Forward-Looking Statements

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 is subject to the safe harbor created by that Act. Such forward-looking statements may be identified by their use of words like "expects," "anticipates," "intends," "projects," or other words of similar meaning. Forward-looking statements are based on expectations and assumptions regarding future events. In addition to factors discussed throughout this 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,

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

• global economic activities,

• the successful completion of our expansion projects,

• the Company's order backlog and the conversion of that backlog into revenue, and

• other statements contained herein that are not historical facts.

Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These and other risk factors are set forth in this as well as in 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.

Overview

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

We conduct our operations in two reportable segments: the Titanium Group and the Fabrication & Distribution Group ("F&D"). The Titanium Group melts and produces a complete range of titanium mill products which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial and consumer applications. The F&D Group is comprised of companies that fabricate, machine, assemble, and distribute titanium and other specialty metal parts and components. Its products, many of which are engineered parts and assemblies, serve commercial aerospace, defense, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. The Titanium Group, with operations in

Niles, Ohio, Canton, Ohio, and Hermitage, Pennsylvania has overall responsibility for the production of primary mill products including, but not limited to, bloom, billet, sheet, and plate. This Group also focuses on the research and development of evolving technologies relating to raw materials, melting, and other production processes and the application of titanium in new markets. F&D, with operations located throughout the U.S., Europe, and Canada and representative offices in Germany, Italy, and China, concentrates its efforts on maximizing its profitability by offering value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and sub-assemblies, as well as engineered systems for energy-related markets by accessing the Titanium Group as its primary source of mill products. Approximately 43% of the Titanium Group's sales in 2006 were to F&D.

While 45% of our sales in 2006 were directed to the commercial aerospace market, approximately 33% of all U.S. titanium production is shipped to this segment. In 2006, air traffic demand, which drives commercial aerospace, defense spending and industrial growth and therefore drives titanium production, rose significantly in the commercial aircraft segment and defense spending remained steady, leading to a continuing rebound from 2004 in the demand for titanium and specialty metal products.

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

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

In conjunction with the close monitoring of our working capital position an emphasis is also made on capital expenditures. The cash and short-term investment position at the year-end 2006 stood at $125.1 million against $55.8 million at the year-end 2005. As for the ultimate disposition of this cash, our Board of Directors regularly considers such options as dividends, stock repurchases in excess of an approved $15 million program, capital investments, acquisitions, or strategic combinations.

Results of Operations

For the Year Ended December 31, 2006 Compared To The Year Ended December 31, 2005

Net Sales. Net sales for our reportable segments, excluding intersegment sales, for the years ended December 31, 2006 and 2005 are summarized in the following table:

                                         Years Ended
                                        December 31,          $ Increase/       % Increase/
  (In millions)                       2006        2005        (Decrease)        (Decrease)

  Titanium Group                     $ 204.9     $ 130.2     $        74.7              57.4 %
  Fabrication & Distribution Group     300.5       216.7              83.8              38.7 %

  Total consolidated net sales       $ 505.4     $ 346.9     $       158.5              45.7 %

The increase in the Titanium Group's net sales was primarily due to an increase in trade shipments of 2.4 million pounds as compared to the same period in the prior year coupled with an increase in average selling prices. The increase in net sales was principally driven by continued strong demand from the aerospace markets.

The increase in net sales in the F&D Group was primarily the result of increased demand from aerospace customers in most of the Group's businesses and product lines as well as increased selling prices. The increase in revenue was significant at all of the segment's domestic and European distribution locations. This additional demand coupled with increased selling prices led to an increase of $51.7 million from the segment's North American locations and increases of $32.1 million through European outlets.

Gross Profit. Gross profit for our reportable segments for the year ended December 31, 2006 and 2005 are summarized in the following table:

                                         Years Ended
                                        December 31,          $ Increase/       % Increase/
  (In millions)                       2006        2005        (Decrease)        (Decrease)

  Titanium Group                     $  94.1     $  55.0     $        39.1              71.1 %
  Fabrication & Distribution Group      78.8        51.6              27.2              52.7 %

  Total consolidated gross profit    $ 172.9     $ 106.6     $        66.3              62.2 %

Gross profit for the Titanium Group increased by $39.1 million primarily due to an increase in the volume of mill product shipments coupled with increases in average selling prices, partially offset by increased raw material costs and lower sales volumes and selling prices on ferro titanium shipments.

Gross profit for the F&D Group increased to $78.8 million in 2006 from a gross profit of $51.6 million in 2005. The increase in gross profit was driven by overall increases in shipment volumes contributing to $20 million of the total. In addition, improved pricing over cost contributed an additional $7.2 million from the prior year results

Selling, General, and Administrative Expenses. Selling, general and administrative expenses ("SG&A") for our reportable segments for the years ended December 31, 2006 and 2005 are summarized in the following table:

                                         Years Ended
                                        December 31,         $ Increase/       % Increase/
   (In millions)                       2006       2005       (Decrease)        (Decrease)

   Titanium Group                     $ 14.1     $ 12.7     $         1.4              11.0 %
   Fabrication & Distribution Group     42.0       36.1               5.9              16.3 %

   Total consolidated SG&A            $ 56.1     $ 48.8     $         7.3              14.9 %

Total SG&A for the Company increased $7.3 million in 2006 from the same period in 2005. This increase was the result of increased wages and incentive compensation of $3.8 million and increased stock-based compensation costs of $3.4 million primarily due to the adoption of SFAS 123R. The remaining increase was the result of an overall increase in spending related to sales and marketing initiatives within the Company. These increases were offset by reduced audit and compliance costs of $1.9 million as compared to the prior year.

Research, Technical, and Product Development Expenses. Total research, technical, and product development costs for the Company was $1.5 million in 2006 as compared to $1.6 million in 2005. This spending reflects the Company's continued efforts in making productivity and quality improvements to current manufacturing processes.

Operating Income. Operating income for our reportable segments for the year ended December 31, 2006 and 2005 are summarized in the following table:

                                          Years Ended
                                          December 31,         $ Increase/       % Increase/
 (In millions)                          2006        2005       (Decrease)        (Decrease)

 Titanium Group                        $  78.5     $ 40.8     $        37.7              92.4 %
 Fabrication & Distribution Group         36.8       15.3              21.5             140.5 %

 Total consolidated operating income   $ 115.3     $ 56.1     $        59.2             105.5 %

Operating income for the Titanium Group increased in 2006 by $37.7 million primarily due to improved volumes and selling prices for mill products offset by lower volumes and profitability on ferro titanium sales as well as by increased SG&A in the current year which reduced operating income by $1.4 million as compared to the prior year.

Operating income for the F&D Group increased by $21.5 million primarily due to an increase in gross profit of $27.2 million as a result of strong volumes and increased selling prices from both domestic and international markets as compared to the same period in the prior year. Increased SG&A in the current year reduced operating income by $5.9 million.

Other Income. Other income increased to $0.5 million in 2006 as compared to $0.4 million in the prior year. Foreign exchange gains from international operations are included in Other Income.

Interest Income and Interest Expense. Interest income increased to $3.2 million in 2006 as compared to $1.4 million in the prior year. The increase in interest income was due to an overall increase in the level of cash and short-term investments on hand as compared to the prior year. The average effective rate in 2006 was 5.0% compared to 3.1% in 2005. Interest expense increased to $0.7 million in 2006 as compared to $0.5 million in the prior year.

Provision for Income Tax. Income tax expense increased by $22.5 million as a result of pretax income of $118.3 million in 2006 compared to a pretax income from continuing operations of $57.4 million in 2005. The effective income tax rate for 2006 is 36% compared to 35% in 2005. The effective tax rate for 2006 was greater than the Federal statutory rate due primarily to the effect of state income taxes. The effective tax rate for 2005 was favorably impacted by the recognition of Ohio deferred tax assets based on an improved operating outlook that indicated the Company would pay Ohio tax on an income tax basis rather than on a net worth basis.

For the Year Ended December 31, 2005 Compared To The Year Ended December 31, 2004

Review of accounting for employee benefit and executive compensation arrangements

During 2005, we performed an extensive review of the accounting for our existing employee benefit and executive compensation arrangements which we completed in the fourth quarter of 2005. The results of this review indicated we had incorrectly accounted for two non-qualified pension plans as well as two deferred compensation arrangements with key management.

Management concluded, with the concurrence of the Audit Committee, that the impact of these errors was not material to our Consolidated Financial Statements for any interim or annual period in which the errors were found. In reaching this conclusion, we reviewed and analyzed the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 99, "Materiality," Accounting Principles Board Opinion No. 28, "Interim Financial Reporting," paragraph 29 and SAB Topic 5F, "Accounting Changes Not Retroactively Applied Due to Immateriality," in order to determine that the misstatements were not material on a quantitative or qualitative basis. As a result, we recorded a cumulative adjustment in the fourth quarter of 2005 to record the effects of these employee benefit and deferred compensation arrangements. The net impact of these corrections was a decrease to pre-tax income and net income in the amounts of $1.7 million and $1.1 million, respectively, for the three months and year ended December 31, 2005.

Net Sales. Net sales for our reportable segments, excluding intersegment sales, for the years ended December 31, 2005 and 2004 are summarized in the following table:

                                         Years Ended
                                        December 31,          $ Increase/       % Increase/
  (In millions)                       2005        2004        (Decrease)        (Decrease)

  Titanium Group                     $ 130.2     $  48.6     $        81.6             167.9 %
  Fabrication & Distribution Group     216.7       161.0              55.7              34.6 %

  Total consolidated net sales       $ 346.9     $ 209.6     $       137.3              65.5 %

The increase in net sales for the Titanium Group was primarily due to an increase in shipments of titanium of 3.5 million pounds as compared to the prior year coupled with increases in average selling prices. The increase in titanium net sales was principally due to increased sales of flat rolled sheet and plate, as shipments increased approximately 60% over the prior period due to strong demand from aerospace markets. In addition, heavy product sales including bloom, billet, and ingot increased 150% over the prior period as a result of aerospace market demand.

The increase in net sales for the F&D Group was primarily the result of increased demand from aerospace customers in most of the Group's businesses and product lines. The increase in revenue was significant at all of the segment's domestic distribution locations as well as through European outlets. Also contributing to the increase in net sales in 2005 was the fourth quarter 2004 acquisition of Claro Precision, Inc. ("Claro"), which sells to the regional and business jet market and resulted in a full year of net sales in 2005 as compared to 2004.

Gross Profit (Loss). Gross profit (loss) for our reportable segments for the years ended December 31, 2005 and 2004 are summarized in the following table:

                                        Years Ended
                                        December 31,         $ Increase/       % Increase/
  (In millions)                       2005        2004       (Decrease)        (Decrease)

  Titanium Group                     $  55.0     $ (1.1 )   $        56.1            5100.0 %
  Fabrication & Distribution Group      51.6       26.2              25.4              96.9 %

  Total consolidated gross profit    $ 106.6     $ 25.1     $        81.5             324.7 %

Gross profit (loss) for the Titanium Group improved by $56.1 million primarily due to increased titanium volumes and sales prices in 2005 coupled with a more favorable mix of products. Additionally, higher operating rates at the group's main producing locations resulted in improved efficiencies and productivity which reduced average production costs.

Gross profit for the F&D Group increased in all business units within the group. Improved pricing over cost contributed approximately $18.0 million particularly in the group's domestic distribution units. Increased pricing occurred on aerospace products sold through domestic distribution facilities as a result of continued escalation in aircraft procurement requirements. Also contributing to the increase in gross profit were increased shipment volumes from both domestic and international distribution centers as well as our fabrication business units.

Selling, General, and Administrative Expenses. SG&A for our reportable segments for the years ended December 31, 2005 and 2004 are summarized in the following table:

                                         Years Ended
                                        December 31,         $ Increase/       % Increase/
   (In millions)                       2005       2004       (Decrease)        (Decrease)

   Titanium Group                     $ 12.7     $  9.3     $         3.4              36.6 %
   Fabrication & Distribution Group     36.1       29.7               6.4              21.5 %

   Total consolidated SG&A            $ 48.8     $ 39.0     $         9.8              25.1 %

Total SG&A increased as a result of increased wages and incentive compensation of $5.3 million, increased costs associated with the recognition of a full year of activity for Claro of $3.6 million, which was acquired in the fourth quarter of 2004, and increased audit and SOX 404 compliance costs of $1.6 million which were partially offset by decreases in certain other costs of $0.8 million.

SG&A for the Titanium Group increased as a result of increased wages and incentive compensation of $2.5 million and increased costs related to audit and SOX 404 compliance of $0.8 million. Wages and incentive compensation expense was primarily a result of bonus related compensation, deferred compensation, and pension expense. A significant increase in 2005 profitability during the year was a key factor in determining incentive compensation. Wages were moderately increased over the prior year reflecting normal merit and promotional wage increases. SOX 404 and audit costs were higher than the prior year as the Company continued its planned remediation of certain material weaknesses that occurred in 2004. We have employed outside consultants in several key areas to assist in these remediation efforts.

SG&A for the F&D Group increased mostly due to SG&A associated with Claro, of $3.6 million. Claro was acquired on October 1, 2004 and 2005 results reflect a full year of SG&A compared to three months in 2004. Wages and compensation costs were higher than the prior period by $2.8 million primarily as a result of increased business activity, deferred compensation and pension expense. The cost of audit and SOX 404 compliance was increased over the prior period by $0.8 million. Audit and SOX 404 compliance increased over the prior year as a result of material weaknesses that were disclosed in 2004. SOX 404 and audit costs were increased over the prior year as we continued our planned remediation of certain material weaknesses that occurred in 2004. We have employed outside consultants in several key areas to assist internal personnel in these remediation efforts. Other miscellaneous costs including legal expenses and insurance were partially offset by $0.7 million.

Research, Technical, and Product Development Expenses. The Titanium Group incurred $1.4 million in research, technical, and product development expenses in 2005 compared to $1.2 million in 2004. The increase reflects the internal cost of developing productivity and quality improvements to reduce the cost of our melting technology.

The F&D Group, through its energy business, increased R&D spending by $0.2 million in 2005 from 2004 on various projects related to the development of titanium applications in offshore and drilling applications.

Other Operating Income. Other operating income for the Titanium Group decreased in 2005 by $0.5 million from 2004. The change in the current period was a result of the gain on the sale in 2004 of the group's facility in Salt Lake City. The F&D Group did not have any activity in other operating income for the periods reported.

Operating Income. Operating income for our reportable segments for the years ended December 31, 2005 and 2004 are summarized in the following table:

                                          Years Ended
                                          December 31,         $ Increase/       % Increase/
 (In millions)                          2005       2004        (Decrease)        (Decrease)

 Titanium Group                        $ 40.8     $ (11.1 )   $        51.9             467.6 %
 Fabrication & Distribution Group        15.3        (3.5 )            18.8             537.1 %

 Total consolidated operating income   $ 56.1     $ (14.6 )   $        70.7             484.2 %

Operating income for the Titanium Group increased in 2005 by $51.9 due to improved gross profit resulting from higher titanium pricing and the sale of a more profitable mix of products. Strong demand for titanium products resulted in increased operating rates at major producing locations where efficiency and productivity also contributed to improved gross profit. SG&A in 2005 were higher than 2004 by $3.4 million reducing the effect of increased gross margins. SG&A were increased due to higher compensation costs, deferred compensation, pension costs, and auditing and compliance costs. Increased profits resulted in increased incentive compensation awards. We continued to use outside consultants in 2005 to remediate certain disclosed material weaknesses in 2004. Other operating income was reduced from 2004 by $0.5 million due to the sale of one of the group's facilities.

Operating income for the F&D Group in 2005 increased by $18.8 million as a result of increased pricing over cost equaling $18.0 million throughout most market areas as demand from aerospace markets created pressure to secure product. Increased shipment levels primarily in domestic distribution and fabrication accounted for an additional $7.4 million in gross margin. Gross profits were partially reduced by increased SG&A of $6.4 million. The increase in SG&A was the result of the Claro acquisition in the fourth quarter of 2004 equaling an increase of $3.6 million, increased wages and compensation expenses of $2.8 million and increased audit fees and SOX compliance costs of $0.8 million. Miscellaneous costs including legal and insurance were offsetting by $0.7 million.

Other Income. Other income decreased $9.0 million in 2005 from the prior period. Other income in 2005 was $0.4 million compared to $9.4 million in 2004. The decrease primarily represents the final payment of liquidated damages in 2004 from Boeing.

Interest Income and Interest Expense. Interest income increased $0.6 million from the prior period. The increase in interest income was due to an improvement in the effective rate of return for invested cash balances. The average effective rate in 2005 was 3.1% compared to 1.4% in 2004. The increase in rate offset cash balances which were lower than the prior year. Interest expense decreased to $0.5 million from $0.7 million in the prior year.

Provision for Income Taxes. The provision for income taxes increased by $22.8 million as a result of pretax income from continuing operations of $57.4 million in 2005 compared to a pretax loss from continuing operations of $5.0 million in 2004. The effective income tax rate for 2005 was 35% compared to 54% in 2004. The effective tax rate was favorably impacted by the recognition of Ohio deferred tax assets based on an improved operating outlook that indicated we would pay Ohio tax on an income tax basis rather than on a net worth basis. This benefit was offset by higher foreign tax costs attributable to exchange rate movements during 2005, a Quebec tax rate change, and certain nondeductible expenses in these jurisdictions. The rate for 2005 was significantly reduced from the 2004 rate of 54% which included adjustments of prior years' taxes due to normal revisions in estimates in the 2003 tax

filing, certain tax reserve adjustments related to a reassessment of potential exposures identified in prior years, and adjustments to deferred tax assets and liabilities.

Discontinued Operations. Our financial statements were impacted by the discontinuance of three business units during 2005 and 2004. These businesses have been accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly operating results of these businesses are presented in our consolidated statements of operations as discontinued operations, net of tax, and all prior periods have been restated.

We declared our operations located in Ashtabula, Ohio operating under the name of RMI Environmental Services ("RMIES") and Earthline Technologies ("Earthline") as discontinued operations in the fourth quarter of 2005. Both operations had been reported within the Titanium reporting segment. In December 2003, the U.S. Department of Energy ("DOE") terminated the contract with RMI for . . .