Edgar Filing: RTI INTERNATIONAL METALS INC

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

FORM 10-K/A

(AMENDMENT NO. 2)

(MARK ONE)

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

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

COMMISSION FILE NUMBER 001-14437

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

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

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

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

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

Common Stock, par value $0.01 per share New York Stock Exchange

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [X] No [ ]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

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

DOCUMENTS INCORPORATED BY REFERENCE:

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

RTI INTERNATIONAL METALS, INC.
AND CONSOLIDATED SUBSIDIARIES

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

EXPLANATORY NOTE

RTI International Metals, Inc. (the "Company" or "RTI") is filing this
Amendment No. 2 (the "Amendment No. 2") 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
and first amended on May 9, 2005 (the original filing), to amend and restate the
Consolidated Statements of Cash Flows, Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Controls and Procedures
disclosure. The restatement arose as a result of management's determination that
the tax effect of employee stock options exercised was incorrectly reported as
"cash flows from financing activities." The tax effect should have been reported
as "cash flows from operating activities" as prescribed by Emerging Issues Task
Force ("EITF") 00-15, "Classification in the Statement of Cash Flows of the
Income Tax Benefit Received by a Company upon Exercise of Nonqualified Employee
Stock Options." The Company has restated prior periods beginning with the year
ended December 31, 2003 through the second quarter of 2005. See Note 22 in the
notes to the consolidated financial statements contained in this amendment for
further information relating to the restatement. This Amendment No. 2 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.

Except for the amendments discussed above, this Amendment No. 2 does not
modify or update other disclosures in or exhibits to the original filing as
amended. With the exception of the matters disclosed in Item 7, Item 8, Item
9(A) and Item 15 this Amendment No. 2 continues to speak as of the date of the
original filing and the Company has not updated the disclosures therein to
reflect events that have occurred since the date of the original filing.

The following items are hereby amended and restated in their entirety.

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

TABLE OF CONTENTS

PAGE
----

PART II
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 1
Item 8. Financial Statements and Supplementary Data................. 18
Item 9(A). Controls and Procedures..................................... 52

PART IV
Item 15. Exhibits and Financial Statement Schedules.................. 58
Signatures............................................................... 61

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in connection with the information
contained in the Consolidated Financial Statements and Notes to Consolidated
Financial Statements. The following information contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and are subject to the safe harbor created by that Act. Such
forward-looking statements may be identified by their use of words like
"expects," "anticipates," "intends," "projects," or other words of similar
meaning. Forward-looking statements are based on expectations and assumptions
regarding future events. In addition to factors discussed throughout this
report, the following factors and risks should also be considered, including,
without limitation, statements regarding the future availability and prices of
raw materials, competition in the titanium industry, demand for the Company's
products, the historic cyclicality of the titanium and aerospace industries,
increased defense spending, the success of new market development, long-term
supply agreements, the outcome of proposed "Buy American" legislation, global
economic activities, the Company's order backlog and the conversion of that
backlog into revenue, the long-term impact of the events of September 11, and
the continuing war on terrorism, and other statements contained herein that are
not historical facts. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. These and other risk factors are set forth below in the "Outlook"
section, as well as in the Company's other filings with the Securities and
Exchange Commission ("SEC") over the last 12 months, copies of which are
available from the SEC or may be obtained upon request from the Company.

The Company's management, with the participation of the Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual
report on Form 10-K/A. Based upon that evaluation, including all matters
discussed in Item 9A below, they have concluded that as of December 31, 2004,
the Company's disclosure controls and procedures were not effective in ensuring
that all material information required to be filed in reports that the Company
files with the Securities and Exchange Commission ("SEC") is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC. In light of the deficiencies described in Item 9A
below, the Company performed additional post-closing procedures to ensure its
consolidated financial statements are prepared in accordance with generally
accepted accounting principles. Accordingly, management believes that the
financial statements presented in Item 8 below which form the basis of this
discussion and analysis fairly present, in all material respects, the Company's
financial condition, results of operations and cash flows for the periods
presented.

A restatement of the Company's Consolidated Statement of Cash Flows arose
as a result of management's determination that the tax effect of employee stock
options exercised were incorrectly reported as "cash flows from financing
activities." These should have been reported as "cash flows from operating
activities" as prescribed by Emerging Issues Task Force ("EITF") 00-15,
"Classification in the Statement of Cash Flows of the Income Tax Benefit
Received by a Company upon Exercise of Nonqualified Employee Stock Options." The
Consolidated Statements of Cash Flows for 2004 and 2003 have been restated.
Amounts prior to the fourth quarter of 2003 were immaterial to the Company's
Consolidated Statement of Cash Flows. The restatement does not affect the net
change in cash and cash equivalents for any of the periods presented and has no
effect on the Company's consolidated balance sheet, the consolidated statement
of operations and any related earnings per share amounts for any of the periods
presented.

OVERVIEW

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

well as engineered systems for energy-related markets, accessing the Titanium
Group as its primary source of mill products. Approximately 65% of the Titanium
Group's sales in 2004 were to F&D.

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

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

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

Much of the deployed capital within RTI relates to inventory, primarily
work-in-process, necessitated by the nature of processing titanium to demanding
metallurgical and physical specifications. However, significant investments in
raw materials, such as titanium sponge and master alloys, have also been made in
order to insure uninterrupted supply and to accommodate surges in demand. As a
result, management has put in place various goals aimed at optimizing inventory
levels, thereby freeing cash resources to be invested in other areas of the
company.

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

DISCONTINUED OPERATIONS

The Company disclosed in a news release dated September 30, 2004 that its
Tube Mill operations had stopped soliciting new orders because of a shortage of
skelp, which is the key raw material in manufacturing titanium strip.

The decision to halt the solicitation of new orders was to continue until a
search for other sources of skelp was concluded. In December 2004 the Company
terminated its search for other skelp sources and decided to terminate
production activity and discontinue the titanium strip product line and utilize
the facility for other purposes unrelated to the manufacture of welded tubing.
Tube Mill operations had been reported within the F&D segment.

Discontinued operations, which represent operating results of the Tube Mill
operations for which further information is included in Note 19, reported trade
sales of $14.4 million, $10.5 million and $12.9 million for the years ended
December 31, 2004, 2003, and 2002, respectively.

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

All amounts included in Management's Discussion and Analysis of Financial
Condition and Results of Operations have been amended to reflect the
discontinued operation.

RESULTS OF OPERATIONS

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

NET SALES

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

Titanium Group
Trade.................................................. $ 53.6 $ 56.7 $ 88.9
Inter-company.......................................... 101.2 91.2 107.8
------- ------- -------
Total.................................................. 154.8 147.9 196.7
Fabrication and Distribution Group
Trade.................................................. 161.0 138.3 169.1
Inter-company.......................................... 32.0 10.6 12.3
------- ------- -------
Total.................................................. 193.0 148.9 181.4
Eliminations............................................. (133.2) (101.8) (120.1)
------- ------- -------
Net Sales................................................ $ 214.6 $ 195.0 $ 258.0
======= ======= =======

Titanium Group

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

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

Fabrication and Distribution Group

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

Sales through F&D amounted to $148.9 million, including intercompany sales
of $10.6 million in the year ended December 31, 2003 compared to $181.4 million
including intercompany sales of $12.3 million in the same

period in 2002. The decrease of $32.5 million or 18% was a result of reduced
demand from aerospace customers in both the United States and Europe. Of the
decrease of $32.5 million approximately 78% was reduced revenue in the United
States and 22% in Europe.

GROSS PROFIT/(LOSS)

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

Titanium Group............................................. $(0.1) $ 7.8 $22.7
Fabrication & Distribution Group........................... 26.2 22.0 25.8
----- ----- -----
Total...................................................... $26.1 $29.8 $48.5
===== ===== =====

Titanium Group

Gross profit/(loss) decreased to a $(0.1) million loss in 2004 from a gross
profit of $7.8 million in 2003 or a change of $7.9 million. Reduced prices on
mill products net of mix effects resulted in a reduction in product margins of
$3.0 million. Prices were reduced from the year ago period by over $2.00 per
pound as prices dropped to an average of $14.59 from the prior period of $16.91
per pound. The reduced prices were partially due to the effect of lower price
mix of goods sold. Inventory reductions in LIFO inventories resulted in
increased cost of sales of $1.2 million; increased metallics costs equaled $1.0
million and the effect of the contract cancellation with the DOE resulted in
reduced gross profits of $2.3 million. Other cost increases of $0.3 million
included increased healthcare and pension costs.

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

Fabrication and Distribution Group

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

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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

Titanium Group............................................. $10.3 $ 9.5 $12.3
Fabrication & Distribution Group........................... 29.7 21.2 19.5
----- ----- -----
Total...................................................... $40.0 $30.7 $31.8
===== ===== =====

Titanium Group

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

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

Fabrication and Distribution Group

SG&A increased $7.8 million in 2004 from 2003 in the F&D group. The
increase was primarily due to the implementation of SOX 404 resulting in
increased expenses in the group of $3.9 million. The group, primarily the
distribution business, experienced significant growth in sales resulting in the
addition of additional personnel, increased compensation and increased overhead
equaling $1.8 million. The Company acquired a Canadian company in the fourth
quarter of 2004, expanded sales and marketing efforts into mainland China during
the year and increased its sales and marketing efforts in energy, and Europe
resulting in increased expenses of $2.1 million.

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

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES

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

Titanium Group.............................................. $1.2 $1.2 $1.2
Fabrication & Distribution Group............................ -- 0.1 --
---- ---- ----
Total....................................................... $1.2 $1.3 $1.2
==== ==== ====

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

Titanium Group

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

Fabrication and Distribution Group

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

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

OTHER OPERATING INCOME

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

Titanium Group.............................................. $0.5 $1.0 $ --
Fabrication & Distribution Group............................ -- -- --
---- ---- -----
Total....................................................... $0.5 $1.0 $ --
==== ==== =====

Titanium Group

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

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

Fabrication and Distribution Group

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

OPERATING (LOSS) INCOME

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

Titanium Group............................................. $(11.0) $(2.0) $11.0
Fabrication & Distribution Group........................... (3.5) 0.8 4.4
------ ----- -----
Total...................................................... $(14.5) $(1.2) $15.4
====== ===== =====

Titanium Group

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

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

Fabrication and Distribution Group

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

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

OTHER INCOME

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

Other Income................................................ $9.6 $8.9 $9.4

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

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

INTEREST INCOME (EXPENSE), NET

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

Total Interest Income/(Expense), net........................ $0.1 $(0.2) $(0.4)

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

Interest income/(expense), net changed $0.2 million favorable as interest
expense of $(0.2) million was recorded in 2003 compared to interest expense in
2002 of $(0.4) million. The favorable change was the result of the net effect of
interest income earned on cash balances partially offsetting interest expense as
a result of unused capacity fees on the Company's credit revolver.

INCOME TAX (BENEFIT) EXPENSE

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

Income Taxes (Benefit) Expense.............................. $(2.6) $2.8 $9.3

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

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

(LOSS) FROM DISCONTINUED OPERATIONS

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

Discontinued operations..................................... $(0.8) $ -- $(0.1)

The operations of the Company's welded tubing operations were deemed a
discontinued operation in the fourth quarter of 2004 as the operation was unable
to source input material to satisfy its customers. The Company recorded a $(0.8)
million net of tax expense in 2004 compared to breakeven results net of tax in
2003. The breakeven results net of tax in 2003 is a presentation of the prior
years effect of the tubing operations. The unfavorable change of $(0.8) million
was the result of a net of tax loss on disposal of $(0.7) million and an
unfavorable change in net of tax income of $(0.1) million.

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

NET (LOSS) INCOME

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

Net (loss) income........................................... $(3.0) $4.7 $15.1

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

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

OUTLOOK

OVERVIEW

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

According to the U.S. Geological Survey, U.S. shipments of titanium mill
products declined from a high of approximately 65 million pounds in 1997 to
approximately 34 million pounds in 2003. The Company believes shipment levels in
2004 increased due to an inventory replenishment cycle along with improved
demand in all market segments, and expect U.S. shipments to reach approximately
42 million pounds in 2005. Aircraft manufactures, as well as aerospace
forecasters, all predict that the growth in commercial aerospace, and therefore
titanium, will continue to increase in 2005 and beyond.

The following is a discussion of the Company's belief of what is happening
within each of the three major markets in which RTI participates.

COMMERCIAL AEROSPACE MARKETS

Aerospace demand is classified into two sectors: commercial aerospace and
defense programs. Demand from these two sectors comprises approximately 50% of
the worldwide consumption for titanium products and in the U.S. comprises
approximately 65% of titanium consumption. The Company's sales to this market
represented 35% of total sales in 2004, up from 27% in 2003 due to a greater
participation in the regional and business jet market with the acquisition of
Claro Precision, Inc. in Canada which was completed in October, 2004.

Due to reduced demand, Boeing and Airbus reduced their build rates for
large commercial aircraft to 586 planes in 2003, a 13.5% reduction from the
prior year. However, a turnaround began in 2004, with major producers delivering
605 new aircraft. According to The Airline Monitor, the combined production of
large commercial aircraft by Boeing and Airbus is forecast to reach 680 aircraft
in 2005, 760 aircraft in 2006, 790 aircraft in 2007, and 815 aircraft in 2008.

Airbus is now producing the world's largest commercial aircraft, the A380,
and Boeing has launched a new composite and titanium aircraft, the 787. In
addition, Airbus has approved another new aircraft, the A350, to compete with
Boeing's 787 model. All three of these aircraft are expected to use large
quantities of titanium, in the second half of this decade. Longer term, the
commercial aerospace sector is expected to be a very significant consumer of
titanium products over the next 20 years due to the expected long-term growth of
worldwide traffic and the need to repair and replace aging commercial fleets.

Titanium mill products that are ordered by the prime aircraft producers and
their subcontractors are generally ordered in advance of final aircraft
production by six to eighteen months. This is due to the time it takes to
produce a final assembly or part that is ready for installation in an airframe
or jet engine.

RMI entered into a long-term agreement with Boeing on January 28, 1998.
Under this agreement, RMI agreed to supply Boeing and its family of commercial
suppliers with up to 4.5 million pounds of titanium products annually. The
agreement, which began in 1999, had an initial term of five years and concluded
at the end of 2003. Under the accord, Boeing received firm prices in exchange
for RMI receiving a minimum volume commitment of 3.25 million pounds per year.
If volumes fell short of the minimum commitment, the contract contained
provisions for financial compensation. In accordance with the agreement, and as
a result of volume shortfalls in 1999, 2000, 2001, 2002 and 2003, Boeing settled
claims of approximately $6 million in both 2000 and 2001 and $7 million in 2002.
The claim for 2002 was settled during the first quarter of 2003 for
approximately $8 million. Boeing ordered 0.4 million pounds in 2003, the final
year of the contract, and accordingly, the Company received a payment of $9.1
million in March 2004 when Boeing satisfied the final claim under the contract.
Beginning in January of 2004, business between the companies not covered by
other contracts is being conducted on a non-committed basis, that is, no volume
commitment by Boeing and no commitment of capacity or price by RMI.

RTI acquired Claro Precision, Inc., Montreal, Canada, in October of 2004.
Claro supplies precision machining and complex sub-assemblies to the aerospace
industry, primarily Bombardier. The acquisition provides RTI with additional
manufacturing capabilities as well as access to the regional and business jet
markets.

RTI, through its RTI Europe subsidiary, entered into an agreement with the
European Aeronautic Defense and Space Company ("EADS") in January 2005 to
continue to supply value-added titanium products and parts to the EADS group of
companies, including Airbus. The contract is in place through 2008, subject to
extension. The new Airbus A380 is expected to utilize more titanium per aircraft
than any commercial plane yet produced. In 2003, Airbus became the world's
largest producer of commercial aircraft and this continued in 2004.

DEFENSE MARKETS

Shipments to military markets represented approximately 30% of the
Company's 2004 revenues and are expected to remain significant as a percent of
total sales in 2005 as U.S. and other countries' defense budgets remain strong.
In fact, the latest U.S. Department of Defense budget figures for Research,
Development Testing and Evaluation (RDT&E) and Procurement reflect an increase
of 21% from 2005 through 2009.

RTI believes it is well positioned to supply mill products and fabrications
required for any increase in demand from this market. RTI currently supplies
titanium and other materials to most military aerospace programs, including the
F/A-22, C-17, F/A-18, F-15, F-16, Joint Strike Fighter ("JSF") and in Europe,
the Mirage, Rafale and Eurofighter-Typhoon.

Lockheed Martin, a major customer of the Company, was awarded the largest
military contract ever on October 26, 2001, for the military's $200 billion JSF
program. The aircraft, which will be used by all branches of the military, is
expected to consume 25,000 to 30,000 pounds of titanium per airplane. Timing and
order patterns, which are likely to extend well into the future for this
program, have not been quantified, but may be as many as 3,000 to 5,000 planes
over the life of the program. The Company has entered into agreements with
Lockheed and its teaming partner, BAE Systems, to be the supplier of titanium
sheet and plate for the design and development phase of the program.

The company entered into a new agreement with BAE Systems in January 2005
to provide value added titanium flat rolled products for the Eurofighter
Aircraft through 2009.

The Company was chosen by BAE Systems RO Defence UK to supply the titanium
components for the new XM-777 lightweight 155 mm Howitzer. Delivery began late
in 2003 and will continue through 2010. Initial deliveries will be to the U.S.
Marine Corps, followed by deliveries to the U.S. Army and the Italian and
British armed forces. It is anticipated that over 1,000 guns may be produced.
Sales under this contract could potentially exceed $70 million.

INDUSTRIAL AND CONSUMER MARKETS

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

The Company's welded tubing operations supplied commercially pure titanium
products to various customers for use in industrial operations. The Company's
normal supplier advised that it was unable to meet orders due to their inability
to obtain raw materials from their suppliers. The Company was unable to find
alternate sources of material and had no choice but to declare the welded tubing
operations a discontinued business in 2004. The physical facilities, previously
utilized for the production of welded tube, are being used to support other
areas of RTI's operations.

In January 2005, RTI Energy Systems was selected by BP to provide titanium
stress joints for its Shah Deniz project located in the Caspian Sea, Azerbaijan.
Titanium was chosen because both strength and flexibility will be needed to deal
with the strong currents in the development area. Fabrication will begin in 2005
and shipments will be made over the next 10-14 months.

The Company operates a facility that produces ferro-titanium, an additive
to certain grades of steel. The recent world wide demand for steel has
significantly increased demand for ferro-titanium. Sales of ferro-titanium
constituted over 10% of total sales in 2004 and demand is expected to be strong
again in 2005.

RTI serves a number of other industrial and consumer markets through its
distribution businesses. The products sold and applications served are numerous
and varied. The resulting diversity tends to provide sales stability through
varying market conditions. The Company believes demand from these markets will
continue to improve in 2005 and beyond as economic conditions continue to show
improvement.

BACKLOG

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

LIQUIDITY AND CAPITAL RESOURCES
(Dollars in millions)

The Company believes it will generate sufficient cash flow from operations
to fund operations and capital expenditures in 2005. In addition, RTI has cash
reserves and available borrowing capacity to maintain adequate liquidity. RTI
currently has no debt, and based on the expected strength of 2005 cash flows,
the Company does not believe there are any material near-term risks related to
fluctuations in interest rates.

Cash provided by operating activities

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

Cash provided by operating activities....................... $20.7 $30.8 $41.3

The decrease in net cash flows from operations for the year ended December
31, 2004 compared to the year ended December 31, 2003 primarily reflects a
decrease in net income of $7.7 million due to a decline in business operating
results as mentioned in the "Results of Operations" section of Management's
Discussion and Analysis. The remainder of the decrease is primarily due to a
decrease in cash generated from reductions in working capital and other balance
sheet line items. The most significant items driving the decrease in cash
generated from

changes in working capital and other balance sheet line items when comparing
2004 to 2003 are accounts receivable, inventory and the liability for billings
in excess of costs and estimated earnings. Changes in accounts receivable
decreased cash generated as billings exceeded cash collections in 2004 compared
to 2003. The increase in billings reflects an improvement in market conditions
in the last quarter of 2004 compared to 2003. Changes in inventory levels
generated cash as the value of shipments exceeded purchases in 2004. Changes in
the liability for billings in excess of costs and estimated earnings generated
less cash in 2004 than in 2003 as it decreased due primarily to the Company
fulfilling obligations and recognizing revenue relating to advanced payments on
long-term orders.

The decrease in net cash flows from operations for the year ended December
31, 2003 compared to the year ended December 31, 2002 primarily reflects a
decrease in net income of $10.4 million due to decline in business operating
results as mentioned in the "Results of Operations" section of Management's
Discussion and Analysis. The remainder of the decrease is primarily due to a
decrease in cash generated from reductions in working capital and other balance
sheet line items. The most significant items driving the decrease in cash
generated from changes in working capital and other balance sheet line items
when comparing 2003 to 2002 are accounts receivable, inventory and the liability
for billings in excess of costs and estimated earnings. Changes in accounts
receivable generated cash as cash collections exceeded billings in 2003. The
decrease in billings reflected the general decline in the commercial aerospace
industry though the decrease was greater in 2002. Changes in inventory levels
also generated cash as the value of shipments exceeded purchases in both 2003
and 2002, as a result of management's efforts to match inventory levels to the
decline in business, though the decrease was greater in 2002. Changes in the
liability for billings in excess of costs and estimated earnings generated less
cash in 2003 than in 2002 as it increased due to the Company receipt of cash
payments in advance of work completed on additional long-term orders.

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

Cash used in investing activities

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

Cash used in investing activities........................... $(29.4) $(4.0) $(7.6)

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

During the years ended December 31, 2004, 2003 and 2002, the Company's cash
flow requirements for capital expenditures were funded with cash provided by
operations. The Company anticipates that its capital expenditures for 2005 will
total approximately $13.3 million and will be funded with cash generated by
operations.

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

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

Cash provided by (used in) financing activities

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

Cash provided by (used in) financing activities............. $3.5 $0.5 $(1.0)

The favorable change in cash flows from financing activities for the year
ended December 31, 2004 compared to the year ended December 31, 2003 primarily
reflects an increase in proceeds from the exercise of employee stock options to
$4.0 million in 2004 from $1.1 million in 2003.

The favorable change in cash flows from financing activities for the year
ended December 31, 2003 compared to the year ended December 31, 2002 primarily
reflects an increase in proceeds from exercise of employee stock options of $1.0
million.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND POST-RETIREMENT BENEFITS

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

CONTRACTUAL OBLIGATIONS
-------------------------------------------------------------------
2005 2006 2007 2008 2009 THEREAFTER TOTAL
------- ------- ------ ------ ------ ---------- -------

Operating leases (1).............. $ 2,373 $ 2,002 $1,716 $1,026 $ 737 $ 830 $ 8,684
Capital leases (1)................ 144 47 27 3 -- -- 221
------- ------- ------ ------ ------ ------- -------
Total contractual
obligations................ $ 2,517 $ 2,049 $1,743 $1,029 $ 737 $ 830 $ 8,905
======= ======= ====== ====== ====== ======= =======

COMMERCIAL COMMITMENTS
-------------------------------------------------------------------
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
-------------------------------------------------------------------
2005 2006 2007 2008 2009 THEREAFTER TOTAL
------- ------- ------ ------ ------ ---------- -------

Long-term supply agreements (2)... $42,374 $11,431 $4,784 $ -- $ -- $ -- $58,589
Purchase obligations (3).......... 27,888 636 -- -- -- -- 28,524
Standby letters of credit (4)..... 4,214 -- -- -- -- -- 4,214
------- ------- ------ ------ ------ ------- -------
Total commercial
commitments................ $74,476 $12,067 $4,784 $ -- $ -- $ -- $91,327
======= ======= ====== ====== ====== ======= =======

POST-RETIREMENT BENEFITS
-------------------------------------------------------------------
2005 2006 2007 2008 2009 THEREAFTER TOTAL
------- ------- ------ ------ ------ ---------- -------

Post-retirement benefits (5)...... $ 1,866 $ 1,881 $1,894 $1,915 $1,934 $10,096 $19,586
======= ======= ====== ====== ====== ======= =======

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

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

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

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

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

(5) The Company does not fund its other post-retirement employee benefits
obligation but instead pays amounts when incurred. However, these estimates
are based on current benefit plan coverage and are not contractual
commitments in as much as the Company retains the right to modify, reduce,
or terminate any such coverage in the future. Amounts shown in the years
2005 through 2008 are based on actuarial estimates of expected future cash
payments. The Company is not forecasting or required to make a pension
contribution in 2005. As in past years, the Company may make voluntary
contributions when there is an economic advantage to contribute to the fund.
Future contributions to the fund, if required, will be provided based on
actuarial evaluation.

CREDIT AGREEMENT

The Company amended its former $100 million, three-year credit agreement on
June 4, 2004. The amendment provides for $90 million of standby credit through
May 31, 2008. The Company has the option to increase the available credit to
$100 million with the addition of another bank, without the approval of the
existing bank group. The terms and conditions of the amended facility remain
unchanged with the exception that the tangible net worth covenant in the
replaced facility was eliminated.

Under the terms of the amended facility, the Company, at its option, will
be able to borrow at (a) a base rate (which is the higher of PNC Bank's prime
rate or the Federal Funds Effective Rate plus 0.5% per annum), or (b) LIBOR plus
a spread (ranging from 1.0% to 2.25%) determined by the ratio of the Company's
consolidated total indebtedness to consolidated earnings before interest, taxes,
depreciation and amortization. The credit

agreement contains restrictions, among others, on the minimum cash flow
required, and the maximum leverage ratio permitted.

At December 31, 2004 the Company had $4.2 million of standby letters of
credit outstanding under the facility.

ENVIRONMENTAL MATTERS

The Company is subject to environmental laws and regulations as well as
various health and safety laws and regulations that are subject to frequent
modifications and revisions. During the years ended December 31, 2004, 2003 and
2002, the Company spent approximately $1.2 million, $1.0 million and $1.1
million, respectively, for environmental remediation, compliance, and related
services. The Company estimates environmental-related expenditures, including
capital items and compliance costs, will total approximately $2.0 million for
2005 and $1.3 million for 2006. While the costs of compliance for these matters
have not had a material adverse impact on the Company in the past, it is
impossible to predict accurately the ultimate effect these changing laws and
regulations may have on the Company in the future. The Company continues to
evaluate its obligations for environmental related costs on a quarterly basis
and makes adjustments in accordance with provisions of Statement of Position No.
96-1, "Environmental Remediation Liabilities".

The Company is involved in investigative or cleanup projects under federal
or state environmental laws at a number of waste disposal sites, including the
Fields Brook Superfund Site and the Ashtabula River Area of Concern. Given the
status of the proceedings with respect to these sites, ultimate investigative
and remediation costs cannot presently be accurately predicted, but could, in
the aggregate be material. Based on the information available regarding the
current ranges of estimated remediation costs at currently active sites, and
what the Company believes will be its ultimate share of such costs, provisions
for environmental-related costs have been recorded.

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

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

The Company has included in other non-current assets $2.2 million as
expected contributions from third parties. This amount represents the
contributions from third parties in conjunction with the Company's most likely
estimate of its accrued amount of $3.8 million.

Based on available information, RMI believes that its share of potential
environmental-related costs, before expected contributions form third parties,
is in a range from $2.9 to $7.7 million in the aggregate. As these proceedings
continue toward final resolution, amounts in excess of those already provided
may be necessary to discharge the Company from its obligations for these sites.

Former Ashtabula Extrusion Plant

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

holder and owner of the site, RMI is responsible to the state of Ohio for
complying with soil and water regulations. However, remaining cleanup cost is
expected to be borne by the DOE in accordance with their contractual obligation.

NEW ACCOUNTING STANDARDS

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

In December 2004, the FASB issued FASB Staff Position No. FAS 109-1,
"Application of FASB Statement No. 109, "Accounting for Income Taxes," to the
Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004," (FSP FAS 109-1) which states that the FASB staff believes
that the qualified production activities deduction provided by the American Jobs
Creation Act of 2004 (the Act) should be accounted for as a special deduction in
accordance with FASB Statement No. 109 (FAS 109). This FSP was effective upon
issuance. FAS 109-1 will not likely have a material impact on the Company.

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

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

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

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

ACQUISITIONS

RTI continues to evaluate potential acquisition candidates to determine if
they are likely to increase the Company's earnings and value. RTI evaluates such
potential acquisitions on the basis of their ability to enhance or improve the
Company's existing operations or capabilities, as well as the ability to provide
access to new markets and/or customers for its products. RTI may make
acquisitions using its available cash resources, borrowings under its existing
credit facility, new debt financing, the Company's common stock, joint venture/
partnership arrangements or any combination of the above.

On October 1, 2004, RTI acquired all of the stock of Claro Precision, Inc.,
of Montreal, Quebec, Canada. The aggregate purchase price was $30.6 million
consisting of cash of $23.6 million less cash acquired of $1.6 million and
358,908 shares of RTI common stock with fair value of $7.0 million. The
agreement provides for an adjustment to a target equity of $9.7 million based on
the finalization of a closing balance sheet at the date of closing. In
accordance with the agreement the Company determined that an adjustment to the
purchase price of $0.2 million was due the Company and has been included to the
allocated purchase price.

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

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

CRITICAL ACCOUNTING POLICIES

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

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

Goodwill and Intangible Assets. In the case of goodwill and long-lived
assets, if future product demand or market conditions reduce management's
expectation of future cash flows from these assets, a write-down of the

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

Management evaluates the recoverability of goodwill by comparing the fair
value of each reporting unit with its carrying value. The fair values of the
reporting units are determined using a discounted cash flow analysis based on
historical and projected financial information. The carrying value of goodwill
at December 31, 2004 was $46.6 million and $35.7 million at December 31, 2003,
representing 12% and 9% total assets, respectively. Management relies on its
estimate of cash flow projections using business and economic data available at
the time the projection is calculated. A significant number of assumptions and
estimates are involved in the application of the discounted cash flow model to
forecast operating cash flows, including overall conditions, sales volumes and
prices, costs of production, and working capital changes. The discounted cash
flow evaluation is completed annually in the fourth quarter, absent any events
throughout the year which would indicate an impairment. If an event were to
occur that indicates a potential impairment, the Company would perform a
discounted cash flow evaluation prior to the fourth quarter. At December 31,
2004 the results of management's assessment did not indicate an impairment.
Results of the test in 2003 did indicate that the difference between carrying
value and discounted cash flows had been reduced from prior years for one of the
Company's reportable units. No events occurred during 2004 that would indicate a
potential impairment exists.

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

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

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

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

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

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

-.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

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

At December 31, 2004, the estimated accumulated benefit obligation related
to plan assets exceeded the value of those assets. The reduction in the discount
rate from 6.0% to 5.75% and a decrease on the return of plan assets from 2003 to
2004 resulted in an adjustment to equity to reflect an increase in the
additional minimum liability of $3.8 million, net of deferred taxes. Pension
expense in 2005 will increase $1.0 million.

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Report of Independent Registered Public Accounting Firm..... 19

FINANCIAL STATEMENTS:
Consolidated Statement of Operations for the years ended
December 31, 2004, 2003, and 2002...................... 23
Consolidated Balance Sheet at December 31, 2004 and
2003................................................... 24
Consolidated Statement of Cash Flows for the years ended
December 31, 2004, 2003 and 2002....................... 25
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 2004, 2003 and 2002... 26
Notes to Consolidated Financial Statements................ 27

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.

As discussed in Note 22 to the consolidated financial statements, the
Company has restated its 2004 and 2003 consolidated financial statements.

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) the presentation of the tax effect of employee stock
options exercised as a financing activity instead of an operating activity
in the statement of cash flows, (ii) 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, (iii) leases by
depreciating leasehold improvements over a period of time greater than the
lease term, (iv) business combinations by incorrectly determining the
appropriate value of stock used in acquisitions, and (v) foreign currency
translation by incorrectly translating the financial statements of a
foreign subsidiary. This control deficiency also resulted in the
restatement, discussed in Note 22 to the consolidated financial statements,
of the Company's consolidated financial statements for the years ended
December 31, 2003 and 2004, its consolidated financial statements for the
quarters ended March 31 and June 30, 2005, and for all quarters in 2004 as
well as adjustments to the Company's consolidated financial statements for
the quarter ended September 30, 2005 and audit adjustments to the Company's
2004 annual 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.

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. 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 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.

Management and we previously concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2004
because of the material weaknesses described above. In connection with the
restatement of the Company's consolidated financial statements discussed in Note
22 to the consolidated financial statements, management has determined that the
restatement was an additional effect of the material weakness described in 1b
above. Accordingly, this restatement did not affect management's assessment or
our opinions on internal control over financial reporting.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

May 6, 2005, except for the restatement discussed in Note 22 to the consolidated
financial statements and the matter discussed in the penultimate paragraph of
Management's Report on Internal Control Over Financial Reporting, as to which
the date is December 15, 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
RESTATED RESTATED
(SEE NOTE 22) (SEE NOTE 22) 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
Tax benefits from exercise of stock options.............. 1,336 444 --
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...... 17,749 25,625 40,483
Cash provided by discontinued operating activities.... 2,933 5,140 776
-------- ------- -------
Cash provided by operating activities................. 20,682 30,765 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......... 4,023 1,090 129
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....... 3,450 504 (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.

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

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)

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 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 109-2,
"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.

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.

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 fiscal year-end 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 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 $2,98 2 $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%

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

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".

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.

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

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

NOTE 22-- RESTATEMENT OF CASH FLOW STATEMENT FOR THE TAX EFFECTS OF STOCK
OPTIONS EXERCISED:

A restatement of the Company's Consolidated Statement of Cash Flows arose
as a result of management's determination that the tax effect of employee stock
options exercised was incorrectly reported as "cash flows from financing
activities." These should have been reported as "cash flows from operating
activities" as prescribed by Emerging Issues Task Force ("EITF") 00-15,
"Classification in the Statement of Cash Flows of the Income Tax Benefit
Received by a Company upon Exercise of Nonqualified Employee Stock Options." The
Consolidated Statements of Cash Flows for 2004 and 2003 have been restated.
Amounts prior to the fourth quarter of 2003 were immaterial to the Company's
Consolidated Statement of Cash Flows.

The restatement does not affect the net change in cash and cash equivalents
for any of the periods presented and has no effect on the Company's consolidated
balance sheet, the consolidated statement of operations and any related earnings
per share amounts for any of the periods presented.

The effect of the above restatement for each of the prior periods is shown
below:

AS PREVIOUSLY
REPORTED FOR THE AS RESTATED FOR
YEAR ENDED THE YEAR ENDED
DECEMBER 31, EFFECT OF DECEMBER 31,
2003 RESTATEMENT 2003
---------------- ----------- ----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Tax benefits from exercise of stock
options................................ $ 0 $ 444 $ 444
Cash provided by continuing operating
activities............................. $25,181 $ 444 $25,625
Cash provided by operating activities..... $30,321 $ 444 $30,765
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock
options................................ $ 1,534 $(444) $ 1,090
Cash provided by financing activities..... $ 948 $(444) $ 504

AS PREVIOUSLY
REPORTED FOR AS RESTATED FOR
THE YEAR ENDED THE YEAR ENDED
DECEMBER 31, EFFECT OF DECEMBER 31,
2004 RESTATEMENT 2004
--------------- ----------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Tax benefits from exercise of stock
options................................. $ 0 $ 1,336 $ 1,336
Cash provided by continuing operating
activities.............................. $16,413 $ 1,336 $17,749
Cash provided by operating activities...... $19,346 $ 1,336 $20,682
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock
options................................. $ 5,359 $(1,336) $ 4,023
Cash provided by financing activities...... $ 4,786 $(1,336) $ 3,450

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 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, were prepared in
accordance with generally accepted accounting principles. Accordingly,
management believes that the Company's financial statements as presented in Item
8 of this Form 10-K/A Amendment No. 2 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 completed that review and reports its
conclusions as follows:

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING (AS RESTATED)

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").

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 generally accepted accounting principles
("GAAP"). Specifically, the Company incorrectly applied GAAP in
accounting for: (i) the presentation of cash flows in the consolidated
statement of cash flows by incorrectly presenting the tax effect of
employee stock options exercised as a financing activity instead of an
operating activity, (ii) 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,
(iii) leases by depreciating

leasehold improvements over a period of time greater than the lease
term, (iv) business combinations by incorrectly determining the
appropriate value of stock used in acquisitions, and (v) foreign
currency translation by incorrectly translating the financial statements
of a foreign subsidiary. This control deficiency also resulted in the
restatement, discussed in Note 22 to the consolidated financial
statements, of the Company's consolidated financial statements for the
years ended December 31, 2003 and 2004, its consolidated financial
statements for the quarters ended March 31 and June 30, 2005, and for
all quarters in 2004 as well adjustments to the Company's consolidated
financial statements for the quarter ended September 30, 2004 and audit
adjustments to the Company's 2004 annual 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 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.

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
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 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.

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 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 had previously concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2004,
because of the material weaknesses described above. In connection with the
restatement of the Company's consolidated financial statements discussed in Note
22 to the consolidated financial statements, our management has determined that
the restatement was an additional effect of the material weakness described in
1b above. Accordingly, this restatement does not affect the previous conclusion
stated in our report on internal control over financial reporting.

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:

- 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.

- 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.

- 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.

- 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.

- Segregation of Duties:

- Management plans to implement the following remediation activities:

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

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

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

- 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

- Tax Accounting:

- The Company plans to implement the following remediation activities:

- 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

- 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

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

- 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:

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

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

- Personnel

- 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:

- 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

- 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;

- 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.

- 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.

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

- 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

- 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 that have materially affected, or are reasonably
likely to materially affect the Company's internal control over financial
reporting.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

1. The financial statements contained in Item 8 hereof;

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

3. The following Exhibits:

EXHIBITS

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

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

EXHIBIT
NO. DESCRIPTION
------- -----------

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 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
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.

By /s/ WILLIAM T. HULL

------------------------------------
William T. Hull
Vice President &
Chief Accounting Officer

Dated: December 15, 2005

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

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;

JOHN H. ODLE, Director;

/s/ TIMOTHY RUPERT December 15, 2005
------------------------------------------------------------
T. G. Rupert
Attorney-in-Fact

/s/ TIMOTHY G. RUPERT December 15, 2005
------------------------------------------------------------
T. 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