-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HJqwhZlNjmnw+5FyzQqm1VXxZB+I8hvEQpnEZs7P2ERPlEhCAyAa1PL6+8NxB0IY O6rUyhmz9qXYEqW5u0Wmbw== 0000950152-05-009988.txt : 20051215 0000950152-05-009988.hdr.sgml : 20051215 20051215162401 ACCESSION NUMBER: 0000950152-05-009988 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20051215 DATE AS OF CHANGE: 20051215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RTI INTERNATIONAL METALS INC CENTRAL INDEX KEY: 0001068717 STANDARD INDUSTRIAL CLASSIFICATION: ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS [3350] IRS NUMBER: 522115953 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14437 FILM NUMBER: 051266899 BUSINESS ADDRESS: STREET 1: 1000 WARREN AVE CITY: NILES STATE: OH ZIP: 44446 BUSINESS PHONE: 2165447700 MAIL ADDRESS: STREET 1: 1000 WARREN AVE CITY: NILES STATE: OH ZIP: 44446 10-Q/A 1 j1701501e10vqza.txt RTI INTERNATIONAL METALS, INC. 10-Q/A QTR END 6-30-05 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 --------------------- FORM 10-Q/A (AMENDMENT NO. 1) (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 001-14437 RTI INTERNATIONAL METALS, INC. (Exact name of registrant as specified in its charter) OHIO 52-2115953 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
1000 WARREN AVENUE, NILES, OHIO 44446 (Address of principal executive offices) (330) 544-7700 (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 X NO ___ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange 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 At August 1, 2005, 22,835,116 shares of common stock of the registrant were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RTI INTERNATIONAL METALS, INC. FORM 10-Q/A QUARTER ENDED JUNE 30, 2005 INDEX EXPLANATORY NOTE RTI International Metals, Inc. is filing this Form 10-Q/A for the period ended June 30, 2005 to reflect the restatement of its consolidated statements of cash flows for the period ended June 30, 2005 and 2004. The restatement 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." 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 Consolidated Statements of Cash Flows for 2005 and 2004 have been restated. See note 17 in the notes to the consolidated financial statements contained in this amendment for further information relating to the restatement. No attempt has been made in this Form 10-Q/A to modify or update other disclosures presented in the original report on Form 10-Q except as required to reflect the effects of the restatement. This Form 10-Q/A does not reflect events occurring after the filing of the original Form 10-Q or modify or update those disclosures. Information not affected by the restatement is unchanged and reflects the disclosure made at the time of the original filing of Form 10-Q with the Securities and Exchange Commission on August 9, 2005. The following Items are hereby amended and restated in their entirety.
PAGE ---- PART I--FINANCIAL INFORMATION Item 1. Financial Statements:....................................... 2 Consolidated Statement of Operations (Unaudited)........................ 2 Consolidated Balance Sheet (Unaudited).................................. 3 Consolidated Statement of Cash Flows(Unaudited)......................... 4 Consolidated Statement of Changes in Shareholders' Equity (Unaudited)... 5 Condensed Notes to Consolidated Financial Statements (Unaudited)........ 6 Item 2. Management's Discussion and Analysis of Financial Condition 19 and Results of Operations................................... Item 4. Controls and Procedures..................................... 31 PART II--OTHER INFORMATION Item 6. Exhibits.................................................... 33 Signatures................................................................... 34
PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RTI INTERNATIONAL METALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 2005 2004 2005 2004 ----------- ----------- ----------- ----------- Sales....................................... $ 95,040 $ 51,809 $ 168,527 $ 102,339 Operating costs: Cost of sales............................... 69,061 44,099 118,012 91,285 Selling, general and administrative expenses.................................. 10,522 8,041 21,684 16,379 Research, technical and product development expenses.................................. 417 297 783 584 ----------- ----------- ----------- ----------- Total operating costs.................. 80,000 52,437 140,479 108,248 ----------- ----------- ----------- ----------- Other operating income...................... -- 97 -- 97 ----------- ----------- ----------- ----------- Operating income (loss)..................... 15,040 (531) 28,048 (5,812) Other income (Note 10)...................... 315 54 453 9,372 Interest income............................. 238 27 396 26 ----------- ----------- ----------- ----------- Income (loss) from continuing operations before income taxes....................... 15,593 (450) 28,897 3,586 Provision (benefit) for income taxes (Note 5)........................................ 5,013 (776) 9,918 616 ----------- ----------- ----------- ----------- Income from continuing operations........... 10,580 326 18,979 2,970 Income from discontinued operations, net of tax (Note 15)............................. -- 107 -- 238 ----------- ----------- ----------- ----------- Net income.................................. $ 10,580 $ 433 $ 18,979 $ 3,208 =========== =========== =========== =========== Basic earnings per common share (Note 6): Continuing operations..................... $ 0.48 $ 0.02 $ 0.86 $ 0.14 Discontinued operations................... $ -- $ -- $ -- $ 0.01 ----------- ----------- ----------- ----------- Net income................................ $ 0.48 $ 0.02 $ 0.86 $ 0.15 =========== =========== =========== =========== Diluted earnings per common share (Note 6): Continuing operations..................... $ 0.47 $ 0.02 $ 0.84 $ 0.14 Discontinued operations................... $ -- $ -- $ -- $ 0.01 ----------- ----------- ----------- ----------- Net income................................ $ 0.47 $ 0.02 $ 0.84 $ 0.15 =========== =========== =========== =========== Weighted average shares used to compute earnings per share: Basic..................................... 22,233,556 21,202,363 22,109,449 21,154,367 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diluted................................... 22,657,458 21,480,691 22,558,186 21,466,156 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these Consolidated Financial Statements. 2 RTI INTERNATIONAL METALS, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2005 2004 -------- ------------ ASSETS ASSETS: Cash and cash equivalents................................. $ 71,195 $ 62,701 Receivables--less allowance for doubtful accounts of $2,000 and $1,704...................................... 58,500 44,490 Inventories, net (Note 7)................................. 177,955 133,512 Current deferred income tax asset......................... 1,145 1,145 Income tax receivable..................................... -- 3,321 Other current assets...................................... 3,885 3,597 -------- -------- Total current assets................................... 312,680 248,766 Property, plant and equipment, net........................ 81,079 82,593 Goodwill (Note 8)......................................... 47,579 46,618 Other intangible assets, net (Note 8)..................... 16,126 16,040 Noncurrent deferred income tax asset...................... 3,012 3,012 Intangible pension asset.................................. 3,365 3,365 Other noncurrent assets................................... 2,609 3,099 -------- -------- Total assets........................................... $466,450 $403,493 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Accounts payable.......................................... $ 29,088 $ 14,253 Accrued wages and other employee costs.................... 7,395 4,863 Billings in excess of costs and estimated revenues (Note 9)..................................................... 13,150 4,708 Income taxes payable...................................... 4,018 -- Other accrued liabilities................................. 8,024 6,498 -------- -------- Total current liabilities.............................. 61,675 30,322 Accrued postretirement benefit cost....................... 20,743 20,811 Accrued pension cost...................................... 22,878 21,090 Other noncurrent liabilities.............................. 6,307 7,312 -------- -------- Total liabilities...................................... 111,603 79,535 -------- -------- Commitments and contingencies (Note 12) SHAREHOLDERS' EQUITY: Common stock, $0.01 par value, 50,000,000 shares authorized; 22,859,256 and 22,194,344 shares issued; 22,415,184 and 21,772,730 shares outstanding........... 230 221 Additional paid-in capital................................ 271,312 258,526 Deferred compensation..................................... (3,584) (2,499) Treasury stock, at cost; 444,072 and 421,614 shares....... (4,389) (3,906) Accumulated other comprehensive loss...................... (22,076) (22,759) Retained earnings......................................... 113,354 94,375 -------- -------- Total shareholders' equity............................. 354,847 323,958 -------- -------- Total liabilities and shareholders' equity........... $466,450 $403,493 ======== ========
The accompanying notes are an integral part of these Consolidated Financial Statements. 3 RTI INTERNATIONAL METALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ----------------------------- 2005 2004 ------------- ------------- (RESTATED) (RESTATED) (SEE NOTE 17) (SEE NOTE 17) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 18,979 $ 3,208 Income from discontinued operations, net of tax............. -- 238 -------- ------- Income from continuing operations........................... 18,979 2,970 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................. 6,462 5,848 Stock-based compensation and other........................ 807 542 Tax benefits from exercise of stock options............... 2,367 650 (Gain) loss on sale of property, plant and equipment...... (4) 4 Other..................................................... (371) (99) CHANGES IN ASSETS AND LIABILITIES (EXCLUDING CASH): Receivables............................................... (15,210) (7,112) Inventories............................................... (44,462) 12,425 Accounts payable.......................................... 12,923 (3,696) Income taxes payable...................................... 6,583 (4,766) Billings in excess of costs and estimated earnings........ 8,862 (1,329) Other current liabilities................................. 7,034 1,902 Other assets and liabilities.............................. 826 2,835 -------- ------- Cash provided by continuing operating activities.......... 4,796 10,174 Cash provided by discontinued operating activities........ -- 173 -------- ------- Cash provided by operating activities.................. 4,796 10,347 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired, and other investing... (290) -- Proceeds from disposal of property, plant and equipment... 5 75 Capital expenditures...................................... (4,553) (2,285) -------- ------- Cash used in investing activities...................... (4,838) (2,210) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of employee stock options.......... 8,808 1,957 Purchase of common stock held in treasury................. (483) (288) Deferred charges related to credit facility............... -- (285) -------- ------- Cash provided by financing activities.................. 8,325 1,384 -------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 211 112 -------- ------- INCREASE IN CASH AND CASH EQUIVALENTS....................... 8,494 9,633 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 62,701 67,970 -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 71,195 $77,603 ======== ======= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest, net of amounts capitalized........ $ 142 $ 238 Cash paid for income taxes................................ $ 311 $ 2,948 NON-CASH FINANCING ACTIVITIES: Issuance of common stock for vested restricted stock awards................................................. $ 1,620 $ 769 Capital lease obligations incurred........................ $ 36 $ 6
The accompanying notes are an integral part of these Consolidated Financial Statements. 4 RTI INTERNATIONAL METALS, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (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, 2004....................... 21,772,730 $221 $258,526 $(2,499) $(3,906) $ 94,375 $(22,759) $323,958 Shares issued for restricted stock award plans.......... 73,812 1 1,619 (1,620) -- -- -- -- Compensation expense recognized................. -- -- -- 535 -- -- -- 535 Treasury common stock purchased at cost.......... (22,458) -- -- -- (483) -- -- (483) Exercise of employee stock options including tax benefit of stock plans..... 591,100 8 11,167 -- -- -- -- 11,175 Net income................... -- -- -- -- -- 18,979 -- 18,979 Foreign currency translation, net of tax................. -- -- -- -- -- -- 683 683 Comprehensive Income......... ---------- ---- -------- ------- ------- -------- -------- -------- Balance at June 30, 2005..... 22,415,184 $230 $271,312 $(3,584) $(4,389) $113,354 $(22,076) $354,847 ========== ==== ======== ======= ======= ======== ======== ======== COMPREHENSIVE INCOME ------------- Balance at December 31, 2004....................... 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................... 18,979 Foreign currency translation, net of tax................. 683 ------- Comprehensive Income......... $19,662 ======= Balance at June 30, 2005.....
The accompanying notes are an integral part of these Consolidated Financial Statements. 5 RTI INTERNATIONAL METALS, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by RTI International Metals, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements include the accounts of RTI International Metals, Inc. and its majority owned subsidiaries. All significant intercompany transactions have been eliminated. The financial information presented reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The financial statements should be read in conjunction with accounting policies and notes to consolidated financial statements included in the Company's 2004 Annual Report on Form 10-K, as amended. Certain prior period amounts have been reclassified to conform to the current period presentation. The results for the interim periods are not necessarily indicative of the results to be expected for the year. NOTE 2--ORGANIZATION RTI International Metals, Inc. is a leading U.S. producer of titanium mill products and fabricated metal parts for the global market. The Company conducts business in two segments: the Titanium Group and the Fabrication and Distribution Group. 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 Fabrication and Distribution Group is comprised of companies that process and distribute titanium and other specialty metals. Its products, many of which are engineered parts and assemblies, serve aerospace, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. On September 30, 1998, the shareholders of the Company's now wholly-owned subsidiary RMI Titanium Company ("RMI") approved a proposal to reorganize into a holding company structure (the "1998 Reorganization"). Pursuant to this reorganization, the Company became the parent company of RMI, and shares of RMI common stock were automatically exchanged on a one-for-one (1:1) basis for shares of RTI. Shares of RTI began trading on the New York Stock Exchange on October 1, 1998. The Company is a successor to entities that have been operating in the titanium industry since 1951. In 1990, USX Corporation ("USX") and Quantum Chemical Corporation ("Quantum") transferred their entire ownership interest in RMI's immediate predecessor, RMI Company, an Ohio general partnership, to the Company in exchange for shares of the Company's common stock (the "1990 Reorganization"). Quantum sold its shares of common stock to the public while USX retained ownership of its shares. USX terminated its ownership interest in RTI in 2000. NOTE 3--ACQUISITIONS On October 1, 2004, RTI acquired all of the stock of Claro Precision, Inc., ("Claro") 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 purchase agreement provided for a post-closing audit period 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 purchase agreement the Company determined that an adjustment to the purchase price of $0.2 million was due the Company and has been included as a reduction to the allocated purchase price. The purchase was made with available cash on hand and newly issued common shares. Claro operates and reports under the Company's Fabrication and Distribution segment and was reflected in results of operations effective October 1, 2004. 6 Claro 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 from Claro 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 (IN THOUSANDS) PRICE - -------------- --------- Acquired assets: Cash........................................................ $ -- Accounts receivable......................................... 2,802 Inventories................................................. 4,728 Other assets................................................ 46 Property, plant & equipment................................. 3,836 Goodwill.................................................... 10,529 Intangible assets........................................... 16,200 ------- Total assets.............................................. 38,141 Acquired liabilities: Accounts payable............................................ 1,010 Income taxes payable........................................ 1,543 Current deferred income taxes liability..................... 1,145 Other accrued liabilities................................... 160 Noncurrent deferred income taxes............................ 5,414 ------- Total liabilities......................................... 9,272 ------- Net assets acquired....................................... 28,869 ======= Purchase price Cash................................................... 22,014 RTI common stock....................................... 7,016 Target equity adjustment............................... (161) ------- $28,869 =======
The following unaudited pro forma information for RTI is provided to include the results of Claro as if the acquisition had been consummated at the beginning of the period presented;
PRO FORMA PRO FORMA QUARTER SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, (IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2004 - ------------------------------------- ----------- ----------- (UNAUDITED) (UNAUDITED) Net sales................................................... $55,633 $109,987 Net income.................................................. $ 1,134 $ 4,537 Net income per common share Basic..................................................... 0.05 0.22 Diluted................................................... 0.05 0.21
7 The $16.2 million of intangible assets represent the assigned value of customer relationships with an estimated useful life of approximately 20 years. Accumulated amortization at June 30, 2005 and December 31, 2004 related to these intangible assets was $562 thousand and $160 thousand, respectively. Goodwill of $10.5 million resulted from the acquisition and is non-deductible for income tax purposes in Canada. Additionally, fixed assets were stepped-up to approximate fair market value and are being depreciated 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, 2004, or of future results of the consolidated entities. NOTE 4-- STOCK OPTION AND RESTRICTED STOCK AWARD PLANS 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 2004 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 that the exercise price of stock options, stock appreciation rights and other similar instruments awarded under the plan is not less than the fair market value of RTI stock on the date of the grant award. During the six months ended June 30, 2005, options to purchase up to 84,500 shares were granted at an exercise price of $21.50 per share. 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. All 84,500 shares underlying options granted in 2005 were outstanding at June 30, 2005. During the six months ended June 30, 2005, 73,812 shares of restricted stock were granted under the 2004 Stock Plan. 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. 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 8 income and earnings per share for the quarter ended and six months ended June 30, 2005 and 2004 would have been as follows (dollars in thousands; except per share amounts):
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------- ---------------- 2005 2004 2005 2004 ------- ------ ------- ------ (UNAUDITED) (UNAUDITED) Net income.............................. $10,580 $ 433 $18,979 $3,208 Add: Stock-based employee compensation expense included in reported net (loss) income, net of related tax effects............................... 187 170 351 290 Deduct: Total stock-based employee compensation expense determined under fair value methods for all awards, net of related tax effects................ (323) (372) (613) (695) ------- ------ ------- ------ Pro forma net income.................... $10,444 $ 231 $18,717 $2,803 ======= ====== ======= ====== Net income per share: As reported -basic.................... $ 0.48 $ 0.02 $ 0.86 $ 0.15 -diluted................. 0.47 0.02 0.84 0.15 Pro forma -basic...................... 0.47 0.01 0.85 0.13 -diluted.................. 0.46 0.01 0.83 0.13
Included in the Company's income for the quarters ended June 30, 2005 and 2004 is stock-based compensation expense relating to restricted stock grants amounting to $275 and $207, respectively. Net of tax, these amounts were $187 and $170, respectively. For the six months ended June 30, 2005 and 2004, the expense amounted to $535 and $354, respectively. Net of tax these amounts were $350 and $267, respectively. (See Note 16 -- new accounting pronouncements-discussion on FAS 123R) NOTE 5--INCOME TAXES Income tax expense for the three months ended June 30, 2005 was $5.0 million, including the beneficial effects of discrete items (discussed below), compared to a $(0.8) million benefit for the same period in 2004. The annual effective tax rate applied to ordinary income was 37% compared to a rate of 18% in the second quarter of 2004. The second quarter 2005 rate exceeded the federal statutory rate of 35% due to state taxes, which was partially offset by the utilization of previously impaired foreign net operating losses. Ohio levies tax on the greater of an income-based or net worth-based computation. In prior years, operating forecasts suggested that the Company would pay Ohio tax based on its net worth; accordingly, no Ohio deferred income taxes were provided. Operating forecasts now suggest that the Company will pay Ohio income tax; accordingly, the second quarter tax provision reflects a net benefit of $0.5 million to establish Ohio deferred income taxes. On June 30, 2005, Ohio enacted substantial revisions to its income and franchise tax laws, which will phase out the Ohio income-based tax beginning in 2005. The Company has evaluated the impact of this law change on its Ohio deferred income tax balance and has recorded a net benefit of $0.2 million as a result of this enacted legislation. Income tax expense for the six months ending June 30, 2005 was $9.9 million, including the beneficial effects of discrete items (discussed above), compared to a $0.6 million expense for the same period in 2004. The annual effective tax rate applied to ordinary income was 37% compared to a rate of 17% for the six months ending June 30, 2004. The six months ending June 30, 2005 rate exceeded the federal statutory rate of 35% due to state taxes, which was partially offset by the utilization of previously impaired foreign net operating losses. 9 On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the "Act"). The Company has estimated that the deduction attributable to qualified production activities will decrease its annual effective tax rate by approximately 1%. Other effects of the Act include the one-time deduction of 85% of foreign earnings that are repatriated to the United States, as defined by the Act. Although certain technical matters were clarified during the second quarter, the Company is continuing to evaluate whether, and to what extent the Company might repatriate up to $3 million of un-remitted foreign earnings pursuant to this provision, which could incur a tax liability of up to $1 million. We expect to be in a position to finalize this assessment in the fourth quarter of 2005. NOTE 6--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 the three and six months ended June 30, 2005 and 2004 are as follows (in thousands except number of shares and per share amounts):
QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 -------------------------------- -------------------------------- NET EARNINGS NET EARNINGS INCOME SHARES PER SHARE INCOME SHARES PER SHARE ------- ---------- --------- ------- ---------- --------- 2005 Basic EPS..................... $10,580 22,233,556 $0.48 $18,979 22,109,449 $0.86 Effect of potential common stock: Stock options............... -- 423,902 (0.01) -- 448,737 (0.02) ------- ---------- ----- ------- ---------- ----- Diluted EPS................... $10,580 22,657,458 $0.47 $18,979 22,558,186 $0.84 ======= ========== ===== ======= ========== ===== 2004 Basic EPS..................... $ 433 21,202,363 $0.02 $ 3,208 21,154,367 $0.15 Effect of potential common stock: Stock options............... -- 278,328 -- -- 311,789 ------- ---------- ----- ------- ---------- ----- Diluted EPS................... $ 433 21,480,691 $0.02 $ 3,208 21,466,156 $0.15 ======= ========== ===== ======= ========== =====
106,203 and 605,541 shares of common stock issuable upon exercise of employee stock options have been excluded from the calculation of diluted earnings per share for the quarters ended June 30, 2005 and 2004, respectively; because the exercise price of the options exceeded the weighted average market price of the Company's common stock during those periods. 107,852 and 606,864 shares of common stock issuable upon exercise of employee stock options have been excluded from the calculation of diluted earnings per share for the six months ended June 30, 2005 and 2004 respectively, because the exercise price of the options exceeded the weighted average market price of the Company's common stock. NOTE 7--INVENTORIES Inventories consisted of (dollars in thousands):
JUNE 30, DECEMBER 31, 2005 2004 -------- ------------ Raw material and supplies................................... $ 66,632 $ 40,459 Work-in-process and finished goods.......................... 145,512 112,010 Adjustment to LIFO values................................... (34,189) (18,957) -------- -------- Inventories, at LIFO cost................................. $177,955 $133,512 ======== ========
10 NOTE 8--GOODWILL AND OTHER INTANGIBLE ASSETS The carrying amount of goodwill and other intangible assets attributable to each segment at December 31, 2004 and June 30, 2005 is as follows (in thousands): Goodwill
TRANSLATION DECEMBER 31, 2004 ADJUSTMENTS ADJUSTMENT JUNE 30, 2005 ----------------- ----------- ----------- ------------- Titanium Group............................ $ 1,955 $636 $ -- $ 2,591 Fabrication and Distribution Group........ 44,663 -- 325 44,988 ------- ---- ---- ------- Total..................................... $46,618 $636 $325 $47,579 ======= ==== ==== =======
During the six months ended June 30, 2005, additional goodwill was added to the Titanium Group through the finalization of the acquisition of the minority interest in Galt Alloys, Inc. Intangibles The components of other intangible assets comprised of customer relationships and their estimated useful lives is as follows:
ESTIMATED TRANSLATION USEFUL LIFE DECEMBER 31, 2004 AMORTIZATION ADJUSTMENT JUNE 30, 2005 ----------- ----------------- ------------ ----------- ------------- Titanium Group................ $ -- $ -- $ -- $ -- Fabrication and Distribution Group....................... 20 years 16,040 (402) 488 16,126 ------- ----- ---- ------- Total......................... $16,040 $(402) $488 $16,126 ======= ===== ==== =======
NOTE 9--BILLINGS IN EXCESS OF COSTS AND ESTIMATED REVENUES The Company reported a liability for billings in excess of costs and estimated revenues of $13.2 million as of June 30, 2005 and $4.7 million as of December 31, 2004. These amounts represent payments, received in advance from energy market customers, Titanium Group and Fabrication and Distribution Group customers on long-term orders, which the Company has not recognized as revenues. NOTE 10--OTHER INCOME For the three months ended June 30, 2005 and 2004, the components of other income are as follows (dollars in millions):
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, -------------- -------------- 2005 2004 2005 2004 ----- ----- ----- ----- Other Income Gain on receipt of liquidated damages................. $ -- $ -- $ -- $9.1(1) Foreign exchange gains and other...................... 0.3 0.1 0.5 0.3 ---- ---- ---- ---- $0.3 $0.1 $0.5 $9.4 ==== ==== ==== ====
- --------------- (1) These gains resulted from financial settlements from Boeing Airplane Group relating to Boeing's failure to meet minimum order requirements under terms of a long-term agreement between RTI and Boeing. Boeing satisfied the final claim under this agreement during the first quarter of 2004. 11 NOTE 11--PENSION AND OTHER POSTRETIREMENT BENEFITS The Company provides defined benefit pension plans for certain of its salaried and represented workforce. Benefits for its salaried participants are generally based on participant's years of service and compensation. Benefits for represented pension participants are generally determined based on an amount for years of service. Other Company employees participate in 401(k) plans whereby the Company may provide a match of employee contributions. These plans are generally not significant to the Company. The policy of the Company with respect to its defined benefit plans is to contribute at least the minimum amounts required by applicable laws and regulations. The cost of the Company's retiree health care plans (Other Postretirement Benefits) is capped at predetermined out-of-pocket spending limits. Retiree health care is available to participants in the defined benefit pension plans. Benefit payments are made from company assets. Other Postretirement Benefits are not funded. The 2005 and 2004 amounts shown below reflect the defined benefit pension and other postretirement benefit expense for the three and six months ended June 30 for each year for those salaried and hourly covered employees (dollars in thousands):
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS ------------------------------------- --------------------------------- QUARTER ENDED SIX MONTHS ENDED QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, ----------------- ----------------- -------------- ---------------- 2005 2004 2005 2004 2005 2004 2005 2004 ------- ------- ------- ------- ----- ----- ------ ------- Service cost.................... $ 550 $ 577 $ 1,100 $ 1,154 $ 96 $100 $ 192 $ 200 Interest cost................... 1,592 1,622 3,184 3,244 410 396 820 792 Expected return on plan assets........................ (1,922) (2,047) (3,844) (4,094) -- -- -- -- Amortization of prior service cost.......................... 160 144 320 288 44 44 88 88 Amortization of unrealized gains and losses.................... 510 202 1,020 404 93 25 186 50 ------- ------- ------- ------- ---- ---- ------ ------- Net periodic benefit cost..... $ 890 $ 498 $ 1,780 $ 996 $643 $565 $1,286 $ 1,130 ======= ======= ======= ======= ==== ==== ====== =======
RTI International Metals also has a supplemental pension Program ("Program") for certain key employees. The Program is unfunded. The second quarter net periodic benefit cost related to the Program was $93,000 for 2005 and $129,000 for 2004 and for the six months ended June 30, 2005 and 2004 was $186,000 and $258,000 respectively. NOTE 12--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 $350 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 six months ended June 30, 2005, the Company spent approximately $0.4 million 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 12 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 June 30, 2005 and December 31, 2004, the amount accrued for future environmental-related costs was $3.7 million and $3.8 million, respectively. Of the total amount accrued at June 30, 2005, $0.6 million is expected to be paid out within one year and is included in the other accrued liabilities line of the balance sheet. The remaining $3.1 million is recorded in other non-current liabilities. Based on available information, RMI believes that its share of potential environmental-related costs, before expected contributions from third parties, is in a range from $2.9 to $7.7 million in the aggregate. The Company has included in its other noncurrent assets $2.1 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 $3.7 million. These third parties include prior owners of RMI property and prior customers of RMI, 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. 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 depleted 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 the facility was no longer needed for processing government material. Processing ceased in 1990, and in 1993 RMI was chosen as the prime contractor for the remediation and restoration of the site by the DOE. Since then, contaminated buildings have been removed and approximately two-thirds of the site has been free released by the Ohio Department of Health, to RMI, at DOE expense. In December, 2003, in accordance with its terms, the Department of Energy terminated the contract "for convenience." It is not known at this time what role, if any, RMI will play in the balance of the cleanup although discussions are ongoing. Remaining soil removal is expected to take approximately 18-24 months. As license holder and owner of the site, RMI is responsible to the state of Ohio for complying with soil and water regulations. However, remaining cleanup cost is expected to be borne by the DOE in accordance with their contractual obligation. Gain Contingency As part of Boeing Commercial Airplane Group's long-term supply agreement with the Company, Boeing was required to order a minimum of 3.25 million pounds of titanium in each of the five years beginning in 1999. They failed to do so in all five years of the contract. 13 The Company made a claim against Boeing in accordance with the provisions of the long-term contract for each of the years in which the minimum was not achieved. 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. As a result of the application of SFAS No. 5 as to gain contingencies, the Company recorded other income of approximately $6 million in 2000 and 2001, and approximately $7 million in 2002, $8 million in 2003 and $9.1 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. Purchase Commitments The Company has purchase commitments for materials, supplies, and machinery and equipments as part of the ordinary course of business. A few of these commitments extend beyond one year. The Company believes these commitments are not at prices in excess of current market. Other The Company is currently investigating the impact of improper testing on a limited number of titanium plates. The improper testing was discovered during an internal quality review in the second quarter of 2005. The Company has no reason to believe that any of the material is defective, and is working with all affected customers to determine whether additional inspection may be necessary. The Company is also the subject of, or a party to, a number of 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. NOTE 13--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, owned indirectly by Mr. Mourain and Mr. Molina, 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. Rental expense of approximately $40,000 was incurred in the quarter ended June 30, 2005 and approximately $80,000 for the six months ended June 30, 2005. 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. The Company acquired Reamet S.A., located in Villette, France, in December 2000. In accordance with the purchase agreement, 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. NOTE 14--SEGMENT REPORTING The Company's reportable operating segments are the Titanium Group and the Fabrication and Distribution Group. 14 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 included 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 and 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; 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. 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. Segment information for the quarters ended June 30, 2005 and 2004 and for the six months ended June 30, 2005 and 2004 is as follows (dollars in thousands):
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ------------------- 2005 2004 2005 2004 ------- ------- -------- -------- TOTAL SALES Titanium Group................................ $88,084 $35,023 $154,460 $ 72,741 Fabrication and Distribution Group............ 69,613 47,906 129,913 89,434 ------- ------- -------- -------- Total...................................... 157,697 82,929 284,373 162,175 INTER- AND INTRA-SEGMENT SALES Titanium Group................................ 48,441 22,072 89,842 46,690 Fabrication and Distribution Group............ 14,216 9,048 26,004 13,146 ------- ------- -------- -------- Total...................................... 62,657 31,120 115,846 59,836 TOTAL SALES TO EXTERNAL CUSTOMERS Titanium Group................................ 39,643 12,951 64,618 26,051 Fabrication and Distribution Group............ 55,397 38,858 103,909 76,288 ------- ------- -------- -------- Total...................................... $95,040 $51,809 $168,527 $102,339 ======= ======= ======== ========
15
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ------------------- 2005 2004 2005 2004 ------- ------- -------- -------- OPERATING INCOME (LOSS) Allocated corporate items included in segment income before income taxes below: Titanium Group................................ $ 1,322 $ 970 $ 2,781 $ 1,861 Fabrication and Distribution Group............ 2,931 2,068 6,130 3,961 ------- ------- -------- -------- Total...................................... $ 4,253 $ 3,038 $ 8,911 $ 5,822 ======= ======= ======== ======== Titanium Group................................ $ 9,264 $(2,105) $ 18,812 $ (6,250) Fabrication and Distribution Group............ 5,776 1,574 9,236 438 ------- ------- -------- -------- Total...................................... $15,040 $ (531) $ 28,048 $ (5,812) ======= ======= ======== ======== INCOME (LOSS) BEFORE INCOME TAXES Allocated corporate items included in segment income before income taxes below: Titanium Group................................ $ 1,151 $ 877 $ 2,446 $ 7,454 Fabrication and Distribution Group............ 2,758 1,974 5,795 (3,785) ------- ------- -------- -------- Total...................................... $ 3,909 $ 2,851 $ 8,241 $ 3,669 ======= ======= ======== ======== Titanium Group................................ $ 9,522 $(2,009) $ 19,296 $ 3,143 Fabrication and Distribution Group............ 6,071 1,559 9,601 443 ------- ------- -------- -------- Total...................................... $15,593 $ (450) $ 28,897 $ 3,586 ======= ======= ======== ========
NOTE 15--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 Tube Mill for the quarter ended and six months ended June 30, 2004, as summarized below, have been reclassified and are presented as discontinued operations.
SIX MONTHS QUARTER ENDED ENDED (IN THOUSANDS) JUNE 30, 2004 JUNE 30, 2004 -------------- ------------- ------------- Net sales.................................................. $3,765 $7,347 ====== ====== Income before income taxes................................. 153 340 Provision for income taxes................................. 46 102 ------ ------ Net income from discontinued operations.................... $ 107 $ 238 ====== ======
NOTE 16--NEW ACCOUNTING PRONOUNCEMENTS In December 2004 the Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory Costs (SFAS 151). 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 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004," 16 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 December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SEC Staff's interpretation of SFAS 123R and provides the Staff's views regarding interactions between SFAS 123R and certain SEC rules and regulations and provides interpretations of the valuation of share-based payments for public companies. SFAS 123R requires the mandatory expensing of share-based payments, including employee stock options, based on their fair value. In April 2005, the SEC approved the delay for implementation of FAS 123R. The delay will affect all awards granted subsequent to January 1, 2006. As a result the standard will be adopted for the Company's 2006 fiscal year. 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 SAB 107. 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. The effect of the Act did not have a material impact on the Company. In May 2005, the FASB issued FAS No. 154, "Accounting Changes and Error Corrections" (FAS 154), which changes the requirements for the accounting and reporting of a change in accounting principle. FAS 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include specific transition provisions. FAS 154 eliminates the requirement to include the cumulative effect of changes in accounting principle in the income statement and instead requires that changes in accounting principle be retroactively applied. A change in accounting estimate continues to be accounted for in the period of change and future periods if necessary. A correction of an error continues to be reported by restating prior period financial statements. FAS 154 is effective for accounting changes and correction of errors made on or after January 1, 2006. NOTE 17--RESTATEMENT OF STATEMENT OF CASH FLOWS 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 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 2005 and 2004 have been restated. 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. 17 The effect of the above restatement for each period is shown below:
AS PREVIOUSLY REPORTED FOR AS RESTATED SIX MONTHS FOR SIX MONTHS ENDED ENDED JUNE 30, EFFECT OF JUNE 30, 2004 RESTATEMENT 2004 --------------- ----------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Tax benefits from exercise of stock options.................................. $ 0 $ 650 $ 650 Cash provided by continuing operating activities............................... $9,524 $ 650 $10,174 Cash provided by operating activities....... $9,697 $ 650 $10,347 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of employee stock options.................................. $2,607 $(650) $ 1,957 Cash provided by financing activities....... $2,034 $(650) $ 1,384
AS PREVIOUSLY REPORTED FOR AS RESTATED SIX MONTHS FOR SIX ENDED MONTHS ENDED JUNE 30, EFFECT OF JUNE 30, 2005 RESTATEMENT 2005 --------------- ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Tax benefits from exercise of stock options.................................. $ 0 $ 2,367 $2,367 Cash provided by continuing operating activities............................... $ 2,429 $ 2,367 $4,796 Cash provided by operating activities....... $ 2,429 $ 2,367 $4,796 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of employee stock options.................................. $11,175 $(2,367) $8,808 Cash provided by financing activities....... $10,692 $(2,367) $8,325
NOTE 18--SUBSEQUENT EVENT On July 29, 2005, a fire occurred at an outside storage location in Wichita, Kansas destroying approximately $1.2 million of turnings scrap inventory destined for the Company's melting location in Canton, Ohio. The Company has notified its insurance carriers of the fire. The Company believes that the loss value will be substantially covered under the conditions of its insurance indemnifications. 18 ITEM 2. 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 trade negotiations, global economic conditions, 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. RTI International Metals, Inc. (the "Company" or "RTI") is a leading U.S. producer of titanium mill products and fabricated metal parts for the global market. The Company conducts business in two segments: the Titanium Group and the Fabrication and 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 aerospace and industrial applications. The Fabrication and Distribution 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 aerospace, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. 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 2005 and 2004 have been restated. 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. 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 from its supplier, 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 as a result terminated production activity and discontinued the titanium strip product line and utilized 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 was included in Note 15 to the Consolidated Financial Statements, reported trade sales of 19 $14.4 million, $10.5 million and $12.9 million for the years ended December 31, 2004, 2003, and 2002, respectively. RESULTS OF OPERATIONS (Dollars in millions) NET SALES
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------- ----------------- 2005 2004 2005 2004 ----- ----- ------- ------- Titanium Group............................... $39.6 $13.0 $ 64.6 $ 26.0 Fabrication and Distribution Group........... 55.4 38.8 103.9 76.3 ----- ----- ------ ------ Total...................................... $95.0 $51.8 $168.5 $102.3 ===== ===== ====== ======
Titanium Group Of the $26.6 million increase in trade sales, $23.3 was a result of an increase in trade shipments of 1 million pounds and $3 million was due to increased shipments and prices of ferro titanium. The increase in titanium trade sales was a result of continued strong demand for titanium from aerospace markets as build rates and higher titanium usage per aircraft created increased demand for the product. Mill product shipments including those to the Company's Fabrication and Distribution Group, totaled 2.7 million pounds for the quarter compared to 1.2 million pounds in the prior year period. In the six months ended June 30, 2005 sales for the Titanium Group amounted to $64.6 compared to $26.0 million same period of 2004. Of the $38.6 million increase, approximately $20 million was due to increased shipments of 1.5 million pounds to trade customers. The increase in titanium trade sales was a result of continued strong demand for titanium in aerospace markets as build rates and higher titanium usage per aircraft created increased demand for the product. Sales of ferro titanium increased by approximately $18 million as prices and shipments were higher in the current six months than the year ago period. In the first half of 2005, mill product shipments to trade customers as well as to the Company's Fabrication and Distribution Group equaled 5 million pounds compared to 2.3 million pounds in the first half of 2004 or a change of over 100%. Fabrication and Distribution Group Sales for F&D amounted to $55.4 million in the quarter ended June 30, 2005, compared to $38.8 million in the same period of 2004. The increase of $16.6 million occurred primarily in the Group's distribution markets, both domestic and foreign. Revenue increased approximately $8 million on increased demand and higher prices for Titanium products. The addition of Claro Precision Inc. ("Claro") in the fourth quarter of 2004 and higher revenues on the Group's fabrication activities resulted in additional revenue of approximately $8 million. In the six months ended June 30, 2005 sales for F&D amounted to $103.9 million compared to $76.3 million in the same period of 2004. The increase of $27.6 million continued similarly to the second quarter comparison as the group's distribution markets both domestic and foreign as revenue increased approximately $9 million on increased demand and higher prices for Titanium products. The addition of Claro in the fourth quarter of 2004 and higher revenues on the Group's fabrication activities resulted in additional revenue of approximately $18 million less the effects of a decline in the energy markets. 20 GROSS PROFIT (LOSS)
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, ------------- -------------- 2005 2004 2005 2004 ----- ---- ----- ----- Titanium Group.............................. $12.2 $0.1 $24.8 $(1.4) Fabrication and Distribution Group.......... 13.8 7.6 25.7 12.5 ----- ---- ----- ----- Total....................................... $26.0 $7.7 $50.5 $11.1 ===== ==== ===== =====
Titanium Group Gross profit increased to $12.2 million for the quarter ended June 30, 2005 from a gross profit of $0.1 million for the same period of 2004 or a favorable change of $12.1 million. The favorable change was a result of the incremental margin impact of an increase in titanium shipments of 1.5 million pounds or approximately $8 million and an approximately $9 million (125%) increase in melting and production activity in Titanium producing and finishing facilities. Partially offsetting the shipment and melting and production activity was increased material costs for sponge and scrap of approximately $5 million. For the six months ending June 30, 2005 period gross profit increased for the Titanium Group versus the period ending June 30, 2004 by $26.2 million primarily as a result of volume related effects. Titanium shipments increased over the prior period by 2.7 million pounds resulting in an approximate margin effect of $10 million. Correspondingly, the impact of two fold melting and finishing activities resulted in approximately $20 million in improved throughput and absorption of fixed costs. Increased costs for sponge and scrap reduced the margin increase by approximately $5 million. Improved pricing on ferro titanium sales resulted in a $2 million increase in margins. Fabrication and Distribution Group Gross profit increased to $13.8 million for the quarter ended June 30, 2005 from a gross profit of $7.6 million for the same period of 2004, or a favorable change of $6.2 million. Increased revenues from domestic and international distribution markets as a result of both demand and increased prices contributed approximately $5 million to the change in gross profits. Demand for titanium products was generally stronger than the year ago period in all geographic markets. Sales into international markets including Europe and Canada contributed an additional increase of $1.2 million partially offset by reduced sales and margin to the energy markets. Gross Profit increased for the Fabrication and Distribution Group for six months ended June 30, 2005 versus June 30, 2004 by $13.2 million as revenues from domestic and international distribution markets increased as a result of both demand and increased prices. The impact of the increased prices and demand in distribution increased margins over the prior period by approximately $9 million. Increased revenue from the group's fabrication and extrusion sales resulted in additional gross profit of $3 million. Included in the fabrication revenues was the impact of the Claro acquisition in the fourth quarter of 2004. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, ------------- -------------- 2005 2004 2005 2004 ----- ---- ----- ----- Titanium Group.............................. $ 2.5 $2.0 $ 5.2 $ 4.3 Fabrication and Distribution Group.......... 8.0 6.0 16.5 12.0 ----- ---- ----- ----- Total....................................... $10.5 $8.0 $21.7 $16.3 ===== ==== ===== =====
21 Titanium Group Selling, general and administrative (SG&A) expenses for outside services related to accounting, consulting and auditing expenses in the second quarter of 2005 increased by approximately $0.5 compared to the same period in 2004. SG&A expenses as a result of outside services for compliance with increased control efforts and auditing costs resulted in increased administrative costs of approximately $0.8 million and compensation expenses increased $0.2 million in the first half of 2005 compared to the same period in 2004. Fabrication and Distribution Group SG&A expenses increased $2.0 million from the second quarter of 2004. Approximately $1.0 million of the increase was a result of accounting, consulting and auditing costs related to increased control improvements. The acquisition of Claro resulted in an additional $1.0 million of expenses in SG&A. For the six months ending June 30, 2005 administrative and selling expenses increased $4.5 million from the first half of 2004. Approximately $2.0 million of the increase was a result of accounting, consulting and auditing costs related to increased control improvements. The acquisition of Claro, resulted in an additional $2.0 million of expenses in SG&A for the period and compensation expenses for the group increased $0.5 million. RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, -------------- -------------- 2005 2004 2005 2004 ----- ----- ----- ----- Titanium Group................................. $0.4 $0.3 $0.8 $0.6 Fabrication and Distribution Group............. -- -- -- -- ---- ---- ---- ---- Total.......................................... $0.4 $0.3 $0.8 $0.6 ==== ==== ==== ====
Titanium Group Research and development costs increased $0.1 million for the quarter ended June 30, 2005 compared to the same period in 2004 as a result of additional employee expenses in the 2005 period. Research and development costs increased $0.2 million for the six months ended June 30, 2005 compared to the same period in 2004 as a result of additional employee expenses in the 2005 period. Fabrication and Distribution Group There were no R & D expenses for the group in 2005 and 2004. OPERATING INCOME (LOSS)
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, -------------- -------------- 2005 2004 2005 2004 ----- ----- ----- ----- Titanium Group............................. $ 9.2 $(2.1) $18.8 $(6.2) Fabrication and Distribution Group......... 5.8 1.6 9.2 0.4 ----- ----- ----- ----- Total...................................... $15.0 $(0.5) $28.0 $(5.8) ===== ===== ===== =====
22 Titanium Group Operating income for the quarter ended June 30, 2005 increased to $9.2 million compared to a loss of $(2.1) million for the same period in 2004. The increase of $11.3 million resulted from improved gross profit of $12.1 million due to an increase in shipments of 1.5 million pounds. As a result of increased shipment activity, increased production loads and efficient throughput at producing facilities resulted in reduced production costs per pound. Partially offsetting improved margins as a result of shipment and production volume was escalating raw material costs primarily for sponge and scrap. Period costs were increased over the 2004 period as a result of additional costs for outside services for accounting, consulting and auditing and reduced gross profits by $0.5 million. R&D expenses were $0.1 million higher in the current quarter. Operating income for the six months ended June 30, 2005 increased to $18.8 million compared to a loss of $(6.2) million for the same period in 2004. The increase of $25.0 million resulted from improved gross profits of $26.2 million due to an increase in shipment volume of 2.7 million pounds. Additionally, melting and production activity exceeded more than a 100% volume change resulting in improved throughput and absorption of fixed costs. Increased margins on ferro titanium, primarily as a result of escalating selling prices, contributed to the increase in gross margins. Partially offsetting the effects of volume and ferro titanium was increased material costs and increased administrative costs as a result of outside services and compensation. Fabrication and Distribution Group Operating income for the quarter ended June 30, 2005 increased to $5.8 million compared to income of $1.6 million for the same period in 2004. The increase of $4.2 million was primarily due to increased gross profits of $6.2 million partially offset by increased SG&A spending of $2.0 million. The increase in gross profit occurred in the group's distribution markets as increased revenues and margins contributed to a favorable change of approximately $5.0 million. SG&A increased as a result of the acquisition or $0.9 million and as a result of additional auditing, consulting and accounting costs approximating $1.0 million. Operating income for the six months ended June 30, 2005 increased to $9.2 million compared to income of $0.4 million for the same period in 2004. The increase of $8.8 million was primarily due to increased gross profits of $13.2 million partially offset by increased SG&A spending of $4.5 million. The increase in gross profit occurred as a result of increased revenues from domestic and international distribution markets and increased revenue from fabrication and extrusion sales. Partially offsetting the increase in gross margin was increased spending in SG&A for accounting, consulting and auditing services. The Claro acquisition increased total SG&A expenses by $2.0 million and compensation expenses increased $0.8 million. OTHER INCOME
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, -------------- -------------- 2005 2004 2005 2004 ----- ----- ----- ----- Other Income................................... $0.3 $0.1 $0.5 $9.4
Other income increased by $0.2 million in the three months ending June 30, 2005 from the three months ended June 30, 2004. The increase was a result of foreign exchange gains from French and Canadian operations. Other income decreased by $8.9 million in the six months ended June 30, 2005 from the six months ended June 30, 2004. The decrease occurred as a result of the receipt of a payment in 2004 from Boeing under a long-term contract for Boeing's failure to take minimum shipments of titanium. Receipt of the sum in 2004 was the final payment under the contract. 23 INTEREST INCOME, NET
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, ------------- --------------- 2005 2004 2005 2004 ---- ----- ----- ------ Interest Income, net........................... $0.2 $ -- $0.4 $ --
Interest income increased by $0.2 million in the three months ending June 30, 2005 from the three months ended June 30, 2004. The increase was a result of increased income on invested cash reserves and higher average interest rates. Interest income increased by $0.4 million in the six months ending June 30, 2005 from the six months ended June 30, 2004. The increase was a result of increased income on invested cash reserves and higher average interest rates. INCOME TAX EXPENSE
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, ------------- -------------- 2005 2004 2005 2004 ---- ----- ----- ----- Income Tax Expense............................ $5.0 $(0.8) $9.9 $0.6
Income tax expense for the three months ended June 30, 2005 was $5.0 million, including the beneficial effects of discrete items (discussed below), compared to a $(0.8) million benefit for the same period in 2004. The annual effective tax rate applied to ordinary income was 37% compared to a rate of 18% in the second quarter of 2004. The second quarter 2005 rate exceeded the federal statutory rate of 35% due to state taxes, which was partially offset by the utilization of previously impaired foreign net operating losses. Ohio levies tax on the greater of an income-based or net worth-based computation. In prior years, operating forecasts suggested that the Company would pay Ohio tax based on its net worth; accordingly, no Ohio deferred income taxes were provided. Operating forecasts now suggest that the Company will pay Ohio income tax; accordingly, the second quarter tax provision reflects a net benefit of $0.5 million to establish Ohio deferred income taxes. On June 30, 2005, Ohio enacted substantial revisions to its income and franchise tax laws, which will phase out the Ohio income-based tax beginning in 2005. The Company has evaluated the impact of this law change on its Ohio deferred income tax balance and has recorded a net benefit of $0.2 million as a result of this enacted legislation. Income tax expense for the six months ending June 30, 2005 was $9.9 million, including the beneficial effects of discrete items (discussed above), compared to a $0.6 million expense for the same period in 2004. The annual effective tax rate applied to ordinary income was 37% compared to a rate of 17% for the six months ending June 30, 2004. The six months ending June 30, 2005 rate exceeded the federal statutory rate of 35% due to state taxes, which was partially offset by the utilization of previously impaired foreign net operating losses. On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the "Act"). The Company has estimated that the deduction attributable to qualified production activities will decrease its annual effective tax rate by approximately 1%. Other effects of the Act include the one-time deduction of 85% of foreign earnings that are repatriated to the United States, as defined by the Act. Although certain technical matters were clarified during the second quarter, the Company is continuing to evaluate whether, and to what extent the Company might repatriate up to $3 million of un-remitted foreign earnings pursuant to this provision, which could incur a tax liability of up to $1 million. We expect to be in a position to finalize this assessment in the fourth quarter of 2005. 24 INCOME FROM DISCONTINUED OPERATIONS
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, ------------- --------------- 2005 2004 2005 2004 ----- ---- ------ ----- Discontinued operations........................ $ -- $0.1 $ -- $0.2
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. NET INCOME
QUARTER ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, ------------- --------------- 2005 2004 2005 2004 ----- ---- ------ ----- Net income................................... $10.6 $0.4 $19.0 $3.2
Net income improved by $10.2 million in the quarter ended June 30, 2005 compared to the same period in 2004. Net income represented 11% of sales in the current period compared to less than 1% in 2004. For the six-month period ending June 30, 2005 net income improved by $15.8 million in the period ended June 30, 2005 compared to the same period in 2004. Net income represented 11.2% of sales in the current period compared to 3.1% in 2004. OUTLOOK Overview Aerospace applications comprise approximately 50% of worldwide consumption and over 65% of U.S. consumption of titanium products. Beginning in 2001, a confluence of events including weak U.S. and global economies, combined with the terrorist attacks of September 11, 2001, followed by the ongoing conflicts in the Middle East, had significant adverse effects 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 strong rebound in the demand for titanium and specialty metal products. According to the U.S. Geological Survey (USGS), U.S. shipments of titanium mill products in 2004 increased to 42 million pounds from 34 million pounds in 2003. Aircraft manufacturers, as well as aerospace forecasters, have predicted increased build rates for large, commercial aircraft production over the next several years. This is expected to increase the demand and shipments for titanium and specialty metals in the same period. Accordingly, the USGS reported U.S. shipments of titanium mill products in the first quarter 2005 rose to 14 million pounds or an annual rate of 56 million pounds. The following is a discussion of what is occurring within each of the three major markets in which RTI participates. Commercial Aerospace Markets The Company's sales to this market represented approximately 35% of total sales in 2004, up from 27% in 2003. Boeing and Airbus reduced their build rates for aircraft to 586 planes in 2003, a 13.5% reduction from prior year. However, a turnaround began in 2004, with the two 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, 785 aircraft in 2006, 825 aircraft in 2007, and 880 aircraft in 2008. 25 Airbus is producing the largest commercial aircraft in production, the A380, and Boeing has launched a totally new aircraft, the 787. Airbus is expected to produce another new aircraft, the A350, to compete with Boeing's 787 model. All three of these new aircraft will use substantially more titanium per aircraft than the preceding models. As a result, when production of these new aircraft increases, the demand for titanium is expected to increase significantly above previous peak markets for commercial aerospace applications. Long term, the commercial aerospace sector is expected to continue to be a very large consumer of titanium products over the next 20 years due to the forecast growth of worldwide traffic and the need to repair and replace aging commercial fleets. RMI entered into a long-term mill product agreement with Boeing on January 28, 1998. Under this agreement, Boeing agreed to purchase a minimum of 3.25 million pounds annually. The agreement, which began in 1999, had an initial term of five years and concluded at the end of 2003. If volumes fell short of the minimum commitment, the contract contained provisions for financial compensation. Boeing failed to make minimum purchases in each of the five years, making its final compensation payment in the first quarter of 2004. Beginning in January of 2004, business between the companies, which is not covered by other contracts within RTI, 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., 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 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 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 projected 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") (F-35) and in Europe, the Mirage, Rafale and Eurofighter-Typhoon. 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. Production approval for 495 units was awarded to BAE in March 2005. 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. 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. 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 30,000 to 40,000 pounds of titanium per airplane depending on the model specified. 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 6,000 planes over the next 30 to 40 years. The 26 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. Industrial and Consumer Markets 35% of RTI's 2004 revenues were generated in various industrial and consumer markets where increased demand is expected over the next twelve months. Revenues from oil and gas markets are expected to increase in 2005 and beyond due to continued activity in deep water projects. 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 9-12 months. 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. 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 strong demand continued for this product in the first half of 2005, but is expected to lessen somewhat the balance of the year due to a softer market forecast in steel. Backlog The Company's order backlog for all markets increased to approximately $352.5 million as of June 30, 2005, up from $237.9 million at December 31, 2004, principally due to increased demand from the commercial aerospace industry. Of the backlog at June 30, 2005, approximately $171 million will be realized in 2005. 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
SIX MONTHS ENDED JUNE 30, 2005 2004 - ------------------------- ---- ----- Cash provided by operating activities....................... $4.8 $10.3
The decrease in net cash flows from operating activities for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 primarily reflects an increase in working capital items, primarily receivables and inventory, due to the improved demand in all market segments as mentioned in the "Outlook" section of this Management's Discussion and Analysis. The overall decrease in cash flows from operating activities was a result of inventory increases as demand for titanium products continued to increase in the first half of 2005. Partially offsetting the increase in inventories was an increase in net income on higher sales levels and increases in accounts payable and billings in excess of costs. In addition, the overall decrease in cash flows from operating activities was partially offset by an increase in tax benefits from stock options of $1.7 million. The increase in accounts payable is attributable to purchases on increased quantities of scrap and higher prices for both scrap and sponge. Billings in excess of costs increased primarily on two contracts for which cash 27 had been collected but revenue was not recognized in accordance with the Company's revenue recognition criteria. The Company's working capital ratio was 5.1 and 8.2 to 1 at June 30, 2005 and December 31, 2004, respectively. Cash used in investing activities
SIX MONTHS ENDED JUNE 30, 2005 2004 - ------------------------- ---- ---- Cash used in investing activities........................... $4.8 $2.2
Gross capital expenditures for the six months ended June 30, 2005 amounted to $4.5 million compared to $2.3 million in 2004. During the six months ended June 30, 2005 and 2004, 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 million and will be funded with cash generated by operations. At June 30, 2005 and December 31, 2004, the Company had a borrowing capacity equal to $89.0 and $33.8 million, respectively. Cash provided by financing activities
SIX MONTHS ENDED JUNE 30, 2005 2004 - ------------------------- ---- ---- Cash provided by financing activities....................... $8.3 $1.4
The favorable change in cash flows from financing activities for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 primarily reflects an increase in proceeds from the exercise of employee stock options of $6.9 million. Partially offsetting these cash inflows was the purchase of approximately 22,000 shares of common stock that was reclassified to treasury. 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 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 June 30, 2005, there was approximately $1.0 million of standby letters of credit outstanding under the facility, the Company was in compliance with all covenants, and had a borrowing capacity equal to $89.0 million. 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 six months ended June 30, 2005, the Company spent approximately $0.4 million 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 28 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 June 30, 2005, the amount accrued for future environmental-related costs was $3.7 million. Of the total amount accrued at June 30, 2005, $0.6 million is expected to be paid out within one year and is included in the other accrued liabilities line of the balance sheet. The remaining $3.1 million is recorded in other non-current liabilities. Based on available information, RMI believes that its share of potential environmental-related costs, before expected contributions from third parties, is in a range from $2.9 to $7.7 million in the aggregate. The Company has included in its other noncurrent assets $2.1 million as expected contributions from third parties. These third parties include prior owners of RMI property and prior customers of RMI, 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. 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 depleted 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 the facility was no longer needed for processing government material. Processing ceased in 1990, and in 1993 RMI was chosen as the prime contractor for the remediation and restoration of the site by the DOE. Since then, contaminated buildings have been removed and approximately two-thirds of the site has been free released by the Ohio Department of Health, to RMI, at DOE expense. In December, 2003, in accordance with its terms, the Department of Energy terminated the contract "for convenience." It is not known at this time what role, if any, RMI will play in the balance of the cleanup although discussions are ongoing. Remaining soil removal is expected to take approximately 18-24 months. As license holder and owner of the site, RMI is responsible to the state of Ohio for complying with soil and water regulations. However, remaining cleanup cost is expected to be borne by the DOE in accordance with their contractual obligation. EMPLOYEES As of June 30, 2005, the Company and its subsidiaries employed 1,208 persons, 380 of whom were classified as administrative and sales personnel. 587 of the total number of employees were in the Titanium Group, while 621 were employed in the Fabrication & Distribution Group. 29 The United Steelworkers of America represents 298 of the hourly, clerical and technical employees at RMI's plant in Niles, Ohio and 1 hourly employee at RMI Environmental Services in Ashtabula, Ohio. No other Company employees are represented by a union. NEW ACCOUNTING STANDARDS In December 2004 the Financial Accounting Standards Board (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 109-2, "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 December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SEC Staff's interpretation of SFAS 123R and provides the Staff's views regarding interactions between SFAS 123R and certain SEC rules and regulations and provides interpretations of the valuation of share-based payments for public companies. SFAS 123R requires the mandatory expensing of share-based payments, including employee stock options, based on their fair value. Recently, the FASB delayed mandatory implementation for fiscal years beginning after December 15, 2005. As a result the standard will be adopted for the Company's 2006 fiscal year. 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 SAB 107. 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. The effect of the Act did not have a material impact on the Company. In May 2005, the FASB issued FAS No. 154, "Accounting Changes and Error Corrections" (FAS 154), which changes the requirements for the accounting and reporting of a change in accounting principle. FAS 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include specific transition provisions. FAS 154 eliminates the requirement to include the cumulative effect of changes in accounting principle in the income statement and instead requires that changes in accounting principle be retroactively applied. A change in accounting estimate continues to be accounted for in the period of change and future periods if necessary. A correction of an error continues to be reported by restating prior period financial statements. FAS 154 is effective for accounting changes and correction of errors made on or after January 1, 2006. 30 ITEM 4. CONTROLS AND PROCEDURE (a) Evaluation of Disclosure Controls and Procedures 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 quarterly report on Form 10-Q. Based upon that evaluation they have concluded that the Company's disclosure controls and procedures are not effective in ensuring that all material information required to be filed in reports that the Company files with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission because of material weaknesses in its internal control over financial reporting as discussed in the Company's Form 10-K as amended on May 9, 2005. The evaluation of our disclosure controls and procedures by our Chief Executive Officer and Chief Administrative Officer included a review of the restatement described in Note 17 on page 17 of this Form 10-Q/A, where the Company restated its consolidated statement of cash flows for periods ended June 30, 2004 and 2005, including all interim periods. Management has determined that the restatement is an additional effect of the material weaknesses already described in the Form 10-K/A Amendment No. 2. In light of material weaknesses described in the Form 10-K/A Amendment No. 2, management continues to perform additional analysis and other post-closing procedures to ensure the Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the interim financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the period presented. (b) Changes in Internal Control over Financial Reporting The Company initiated a remediation program to address the material weaknesses identified and reported in its Form 10-K as amended on May 9, 2005. During the period since that filing the Company has performed: - An examination of control design at 13 out of 15 significant locations for 2005. The Company's internal audit group along with outside audit resources performed the examination. - Continued testing the installation of a new SAP fixed asset system. - Continued work on the installation of a new SAP financial reporting consolidation accounting system. - Formed work teams of accounting and operating management personnel to provide instruction and guidance relative to improvements in internal control. - Added two accounting managers, hired a director of taxation and hired a controller for one of the Company's international locations. - Reorganized the Company's accounting functions to provide additional competencies and supervisory review. - Reviewed the effectiveness of the design of internal controls over footnote and disclosure spreadsheets. - Provided additional training on the requirements for internal control over financial reporting including a company wide conference for head accounting personnel and business unit level presentations for process owners. - Formed a Steering Committee, consisting of executive management, to oversee the Company's remediation and compliance efforts. - Continued to expand its SAP network by continuing to install an SAP system at one of its international locations. 31 The Company had previously reported in its Form 10-Q for the quarter ended March 31, 2005 that it had replaced the Director of Corporate Accounting and Consolidation. Additionally it had reported: - It had reduced the number of SAP users with unrestricted access and: - Directed the Company's internal audit department to concentrate on examination, evaluation and testing of material weaknesses. Until the Company completes its evaluation and testing of its controls, the Company has: - Re-tested certain material internal control weaknesses that existed at December 31, 2004 to determine their effectiveness in the current quarter and performed additional substantive testing to become reasonably assured that the interim financial statements were materially correct. - Performed substantive testing for certain transactions to ensure their accuracy and compliance with GAAP. - Enhanced review of critical transactions and balances to ensure their accuracy. - Changed third-party payroll processors to those that have issued Type II SAS 70 reports in prior years. - Performed substantive testing at one of its health care providers to establish increased certainty over the Company's health care expenses and liabilities. The Company is unable to conclude that its internal controls over financial reporting were effective as of June 30, 2005. The Company intends to evaluate many of its controls for effectiveness in the third quarter. 32 PART II--OTHER INFORMATION ITEM 6. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 Form of indemnification agreement.(1) 31.1 Certification pursuant to Exchange Act Rules 13a-14 and 15d-14. 31.2 Certification pursuant to Exchange Act Rules 13a-14 and 15d-14. 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------- (1) Previously filed. 33 SIGNATURES Pursuant to the requirements 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. -------------------------------------- (Registrant) Date: December 15, 2005 /s/ WILLIAM T. HULL -------------------------------------- William T. Hull Vice President and Chief Accounting Officer 34 EX-31.1 2 j1701501exv31w1.txt EX-31.1 EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER CERTIFICATION CERTIFICATION I, TIMOTHY G. RUPERT, certify that: 1. I have reviewed this quarterly report on Form 10-Q, as amended, of RTI International Metals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 15, 2005 By: /s/ TIMOTHY G. RUPERT ------------------------------------ Timothy G. Rupert President and Chief Executive Officer EX-31.2 3 j1701501exv31w2.txt EX-31.2 EXHIBIT 31.2 CHIEF FINANCIAL OFFICER CERTIFICATION CERTIFICATION I, DAWNE S. HICKTON, certify that: 1. I have reviewed this quarterly report on Form 10-Q, as amended, of RTI International Metals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 15, 2005 /s/ DAWNE S. HICKTON -------------------------------------- Dawne S. Hickton Senior Vice President -- Administration and Chief Administrative Officer (principal financial officer) EX-32.1 4 j1701501exv32w1.txt EX-32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of RTI International Metals, Inc. (the "Company") on Form 10-Q/A for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Timothy G. Rupert, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. December 15, 2005 /s/ TIMOTHY G. RUPERT - -------------------------------------- Timothy G. Rupert Chief Executive Officer * This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. EX-32.2 5 j1701501exv32w2.txt EX-32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of RTI International Metals, Inc. (the "Company") on Form 10-Q/A for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dawne S. Hickton, Chief Administrative Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002, that: (3) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (4) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. December 15, 2005 /s/ DAWNE S. HICKTON - -------------------------------------- Dawne S. Hickton Senior Vice President -- Administration and Chief Administrative Officer * This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. -----END PRIVACY-ENHANCED MESSAGE-----