UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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RTI INTERNATIONAL METALS, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Notice of Annual Meeting of Shareholders and Proxy Statement

 

April 27, 2007

1:00 p.m. Eastern Daylight Time

 

Hyatt Regency

Pittsburgh International Airport

Pittsburgh, Pennsylvania

USA

 

Niles, Ohio 44446

 

April 3, 2007

 

Dear RTI Shareholder:

 

 

You are cordially invited to attend our 2007 Annual Meeting of Shareholders on April 27, 2007, at the Hyatt Regency Hotel at the Pittsburgh International Airport.

 

The meeting will begin promptly at 1:00 p.m. with a report on Company operations. We will then elect directors and ratify the appointment of our independent registered public accounting firm.

 

You have a choice of voting your proxy via the Internet, by telephone or by completing and returning the enclosed proxy card. Whether or not you plan to attend, it is important that you vote your shares and we encourage you to do so as soon as possible.

 

We look forward to seeing as many of you as possible at the 2007 Annual Meeting.

 

Sincerely,

 

Table of Contents

 

 

Time:

       1:00 p.m. Eastern Daylight Time

 

Date:

       April 27, 2007

 

Place:

       The Hyatt Regency

       Pittsburgh International Airport

       1111 Airport Boulevard

       Pittsburgh, Pennsylvania

 

Purpose:

 

 

 

Dawne S. Hickton

Secretary

 

April 3, 2007

 

Only shareholders of record on March 1, 2007 may vote at the meeting.

PROXY STATEMENT

_ _

 

 

Shareholders of RTI as of the close of business on the record date, March 1, 2007, are entitled to vote at the Annual Meeting.

 

 

You may vote on:

 

 

 

The Board recommends that you vote:

 

FOR each of the nominees presented in this proxy statement; and

 

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2007.

 

 

This proxy statement is being furnished by RTI to its shareholders in connection with the solicitation of proxies by the Board to be voted at the Annual Meeting. RTI intends to first mail this proxy statement to shareholders on or about April 3, 2007.

 

 

You may vote in any one of the following three ways:

 

 

You have the right to revoke your proxy at any time before the meeting by sending a written notice of revocation or a later-dated proxy card to RTI’s Secretary, by voting subsequently through the Internet or by telephone or by voting in person at the meeting.

 

 

Business Ethics and Corporate Governance

 

Business Conduct and Ethics

 

The Company is committed to conducting business ethically, as well as legally. Ethical and legal conduct in all of the Company’s business affairs is essential to the Company’s future. The Company’s Code of Ethical Business Conduct, adopted by the Board of the Directors, applies to all directors and employees of the Company, including executive and other officers. The Code of Ethical Business Conduct is intended to comply with the requirements of the New York Stock Exchange and Securities and Exchange Commission regulations.

 

The Code of Ethical Business Conduct is posted on the RTI Website, www.rtiintl.com, and is also available in print without charge to any shareholder who makes a written request to the corporate Secretary at the address set forth under the caption “Other Information” at the end of this proxy statement.

 

Any amendments as well as waivers of the application of the Code of Ethical Business Conduct to directors or executive officers will be disclosed promptly on the RTI Website.

 

Corporate Governance Guidelines

 

The Company’s Corporate Governance Guidelines were adopted by the Board of Directors to promote sound corporate citizenship and are intended to comply with the requirements of the New York Stock Exchange. The guidelines, taken together with the charters of the various committees of the Board of Directors, provide the framework for the corporate governance of the Company. The guidelines cover a number of topics, including: the size and role of the Board of Directors; non-employee director executive sessions; attendance at Board of Directors meetings; access to senior management and advisors; the Board of Directors compensation; independence, composition and membership criteria of the Board of Directors; self-assessment of the Board of Directors; retirement age; and nominations to the Board of Directors.

 

The Company’s Corporate Governance guidelines are posted on the RTI Website, www.rtiintl.com, and are also available in print without charge to any shareholder who makes a written request to the corporate Secretary at the address set forth under the caption “Other Information” below.

 

The Board of Directors

 

The business and affairs of RTI are under the general direction of the Board of Directors. The Board presently consists of ten members, eight of whom are neither officers nor employees of RTI or its subsidiaries. The Board of Directors has determined that Craig R. Andersson, Daniel I. Booker, Donald P. Fusilli, Jr., Ronald L. Gallatin, Charles C. Gedeon, Robert M. Hernandez, Edith E. Holiday and James A. Williams all meet the New York Stock Exchange rules and listing standards relating to independence generally and for all committees on which they serve. None of the independent directors has a relationship with the Company that is material.

 

The Board met 7 times during 2006. All of the directors attended more than 75% of the total number of meetings of the Board and of the committees on which they serve. The Chairman of the Board chairs the regularly-scheduled executive sessions of the non-management directors. In the Chairman’s absence, the chairperson of the Nominating/Corporate Governance Committee chairs the meeting.

 

It is the policy of the Nominating/Corporate Governance Committee to consider recommendations by shareholders, directors, officers, employees, and others for nominees for election as director. Recommendations, together with the nominee’s qualifications and consent to be considered as a nominee, should be sent to the Secretary of RTI for presentation to the Committee. Board Membership criteria considered by the Committee is discussed below under the caption “Nominating/Corporate Governance Committee” and is set forth in the Company’s Corporate Governance Guidelines, available free

of charge on the RTI Website, www.rtiintl.com, or by sending a written request to the corporate Secretary at the address set forth under the caption “Other Information” on the last page of this proxy statement.

 

There are four principal committees of the Board of Directors. Committee membership, the functions of the committees and the number of meetings held during 2006 are described below.

 

Executive Committee

 

The members of the Executive Committee are Robert M. Hernandez (Chairman), Craig R. Andersson, Charles C. Gedeon, John H. Odle and Timothy G. Rupert.

 

The Executive Committee assists the Board in the discharge of its responsibilities and may act on behalf of the Board when emergencies or scheduling make it difficult to convene the Board. All actions taken by the Committee must be reported at the Board’s next meeting. The Executive Committee held no meetings during 2006.

 

Audit Committee

 

The members of the Audit Committee are James A. Williams (Chairman), Craig R. Andersson, Donald P. Fusilli, Ronald L. Gallatin, Charles C. Gedeon and Robert M. Hernandez. All of the members of this Committee meet the New York Stock Exchange’s rules and listing standards for audit committee independence. The Board has determined that Messrs. Hernandez, Fusilli, Gallatin and Williams are each qualified as an audit committee financial expert within the meaning of Securities and Exchange Commission regulations and that each of the members of the Audit Committee has accounting or financial management expertise within the meaning of the listing standards of the New York Stock Exchange.

 

The Audit Committee assists the Board in overseeing RTI’s financial reporting process and systems of internal accounting control, RTI’s compliance with legal and regulatory requirements and qualifications, independence and performance of RTI’s internal auditors and independent registered public accounting firm. The Committee has direct responsibility for the appointment, compensation, retention and oversight of RTI’s independent registered public accounting firm. The Committee has adopted, and the Board has approved, the Committee charter, available free of charge on the RTI website, www.rtiintl.com, or by sending a written request to the corporate Secretary at the address set forth under the caption “Other Information” on the last page of this proxy statement.

 

The Audit Committee held 6 meetings in 2006.

 

The Compensation Committee

 

This Committee, formerly known as the Human Resources Committee, serves as a compensation committee by discharging the Board’s duties concerning executive compensation and prepares the report on such compensation required by the Securities and Exchange Commission.

 

The members of the Compensation Committee are Craig R. Andersson, Daniel I. Booker, Donald P. Fusilli, Ronald L. Gallatin, Charles C. Gedeon, Edith E. Holiday and James A. Williams. All of the members of this Committee meet the NYSE’s rules and listing standards for independence for purposes of this Committee.

 

The Compensation Committee is responsible for review and approval of RTI’s compensation philosophy; executive compensation programs, plans and awards (see “Compensation Discussion and Analysis” for further information); and policies, principles and procedures for selection and performance review of the CEO and other top management; and for establishing the CEO and other top management’s compensations levels based on the Committee’s evaluation of their performance. The Committee also administers RTI’s long term incentive plans and stock or stock-based plans. The Committee is also tasked with the review of Management’s Compensation Discussion and Analysis (“CD&A”) and submits the Compensation Committee Report in this proxy statement. The Committee

has adopted, and the Board has approved, a Committee charter which is available free of charge on the RTI Website, www.rtiintl.com, or by sending a written request to the corporate Secretary at the address set forth under the caption “Other Information” on the last page of this proxy statement.

 

The Compensation Committee held 3 meetings in 2006.

 

Nominating/Corporate Governance Committee

 

The members of the Nominating/Corporate Governance Committee are Daniel I. Booker (Chairman), Robert M. Hernandez and Edith E. Holiday. All of the members of this committee meet the New York Stock Exchange’s rules and listing standards for independence for purposes of this committee.

 

The Nominating/Corporate Governance Committee is responsible for identifying individuals qualified to serve as directors; recommending to the Board candidates for election to the Board at the Annual Meeting of Shareholders or by the Board to fill vacancies occurring on the Board; and also considering RTI’s director compensation from time to time. The Committee considers director candidates submitted by directors, officers, employees, shareholders and other constituencies. The Committee is also responsible for developing and recommending to the Board corporate governance principles applicable to RTI as well as their periodic review. The Committee has adopted, and the Board has approved, a Committee Charter that is available free of charge on the RTI Website, www.rtiintl.com, or by sending a written request to the corporate Secretary at the address set forth under the caption “Other Information” on the last page of this proxy statement.

 

The Nominating/Corporate Governance Committee annually reviews the skills and attributes of Board members within the context of the current make-up of the full Board. Board members should have individual backgrounds that when combined provide a portfolio of experience and knowledge that well serve RTI’s governance and strategic needs. Board candidates are typically suggested by members of the Committee but may also be identified by other directors, management, shareholders, and others, and will be considered on the basis of a range of criteria including the current composition of the Board, broad-based business knowledge and contacts, prominence, diversity of talents and background and sound reputation in their fields as well as a global business perspective and commitment to corporate citizenship. Additional information concerning director candidates is contained in RTI’s Corporate Governance Guidelines, available free of charge on the RTI Website at www.rtiintl.com or by sending a written request to the corporate Secretary at the address set forth under the caption “Other Information” on the last page of this proxy statement.

 

The Nominating/Corporate Governance Committee held 4 meetings in 2006.

 

ELECTION OF DIRECTORS

 

RTI’s directors are elected for one year terms. Non-employee directors may not stand for election after age 72. Employee directors leave the Board when they retire from RTI. The Board may determine to extend the retirement age for a particular director.

 

The Board has nominated ten directors for election. Eight of the nominees for election have previously been elected by the shareholders. Ms. Hickton and Mr. Wellham are proposed as new non-independent employee directors, replacing Messrs Rupert and Odle, both of whom plan on retiring during 2007. Of the ten individuals who are nominees for election, two are current RTI officers and the remaining eight are high-level executives with professional experience. If any nominee is unable to serve, your proxy may be voted for another person designated by the Board.

 

The ten director candidates receiving the most votes will be elected to the Board.

 

NOMINEES FOR DIRECTOR

Aristech Chemical Corporation

(chemical producer)

 

Mr. Andersson retired as a director and Vice-Chairman of Aristech Chemical Corporation on April 30, 1995. Previously, he was President and Chief Operating Officer, a position he had held since December, 1986. He is a past director of Albermarle Corporation and Duquesne University. He is a member of the American Institute of Chemical Engineers and Alpha Chi Sigma (a professional chemical society) and has served on the boards and executive committees of The Society of the Chemical Industry, the Chemical Manufacturers Association, the Pennsylvania Business Roundtable and the Greater Pittsburgh Chamber of Commerce. He has a BS degree in chemical engineering from the University of Minnesota and did graduate work in the same discipline at the University of Delaware.

 

Reed Smith LLP

(law firm)

 

Mr. Booker is a partner of the law firm of Reed Smith LLP. From 1992 until December 31, 2000 he was Managing Partner, or chief executive, of Reed Smith. He received an undergraduate degree from the University of Pittsburgh and a law degree from the University of Chicago. He is a member of the District of Columbia, Pennsylvania and U.S. Supreme Court bars. Mr. Booker is a director of Océ USA Holding, Inc.; a director of the Allegheny Conference on Community Development; and a director of other community and professional organizations.

 

DPF Consulting

(business consulting firm)

 

Mr. Fusilli is the owner of DPF Consulting, a privately-held consulting firm focusing on strategic planning, business development, program/project management and selected recruiting. He was President and Chief Executive Officer of Michael Baker Corporation from April 25, 2001 to September 12, 2006. He joined Michael Baker in 1973 and spent 6 years in the engineering department before obtaining his law degree in 1979. He became General Counsel in 1984, Executive Vice President — Administration of the Energy Group in 1994 and Executive Vice President and General Manager of the Group in 1995. He was elected President and Chief Operating Officer in March 2000. Mr. Fusilli is a Civil Engineering graduate of Villanova University and holds a JD from Duquesne University School of Law. He also attended the Advanced Management Program at the Harvard University Business School. Mr. Fusilli is a Director of Sterling Construction Company, Inc., Robert Morris University, and Greater Pittsburgh Council of Boy Scouts of America.

 

Lehman Brothers Inc.

(investment banking firm)

 

Mr. Gallatin served as a Managing Director of Lehman Brothers Inc., where he was a member of the Firm’s Operating Committee and its Director of Corporate Strategy and Product Development until his retirement on December 31, 1995. During his 24 years with Lehman, Mr. Gallatin had various senior roles in both its investment banking and capital markets divisions and was responsible for a series of financial innovations, most notably Zero Coupon Treasury Receipts, Money Market Preferred Stock and Targeted Stock. A graduate of New York University, and both Brooklyn and New York University Law Schools, Mr. Gallatin has BS, JD and LLM (Taxation) degrees and is a Certified Public Accountant.

 

 

Mr. Gedeon joined United States Steel Corporation in 1986 as Vice President — Raw Materials and President of U.S. Steel Mining Co., Inc. He was promoted to Senior Vice President — Related Resources in 1988 and advanced to the position of President, U.S. Diversified Group in 1990. He became Executive Vice President — Raw Materials and Transportation of U.S. Steel in 2003. He retired from this position on June 30, 2003. From 1983 until he joined U.S. Steel, Mr. Gedeon had been Vice President — Operations of National Steel Corporation.

 

 

On December 31, 2001, Mr. Hernandez retired as Vice Chairman and Chief Financial Officer and director of USX Corporation. He was elected to this position on December 1, 1994. Mr. Hernandez had been elected Executive Vice President — Accounting & Finance and Chief Financial Officer and director of USX on November 1, 1991. He was Senior Vice President — Finance & Treasurer of USX from October 1, 1990, to October 31, 1991. Mr. Hernandez was President — U.S. Diversified Group of USX from June 1, 1989, to September 30, 1990, and in such role had responsibilities for USX’s businesses not related to energy and steel. From January 1, 1987, until May 31, 1989, he was Senior Vice President and Comptroller of USX. Mr. Hernandez has his undergraduate degree from the University of Pittsburgh and his MBA from the Wharton Graduate School of the University of Pennsylvania. He is a trustee and Vice Chairman of BlackRock Funds, lead director of ACE Limited, a director of Eastman Chemical Company and a nominee to the board of directors of Tyco Electronics Corporation.

 

 

Ms. Holiday was elected a director on July 29, 1999. She served as Assistant to the President and Secretary of the Cabinet in the White House from 1990 to 1993. Prior to that she held several senior positions in the United States Treasury Department including General Counsel. She is a director of Hess Corporation; White Mountains Insurance Group, Ltd.; Canadian National Railway Company and H.J. Heinz Company. She is also a director or trustee of a number of investment companies in the Franklin Templeton Group of Funds. She is operating trustee of TWE Holdings I and II Trusts. She has BS and JD degrees from the University of Florida.

 

 

Ms. Hickton, 49, as of April 27, 2007, is the Vice Chairman and Chief Executive Officer. Since June 2005, she served as Senior Vice President of Administration and Chief Administrative Officer. In this capacity she managed the accounting, treasury, tax, business information systems, personnel and legal functions of the Company. From April 1997 until June 2004, Ms. Hickton was Vice President and General Counsel. She holds a BA from the University of Rochester and a JD from the University of Pittsburgh. She is also a director of First National Bank Corporation.

 

 

Mr. Wellham, 41, as of April 27, 2007, is the President & Chief Operating Officer. Since 2002, he has served as Senior Vice President in charge of the Company’s Fabrication & Distribution Group, responsible for 14 RTI locations in seven countries. He came to RTI in 1998 with the acquisition of New Century Metals. Prior to that, Mr. Wellham was president of Advanced Aerospace Metals Corporation, a full line metals distributor that he led through the start-up phase. He holds a BA from the University of Phoenix and a MBA from the University of Tennessee.

 

Ernst & Young

(accounting firm)

 

Mr. Williams retired as a Partner at Ernst & Young on September 30, 2003. He has over 37 years experience working with large multi-location clients and served in numerous leaderships roles, including Pittsburgh Office Managing Partner, Area Managing Partner, and Partner in Charge-Audit. He is a certified public accountant and has a BS degree from Miami University.

 

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

PricewaterhouseCoopers LLP has served as the independent registered public accounting firm for RTI and its predecessors for a number of years. For 2006, PricewaterhouseCoopers LLP rendered professional services in connection with the audit of the financial statements of RTI and its subsidiaries, including review of quarterly reports and review of filings with the Securities and Exchange Commission and provided tax services. They are knowledgeable about RTI’s operations and accounting practices and is well qualified to act as the independent registered public accounting firm and the Audit Committee has selected PricewaterhouseCoopers LLP as such for 2007.

 

Audit Fees

 

The aggregate fees billed for professional services rendered by PricewaterhouseCoopers LLP for the audit of RTI’s annual financial statements and review of financial statements in RTI’s Quarterly Reports on Form 10-Q in 2006 and 2005 were $2,625,074 and $3,350,087, respectively.

 

Audit-Related Fees

 

The aggregate fees billed for assurance and related services rendered by PricewaterhouseCoopers LLP that were related to the services described above in 2006 and 2005 were $12,000 and $13,000, respectively.

 

Tax Fees

 

The aggregate fees billed for services rendered by PricewaterhouseCoopers LLP for tax services in 2006 and 2005 were $103,700 and $96,430, respectively. The services comprising these fees include federal and state tax return compliance, assistance related to the Company’s examination by the IRS for the years 1998 through 2001 and various federal, state and international tax consulting projects.

 

All Other Fees

 

Other than fees disclosed above, there was $2,400 related to licensing fees in each of 2006 and 2005.

 

The Audit Committee on an annual basis preapproves the Audit Plan for the year along with the estimated fees for the plan. At each regularly scheduled, quarterly meeting, the Audit Plan and fees incurred to date are reviewed, and any fees above the estimate are reviewed and approved at the meeting. In addition, the Chairman of the Audit Committee has been delegated authority by the full Committee to preapprove additional audit and non-audit fees between meetings, subject to review by the full Committee at the next regularly scheduled meeting.

 

Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

 

Vote Required

 

Ratification of the appointment of the independent registered public accounting firm requires the favorable vote of a majority of the votes cast. Each share of RTI’s Common Stock is entitled to one vote per share and only votes for or against the proposal count. Abstentions and broker non-votes do not count for voting purposes. Broker non-votes occur when a broker returns a proxy but does not have authority from the beneficial owner to vote on a particular proposal.

 

THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS
RTI’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2007.

 

 

Audit Committee Report

 

The committee met with management, PricewaterhouseCoopers LLP, and the Director of Internal Audit frequently throughout the year to review and consider the adequacy of RTI’s internal control over financial reporting and the objectivity of its financial reporting, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002. We also discussed with RTI’s management and PricewaterhouseCoopers LLP the process used for certifications by RTI’s chief executive officer and principal financial officer that are required for certain of RTI’s filings with the Securities and Exchange Commission. We have reviewed and discussed RTI’s 2006 audited financial statements with management and with PricewaterhouseCoopers LLP. The committee also discussed with PricewaterhouseCoopers LLP the matters required to be communicated by Statement on Auditing Standards (SAS) No. 61 as amended by SAS No. 90 (Communications With Audit Committees).

 

In addition, the committee received from PricewaterhouseCoopers LLP the written disclosures required by Independence Standards Board Standard No. 1 and discussed with them their independence from RTI and its management. We have considered whether the provision by PricewaterhouseCoopers LLP of the professional services described above was compatible with the maintenance by PricewaterhouseCoopers LLP of its independent status and have determined that it was.

 

Based on these reviews and discussions, we recommended to RTI’s Board of Directors, and the Board has approved, that the Audited Financial Statements be included in RTI’s Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the Securities and Exchange Commission.

 

 

Compensation Committee Report

 

The Compensation Committee (“Committee”) discharges the Board’s duties concerning executive compensation and prepares the report on such compensation required by the Securities and Exchange Commission.

 

The Committee met with management to review and discuss the Compensation Discussion and Analysis. Based on their reviews and discussions, the Committee recommended to RTI’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s annual report on Form 10-K and this proxy statement.

 

 

Security Ownership of Certain Beneficial Owners

 

The following table sets forth each person or entity known to us that may be deemed to have beneficial ownership of more than five percent of the outstanding Common Stock of RTI based on information publicly available as of February 28, 2007.

 

          _ _

 

Security Ownership of Directors and Executive Officers

 

The following table reflects the number of shares of our Common Stock beneficially owned, as of February 28, 2007, by each director and nominee, by each executive officer named in the Summary Compensation Table and by all directors and executive officers as a group:

 

 

 

 

For the 2006 compensation that is detailed in the tables that follow, our Board of Directors empowered the Compensation Committee (the “Committee” or the “Compensation Committee”) to discharge the Board’s duties concerning executive compensation and advise the Board on the Company’s compensation philosophy, programs, and objectives. Specifically, the Committee makes decisions regarding compensation of our named executive officers in accordance with the Committee’s Charter. The Committee is responsible for the review and approval of the Company’s compensation philosophy including executive compensation programs, plans and awards; policies, principles and procedures for the selection of performance objectives and review of the CEO and other named executive officers; and for establishing compensation levels for the CEO and other named executive officers based on the Committee’s evaluation of performance. The Committee also administers RTI’s stock-based compensation plans (including the shareholder approved 2004 Stock Plan) through which long-term incentive compensation awards are granted to our named executive officers and other managers and employees.

 

Consistent with the Committee’s mandate, RTI has adopted a comprehensive statement entitled “Pay Philosophy and Guiding Principles Governing Officer Compensation” (the “Pay Statement”) which, for 2006, was applicable to RTI’s President and CEO, Executive Vice Presidents, Senior Vice Presidents and each Vice President.

 

The overall philosophy related to our officer compensation programs set out in the Pay Statement is as follows:

 

 

The Pay Statement is designed to reward executive performance on both an individual basis and as a team as follows:

 

 

We previously announced that we put in place a management succession plan that will take effect as of our annual meeting. That plan includes amending the Pay Statement, replacing the employment agreements for our top executives and adopting certain policies with respect to executive severance issues. The discussion that follows details the compensation for the 2006 fiscal year. At the end is also a brief summary of the changes that will be effective with the management succession plan.

 

 

The Company’s compensation program consists of the following elements for our named executive officers:

 

 

 

 

No bonus will be paid to an officer whose performance is judged to be unacceptable regardless of the level of corporate performance. Likewise, the Compensation Committee may, in order to retain valued executives, pay bonuses to recognize exceptional individual performance regardless of the level of corporate performance.

 

 

 

Although the Company has not adopted stock ownership guidelines for management, the Board of Directors expects our named executive officers to continue to align their interests with that of our shareholders through long-term holdings in our common stock.

 

 

 

 

 

The Committee and, consequently, the Pay Statement recognize both that there is a dearth of companies that compete directly with RTI across all of our lines of business and that managerial talent can be found in organizations other than competing companies. Consequently, the compensation data selected for use in company and/or individual position comparisons includes information on a broad group of industrial companies similar to RTI in terms of sales volume or, as appropriate, assets, total capital, market value or number of employees. When appropriate and available, data specific to the metals industry or a specific position is used.

 

In January of each year, the CEO, with input from the individual executives as well as the Chairman of the Board of Directors, establishes specific performance-based objectives for each member of the executive team, based upon various factors including the immediate past performance of the Company and its reporting Groups, the projected market conditions in the industry, and the short and long-term strategic plan of the Company as established by the Board. Each performance-based objective is weighted in term of significance and then reviewed by the Compensation Committee.

 

In December of each year the CEO begins to review the performance of the named executives other than himself for the purpose of setting the base salary for the following year and bonus and incentive compensation for year then ending. He creates grids outlining the RTI stock price during the year; the Company and business unit performance in income before tax, earnings per share, cash flow and return of assets (all determined in accordance with Company accounting policy) as compared to the Company’s annual business plan; and individual performance for each of the named executive officers as against the specific objectives set the prior year. Using these grids and basic information regarding trends in executive salaries in the manufacturing industry, the CEO makes recommendations as to the compensation of the other named executive officers which tally each element of the individuals’ compensation. The recommendations, along with the “tally sheets,” are distributed to the Compensation Committee in January. The Committee reviews the recommendations of the CEO with respect to the other executive officers and then reviews the performance of the CEO in the same manner that the CEO evaluates the other executives. The Committee then makes the final determination as to the base salary for the new year and any bonus and incentive compensation for the immediate past year’s performance based upon each individual’s status and performance, in each case consistent with the Pay Statement set forth above. Any awards of long-term, equity-based compensation are granted at this January meeting.

 

In making determinations as to the compensation for the named executive officers for the different elements of the compensation program, the Committee takes into consideration the following considerations:

 

 

 

The Pay Statement provides that RTI’s officers compensation should range at about the average or median of the remuneration paid by the Company’s comparator group when aspects of performance are at target levels.

 

Tax Considerations

 

The Committee considers the impact of the applicable tax laws with respect to executive compensation. In certain circumstances, applicable tax laws impose potential penalties on compensation or result in a loss of deduction to RTI for such compensation.

 

Participation in and compensation paid under our plans, contracts and compensation arrangements may result in the deferral of compensation that is subject to the requirements of Section 409A of the Internal Revenue Code. To date, the U.S. Treasury Department and the Internal Revenue Service have only issued preliminary guidance regarding the impact of Section 409A. While we intend for our plans, contracts and compensation arrangements to be structured and administered in a manner that complies with the requirements of Section 409A, to the extent that our plans, contracts and compensation arrangements fail to meet certain requirements under Section 409A, compensation earned thereunder may be subject to immediate taxation and tax penalties.

 

With certain exceptions, Section 162(m) of the Internal Revenue Code limits RTI’s tax deduction for compensation deduction for compensation in excess of $1 million paid to certain covered employees. Compensation paid to covered employees is not subject to the deduction limitation if it is considered “qualified performance-based compensation.” The Committee reserves the right to provide both market and performance-based compensation to covered employees. Certain awards, such as stock options, are intended to qualify for deduction under Section 162(m). Other types of awards, such as restricted shares, however, are not considered performance-based and may not be deductible under Section 162(m). While the Committee considers the tax impact of any compensation arrangement, it reserves the right to approve non-deductible compensation consistent with the overall pay philosophy of the Company.

 

If a change in control of the Company results in compensation being paid or accelerated vesting of equity-based awards, a disqualified individual could, in some cases, be considered to have received “parachute payments” within the meaning of Sections 280G and 4999 of the Internal revenue Code. A disqualified individual can be subject to a 20% excise tax on excess parachute payments and the Company can be denied a tax deduction. The employment agreements discussed above provide that if it is determined any payment or benefit thereunder would constitute an excess parachute payment, the Company will pay a gross-up payment, subject to certain limitations, such that the net amount retained by the disqualified person after the application of any excise taxes will be equal to such payments or distributions. Gross-up payments will not be deducted by the Company.

 

 

As described above, 2006 base salaries for each of the named executive officers were set by the Compensation Committee in January 2006. Prior to that time, the CEO asked the Company’s human resources department to provide him with suggested ranges of salary increases of top executives generally to provide comparative data. No specific peer group of companies was created or referenced. Information published by the Institute of Management and Administration summarizing surveys of the expected ranges of increases of top executive salaries in the manufacturing industries

was consulted. Data from a commercial web site, www.companalyst.com, with respect to top executive positions in the Cleveland, Ohio metropolitan area in the manufacturing industry was also reviewed. This process resulted in a recommended range of salary increases for each position from 3.75 to 5.5%. After reviewing 2005 performance and this data, annual base salary was set as follows:

 

 

Based on the Company’s strong performance, and to maintain base salaries near the mid-point of those for similar positions, the Committee approved salary increases for the start of 2006 in line with its view of the market for Messrs. Rupert, Odle, Hull (who was hired mid-year 2005) and Giangiordano. Ms. Hickton’s 2005 salary was increased in June 2005 upon her promotion to Senior Vice President. Had her adjusted 2005 salary been annualized, her 2006 percentage increase would have been 4%. Mr. Wellham’s increase was higher on a percentage basis to reflect his increased responsibilities and to bring his salary more in line with the other named executive officers’, recognizing that historically his base salary was deflated.

 

In reviewing the performance of the named executive officers for purposes of determining if bonuses and incentive compensation should be rewarded for 2006, the Committee took into consideration RTI’s operating and financial performance, recognizing that the Company’s financial performance in 2006 was the highest profit recorded in the Company’s history on record sales. In addition, shareholder value as measured by the common share price increased by 106%, also a record for the Company. The Company’s positive return on assets and cash flow also were considered in determining the success of the named executive officers’ accomplishment of their objectives

 

While our operating and financial performance and increases to shareholder value receive the highest weight, the Committee also measures executive performance against pre-determined individual objectives. Specific objectives for 2006 for Mr. Rupert and Ms. Hickton included leading the industry in defense of the Specialty Metals Clause of the Berry Amendment. As a result of successful execution of RTI’s lobbying strategy during 2006, the United States Congress passed legislation enhancing the Specialty Metals Clause of the Berry Amendment which provides for additional compliance requirements favorable to the domestic titanium industry which positively benefits the Company’s defense business. Specific objectives for Mr. Rupert also included milestones reached for each of the two capital expansion projects related to the new contract work for major customers. Objectives for each of Mr. Odle, Mr. Giangiordano and Mr. Wellham also included the achievement of milestones of one of these important capital projects. Important objectives for both Ms. Hickton and Mr. Hull included specific goals with respect to timely and accurately completing financial reporting and improving past internal control deficiencies while reducing the reliance upon and cost of outside consultants. These objectives were all met. In addition to these objectives, individual named executive officers had specific additional objectives related to their particular areas of responsibility, including matters relating to safety, quality, on-time delivery, and computer systems enhancements.

 

The following chart summarizes the achievement of each of the named executive officer’s individual objectives:

 

 

The only objectives that were not met by Mr. Odle, were specific financial goals for the Company’s Fabrication and Distribution Group as measured against plan as well as a shortfall in the planned increase in RTI Energy’s backlog. The only objective not met by Ms. Hickton was specific financial goals as measured against plan of the Company’s Fabrication and Distribution Group. The only objective not met by Mr. Giangiordano was a shortfall in the planned improvement of inventory turns for the Titanium Group. The only objective that was not met by Mr. Wellham, were specific financial goals for the Company’s Fabrication and Distribution Group as measured against plan. Each of Mr. Rupert and Mr. Hull met all of their objectives. When reviewing the objectives that were not met, the Committee recognized that while the financial goals for the Fabrication and Distribution Group were not achieved in total, the Group exceeded its goals for profit.

 

Based upon the Committee’s review of Company’s strong operating and financial performance, increases in earnings per share, and, to a lesser extent, the named executive officer’s accomplishments as they related to each individual’s objectives, each of the named executive officers received bonuses, and shares of restricted stock and option grants as set forth in the Summary Compensation and Grants of Plan-Based Awards Tables. Mr. Rupert’s bonus of $550,000 is on the high end of the Pay Statement target range. The Committee made this determination to reward him for the Company’s outstanding performance and his achievement of all of his personal objectives. The Committee believed that the bonus for each of the other named executive officers in the high range of target was appropriate in light of the Company’s performance and the individuals’ achievement of a significant number of their other objectives. In the cases of Ms. Hickton, Mr. Wellham, Mr. Hull and Mr. Giangiordano, the Committee also recognized that each has a very important role in the management succession plan described below, and their retention is critical.

 

Also because the Company met the earnings per share criteria set forth in the Pay Statement, the vesting of restricted stock granted in previous years was accelerated by 20% for each executive and the grants of restricted stock in the current year were increased by 20% to adjust for the formerly unvested shares that were vested in connection with this acceleration.

 

 

As previously announced, Timothy G. Rupert will step down as President and Chief Executive Officer of RTI effective April 27, 2007 and will retire from RTI on July 31, 2007. John H. Odle, Executive Vice President of RTI, will retire, consistent with RTI’s mandatory retirement policy, in September 2007 when he becomes 65 years of age.

 

The Board of Directors of RTI has implemented a succession plan and elected, effective on April 27, 2007, Dawne S. Hickton as Vice Chairman and Chief Executive Officer, Michael C. Wellham as President and Chief Operating Officer, Steve R. Giangiordano as Executive Vice President and William T. Hull as Senior Vice President and Chief Financial Officer. In addition Chad Whalen has been hired as Vice President and General Counsel effective February 19, 2007.

 

In furtherance of the succession plan, the Board of Directors hired Towers Perrin, a national benefits consulting firm, to review the Company’s executive compensation generally and to give specific advice on the compensation of the Company’s executive officers after the plan is implemented. Based upon

this advice the Company has entered into new employment contracts with each of Ms. Hickton, Mr. Wellham, Mr. Hull and Mr. Giangiordano that will take effect on April 27, 2007. Effective with his date of hire, the Company also entered into an employment contract with Mr. Whalen. The following summarizes the target initial compensation for these individuals effective with their new positions:

 

 

As part of the new employment contracts the Change in Control Severance Agreements outlined above will be terminated but each executive officer will be eligible to participate in executive severance policies that entitle the new CEO to a benefit equal to 2.5 times her annual base salary and bonus and for each other named executive officer 2 times their annual base salary and bonus, in each case if the executive’s employment with the Company is terminated by the Company other than for cause, death or disability, or by the executive for good reason within 24 months after a change in control of the Company. Also upon such event the executives will be entitled to immediate vesting of unvested stock options and restricted stock the continuation of life, disability and health insurance benefits for a specified period and a “gross-up” payment in the event, in certain circumstances, the executive is subject to excise taxes because of the above. The named executive officers will also be entitled to certain severance benefits in the event that the Company terminates the executive’s employment other than because of cause, death or disability outside of the context of a change of control, or if the Company breaches the executive’s employment agreement in certain circumstance or if the company reduces the executives base salary without the executive’s consent.

 

Finally, it is anticipated that the Pay Statement will be amended in 2007 to contemplate the new executive positions and to adjust the bonus targets.

 

 

 

 

All Other Compensation Table

 

The following table describes each component of the All Other Compensation column in the Summary Compensation Table.

 

 

 

 

The tables above summarize the total compensation paid to or earned by each of our named executive officers for the fiscal year ended December 31, 2006. The narrative below describes current employment agreements and material employment terms with each of our named executive officers, as applicable.

 

On August 1, 1999, RTI entered into employment agreements with Ms. Hickton and Messrs. Odle and Rupert covering their employment for an initial four year term and for additional one year terms each year thereafter until the officer attains age 65 unless terminated prior thereto by either party on 120 days notice. Under the agreements, each officer will be paid the annual salary set forth, subject to increases from time to time in the sole discretion of RTI. RTI may terminate the services of the officer at any time for “cause” as defined in the agreement. Officers each agree not, for a period of 24 months after the end of the employment period or employment termination, whichever occurs first, to be employed by, or otherwise participate in, any business which competes with RTI. This restriction does not apply if the officer terminates employment with RTI under certain circumstances following a “change in control” of RTI as defined.

 

The employment agreements also provide that the officer will be entitled to certain severance benefits in the event of termination of employment under certain circumstances following a “change in control” as defined.

 

These are:

 

 

The severance benefits are payable if, any time after a change in control, the officer’s employment is terminated by the officer for good reason or by RTI other than for cause or disability. In addition the benefits are payable to Mr. Odle or Mr. Rupert in the event either of them terminates employment within 90 days after a change in control.

 

The definition of a change in control for purposes of these agreements is complex but is summarized as follows. It includes any change in control required to be reported in response to Item 6(e) of Schedule 14A under the Securities Exchange Act of 1934 and provides that a change in control will have occurred if:

 

 

 

Under the employment agreement dated as of August 1, 1999 between RTI and Mr. Odle, RTI agreed that if he continues in active employment with RTI until either age 65, or such earlier date as the RTI Board of Directors may approve, RTI, on a date six months from the effective date of his retirement, will pay him a one time lump sum payment of the then present value of the 9.16 years of non-pensionable service attributable to periods he was employed by U.S. Steel (3.58 years) and the Company (5.58 years) which pre-date his current period of employment, calculated pursuant to the RTI Pension Plan and its Supplemental Pension Program.

 

On December 6, 2003, RTI entered into a letter agreement with Mr. Rupert (the “2003 Letter”) with respect to Mr. Rupert’s retirement benefits. The 2003 Letter provided for an amendment to the RTI Supplemental Pension Program allowing the benefits payable to Mr. Rupert under the RTI Supplemental Pension Program to be calculated in a manner that includes Mr. Rupert’s service with USX Corporation and its predecessor U.S. Steel, and with RTI. This amendment was effected in January 2004. RTI’s obligations toward such benefit shall continue notwithstanding any termination of the RTI Supplemental Pension Program. The 2003 Letter superseded a previous letter agreement with respect to Mr. Rupert’s benefits dated April 13, 1992, between Mr. Rupert and RMI Titanium Company, signed by L.F. Gieg, Jr. In addition, the 2003 Letter provides that Mr. Rupert’s pension under the RTI Pension Plan is calculated based solely upon the terms of the RTI Pension Plan, using Mr. Rupert’s combined years of service with the USX and RTI , reduced by the amount of any retirement benefits payable under the U.S. Steel Pension Plan. Mr. Rupert further agreed in the 2003 Letter that RTI will not have an obligation to make up any difference in (a) any pension benefit Mr. Rupert would have received from the U.S. Steel Pension Plan had Mr. Rupert remained employed by USX and (b) the actual combined pension benefit Mr. Rupert will receive from the U.S. Steel Plan and RTI. Finally, in the event that Mr. Rupert fails to receive from the U.S. Steel pension plan the pension benefits owed to him (estimated to be approximately $33,436 per year), after using reasonable efforts to collect his benefits through the U.S. Steel pension plan’s claims and appeals procedures, RTI agrees under the 2003 Letter to guarantee the full payment of such benefits, and Mr. Rupert agrees to cooperate with RTI in connection with any claim or action for reimbursement of all or any portion of such payments made under such guarantee. The effects of the 2003 Letter are reflected in the description of Mr. Rupert’s pension benefits set forth above.

 

On July 29, 2005, RTI entered into an employment agreement with Mr. Hull covering his employment for an initial three year term and for additional one year terms each year thereafter until he attains age 65 unless terminated prior thereto by either party on 90 days notice. Under the agreement, he will be paid the annual salary set forth, subject to increases from time to time in the sole discretion of RTI. The agreement contains the other terms and conditions described above as being contained in the agreements with Mrs. Hickton except that Mr. Hull’s cash severance benefit is based on current base salary and the average annual bonus in the three years before the date of termination.

 

 

 

 

The following table provides information on the current holdings of stock option and restricted stock awards by the Named Executive Officers. This table includes unexercised and unvested option awards as well as unvested restricted stock awards. Each equity grant is shown separately for each Named Executive Officer.