organizations that are able to provide Type 2 SAS 70 service auditor's
reports. In the interim, the Company conducted an operation and claims review
as appropriate.

Accounting for Property, Plant, and Equipment, identified as material weakness 3
above:

To address the material weakness related to the controls over
management's fixed asset accounting, the Company plans to implement its SAP
Asset Accounting module during the second quarter of 2005. During the continued
use of the existing system, the Company plans to implement effective general IT
controls over the system and continue substantive testing of Property, Plant,
Equipment and related account transactions and balances.

Control Environment, identified as material weakness 4 above:

To address material weaknesses related to the control environment, the
Company's actual and planned remediation measures include the following;

o The Company will begin a process to determine the appropriate balance
between utilizing third party internal audit outsourcing resources and
those resources which should be internally developed and hired. The Company
has already begun to create, and will continue to sufficiently staff, its
own internal audit department to assist in enhancing the existing internal
controls and to provide effective internal control over its financial
reporting.

o The Company's chief financial officer, with assistance from senior
financial staff, will review and adapt the overall organizational design
and reporting structure of the finance organization within the Company to
ensure the appropriately skilled and adequate staffing to support the
Company's financial reporting responsibilities.

o Centralize the internal controls affecting payroll processing for the
Titanium Group.

o Ensure that the Company will have sufficient personnel with knowledge,
experience and training in the application of generally accepted accounting
principles commensurate with the Company's financial reporting requirements

o Retain and to continue to retain the services of outside consultants,
other than the Company's independent registered public accounting firm,
with relevant accounting experience, skills and knowledge, to work under
the supervision and direction of the Company's management, and to
supplement the Company's existing accounting personnel.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

The discussion above under "Management's Remediation Initiatives"
describes the material planned changes to the Company's internal control over
financial reporting subsequent to the year-ended December 31, 2004.

There were no changes in internal control over financial reporting
during the fourth quarter in 2004.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

1) The financial statements contained in Item 8 hereof;

2) The financial statement schedule set forth following the signatures to
this Form 10-K/A; and

3) The following Exhibits:

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

Index to Exhibits

Exhibit No. Description
---------- -----------

2.0 Amended and Restated Reorganization Agreement, incorporated by
reference to Exhibit 2.1 to the Company's Registration Statement
on Form S-1 No. 33-30667 Amendment No. 1

2.1 Stock Purchase Agreement, dated as of October 1, 1998, by and
among RTI International Metals, Inc., New Century Metals, Inc.,
Richard R. Burkhart and Joseph H. Rice, incorporated by reference
to Exhibit 2.1 and 2.2 to the Company's Current Report on Form
8-K dated October 15, 1998

2.2 Asset Purchase Agreement, dated October 1, 1998, by and among
Weld-Tech Engineering Services, L.P. and Weld-Tech Engineering,
L.P., incorporated by reference to Exhibit 2.1 and 2.2 to the
Company's Current Report on Form 8-K dated October 15, 1998

2.3 Claro purchase agreement, incorporated by reference to Exhibit
2.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended 9/30/04.

3.1 Amended and Restated Articles of Incorporation of the Company,
effective April 29, 1999, incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999

3.2 Amended Code of Regulations of the Company, incorporated by
reference to Exhibit 3.3 to the Company's Registration Statement
on Form S-4 No. 333-61935

3.3 RTI International Metals, Inc., Code of Ethical Business Conduct,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 2003.

4.1 Credit Agreement between RTI International Metals, Inc. and PNC
Bank, National Association, as agent; U.S. Bank, National City
Bank of Pennsylvania and Lasalle Bank, National Association as
co-agents, dated as of

April 12, 2002, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2002

10.1 RMI Company Annual Incentive Compensation Plan, incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement
on Form S-1 No. 33-30667 Amendment No. 2

10.2 RMI Titanium Company 1989 Stock Option Incentive Plan,
incorporated by reference to exhibit 10.4 to the Company's
Registration Statement on Form S-1 No. 33-30667 Amendment No. 2

10.3 RTI International Metals, Inc. Supplemental Pension Plan
effective August 1, 1987, amended January 28, 2000 and further
amended January 30, 2004, incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2003

10.4 RTI International Metals, Inc. Excess Benefits Plan effective
July 18, 1991, as amended January 28, 2000, incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000

10.5 RTI International Metals, Inc., 1995 Stock Plan incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995

10.6 Employment agreement, dated August 1, 1999, between the Company
and John H. Odle, incorporated by reference to Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999

10.7 Employment agreement, dated August 1, 1999, between the Company
and T. G. Rupert, incorporated by reference to Exhibit 10.11 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999

10.8 Employment agreement, dated August 1, 1999 between the Company
and Dawne S. Hickton, incorporated by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999

10.9 Employment agreement, dated August 1, 1999 between the Company
and Lawrence W. Jacobs, incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999

10.10 Employment agreement, dated November 1, 1999, between the Company
and Gordon L. Berkstresser, incorporated by reference to Exhibit
10.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999

10.11 Letter Agreement, dated December 3, 2003, between the Company and
T.G. Rupert, with respect to retirement benefits, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 2003

10.12 RTI International Metals, Inc., 2004 Stock Plan effective January
28, 2005, incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-8 No. 333-122357 dated
January 28, 2005

10.13* Form of Non-Qualified Stock Option Grant under the RTI
International Metals, Inc. 2004 Stock Plan

10.14* Form of Restricted Stock Grant under the RTI International
Metals, Inc. 2004 Stock Plan

10.15* RTI International Metals, Inc., Board of Directors Compensation
Program

21.1* Subsidiaries of the Company

23.1+ Consent of Independent Registered Public Accounting Firm

24.1* Powers of Attorney

31.1+ Certification of Chief Executive Officer required by Item 307 of
Regulation S-K as promulgated by the Securities and Exchange
Commission and pursuant to Section 302 of Sarbanes-Oxley Act of
2002

31.2+ Certification of Chief Financial Officer required by Item307 of
Regulation S-K as promulgated by the Securities and Exchange
Commission and pursuant to Section 302 of Sarbanes-Oxley Act of
2002

32.1+ Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

32.2+ Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

99.1 Financial Statements of The RMI Employee Savings and Investment
Plan for the year ended December 31, 2002 (to be filed by
amendment)

99.2 Financial Statements of The RMI Bargaining Unit Employee Savings
and Investment Plan for the year ended December 31, 2002 (to be
filed by amendment)

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

* Previously filed.

+ Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

RTI INTERNATIONAL METALS, INC.

Dated: May 9, 2005 By: /s/ Lawrence W. Jacobs
--------------------------------
Lawrence W. Jacobs
Vice President, Chief Financial
Officer & Treasurer

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

Signature and Title Date

CRAIG R. ANDERSSON, Director;

NEIL A. ARMSTRONG, Director;

DANIEL I. BOOKER, Director;

DONALD P. FUSILLI, Director,

RONALD L. GALLATIN, Director;

CHARLES C. GEDEON, Director;

ROBERT M. HERNANDEZ, Director;

EDITH E. HOLIDAY, Director; and

JOHN H. ODLE, Director

By: /s/ Timothy G. Rupert May 9, 2005
--------------------------------
Timothy G. Rupert
Attorney-in-fact

/s/ Timothy G. Rupert May 9, 2005
-----------------------------------------
Timothy G. Rupert
President, Chief Executive Officer and
Director

RTI INTERNATIONAL METALS, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

(CHARGED)
BALANCE AT CREDITED TO WRITEOFFS BALANCE
BEGINNING COSTS AND AGAINST AT END
DESCRIPTION OF YEAR EXPENSES ALLOWANCE OTHER OF YEAR
----------- ---------- ----------- --------- ----- -------

Year ended December 31, 2004:
Allowance for doubtful accounts............. $(1,378) $(518) $419 $ (8) $(1,485)
======= ===== ==== ==== =======
Valuation allowance for deferred income
taxes.................................... $ -- $ 577 $ -- $ -- $ 577
======= ===== ==== ==== =======
Allowance for U.S. Customs on Duty
Drawback................................. $ (381) $ 162 $ -- $ -- $ (219)
======= ===== ==== ==== =======
Year ended December 31, 2003:
Allowance for doubtful accounts............. $(1,205) $(601) $428 $ -- $(1,378)
======= ===== ==== ==== =======
Valuation allowance for deferred income
taxes.................................... $ -- $ -- $ -- $ -- $ --
======= ===== ==== ==== =======
Allowance for U.S. Customs on Duty
Drawback................................. $ -- $(381) $ -- $ -- $ (381)
======= ===== ==== ==== =======
Year ended December 31, 2002:
Allowance for doubtful accounts............. $(1,219) $(769) $783 $ -- $(1,205)
======= ===== ==== ==== =======
Valuation allowance for deferred income
taxes.................................... $ -- $ -- $ -- $ -- $ --
======= ===== ==== ==== =======
Allowance for U.S. Customs on Duty
Drawback................................. $ -- $ -- $ -- $ -- $ --
======= ===== ==== ==== =======

S-1