Rti International Metals 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

OR

o   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 (State or other jurisdiction of incorporation or organization)	52-2115953 (I.R.S. Employer Identification No.)
Westpointe Corporate Center One, 5th Floor 1550 Coraopolis Heights Road Pittsburgh, Pennsylvania (Address of principal executive offices)	15108-2973 (Zip Code)

(412) 893-0026

Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruler12b-2 of the Exchange Act. (Check one):

Large accelerated filerþ   Accelerated filero Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).

Yes o     No þ

Number of shares of the Corporation’s common stock (“Common Stock”) outstanding as of July 25, 2008 was 22,997,502.

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

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

INDEX

			Page
PART I — FINANCIAL INFORMATION
	Item 1.	Financial Statements		2
		Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2008 and 2007		2
		Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2008 and December 31, 2007		3
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2008 and 2007		4
		Condensed Consolidated Statement of Comprehensive Income and Shareholders’ Equity (Unaudited) for the Six Months Ended June 30, 2008		5
		Condensed Notes to Consolidated Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
	Item 4.	Controls and Procedures		26
PART II — OTHER INFORMATION
	Item 1A.	Risk Factors		27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27
	Item 4.	Submission of Matters to a Vote of Security Holders		28
	Item 6.	Exhibits		28
Signatures				29
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1.   Financial Statements.

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Net sales	$	159,829		$	154,046		$	310,477		$	299,603
Cost and expenses:
Cost of sales		110,626			106,720			209,216			200,732
Selling, general, and administrative expenses		17,798			15,021			36,106			33,219
Research, technical, and product development expenses		511			391			1,035			852
Operating income		30,894			31,914			64,120			64,800
Other income (expense)		(975	)		(364	)		(680	)		(905	)
Interest income		470			1,311			1,373			2,447
Interest expense		(266	)		(212	)		(616	)		(512	)
Income before income taxes		30,123			32,649			64,197			65,830
Provision for income taxes		11,510			11,699			23,347			22,807
Net income	$	18,613		$	20,950		$	40,850		$	43,023
Earnings per share:
Basic	$	0.82		$	0.91		$	1.78		$	1.88
Diluted	$	0.81		$	0.90		$	1.76		$	1.86
Weighted-average shares outstanding:
Basic		22,835,487			22,924,717			22,899,615			22,895,028
Diluted		23,048,041			23,177,641			23,151,361			23,159,955

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

2

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands, except share and per share amounts)

	June 30,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	84,814		$	107,505
Receivables, less allowance for doubtful accounts of $477 and $613		97,338			102,073
Inventories, net		317,234			296,559
Deferred income taxes		13,892			12,969
Other current assets		11,784			2,951
Total current assets		525,062			522,057
Property, plant, and equipment, net		202,475			157,355
Goodwill		50,348			50,769
Other intangible assets, net		16,449			17,476
Deferred income taxes		11,775			6,059
Other noncurrent assets		1,517			1,568
Total assets	$	807,626		$	755,284
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	58,345		$	46,666
Accrued wages and other employee costs		16,599			22,028
Billings in excess of costs and estimated earnings		39,341			21,573
Current portion of long-term debt		1,299			1,090
Current liability for post-retirement benefits		2,660			2,660
Current liability for pension benefits		—			5,962
Other accrued liabilities		14,346			16,171
Total current liabilities		132,590			116,150
Long-term debt		17,173			16,506
Noncurrent liability for post-retirement benefits		31,626			31,019
Noncurrent liability for pension benefits		8,596			8,526
Deferred income taxes		69			69
Other noncurrent liabilities		7,721			7,230
Total liabilities		197,775			179,500
Commitments and Contingencies (See Note 11)
Shareholders’ equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 23,681,376 and 23,610,746 shares issued; 22,997,502 and 23,105,708 shares outstanding		237			236
Additional paid-in capital		305,162			302,075
Treasury stock, at cost; 683,874 and 505,038 shares		(16,891	)		(7,801	)
Accumulated other comprehensive loss		(21,148	)		(20,367	)
Retained earnings		342,491			301,641
Total shareholders’ equity		609,851			575,784
Total liabilities and shareholders’ equity	$	807,626		$	755,284

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

3

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)

	Six Months Ended
	June 30,
	2008			2007
OPERATING ACTIVITIES:
Net income	$	40,850		$	43,023
Adjustment for non-cash items included in net income:
Depreciation and amortization		9,622			7,241
Deferred income taxes		(6,813	)		(13,165	)
Stock-based compensation		2,718			4,306
Excess tax benefits from stock-based compensation activity		(241	)		(3,477	)
Other		(114	)		(854	)
Changes in assets and liabilities:
Receivables		5,329			(12,748	)
Inventories		(19,968	)		(35,293	)
Accounts payable		3,671			9,336
Income taxes payable		278			(3,524	)
Billings in excess of costs and estimated earnings		17,833			1,169
Other current assets and liabilities		(21,983	)		11,583
Other assets and liabilities		2,319			(4,697	)
Cash provided by operating activities		33,501			2,900
INVESTING ACTIVITIES:
Proceeds from disposal of property, plant, and equipment		—			523
Purchase of investments		—			(840	)
Proceeds from sale of investments		—			7,435
Capital expenditures		(48,122	)		(27,045	)
Cash used in investing activities		(48,122	)		(19,927	)
FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options		110			1,526
Excess tax benefits from stock-based compensation activity		241			3,477
Borrowings on long-term debt		1,930			1,578
Repayments on long-term debt		(549	)		—
Purchase of common stock held in treasury		(9,090	)		(1,574	)
Cash provided by (used in) financing activities		(7,358	)		5,007
Effect of exchange rate changes on cash and cash equivalents		(712	)		(757	)
Decrease in cash and cash equivalents		(22,691	)		(12,777	)
Cash and cash equivalents at beginning of period		107,505			40,026
Cash and cash equivalents at end of period	$	84,814		$	27,249

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

4

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Comprehensive Income and Shareholders’ Equity
(Unaudited)

(In thousands, except share amounts)

													Accumulated Other
													Comprehensive Income (Loss)
													Net Unrealized Gain
													(Loss) From
	Common Stock					Additional										Foreign
	Shares					Paid-In		Treasury			Retained		Pension			Currency
	Outstanding			Amount		Capital		Stock			Earnings		Liability			Translation			Total
Balance at December 31, 2007		23,105,708		$	236	$	302,075	$	(7,801	)	$	301,641	$	(30,372	)	$	10,005		$	575,784
Net income		—			—		—		—			40,850		—			—			40,850
Foreign currency translation		—			—		—		—			—		—			(2,099	)		(2,099	)
Benefit plan amortization		—			—		—		—			—		1,318			—			1,318
Comprehensive income																				40,069
Shares issued for directors’ compensation		11,912			—		—		—			—		—			—			—
Shares issued for restricted stock award plans		49,250			1		—		—			—		—			—			1
Stock-based compensation expense recognized		—			—		2,718		—			—		—			—			2,718
Treasury stock purchased at cost		(178,836	)		—		—		(9,090	)		—		—			��			(9,090	)
Exercise of employee options		9,468			—		110		—			—		—			—			110
Tax benefits from stock-based compensation activity		—			—		259		—			—		—			—			259
Balance at June 30, 2008		22,997,502		$	237	$	305,162	$	(16,891	)	$	342,491	$	(29,054	)	$	7,906		$	609,851

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

5

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

Note 1— BASIS OF PRESENTATION:

The accompanying unaudited consolidated financial statements of RTI International Metals, Inc. and its subsidiaries (the “Company” or “RTI”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions toForm 10-Q and Article 10 ofRegulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, these financial statements contain all of the adjustments of a normal and recurring nature considered necessary to state fairly the results for the interim periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for the year.

The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with accounting policies and notes to consolidated financial statements included in the Company’s 2007 Annual Report onForm 10-K.

Note 2— ORGANIZATION:

The Company is a leading U.S. producer of titanium mill products and a global supplier of fabricated titanium and specialty metal components for the national and international market. RTI is a successor to entities that have been operating in the titanium industry since 1951. The Company first became publicly traded on the New York Stock Exchange in 1990 under the name RMI Titanium Co., and was reorganized into a holding company structure in 1998 under the symbol “RTI.” The Company conducts business in two segments: the Titanium Group and the Fabrication & Distribution Group (“F&D”). The Titanium Group melts and produces a complete range of titanium mill products, which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial applications. The titanium mill products consist of basic mill shapes including ingot, slab, bloom, billet, bar, plate and sheet. The Titanium Group also produces ferro titanium alloys for steel-making customers. The F&D Group is comprised of companies that fabricate, machine, assemble, and distribute titanium and other specialty metal parts and components. Its products, many of which are engineered parts and assemblies, serve commercial aerospace, defense, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets.

6

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

Note 3— STOCK-BASED COMPENSATION:

Stock Options

A summary of the status of the Company’s stock options as of June 30, 2008, and the activity during the six months then ended, are presented below:

Stock Options	Shares
Outstanding at December 31, 2007		312,916
Granted		54,600
Forfeited		(634	)
Expired		(166	)
Exercised		(9,468	)
Outstanding at June 30, 2008		357,248
Exercisable at June 30, 2008		226,036

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model based upon the assumptions noted in the following table:

	2008
Risk-free interest rate		2.81	%
Expected dividend yield		0.00	%
Expected lives (in years)		4.0
Expected volatility		41.00	%

Restricted Stock

A summary of the status of the Company’s nonvested restricted stock as of June 30, 2008, and the activity during the six months then ended, are presented below:

Nonvested Restricted Stock Awards	Shares
Nonvested at December 31, 2007		124,642
Granted		61,162
Vested		(26,635	)
Nonvested at June 30, 2008		159,169

Performance Share Awards

On January 25, 2008, the Board of Directors implemented a new compensation philosophy by introducing performance share awards to executive officers and certain key managers. The purpose of the performance share awards is to more closely align the compensation of the Company’s executives with the interests of the Company’s shareholders. These performance share awards will earn shares of the Company’s Common Stock in amounts

7

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

ranging from 0% to 200% of the target number of shares based upon the total shareholder return of the Company compared to a designated peer group over a pre-determined performance period.

The fair value of the performance shares granted was calculated using a probabilistic model (such as the “Monte Carlo Model”) which incorporates the market-based performance conditions within the grant. The weighted-average grant-date fair value of performance shares awarded was $64.06. The initial valuation remains fixed throughout the life of the grant regardless of the actual performance outcome.

A summary of the Company’s performance share activity during the six months ended June 30, 2008 is presented below:

	Shares		Maximum Shares
Performance Share Awards	Granted		Eligible to Receive
Oustanding at December 31, 2007		—		—
Granted		28,500		57,000
Outstanding at June 30, 2008		28,500		57,000

Note 4— INCOME TAXES:

Management evaluates the estimated annual effective income tax rate on a quarterly basis based on current and forecasted business levels and activities, including the mix of domestic and foreign results and enacted tax laws. This estimated annual effective tax rate is updated quarterly based upon actual results and updated operating forecasts. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision is comprised of tax on ordinary income at the most recent estimated annual effective tax rate, adjusted for the effect of discrete items.

For the six months ended June 30, 2008, the estimated annual effective tax rate applied to ordinary income was 37.2% compared to a rate of 35.7% for the six months ended June 30, 2007. These rates differ from the federal statutory rate of 35% principally as a result of state and foreign income taxes reduced by the benefit of the federal manufacturing deduction. The rate for the second quarter of 2008 is higher than the comparable rate in 2007 primarily due to the mix of expected domestic and foreign results leading to relatively higher state and foreign tax effects.

The Company recognized a provision for income taxes, inclusive of discrete items, of $11,510, or 38.2% of pretax income, and $11,699, or 35.8% of pretax income for federal, state, and foreign income taxes for the three months ended June 30, 2008 and 2007, respectively. Discrete items recognized during the three months ended June 30, 2008 and June 30, 2007 were not material.

The Company recognized a provision for income taxes, inclusive of discrete items, of $23,347, or 36.4% of pretax income, and $22,807, or 34.6% of pretax income for federal, state, and foreign income taxes for the six months ended June 30, 2008 and 2007, respectively. Discrete items totaling $535 reduced the provision for income taxes for the six months ended June 30, 2008 and were comprised primarily of adjustments to the prior year state income tax provision. Discrete items totaling $695 reduced the provision for income taxes for the six months ended June 30, 2007 and related principally to prior year foreign tax credit benefits.

8

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

During the current quarter, there were no material changes to the amount of previously disclosed unrecognized tax benefits.

Note 5— EARNINGS PER SHARE:

Earnings per share amounts for each period are presented in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128,Earnings Per Share, which requires the presentation of basic and diluted earnings per share. Basic earnings per share was computed by dividing net income by the weighted-average number of shares of Common Stock outstanding for each respective period. Diluted earnings per share was calculated by dividing net income by the weighted-average of all potentially dilutive shares of Common Stock that were outstanding during the periods presented.

Actual weighted-average shares of Common Stock outstanding used in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2008 and 2007 were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Numerator:
Net income	$	18,613	$	20,950	$	40,850	$	43,023
Denominator:
Basic weighted-average shares outstanding		22,835,487		22,924,717		22,899,615		22,895,028
Effect of diluted securities		212,554		252,924		251,746		264,927
Diluted weighted-average shares outstanding		23,048,041		23,177,641		23,151,361		23,159,955
Earnings per share:
Basic	$	0.82	$	0.91	$	1.78	$	1.88
Diluted	$	0.81	$	0.90	$	1.76	$	1.86

For the three and six months ended June 30, 2008, options to purchase 187,040 and 118,129 shares of Common Stock, at an average price of $58.86 and $66.54, respectively, have been excluded from the calculation of diluted earnings per share because their effects were antidilutive. For the three and six months ended June 30, 2007, options to purchase 62,325 and 52,100 shares of Common Stock, at an average price of $77.90 and $77.75, respectively, have been excluded from the calculation of diluted earnings per share because their effects were antidilutive.

Note 6— INVENTORIES:

Inventories are valued at cost as determined by thelast-in, first-out (“LIFO”) method for approximately 55% and 57% of the Company’s inventories at June 30, 2008 and December 31, 2007, respectively. The remaining inventories are valued at cost determined by a combination of thefirst-in, first-out (“FIFO”) and weighted-average cost methods. Inventory costs generally include materials, labor, and manufacturing overhead (including

9

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

depreciation). When market conditions indicate an excess of carrying cost over market value, a lower-of-cost-or-market provision is recorded. Inventories consisted of the following:

	June 30,			December 31,
	2008			2007
Raw materials and supplies	$	125,761		$	114,967
Work-in-process and finished goods		269,457			267,462
LIFO reserve		(77,984	)		(85,870	)
Total inventories	$	317,234		$	296,559

As of June 30, 2008 and December 31, 2007, the current cost of inventories exceeded their carrying value by $77,984 and $85,870, respectively. The Company’s FIFO inventory value is used to approximate current costs.

Note 7— GOODWILL AND OTHER INTANGIBLE ASSETS:

Under SFAS No. 142,Goodwill and Intangible Assets, goodwill is subject to at least an annual assessment for impairment by applying a fair value based test. Absent any events throughout the year which would indicate potential 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.

Goodwill.  The carrying amount of goodwill attributable to each segment at December 31, 2007 and June 30, 2008 was as follows:

	December 31,		Translation			June 30,
	2007		Adjustment			2008
Titanium Group	$	2,548	$	—		$	2,548
Fabrication & Distribution Group		48,221		(421	)		47,800
Total goodwill	$	50,769	$	(421	)	$	50,348

Intangibles.  Intangible assets consist of customer relationships as a result of our acquisition of Claro Precision, Inc. (“Claro”) in 2004. These intangible assets, which were valued at fair value, are being amortized over 20 years. In the event that demand or market conditions change and the expected future cash flows associated with these assets is reduced, a write-down or acceleration of the amortization period may be required.

The carrying amount of intangible assets attributable to each segment at December 31, 2007 and June 30, 2008 was as follows:

	December 31,					Translation			June 30,
	2007		Amortization			Adjustment			2008
Titanium Group	$	—	$	—		$	—		$	—
Fabrication & Distribution Group		17,476		(513	)		(514	)		16,449
Total intangible assets	$	17,476	$	(513	)	$	(514	)	$	16,449

10

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

Note 8— BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS:

The Company reported a liability for billings in excess of costs and estimated earnings of $39,341 as of June 30, 2008 and $21,573 as of December 31, 2007. These amounts primarily represent payments, received in advance from commercial aerospace, defense, and energy market customers on long-term orders, which the Company has not recognized as revenues.

Note 9— OTHER INCOME (EXPENSE):

Other income (expense) for the three months ended June 30, 2008 and 2007 was $(975) and $(364), respectively. Other income (expense) for the six months ended June 30, 2008 and 2007 was $(680) and $(905), respectively. Other income (expense) consists primarily of foreign exchange gains and losses from international operations.

Note 10— EMPLOYEE BENEFIT PLANS:

Components of net periodic pension and other post-retirement benefit cost for the three and six months ended June 30, 2008 and 2007 for those salaried and hourly covered employees were as follows:

	Pension Benefits												Other Post-Retirement Benefits
	Three Months						Six Months						Three Months				Six Months
	Ended						Ended						Ended				Ended
	June 30,						June 30,						June 30,				June 30,
	2008			2007			2008			2007			2008		2007		2008		2007
Service cost	$	485		$	503		$	970		$	1,006		$	129	$	121	$	258	$	242
Interest cost		1,783			1,728			3,566			3,456			505		508		1,010		1,015
Expected return on plan assets		(2,218	)		(2,019	)		(4,436	)		(4,038	)		—		—		—		—
Amortization of prior service cost		206			173			412			347			304		303		607		607
Amortization of unrealized gains and losses		537			557			1,074			1,113			—		—		—		—
Net periodic benefit cost	$	793		$	942		$	1,586		$	1,884		$	938	$	932	$	1,875	$	1,864

While the Company is not required to make any contributions to its qualified defined benefit pension plans in 2008, it may elect to make contributions if the Company determines it to be appropriate.

Note 11— COMMITMENTS AND CONTINGENCIES:

From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. In our opinion, the ultimate liability, if any, resulting from these matters will have no significant impact 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 and structural supports in high performance military aircraft, the Company maintains aircraft products liability insurance of $350 million, which includes grounding liability.

11

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

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. 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 obligation for environmental-related costs on a quarterly basis and make adjustments in accordance with provisions of Statement of Position96-1,Environmental Remediation Liabilitiesand SFAS No. 5,Accounting for Contingencies.

Given the status of the proceedings at certain of these sites, which include the Ashtabula River, the former Ashtabula Extrusion Plant, and the Reserve Environmental Services Landfill, along with 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 the financial statements when an obligation becomes probable and a reasonable estimate of exposure can be determined. When a single estimate cannot be reasonably made, but a range can be reasonably estimated, the Company accrues the amount it determines to be the most likely amount within that range.

Based on available information, RTI believes that its share of possible environmental-related costs is in a range from $2,178 to $3,750 in the aggregate. At June 30, 2008 and December 31, 2007, the amounts accrued for future environmental-related costs were $2,911 and $2,874, respectively. Of the total amount accrued at June 30, 2008, $1,236 is expected to be paid out within one year and is included in the other accrued liabilities line of the balance sheet. The remaining $1,675 is recorded in other noncurrent liabilities.

The Company has included $433 and $418 in its other current and noncurrent assets, respectively, for expected contributions from third parties. These third parties include prior owners of RTI property and prior customers of RTI that have agreed to partially reimburse the Company for certain environmental-related costs. The Company has been receiving contributions from such third parties for a number of years as partial reimbursement for costs incurred by the Company.

The following table summarizes the changes in the assets and liabilities for the six months ended June 30, 2008:

	Environmental			Environmental
	Assets			Liabilities
Balance at December 31, 2007	$	863		$	(2,874	)
Environmental-related income (expense)		2			(399	)
Cash paid (received)		(14	)		362
Balance at June 30, 2008	$	851		$	(2,911	)

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 which include the Ashtabula River, the former Ashtabula Extrusion Plant, and the Reserve Environmental Services Landfill.

12

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

Duty Drawback Investigation

The Company maintained a program through an authorized agent to recapture duty paid on imported titanium sponge as an offset against exports for products shipped outside the U.S. by the Company or its customers. The agent performed the recapture process by matching the Company’s duty paid with the export shipments through filings with the U.S. Customs and Border Protection (“U.S. Customs”).

Historically, the Company recognized a credit to Cost of Sales when it received notification from the agent that a claim had been filed and received by U.S. Customs. For the period January 1, 2001 through March 31, 2007, the Company recognized a reduction to Cost of Sales totaling $14.5 million associated with the recapture of duty paid. This amount represents the total of all claims filed by the agent on the Company’s behalf.

During the second quarter of 2007, the Company received notice from U.S. Customs that it was under formal investigation with respect to $7.6 million of claims previously filed by the agent on the Company’s behalf. The investigation relates to discrepancies in, and lack of supporting documentation for, claims filed through the authorized agent. The Company revoked the authorized agent’s authority and is fully cooperating with U.S. Customs to determine to what extent any claims may be invalid or may not be supportable with adequate documentation. In response to the investigation noted above, the Company suspended the filing of new duty drawback claims through the third quarter of 2007. The Company is fully engaged and cooperating with U.S. Customs in an effort to complete the investigation in an expeditious manner.

Concurrent with the U.S. Customs investigation, the Company is currently performing an internal review of the entire $14.5 million of drawback claims filed with U.S. Customs to determine to what extent any claims may have been invalid or may not have been supported with adequate documentation. In those instances, the Company is attempting to provide additional or supplemental documentation to U.S. Customs to support claims previously filed. As of the date of this filing, this review is not complete due to the extensive amount of documentation which must be examined. However, as a result of this review to date, the Company recorded charges totaling $7.2 million to Cost of Sales during 2007. The Company booked an additional charge totaling $0.2 million during the second quarter of 2008 related to additional claim amendments. These charges were determined in accordance with SFAS No. 5,Accounting for Contingencies, and represent the Company’s current best estimate of probable loss. Of this amount, $6.7 million was recorded as a contingent current liability and $0.7 million was recorded as a write-off of an outstanding receivable representing claims filed which had not yet been paid by U.S. Customs. The Company has repaid $1.1 million to U.S. Customs for invalid claims through June 30, 2008. As a result of these payments, the Company’s liability totaled $5.6 million as of June 30, 2008. While the ultimate outcome of the U.S. Customs investigation and the Company’s own internal review is not yet known, the Company believes there is an additional possible risk of loss between $0 and $3.9 million based on current facts, exclusive of any amounts imposed for interest and penalties, if any, which cannot be quantified at this time.

During the fourth quarter of 2007, the Company began filing new duty drawback claims through a new authorized agent. Claims filed during the three and six months ended June 30, 2008 totaled $1.0 million and $1.3 million, respectively. As a result of the open investigation discussed above, we have not recognized any credits to Cost of Sales upon the filing of these new claims. We intend to record these credits on a “cash basis,” as they are paid by U.S. Customs until a consistent history of receipts against claims filed has been established.

13

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

Other Matters

The Company is also the subject of, or a party to, a number of other pending or threatened legal actions involving a variety of matters incidental to its business. The Company is of the opinion that the ultimate resolution of these matters will not have a significant impact on the results of the operations, cash flows, or the financial position of the Company.

Note 12— LONG-TERM DEBT:

Long-term debt consisted of:

	June 30, 2008			December 31, 2007
RTI Claro credit agreement	$	14,838		$	15,862
Interest-free loan agreement		3,634			1,734
Total debt	$	18,472		$	17,596
Less: Current portion		(1,299	)		(1,090	)
Long-term debt	$	17,173		$	16,506

Note 13— SEGMENT REPORTING:

The Company’s reportable segments are the Titanium Group and the F&D 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 commercial aerospace and nonaerospace markets. Titanium mill products are sold primarily to customers such as metal fabricators and forge shops in addition to the F&D Group. 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 F&D 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 for commercial and military aerospace and nonaerospace applications. This segment also provides warehousing, distribution, finishing, cut-to-size, andjust-in-time delivery services of titanium, steel, and other metal products.

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 deferred taxes.

14

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

A summary of financial information by reportable segment is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Net sales:
Titanium Group	$	52,374		$	62,690		$	107,501		$	115,858
Intersegment sales		43,579			44,001			90,668			94,000
Total Titanium Group net sales		95,953			106,691			198,169			209,858
Fabrication & Distribution Group		107,455			91,356			202,976			183,745
Intersegment sales		1,700			1,573			3,605			3,785
Total Fabrication & Distribution Group net sales		109,155			92,929			206,581			187,530
Eliminations		45,279			45,574			94,273			97,785
Total consolidated net sales	$	159,829		$	154,046		$	310,477		$	299,603
Operating income:
Titanium Group before corporate allocations	$	21,330		$	24,161		$	52,687		$	48,874
Corporate allocations		(2,897	)		(2,502	)		(5,902	)		(5,917	)
Total Titanium Group operating income		18,433			21,659			46,785			42,957
Fabrication & Distribution Group before corporate allocations		16,804			13,875			26,125			30,348
Corporate allocations		(4,343	)		(3,620	)		(8,790	)		(8,505	)
Total Fabrication & Distribution Group operating income		12,461			10,255			17,335			21,843
Total consolidated operating income	$	30,894		$	31,914		$	64,120		$	64,800
Income before income taxes:
Titanium Group	$	18,632		$	22,475		$	47,535		$	44,468
Fabrication & Distribution Group		11,491			10,174			16,662			21,362
Total consolidated income before income taxes	$	30,123		$	32,649		$	64,197		$	65,830

	June 30,		December 31,
	2008		2007
Total assets:
Titanium Group	$	321,858	$	281,238
Fabrication & Distribution Group		404,851		372,398
General corporate assets		80,917		101,648
Total consolidated assets	$	807,626	$	755,284

15

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

Note 14— FAIR VALUE MEASUREMENTS:

SFAS No. 157,Fair Value Measurements(“SFAS 157”) clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy that prioritizes the inputs utilized in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data and which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including its cash equivalents.

The Company’s cash equivalents consist of highly liquid Money Market Funds that are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Note 15— NEW ACCOUNTING STANDARDS:

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 became effective as of January 1, 2008. In February 2008, the FASB issued FASB Staff Position (“FSP”)No. FAS 157-2,Effective Date of FASB Statement No. 157(“FSPFAS 157-2”). FSPFAS 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and liabilities, except for those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. The adoption of SFAS 157 did not have a material effect on the Company’s Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115(“SFAS 159”). SFAS 159 permits entities to make an irrevocable election to measure certain financial instruments and other assets and liabilities at fair value on aninstrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized into net earnings at each subsequent reporting date. The provisions of SFAS 159 became effective as of January 1, 2008. The adoption of SFAS 159 did not have a material effect on the Company’s Consolidated Financial Statements as no fair value elections were made.

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141(R) also establishes additional disclosure requirements related to the financial effects of a business combination. SFAS 141(R) is effective as of January 1, 2009. The impact of adopting SFAS 141(R) will depend on the nature, terms, and size of business combinations completed after the effective date.

16

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements
(Unaudited)

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

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owners. SFAS 160 is effective as of January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on its Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 provides for additional disclosure requirements for derivative instruments and hedging activities, including disclosures as to how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. SFAS 161 is effective as of January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 161 on its Consolidated Financial Statements.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles(“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of the financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. The Company does not expect the adoption of SFAS 162 to have a material effect on its Consolidated Financial Statements.

17

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following discussion should be read in connection with the information contained in the Consolidated Financial Statements and Condensed 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 is 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 quarterly 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 commercial aerospace industries,

•  changes in defense spending,

•  the success of new market development,

•  long-term supply agreements,

•  the impact of Boeing 787 production delays,

•  legislative challenges to the Specialty Metals Clause of the Berry Amendment,

•  labor matters,

•  global economic activities and election year uncertainties,

•  outcome of pending U.S. Customs investigation,

•  the successful completion of our expansion projects,

•  the Company’s order backlog and the conversion of that backlog into revenue, 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 in this, as well as in 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.

Overview

RTI International Metals, Inc. (the “Company,” “RTI,” “we,” “us,” or “our”) is a leading U.S. producer and distributor of titanium mill products and fabricated metal parts for the global market.

18

We conduct our operations in two reportable segments: the Titanium Group and the Fabrication & Distribution Group (“F&D”). The Titanium Group melts and produces a complete range of titanium mill products which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial and consumer applications. With operations in Niles, Ohio; Canton, Ohio; and Hermitage, Pennsylvania; the Titanium Group 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. The F&D Group is comprised of companies that fabricate, machine, assemble, and distribute titanium and other specialty metal parts and components. Its products, many of which are engineered parts and assemblies, serve commercial aerospace, defense, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. With operations located throughout the United States, Europe, and Canada and a representative office in China, the F&D Group concentrates its efforts on maximizing its profitability by offering value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and sub-assemblies, as well as engineered systems for energy-related markets by accessing the Titanium Group as its primary source of mill products.

During the second quarter of 2008, we announced our plan to reorganize our operating structure to enhance our strategy of supplying a fully integrated offering of titanium parts and sophisticated materials solutions to our customers. Effective July 1, 2008, we will reorganize the Company into three operating groups; the Distribution Group; the Fabrication Group; and the Titanium Group. The creation of three separate operating groups will enhance our product and solutions offerings, provide greater accountability for these individual operations and drive increased transparency, not only for our management but also for our shareholders. We will begin providing financial information with regard to these new operating groups during the third quarter of 2008.

Net income for the three months ended June 30, 2008 totaled $18.6 million, or $0.81 per diluted share, on sales of $159.8 million, compared with net income totaling $21.0 million or $0.90 per diluted share, on sales of $154.0 million for the three months ended June 30, 2007. For the three months ended June 30, 2008 and 2007, approximately 45% and 41%, respectively, of the Titanium Group’s sales were to the F&D Group. Net income for the six months ended June 30, 2008 totaled $40.9 million, or $1.76 per diluted share, on sales of $310.5 million, compared with net income of $43.0 million, or $1.86 per diluted share, on sales of $299.6 million for the six months ended June 30, 2007.

Three Months Ended June 30, 2008 Compared To Three Months Ended June 30, 2007

Net Sales.  Net sales for our reportable segments, excluding intersegment sales, for the three months ended June 30, 2008 and 2007 were as follows:

	Three Months Ended
	June 30,				$ Increase/			% Increase/
(In millions except percents)	2008		2007		(Decrease)			(Decrease)
Titanium Group	$	52.4	$	62.7	$	(10.3	)		−16.4	%
Fabrication & Distribution Group		107.4		91.3		16.1			17.6	%
Total consolidated net sales	$	159.8	$	154.0	$	5.8			3.8	%

The decrease in the Titanium Group’s net sales for the three months ended June 30, 2008 compared to the three months ended June 30, 2007 was primarily due to a 20% decrease in average realized selling prices of prime mill products to trade customers. This decrease was partially offset by an increase in trade shipments of 0.1 million pounds.

The increase in the F&D Group’s net sales of $16.1 million was primarily the result of an increase in demand related to our current commercial aerospace and defense contracts, offset by a softening in realized prices in specialty metal products at our distribution facilities. We also completed significant orders for our energy market

19

customers during the second quarter of 2008 that increased net sales $6.8 million compared to the prior year. Net sales at the F&D Group’s North American and European operations increased by $13.9 million and $2.2 million, respectively.

Gross Profit.  Gross profit for our reportable segments, for the three months ended June 30, 2008 and 2007 were as follows:

	Three Months Ended
	June 30,				$ Increase/			% Increase/
(In millions except percents)	2008		2007		(Decrease)			(Decrease)
Titanium Group	$	24.0	$	26.1	$	(2.1	)		−8.0	%
Fabrication & Distribution Group		25.2		21.2		4.0			18.9	%
Total consolidated gross profit	$	49.2	$	47.3	$	1.9			4.0	%

Excluding the $3.4 million charge in the three months ended June 30, 2007 associated with the U.S. Customs investigation of our previously filed duty drawback claims, gross profit for the Titanium Group decreased by $5.5 million. The decrease in gross profit was primarily due to an unfavorable product mix and lower average realized selling prices during the current period. These decreases were partially offset by favorable profit impacts associated with the sale of Titanium Group-sourced inventory through our F&D Group businesses, as well as favorable ferro-alloys margins compared to the prior year.

The increase in gross profit for the F&D Group of $4.0 million was largely due to increased sales at both our domestic and international operations. The gross profit percentage for the F&D Group was 23.5% for the current period compared to 23.2% in the prior year.

Selling, General, and Administrative Expenses.  Selling, general, and administrative expenses (“SG&A”) for our reportable segments, for the three months ended June 30, 2008 and 2007 are summarized in the following table:

	Three Months Ended
	June 30,				$ Increase/		% Increase/
(In millions except percents)	2008		2007		(Decrease)		(Decrease)
Titanium Group	$	5.0	$	4.1	$	0.9		22.0	%
Fabrication & Distribution Group		12.8		10.9		1.9		17.4	%
Total consolidated SG&A expenses	$	17.8	$	15.0	$	2.8		18.7	%

Total SG&A increased $2.8 million for the three months ended June 30, 2008 compared to June 30, 2007. This increase was largely the result of increased compensation-related expenses reflecting additional personnel and increased professional and consulting costs to support business growth opportunities.

Research, Technical, and Product Development Expenses.  Research, technical, and product development expenses (“R&D”) were $0.5 and $0.4 million for the three month periods ended June 30, 2008 and June 30, 2007, respectively. This spending reflects our continued efforts in making productivity and quality improvements to current manufacturing processes.

20

Operating Income.  Operating income for our reportable segments, for the three months ended June 30, 2008 and 2007 is summarized in the following table:

	Three Months Ended
	June 30,				$ Increase/			% Increase/
(In millions except percents)	2008		2007		(Decrease)			(Decrease)
Titanium Group	$	18.4	$	21.6	$	(3.2	)		−14.8	%
Fabrication & Distribution Group		12.5		10.3		2.2			21.4	%
Total operating income	$	30.9	$	31.9	$	(1.0	)		−3.1	%

Excluding the $3.4 million charge in the three months ended June 30, 2007 associated with the U.S. Customs investigation of our previously filed duty drawback claims, operating income for the Titanium Group decreased $6.6 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. The decrease was primarily attributable to lower gross profit due to an unfavorable product mix and lower average realized selling prices coupled with higher raw material costs and higher SG&A costs in the current year, somewhat offset by favorable profit impacts associated with the sale of Titanium Group-sourced inventory through our F&D Group businesses.

The increase in operating income for the F&D Group of $2.2 million reflects a gross profit improvement of $4.0 million due to higher sales in the current period partially offset by increased SG&A expenses.

Other Expense.  Other expense for the three months ended June 30, 2008 and 2007 was $(1.0) million and $(0.4) million, respectively. Other income (expense) consists primarily of foreign exchange gains and losses from our international operations.

Interest Income and Interest Expense.  Interest income for the three months ended June 30, 2008 and 2007 was $0.5 million and $1.3 million, respectively. The decrease was principally related to lower overall levels of cash and short-term investments compared to the prior year coupled with lower returns on invested cash due to a more conservative investment philosophy in light of the continuing credit market uncertainties. Interest expense was $0.3 million and $0.2 million for the three months ended June 30, 2008 and 2007, respectively.

Provision for Income Taxes.  We recognized income tax expense of $11.5 million, or 38.2% of pretax income, and $11.7 million, or 35.8% of pretax income for federal, state, and foreign income taxes for the three months ended June 30, 2008 and 2007, respectively. Tax expense, as a percentage of pretax income, increased year over year as a result of increased state and foreign income tax effects. Discrete items recognized during the three months ended June 30, 2008 and 2007 were not material.

Six Months Ended June 30, 2008 Compared To Six Months Ended June 30, 2007

Net Sales.  Net sales for our reportable segments, excluding intersegment sales, for the six months ended June 30, 2008 and 2007 were as follows:

	Six Months
	Ended
	June 30,				$ Increase/			% Increase/
(In millions except percents)	2008		2007		(Decrease)			(Decrease)
Titanium Group	$	107.5	$	115.9	$	(8.4	)		−7.2	%
Fabrication & Distribution Group		203.0		183.7		19.3			10.5	%
Total consolidated net sales	$	310.5	$	299.6	$	10.9			3.6	%

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The decrease in the Titanium Group’s net sales for the six months ended June 30, 2008 compared to the six months ended June 30, 2007 was primarily due to a 16% decrease in average realized selling prices to trade customers due to an unfavorable product mix and lower pricing on our long-term supply agreements, partially offset by an increase in trade shipments of 0.4 million pounds.

The increase in the F&D Group’s net sales of $19.3 million was primarily the result of an increase in demand related to our current commercial aerospace and defense contracts, offset by a softening in realized prices in specialty metal products at our distribution facilities. We also completed significant orders for our energy market customers during the second quarter of 2008 that resulted in increased net sales of $6.8 million during the second quarter of 2008, partially offset by fewer deliveries during the first quarter of 2008. Net sales at the F&D Group’s North American and European operations increased by $12.2 million and $7.1 million, respectively.

Gross Profit.  Gross profit for our reportable segments, for the six months ended June 30, 2008 and 2007 were as follows:

	Six Months
	Ended
	June 30,				$ Increase/			% Increase/
(In millions except percents)	2008		2007		(Decrease)			(Decrease)
Titanium Group	$	57.6	$	52.8	$	4.8			9.1	%
Fabrication & Distribution Group		43.7		46.1		(2.4	)		−5.2	%
Total consolidated gross profit	$	101.3	$	98.9	$	2.4			2.4	%

Excluding the $3.4 million charge in 2007 associated with the U.S. Customs investigation of our previously filed duty drawback claims, gross profit for the Titanium Group increased by $1.4 million. The increase in gross profit was primarily attributable to favorable profit impacts associated with the sale of Titanium Group-sourced inventory through our F&D Group businesses, as well as favorable ferro-alloys margins. These increases were substantially offset by lower average realized selling prices and an unfavorable product mix during the current year.

The decrease in gross profit for the F&D Group of $2.4 million was primarily due to ongoing startup costs, low utilization, and other inefficiencies related to the announced delays in the Boeing 787 program, as well as softening in realized prices for certain specialty metals products at our distribution facilities. As a result, gross profit percentage for the F&D Group decreased to 21.5% for the six months ended June 30, 2008 from 25.1% for the six months ended June 30, 2007.

Selling, General, and Administrative Expenses.  Selling, general, and administrative expenses (“SG&A”) for our reportable segments, for the six months ended June 30, 2008 and 2007 are summarized in the following table:

	Six Months Ended
	June 30,				$ Increase/		% Increase/
(In millions except percents)	2008		2007		(Decrease)		(Decrease)
Titanium Group	$	9.8	$	9.1	$	0.7		7.7	%
Fabrication & Distribution Group		26.3		24.1		2.2		9.1	%
Total consolidated SG&A expenses	$	36.1	$	33.2	$	2.9		8.7	%

Total SG&A increased $2.9 million for the six months ended June 30, 2008 compared to June 30, 2007. This increase was largely the result of increased compensation-related expenses reflecting additional personnel as well as increased professional and consulting costs to support business growth opportunities. These increases were somewhat offset by a decrease in stock-based compensation and pension costs and further reductions in our audit-related expenses.

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Research, Technical, and Product Development Expenses.  Research, technical, and product development expenses (“R&D”) were $1.0 million and $0.9 million for the six month periods ended June 30, 2008 and June 30, 2007, respectively. This spending reflects our continued efforts in making productivity and quality improvements to current manufacturing processes.

Operating Income.  Operating income for our reportable segments, for the six months ended June 30, 2008 and 2007 is summarized in the following table:

	Six Months Ended
	June 30,				$ Increase/			% Increase/
(In millions except percents)	2008		2007		(Decrease)			(Decrease)
Titanium Group	$	46.8	$	43.0	$	3.8			8.8	%
Fabrication & Distribution Group		17.3		21.8		(4.5	)		−20.6	%
Total operating income	$	64.1	$	64.8	$	(0.7	)		−1.1	%

Excluding the $3.4 million charge in 2007 associated with the U.S. Customs investigation of our previously filed duty drawback claims, operating income for the Titanium Group increased by $0.4 million. The increase was primarily due to favorable profit impacts associated with the sale of Titanium Group-sourced inventory through our F&D Group businesses, as well as favorable ferro-alloys margins, substantially offset by an unfavorable product mix compared to the prior year, lower average realized selling prices and higher SG&A costs.

Operating income for the F&D Group decreased $4.5 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The decrease was primarily due to ongoing startup costs, low utilization, and other inefficiencies related to the announced delays in the Boeing 787 program, as well as softening in realized prices for certain specialty metal products at our distribution facilities and the increased SG&A spending as described above.

Other Expense.  Other expense for the six months ended June 30, 2008 and 2007 was $(0.7) million and $(0.9) million, respectively. Other expense consists primarily of foreign exchange gains and losses from our international operations.

Interest Income and Interest Expense.  Interest income for the six months ended June 30, 2008 and 2007 was $1.4 million and $2.4 million, respectively. The decrease was principally related to lower overall levels of cash and short-term investments compared to the prior year coupled with lower returns on invested cash due to a more conservative investment philosophy in light of the continuing credit market uncertainties. Interest expense was $0.6 million and $0.5 for the six months ended June 30, 2008 and June 30, 2007.

Provision for Income Taxes.  We recognized income tax expense of $23.3 million, or 36.4% of pretax income, and $22.8 million, or 34.6% of pretax income for federal, state, and foreign income taxes for the six months ended June 30, 2008 and 2007, respectively. Tax expense, as a percentage of pretax income, increased year over year as a result of increased state and foreign income tax effects. Discrete items totaling $0.5 million reduced the provision for income taxes for the six months ended June 30, 2008 and were comprised primarily of adjustments to the prior year state income tax provision. Discrete items totaling $0.7 million reduced the provision for income taxes for the six months ended June 30, 2007 and principally related to prior year foreign tax credit benefits.

Liquidity and Capital Resources

In connection with our new long term supply agreements for the Joint Strike Fighter (“JSF”) program and the Airbus family of commercial aircraft, including the A380 and A350XWB programs, we are undertaking several capital expansions. During 2007, we announced plans to construct a premium-grade titanium sponge facility in Hamilton, Mississippi, with anticipated capital spending of approximately $300 million. In addition, we announced plans to construct a new titanium forging and rolling facility in Martinsville, Virginia, and new melting facilities in

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Canton and Niles, Ohio, with anticipated capital spending of approximately $100 million. We expect the majority of the capital expenditures related to the facilities to occur in 2008 and 2009 and that the new facilities will become operational during 2010. We anticipate funding these new capital commitments through a combination of cash on hand, cash generated by operations, and borrowings against our $240 million credit facility.

Cash provided by operating activities.  Cash provided by operating activities for the six months ended June 30, 2008 and 2007, was $33.5 million and $2.9 million, respectively. The increase was the result of increased advance payments received on the long-term projects and improvements in the levels of working capital.

Cash used by investing activities.  Cash used by investing activities for the six months ended June 30, 2008 and 2007, was $48.1 million and $19.9 million, respectively. The increase in cash used by investing activities is principally related to increased capital spending on our capital expansion projects outlined above. In addition, the six months ended June 30, 2007 included proceeds of $7.4 million from the sale of our investments in variable rate demand securities.

Cash provided by (used in) financing activities.  Cash provided by (used in) financing activities for the six months ended June 30, 2008 and 2007, was $(7.4) million and $5.0 million, respectively. The decrease in our cash provided by (used in) financing activities was primarily related to our repurchase of 176,976 shares of RTI Common Stock at an average price of $50.83, as well as reduced stock option activity.

Duty Drawback Investigation

We maintained a program through an authorized agent to recapture duty paid on imported titanium sponge as an offset against exports for products shipped outside the U.S. by ourselves or our customers. The agent performed the recapture process by matching our duty paid with the export shipments through filings with the U.S. Customs and Border Protection (“U.S. Customs”).

Historically, we recognized a credit to Cost of Sales when we received notification from our agent that a claim had been filed and received by U.S. Customs. For the period January 1, 2001 through March 31, 2007, we recognized a reduction to Cost of Sales totaling $14.5 million associated with the recapture of duty paid. This amount represents the total of all claims filed by the agent on our behalf.

During the second quarter of 2007, we received notice from U.S. Customs that we were under formal investigation with respect to $7.6 million of claims previously filed by the agent on our behalf. The investigation relates to discrepancies in, and lack of supporting documentation for, claims filed through our authorized agent. We revoked the authorized agent’s authority and are fully cooperating with U.S. Customs to determine to what extent any claims may be invalid or may not be supportable with adequate documentation. In response to the investigation noted above, we suspended the filing of new duty drawback claims through the third quarter of 2007. We are fully engaged and cooperating with U.S. Customs in an effort to complete the investigation in an expeditious manner.

Concurrent with the U.S. Customs investigation, we are currently performing an internal review of the entire $14.5 million of drawback claims filed with U.S. Customs to determine to what extent any claims may have been invalid or may not have been supported with adequate documentation. In those instances, we are attempting to provide additional or supplemental documentation to U.S. Customs to support claims previously filed. As of the date of this filing, this review is not complete due to the extensive amount of documentation which must be examined. However, as a result of this review to date, we have recorded charges totaling $7.2 million to Cost of Sales during 2007. We booked an additional charge totaling $0.2 million during the second quarter of 2008 related to additional claim amendments. These charges were determined in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5,Accounting for Contingencies, and represent our current best estimate of probable loss. Of this amount, $6.7 million was recorded as a contingent current liability and $0.7 million was recorded as a write-off of an outstanding receivable representing claims filed which had not yet been paid by U.S. Customs. We have repaid $1.1 million to U.S. Customs for invalid claims through June 30, 2008. As a result of these payments, our liability totaled $5.6 million as of June 30, 2008. While the ultimate outcome of the

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U.S. Customs investigation and our own internal review is not yet known, we believe there is an additional possible risk of loss between $0 and $3.9 million based on current facts, exclusive of any amounts imposed for interest and penalties, if any, which cannot be quantified at this time.

During the fourth quarter of 2007, we began filing new duty drawback claims through a new authorized agent. Claims filed during the three and six months ended June 30, 2008 totaled $1.0 and $1.3 million, respectively. As a result of the open investigation discussed above, we have not recognized any credits to Cost of Sales upon the filing of these new claims. We intend to record these credits on a “cash basis,” as they are paid by U.S. Customs until a consistent history of receipts against claims filed has been established.

Backlog

Our order backlog for all markets was approximately $490 million as of June 30, 2008, as compared to $545 million at December 31, 2007. Of the backlog at June 30, 2008, approximately $259 million is likely to be realized over the remainder of 2008. We define backlog as firm business scheduled for release into our production process for a specific delivery date. We have numerous requirement contracts that extend multiple years, including the Airbus, JSF and Boeing 787 long-term supply agreements signed in 2007, that are not included in backlog until a specific release into production or a firm delivery date has been established.

New Accounting Standards

In September 2006, the FASB issued SFAS 157,Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 became effective as of January 1, 2008. In February 2008, the FASB issued FASB Staff Position (“FSP”)No. FAS 157-2,Effective Date of FASB Statement No. 157(“FSPFAS 157-2”). FSPFAS 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and liabilities, except for those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. The adoption of SFAS 157 did not have a material effect on our Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115(“SFAS 159”). SFAS 159 permits entities to make an irrevocable election to measure certain financial instruments and other assets and liabilities at fair value on aninstrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized into net earnings at each subsequent reporting date. The provisions of SFAS 159 became effective as of January 1, 2008. The adoption of SFAS 159 did not have a material effect on our Consolidated Financial Statements as no fair value elections were made.

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141(R) also establishes additional disclosure requirements related to the financial effects of a business combination. SFAS 141(R) is effective as of January 1, 2009. The impact of adopting SFAS 141(R) will depend on the nature, terms, and size of business combinations completed after the effective date.

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owners. SFAS 160 is effective as of January 1, 2009. We are currently evaluating the potential impact, if any, of the adoption of SFAS 160 on our Consolidated Financial Statements.

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In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 provides for additional disclosure requirements for derivative instruments and hedging activities, including disclosures as to how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. SFAS 161 is effective as of January 1, 2009. We are currently evaluating the potential impact, if any, of the adoption of SFAS 161 on our Consolidated Financial Statements.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles(“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of the financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. We do not expect the adoption of SFAS 162 to have a material effect on our Consolidated Financial Statements.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk.

There have been no significant changes in our exposure to market risk from the information provided in Item 7A. Quantitative Disclosures About Market Risk on ourForm 10-K filed with the SEC on February 28, 2008.

Item 4.   Controls and Procedures.

As of June 30, 2008, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company’s management concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2008.

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2008 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1A.   Risk Factors.

The Company has evaluated its risk factors and determined that there have been no material changes to the Company’s risk factors set forth in Part I, Item 1A, in theForm 10-K since the Company filed its Annual Report onForm 10-K, on February 28, 2008.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

(c)

							Maximum Dollar
					Total Number of		Value of Shares that
					Shares Purchased as		May Yet Be Purchased
	Total Number				Part of Publicly		Under the Plans or
	of Shares		Average Price		Announced Plans or		Programs (in
	Purchased(1)		Paid Per Share		Programs(2)		thousands)(3)
April 2008		—	$	—		—	$	2,973
May 2008		—	$	—		—	$	2,973
June 2008		99	$	36.40		—	$	2,973
Total		99	$	36.40		—

(1)	Shares were repurchased under (i) the Company’s share repurchase program approved by the Board of Directors on April 30, 1999, and (ii) a program that allows employees to surrender shares to the Company to pay tax liabilities associated with the vesting of restricted stock awards under the 2004 Stock Plan. The share repurchase program authorizes the repurchase of up to $15 million of RTI Common Stock. There is no expiration date specified for the share repurchase program.
(2)	Includes only shares reacquired under the Company’s $15 million share repurchase program.
(3)	Amounts in this column reflect amounts remaining under the Company’s $15 million share repurchase program.

The Company may repurchase shares of Common Stock under the RTI International Metals, Inc. share repurchase program approved by the Company’s Board of Directors on April 30, 1999, and authorizes the repurchase of up to $15 million of RTI Common Stock. The Company made no such stock repurchases during the three months ended June 30, 2008 and June 30, 2007. At June 30, 2008, approximately $3 million of the $15 million remained available for repurchase. There is no expiration date specified for the share repurchase program.

In addition to the share repurchase program, employees may surrender shares to the Company to pay tax liabilities associated with the vesting of restricted stock awards under the 2004 stock plan. During the three months ended June 30, 2008, 99 shares of Common Stock were surrendered to satisfy such tax liabilities. There were no shares surrendered during the three months ended June 30, 2007.

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Item 4.   Submission of Matters to a Vote of Security Holders.

The annual meeting of shareholders was held on April 25, 2008. In connection with the meeting, proxies were solicited pursuant to the Securities Exchange Act of 1934. The following are the voting results on proposals considered and voted upon at the meeting, all of which were described in the Company’s proxy statement for such meeting.

•  All nominees for directors listed in the proxy statement were elected. Listed below are the names of each director elected, together with their individual vote totals.

Nominee	For		Withheld
Craig R. Andersson		19,023,072		226,457
Daniel I. Booker		19,023,710		225,819
Donald P. Fusilli, Jr.		19,156,134		93,395
Ronald L. Gallatin		19,023,110		226,419
Charles C. Gedeon		19,023,172		226,357
Robert M. Hernandez		19,024,271		225,258
Dawne S. Hickton		19,025,067		224,462
Edith E. Holiday		19,076,808		172,721
Michael C. Wellham		19,025,035		224,494
James A. Williams		19,157,484		92,045

•  The appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2008 was ratified.

	For		Against		Abstain
Ratification of independent registered public accounting firm		19,021,755		218,443		9,335

Item 6.   Exhibits.

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

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SIGNATURES

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

RTI INTERNATIONAL METALS, INC.

Dated: August 1, 2008

By  /s/  William T. Hull

William T. Hull

Senior Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit
No.			Description
	10	.1	Form of indemnification agreement, filed herewith.
	31	.1	Certification of Chief Executive Officer required by Item 307 ofRegulation S-K as promulgated by the Securities and Exchange Commission and pursuant to Section 302 of Sarbanes-Oxley Act of 2002, filed herewith.
	31	.2	Certification of Principal Financial Officer required by Item 307 ofRegulation S-K as promulgated by the Securities and Exchange Commission and pursuant to Section 302 of Sarbanes-Oxley Act of 2002, filed herewith.
	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, filed herewith.
	32	.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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