-----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, RS9EGFF5Lh7XcElpWM/7LDV4XEnKguTU+F4rqb/T1lrNKZwUDWnsQ37W+130lNje YrwbBRe2n51N058PRnPmWw== 0000083604-96-000023.txt : 19961115 0000083604-96-000023.hdr.sgml : 19961115 ACCESSION NUMBER: 0000083604-96-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REYNOLDS METALS CO CENTRAL INDEX KEY: 0000083604 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 540355135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01430 FILM NUMBER: 96660487 BUSINESS ADDRESS: STREET 1: 6601 W BROAD ST STREET 2: PO BOX 27003 CITY: RICHMOND STATE: VA ZIP: 23261 BUSINESS PHONE: 8042812000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-1430 REYNOLDS METALS COMPANY A Delaware Corporation (I.R.S. Employer Identification No. 54-0355135) 6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003 Telephone Number (804) 281-2000 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 ___ As of October 31, 1996, the Registrant had 63,683,734 shares of Common Stock, no par value, outstanding and entitled to vote. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - ----------------------------------------------------------------------------------------------------
Quarters ended Nine months ended September 30 September 30 - ---------------------------------------------------------------------------------------------------- (In millions, except per share amounts) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------- Revenues Net sales $1,751 $1,841 $5,236 $5,356 Equity, interest and other income 6 4 31 24 - ---------------------------------------------------------------------------------------------------- 1,757 1,845 5,267 5,380 - ---------------------------------------------------------------------------------------------------- Costs and expenses Cost of products sold 1,493 1,461 4,392 4,266 Selling, administrative and general expenses 106 112 322 326 Provision for depreciation and amortization 81 76 241 229 Interest - principally on long-term obligations 39 42 123 129 Operational restructuring costs - - 37 - - ---------------------------------------------------------------------------------------------------- 1,719 1,691 5,115 4,950 - ---------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting change 38 154 152 430 Taxes on income 12 42 49 125 - ---------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 26 112 103 305 Cumulative effect of accounting change - - (15) - - ---------------------------------------------------------------------------------------------------- Net income 26 112 88 305 Preferred stock dividends 9 9 27 27 - ---------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 17 $ 103 $ 61 $ 278 ==================================================================================================== Earnings per share Average shares outstanding 64 72 64 73 Income before cumulative effect of accounting change $0.26 $1.56 $1.19 $4.20 Cumulative effect of accounting change - - (0.24) - - ---------------------------------------------------------------------------------------------------- Net income $0.26 $1.56 $0.95 $4.20 ==================================================================================================== Cash dividends per common share $0.35 $0.30 $1.05 $0.85 - ----------------------------------------------------------------------------------------------------
See notes beginning on page 5. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) - ----------------------------------------------------------------------------------------------------
September 30 December 31 - ---------------------------------------------------------------------------------------------------- (In millions) 1996 1995 - ---------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 22 $ 39 Receivables, less allowances of $22 (1995 - $20) 1,043 1,043 Inventories 837 891 Prepaid expenses 53 41 - ---------------------------------------------------------------------------------------------------- Total current assets 1,955 2,014 Unincorporated joint ventures and associated companies 1,332 1,286 Property, plant and equipment 6,756 6,600 Less allowances for depreciation and amortization 3,536 3,377 - ---------------------------------------------------------------------------------------------------- 3,220 3,223 Deferred taxes and other assets 1,221 1,217 - ---------------------------------------------------------------------------------------------------- Total assets $7,728 $7,740 ==================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable, accrued and other liabilities $1,080 $1,155 Short-term borrowings 254 111 Long-term debt 140 101 - ---------------------------------------------------------------------------------------------------- Total current liabilities 1,474 1,367 Long-term debt 1,806 1,853 Postretirement benefits 1,199 1,213 Environmental, deferred taxes and other liabilities 646 690 Stockholders' equity Preferred stock 505 505 Common stock 945 941 Retained earnings 1,250 1,256 Cumulative currency translation adjustments (34) (22) Pension liability adjustment (63) (63) - ---------------------------------------------------------------------------------------------------- Total stockholders' equity 2,603 2,617 - ---------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $7,728 $7,740 ====================================================================================================
See notes beginning on page 5. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - ----------------------------------------------------------------------------------------------------
Nine Months Ended September 30 - ---------------------------------------------------------------------------------------------------- (In millions) 1996 1995 - ---------------------------------------------------------------------------------------------------- Operating activities Net Income $ 88 $ 305 Adjustments to reconcile to net cash provided by (used in) operating activities: Depreciation and amortization 241 229 Operational restructuring costs 37 - Cumulative effect of accounting change 15 - Changes in operating assets and liabilities net of effects from acquisitions & dispositions: Accounts payable, accrued and other liabilities (71) (178) Receivables (7) (105) Inventories 50 (95) Other (109) (29) - ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities 244 127 Investing activities Capital investments: Operational (135) (156) Strategic (134) (129) Investments (51) (45) Maturities of investments in debt securities - 65 Other investing activities - net 13 31 - ---------------------------------------------------------------------------------------------------- Net cash used in investing activities (307) (234) Financing activities Increase (decrease) in short-term borrowings 145 (9) Cash dividends paid (94) (77) Proceeds from (repayments of) long-term obligations and other - net (5) 72 - ---------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 46 (14) Cash and cash equivalents Net decrease (17) (121) At beginning of period 39 308 - ---------------------------------------------------------------------------------------------------- At end of period $ 22 $ 187 ====================================================================================================
See notes beginning on page 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Quarters and Nine Months Ended September 30, 1996 and 1995 Note A - Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods of 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10- K for the year ended December 31, 1995. Note B - Inventories Costs decreased $10 million in the third quarter of 1996 and $15 million in the nine months of 1996 resulting from the liquidation of certain last-in, first-out (LIFO) inventories carried at lower costs prevailing in prior years as compared with current costs. Note C - Operational Restructuring Costs In the first quarter of 1996, the Company recorded operational restructuring costs of $37 million (pre-tax) that relate principally to employee termination costs associated with the planned closing of the Company's aluminum beverage can plant located in Houston, Texas. The facility's 1.4-billion-can annual capacity was determined to be in excess of the Company's domestic customer needs due to productivity gains within the Company's can- making system and slower overall growth in the domestic demand for cans. Operations at the facility will cease at the end of 1996, at which time the Company intends to transfer some equipment to other of its domestic and international can operations and sell the plant and property. Note D - Cumulative Effect of Accounting Change In the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121"). The Company recognized an after- tax loss of $15 million for the cumulative effect of adopting SFAS No. 121. The loss was for the impairment of assets held for sale, principally undeveloped land. Note E - Earnings per share In the third quarter and nine months of 1996, earnings per share equals net income, minus dividends on the Company's preferred stock ("PRIDES"), divided by the weighted-average number of common shares outstanding during the period. In the third quarter and nine months of 1995, earnings per share equals net income divided by the weighted-average number of common shares and common share equivalents outstanding during the period. The number of common share equivalents outstanding was based on the assumed conversion of the PRIDES. For the purpose of this computation, the respective conversion rates of common stock for each share of PRIDES (0.82 share in the third quarter and 0.88 share in the nine month period of 1995) were based on the average market value of the Company's common stock ($60.37 in the third quarter and $53.48 in the nine-month period of 1995). Common share equivalents relating to the PRIDES were not included in the third quarter or nine months of 1996 since their effect would have been anti-dilutive. Note F - Financing arrangements In the first quarter of 1996, the Company entered into $400 million of interest rate swap agreements, which effectively convert a portion of its debt (principally medium-term notes) from fixed rate to variable rate. Under these agreements, payments are received based on a fixed rate (6.0%) and made based on a variable rate (5.8% at September 30, 1996). These arrangements mature in 2001. The variable rate is based on the London Interbank Offer Rate. In the second quarter of 1996, the Company amended its $500- million revolving credit facility to extend the term and lower the cost. The expiration date was extended from 2000 to 2001. The annual commitment fee on the facility was lowered from .125% to .10%. No amounts were outstanding under the facility at September 30, 1996. Note G - Contingent liabilities As previously disclosed in the Company's annual report on Form 10- K for the year ended December 31, 1995, the Company is involved in various worldwide environmental improvement activities resulting from past operations, including designation as a potentially responsible party, with others, at various Environmental Protection Agency-designated Superfund sites. The Company has recorded amounts which, in management's best estimate, will be sufficient to satisfy anticipated costs of known remediation requirements. As a result of factors such as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of presently unknown remediation sites and the allocation of costs among potentially responsible parties, estimated costs for future environmental compliance and remediation are necessarily imprecise. Based on information presently available, such future costs are not expected to have a material adverse effect on the Company's competitive or financial position or its ongoing results of operations. However, such costs could be material to future quarterly or annual results of operations. Note H - Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. Financial statements and financial statement schedules for Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. have been omitted because certain securities registered under the Securities Act of 1933, of which these entities are obligors (thus subjecting them to reporting requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934), are fully and unconditionally guaranteed by Reynolds Metals Company. Financial information relating to these companies is presented herein in accordance with Staff Accounting Bulletin 53 as an addition to the notes to the financial statements of Reynolds Metals Company. Summarized financial information is as follows: Note H - Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. - continued Canadian Reynolds Metals Company, Ltd.
Quarters ended September 30 Nine Months ended September 30 ------------------------------- ---------------------------------- 1996 1995 1996 1995 ------------------------------- ---------------------------------- Net Sales: Customers $ 53 $ 89 $159 $192 Parent company 140 139 463 495 ------------------------------- ---------------------------------- 193 228 622 687 Cost of products sold 172 161 505 463 Net income $ 7 $ 50 $ 59 $156
September 30 December 31 1996 1995 ------------------ ----------------- Current assets $185 $112 Noncurrent assets 1,242 1,266 Current liabilities (64) (91) Noncurrent liabilities (612) (617)
Reynolds Aluminum Company of Canada, Ltd. Quarters ended September 30 Nine Months ended September 30 ------------------------------- ---------------------------------- 1996 1995 1996 1995 ------------------------------- ---------------------------------- Net Sales: Customers $133 $161 $392 $410 Parent company 119 125 396 444 ------------------------------- ---------------------------------- 252 286 788 854 Cost of products sold 226 215 662 608 Net income $ 8 $ 52 $ 55 $161
September 30 December 31 1996 1995 ---------------- ---------------- Current assets $236 $221 Noncurrent assets 1,386 1,407 Current liabilities (130) (199) Noncurrent liabilities (639) (632)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following information should be read in conjunction with the consolidated financial statements and related notes included in the Company's annual report on Form 10-K for the year ended December 31, 1995, along with the consolidated financial statements and related notes included in and referred to in this report. In the tables, dollars are in millions, except per pound amounts, and shipments are in thousands of metric tons. A metric ton is equivalent to 2,205 pounds. Management's Discussion and Analysis contains forecasts, projections, estimates, statements of management's plans and objectives for the Company and other forward-looking statements. Please refer to the "Risk Factors" section beginning on page 14, where the Company has summarized factors that could cause actual results to differ materially from those projected in a forward- looking statement or affect the extent to which a particular projection is realized. RESULTS OF OPERATIONS The Company earned net income of $26 million ($0.26 per share) and $88 million ($0.95 per share) in the third quarter and nine months of 1996, respectively, compared to net income of $112 million ($1.56 per share) in the third quarter of 1995 and $305 million ($4.20 per share) in the nine months of 1995. The 1996 results included favorable after-tax effects from LIFO inventory liquidations of $6 million ($0.10 per share) and $9 million ($0.15 per share) for the third quarter and nine month periods, respectively. The results for the first nine months of 1996 also included after-tax charges of $38 million ($0.60 per share) for the effects of a restructuring charge and an accounting change recorded in the first quarter of 1996. (See Notes C and D.) The Company's results for the third quarter and nine months were affected by lower realized prices for primary aluminum (approximately 19% lower than the 1995 third quarter), as well as price declines in a number of fabricated products. The Company's results reflect softness in the overall global aluminum market, primarily attributable to the soft landing in the U.S. economy and weakness in Europe and other areas, that has caused end users to liquidate excess inventories. Other factors affecting results include higher costs for certain raw materials; severe winter weather conditions earlier in the year that resulted in facility curtailments and lower volumes; and reduced shipping levels in the aluminum beverage can and can sheet businesses. RESULTS OF OPERATIONS - continued
Shipments and Net Sales Third Quarter -------------------------------------------------------- 1996 1995 Shipments Net Sales Shipments Net Sales -------------------------------------------------------- Finished Products and Other sales Packaging and containers: Aluminum 88 $463 92 $479 Nonaluminum 155 138 Other aluminum 44 146 40 147 Other nonaluminum 127 131 -------------------------------------------------------- 132 891 132 895 -------------------------------------------------------- Production and Processing Primary aluminum 109 172 109 212 Sheet and plate 89 278 96 324 Extrusions 49 170 46 185 Other aluminum 41 119 45 122 Other nonaluminum 121 103 -------------------------------------------------------- 288 860 296 946 -------------------------------------------------------- Total 420 $1,751 428 $1,841 ======================================================== Average realized price per pound: Fabricated aluminum products $1.81 $1.91 Primary aluminum $0.72 $0.89
Nine Months -------------------------------------------------------- 1996 1995 Shipments Net Sales Shipments Net Sales -------------------------------------------------------- Finished Products and Other sales Packaging and containers: Aluminum 267 $1,403 275 $1,391 Nonaluminum 434 395 Other aluminum 123 421 125 445 Other nonaluminum 393 388 -------------------------------------------------------- 390 2,651 400 2,619 -------------------------------------------------------- Production and Processing Primary aluminum 290 485 248 504 Sheet and plate 280 875 308 1,013 Extrusions 152 528 154 585 Other aluminum 123 359 136 373 Other nonaluminum 338 262 -------------------------------------------------------- 845 2,585 846 2,737 -------------------------------------------------------- Total 1,235 $5,236 1,246 $5,356 ======================================================== Average realized price per pound: Fabricated aluminum products $1.81 $1.83 Primary aluminum $0.76 $0.92
RESULTS OF OPERATIONS - continued Finished Products and Other Sales Shipments of aluminum packaging and containers in both 1996 periods were slightly lower principally due to decreased shipments of aluminum beverage cans. Aluminum beverage can shipments decreased because of reduced beer can volumes and lower export sales to Latin America as the Company's partially owned new facilities there start operations. Higher shipments of laminated aluminum foil were realized in the nine-month period of 1996 due to the acquisition of a laminated aluminum products plant in the second quarter of 1995. Shipments of other foil products, especially REYNOLDS WRAP aluminum foil, were higher in both periods due to strong demand. Other aluminum product shipments were lower in the nine- month period of 1996 due to severe winter weather conditions experienced earlier in the year. These conditions adversely affected the Company's distribution business, which was also affected by lower activity in the transportation market, especially for trucks and trailers. Shipments of other aluminum products by the distribution business generally improved in the third quarter of 1996. Construction product shipments, benefiting from improved weather conditions in the second and third quarters of 1996, were slightly higher in the nine-month period due to the opening of new distribution centers. In addition to reflecting the effect of aluminum volume changes described above, the decline in net sales for Finished Products and Other Sales in the third quarter of 1996 was due to lower prices for distributor products (aluminum and stainless steel). The deterioration in pricing for distributor products was due to intense competition from foreign suppliers, especially for aluminum plate and stainless steel. These effects were mostly offset by higher nonaluminum sales for construction products (principally residential vinyl siding), can machinery and plastic packaging. The increase in sales of can machinery was due to demand for technologically advanced machines and sales to expanding can operations in Latin America. The increase in sales of plastic packaging resulted from the acquisition of a flexible packaging operation in the fourth quarter of 1995. The increase in net sales in the nine-month period resulted from higher prices for aluminum beverage cans and foil products (especially REYNOLDS WRAP aluminum foil) and higher nonaluminum sales for construction products, can machinery, plastic packaging and printing cylinders. The increase in sales of printing cylinders was due to the acquisition of a printing cylinder engraving company in the second quarter of 1995. These effects were somewhat offset by the lower aluminum shipping volumes and lower prices for distributor products (aluminum and stainless steel). Production and Processing Primary aluminum shipments fluctuate from period to period because of variations in internal requirements and changes in customer demand for value-added foundry ingot and billet. The acquisition of an additional 25% interest in the Becancour, Quebec primary aluminum production facility in the fourth quarter of 1995 contributed to the increase in primary aluminum shipments in the nine-month period of 1996, in addition to providing primary aluminum for use in the Company's fabricating operations. Weak economic conditions and the liquidation of excess inventories has led to decreases in average realized prices for primary aluminum. Most other products in this operating group realized declines in shipments and prices in both periods because of factors described under "Results of Operations," and for the nine- month period, the severe winter weather experienced earlier in the year. These conditions generally affected most markets served by this operating group. In addition, shipments of recycled aluminum were lower due to greater internal consumption by fabricating operations resulting principally from operational improvements in can stock production. Higher shipments were realized for aluminum wheels due to additional capacity at the Company's new wheel facility in Wisconsin and for electrical rod due to increased demand. The increases in other nonaluminum sales were due to improved demand in 1996 compared to 1995 for carbon products and alumina. RESULTS OF OPERATIONS - continued Equity, Interest and Other Income Improved operations at Latin American aluminum beverage can and wheel facilities resulted in an increase in equity, interest and other income in both periods. Lower interest income from a reduction in invested funds somewhat offset these increases. Costs and Expenses Cost of products sold increased because of higher costs for purchased materials, lower capacity utilization at aluminum fabricating facilities and higher labor costs due to new contracts as discussed below. Costs were favorably impacted by continuous improvement efforts, the favorable effects of LIFO inventory liquidations (see Note B), lower costs for outside purchases of aluminum and lower quantities of outside purchases of primary aluminum (due to the acquisition of an additional 25% interest in the Becancour, Quebec primary aluminum production facility in the fourth quarter of 1995). The declines in interest expense resulted from lower effective interest rates and higher amounts of capitalized interest. These benefits were mostly offset by higher amounts of debt outstanding. The declines in selling, administrative and general expenses were generally caused by a lower level of business activity. The Company's shipments of alumina were greater in 1996 compared to 1995 despite deteriorating conditions in the alumina market. Because of these deteriorating conditions, the Company temporarily curtailed 250,000 metric tons of alumina production capacity at its 1.6-million-metric-tons-per-year Texas alumina refinery in the third quarter of 1996. This temporary curtailment is not expected to have a material impact on future operating results and will not affect the Company's ability to meet the requirements of its primary aluminum production operations. In the second quarter of 1996, the Company signed new six- year labor contracts with its major unions that represent a majority of its domestic hourly employees. Major provisions of the new agreements include wage increases of $1.15 an hour over the first five years (plus incremental increases in 1997 and 1999), enhanced pension and other benefits. At the end of the fifth year, the economic provisions of the contracts will be reopened. If agreement cannot be reached, the economic provisions will be submitted to arbitration for one additional year. The Company and the unions also agreed to work cooperatively on customer requirements, business objectives and shareholder and union interests. In addition, the agreements contain broad, new provisions for employee safety, job security, and influence, control and accountability in the work environment. In the first quarter of 1996, the Company recorded operational restructuring costs of $37 million (pre-tax) that relate principally to employee termination costs associated with the planned closing of an aluminum beverage can plant in Houston, Texas. The Company's current strategy for its U.S. can business is to aggressively reduce costs and increase production efficiencies through modernization programs and new technologies. The closing of the Houston facility will provide the Company with annual cost savings of approximately $18 million. As a result of improved efficiencies system-wide, the Company will essentially maintain its current annual domestic aluminum beverage can production capacity. (See Note C.) RESULTS OF OPERATIONS - continued Costs and Expenses - continued On a quarterly basis, the Company updates the status of all significant existing or potential environmental issues, develops or revises cost estimates to satisfy known remediation requirements, and adjusts its accruals accordingly. Based on information presently available, such future costs are not expected to have a material adverse effect on the Company's competitive or financial position or its ongoing results of operations. However, it is not possible to predict the amount or timing of future costs of environmental requirements which may subsequently be determined. Such costs could be material to future quarterly or annual results of operations. Various suits and claims are pending against the Company. In the opinion of management, after consultation with counsel, disposition of these suits and claims, either individually or in the aggregate, will not have a material adverse effect on the Company's competitive or financial position or its ongoing results of operations. No assurance can be given, however, that the disposition of one or more of such suits or claims in a particular reporting period will not be material in relation to the reported results for such period. Taxes on Income The effective tax rates reflected in the statement of income differ from the U.S. federal statutory rate because of state and foreign taxes and the effects of percentage-depletion allowances. Cumulative Effect of Accounting Change In the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. (See Note D.) Operating Outlook The deterioration in aluminum prices the Company and the aluminum industry are currently experiencing will make it difficult in the near term to achieve significant gains over current operating results. The Company believes the inventory liquidation process that has plagued the aluminum industry throughout 1996 is substantially complete. The current buildup of worldwide aluminum inventories (principally at London Metal Exchange warehouses) appears to be demand-related as users of aluminum products (as well as producers) are learning to operate with leaner inventories. The Company's short-term goals will be to concentrate on operational excellence and improving its financial position. The Company has set a goal to improve pre-tax performance in 1997 by approximately $100 million, excluding the effect of price changes. All of the Company's businesses are developing plans to contribute to this goal. Operational improvements and modernizations are already underway in the aluminum beverage can, flexible packaging, can stock production and European sheet and extrusion businesses. The Company continues to remain optimistic regarding favorable, long-term aluminum industry fundamentals. Consensus expectations for next year indicate global economic growth of 3% with aluminum consumption growing approximately 5%. If these expectations are met, aluminum supply/demand should be in much better balance and worldwide aluminum inventories should be reduced substantially. LIQUIDITY AND CAPITAL RESOURCES Working Capital Working capital totaled $481 million at September 30, 1996, compared to $647 million at December 31, 1995. The ratio of current assets to current liabilities was 1.3/1 at September 30, 1996, compared to 1.5/1 at December 31, 1995. Operating Activities In the first nine months of 1996, cash generated from operations was used to fund investing activities. Investing Activities Capital investments totaling $320 million in the first nine months of 1996 included $135 million for operating requirements (i.e., replacement equipment, capital maintenance, environmental control projects, etc.). The remainder was for continuing performance improvement and strategic investment projects including the modernization of aluminum beverage can facilities; expansions at foil, plastic film and extrusion facilities; quality improvements at a can sheet facility in Alabama; the modification and equipping of a purchased facility in Wisconsin to produce aluminum wheels that was substantially completed in the second quarter of 1996; and, as discussed below, the acquisition of an interest in a Chinese joint venture and the construction of a new wheel facility in Virginia. In the second quarter of 1996, the Company acquired an interest in a joint venture in China that produces aluminum foil and extrusions. The operation, Bohai Aluminium Industries, Ltd., includes a large aluminum fabricating facility that was built in the mid-1980's and expanded later that decade. The facility manufactures aluminum foil, primarily for the food, pharmaceutical and tobacco industries, and extrusions for the automotive and construction products markets. In the third quarter of 1996, the Company began construction of a $34-million facility in Virginia to manufacture aluminum wheels. Production is expected to start in early 1997. The facility will use a manufacturing process that combines the Company's computer-controlled, flow-formed casting technology with forging to produce lightweight wheels with added styling flexibility. The facility will initially employ approximately 80 to 125 people. Financing Activities Cash provided by financing activities in the first nine months of 1996 was used to fund investing activities. The principal source of funds was from the issuance of $130 million of commercial paper at a weighted-average rate of 5.6%. In the first quarter of 1996, the Company entered into $400 million of interest rate swap agreements and, in the second quarter of 1996, the Company amended its $500-million revolving credit facility. (See Note F.) Financial Outlook Capital investments in 1996 are expected to be $450 million, with approximately 46% of this amount allocated for operating requirements. Remaining expenditures in 1996 will be for those performance improvement and strategic investment projects underway and are expected to be funded with cash generated from operations, supplemented with short-term borrowings as needed. LIQUIDITY AND CAPITAL RESOURCES - continued Financial Outlook - continued The Company announced previously that it intends to sell its coal properties in western Kentucky. The Company has determined that it will postpone indefinitely any sale of those properties pending resolution of bankruptcy proceedings (and related matters) with respect to a third party operator, which holds a lease over, and conducts mining operations on, a significant portion of such properties. The Company believes its available financial resources, together with internally generated funds, are sufficient to meet its business needs at the present time and for the foreseeable future. The Company continues to exceed the financial ratio requirements contained in its financing arrangements and expects to do so for the foreseeable future. At September 30, 1996, $150 million of the Company's $1.65-billion shelf registration remained available for the issuance of debt securities. For the longer term, the Company is reviewing all of its businesses with a view to the possibility, among other things, of spin-offs, divestitures, recapitalizations, the forming of strategic alliances to increase scale, or retention of a business and funding its growth. ==================================================================== | RISK FACTORS | | | | This section should be read in conjunction with Part I, | | Items 1 (Business), 3 (Legal Proceedings) and 7 (Management's | | Discussion and Analysis of Financial Condition and Results of | | Operations) of the Company's 1995 Form 10-K and Part II, Item 1 | | (Legal Proceedings) of the Company's reports on Form 10-Q for the | | first and second quarters of 1996. | | | | This report contains (and oral communications made by or on | | behalf of the Company may contain) forecasts, projections, | | estimates, statements of management's plans and objectives for | | the Company and other forward-looking statements. The Company's | | expectations for the future and related forward-looking | | statements are based on a number of assumptions and forecasts as | | to world economic growth and other economic indicators (including | | rates of inflation, industrial production, housing starts and | | light vehicle sales), trends in the Company's key markets, global | | aluminum supply and demand conditions, and aluminum ingot prices, | | among other things. By their nature, forward-looking statements | | involve risk and uncertainty, and various factors could cause the | | Company's actual results to differ materially from those | | projected in a forward-looking statement or affect the extent to | | which a particular projection is realized. | | | | The improvement in aluminum industry fundamentals that had | | been anticipated for 1996 has not materialized, and the | | deterioration in prices that the Company and the aluminum | | industry have experienced will make it difficult to achieve any | | improvement in operating results for the balance of the year. | | These conditions may continue for the next several months. | | Thereafter, barring a recession in any major world economy, the | | Company expects improved conditions in aluminum industry | | supply/demand fundamentals that will continue for the next | | several years. Consensus expectations for next year indicate | | global economic growth of 3% with aluminum consumption growing | | approximately 5%. The Company's outlook for growth in aluminum | | consumption for the remainder of this decade is an average of 4% | | per year. The Company expects greater use of aluminum around the | | world in automobiles and other light vehicles; a slowing in the | | growth in U.S. aluminum beverage can shipments to about 2% per | | year and a 5% annual increase in global shipments, with rapid | | growth of the aluminum beverage can market in Latin America, | | Asia, the Middle East, and other developing economies; and | | increased use of | ==================================================================== ==================================================================== | RISK FACTORS - continued | | | | aluminum in the building and construction markets, particularly | | in Eastern Europe and the Commonwealth of Independent States and | | as a result of new construction projects in emerging markets. | | | | Economic and/or market conditions other than as forecast by | | the Company in the preceding paragraph, particularly in the U.S., | | Japan and Germany (which are large consumers of aluminum) and in | | Latin America, could cause the Company's actual results to differ | | materially from those projected in a forward-looking statement or | | affect the extent to which a particular projection is realized. | | | | The following factors also could affect the Company's | | results: | | | | * Primary aluminum is an internationally traded commodity. | | The price of primary aluminum is subject to worldwide market | | forces of supply and demand and other influences. Prices can be | | volatile. The Company's current strategy of being a vertically | | integrated producer of value-added aluminum products, and its use| | of contractual arrangements including fixed-price sales | | contracts, fixed-price supply contracts, and forward, futures and| | option contracts, reduces its exposure to this volatility but | | does not eliminate it. | | | | * The markets for most aluminum products are highly | | competitive. Certain of the Company's competitors are larger | | than the Company in terms of total assets and operations and have| | greater financial resources. Certain foreign governments are | | involved in the operation and/or ownership of certain | | competitors, and may be motivated by political as well as | | economic considerations. In addition, aluminum competes with | | other materials, such as steel, vinyl, plastics and glass, among | | others, for various applications in the Company's key markets. | | Unanticipated actions or developments by or affecting the | | Company's competitors and/or the willingness of customers to | | accept substitutions for the products sold by the Company could | | affect results. | | | | * The Company spends substantial capital and operating amounts | | relating to ongoing compliance with environmental laws. In | | addition, the Company is involved in remedial investigations and | | actions in connection with past disposal of wastes. Estimating | | future environmental compliance and remediation costs is | | imprecise due to the continuing evolution of environmental laws | | and regulatory requirements, the availability and application of | | technology, the identification of currently unknown remediation | | sites, and the allocation of costs among potentially responsible | | parties. | | | | * Unanticipated material legal proceedings or investigations, | | or the disposition of those currently pending against the Company| | other than as anticipated by management and counsel, could affect| | the Company's results. | | | | * Changes in the costs of power, resins, caustic soda, green | | coke and other raw materials can affect results. A new five-year| | contract with the Bonneville Power Administration for the period | | October 1996 - September 2001 will provide a fixed rate for | | electrical power that is 16% less than rates previously in effect| | for the Company's Longview, Washington and Troutdale, Oregon | | primary aluminum production plants. The new contract is subject | | to regulatory review and approval. | | | | * The Company's key transportation and building and | | construction markets are cyclical, and sales to those markets in | | particular can be influenced by economic conditions. | ==================================================================== ==================================================================== | RISK FACTORS - continued | | | | * A strike at a customer facility supplied by the Company | | could affect the Company's results. | | | | * The Company has begun a portfolio review of all of its | | operations and businesses. The Company is considering | | alternatives including, among other things, asset sales, spin- | | offs, recapitalizations and formation of strategic alliances. | | The timing, nature and magnitude of the actions, if any, that | | will be taken are not certain. Such actions, if taken, could | | affect the Company's results and ongoing operating performance. | | | | In addition to the factors referred to above, the Company is | | exposed to general financial, political, economic and business | | risks in connection with its worldwide operations. The Company | | continues to evaluate and manage its operations in a manner to | | mitigate the effects from exposure to such risks. In general, | | the Company's expectations for the future are based on the | | assumption that conditions relating to costs, currency values, | | competition and the legal, regulatory, financial, political and | | business environments in the economies and markets in which the | | Company operates will not change significantly overall. | ==================================================================== PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the third quarter of 1996. 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. REYNOLDS METALS COMPANY By Allen M. Earehart Allen M. Earehart Vice President, Controller (Chief Accounting Officer) DATE: November 13, 1996 INDEX TO EXHIBITS EXHIBIT 2 - None * EXHIBIT 3.1 - Restated Certificate of Incorporation, as amended to the date hereof. (Registration Statement No. 333-00929 on Form S-8, dated February 14, 1996, EXHIBIT 4.1) * EXHIBIT 3.2 - By-Laws, as amended to the date hereof. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1996, EXHIBIT 3.2) EXHIBIT 4.1 - Restated Certificate of Incorporation. See EXHIBIT 3.1. EXHIBIT 4.2 - By-Laws. See EXHIBIT 3.2. * EXHIBIT 4.3 - Indenture dated as of April 1, 1989 (the "Indenture") between Reynolds Metals Company and The Bank of New York, as Trustee, relating to Debt Securities. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1989, EXHIBIT 4(c)) * EXHIBIT 4.4 - Amendment No. 1 dated as of November 1, 1991 to the Indenture. (File No. 1- 1430, 1991 Form 10-K Report, EXHIBIT 4.4) * EXHIBIT 4.5 - Rights Agreement dated as of November 23, 1987 (the "Rights Agreement") between Reynolds Metals Company and The Chase Manhattan Bank, N.A. (File No. 1- 1430, Registration Statement on Form 8-A dated November 23, 1987, pertaining to Preferred Stock Purchase Rights, EXHIBIT 1) * EXHIBIT 4.6 - Amendment No. 1 dated as of December 19, 1991 to the Rights Agreement. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.11) * EXHIBIT 4.7 - Form of 9-3/8% Debenture due June 15, 1999. (File No. 1-1430, Form 8-K Report dated June 6, 1989, EXHIBIT 4) * EXHIBIT 4.8 - Form of Fixed Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.3) * EXHIBIT 4.9 - Form of Floating Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.4) * EXHIBIT 4.10 - Form of Book-Entry Fixed Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.15) _______________________ *Incorporated by reference. * EXHIBIT 4.11 - Form of Book-Entry Floating Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.16) * EXHIBIT 4.12 - Form of 9% Debenture due August 15, 2003. (File No. 1-1430, Form 8-K Report dated August 16, 1991, Exhibit 4(a)) * EXHIBIT 4.13 - Articles of Continuance of Societe d'Aluminium Reynolds du Canada, Ltee/Reynolds Aluminum Company of Canada, Ltd. (formerly known as Canadian Reynolds Metals Company, Limited -- Societe Canadienne de Metaux Reynolds, Limitee) ("REYCAN"), as amended to the date hereof. (File No. 1-1430, 1995 Form 10-K Report, EXHIBIT 4.13) * EXHIBIT 4.14 - By-Laws of REYCAN, as amended to the date hereof. (File No. 1-1430, 1995 Form 10- K Report, EXHIBIT 4.14) * EXHIBIT 4.15 - Articles of Incorporation of Societe Canadienne de Metaux Reynolds, Ltee/Canadian Reynolds Metals Company, Ltd. ("CRM"), as amended to the date hereof. (File No. 1-1430, 1995 Form 10- K Report, EXHIBIT 4.15) * EXHIBIT 4.16 - By-Laws of CRM, as amended to the date hereof. (File No. 1-1430, 1995 Form 10- K Report, EXHIBIT 4.16) * EXHIBIT 4.17 - Indenture dated as of April 1, 1993 among REYCAN, Reynolds Metals Company and The Bank of New York, as Trustee. (File No. 1-1430, Form 8-K Report dated July 14, 1993, EXHIBIT 4(a)) * EXHIBIT 4.18 - First Supplemental Indenture, dated as of December 18, 1995 among REYCAN, Reynolds Metals Company, CRM and The Bank of New York, as Trustee. (File No. 1-1430, 1995 Form 10-K Report, EXHIBIT 4.18) * EXHIBIT 4.19 - Form of 6-5/8% Guaranteed Amortizing Note due July 15, 2002. (File No. 1-1430, Form 8- K Report dated July 14, 1993, EXHIBIT 4(d)) * EXHIBIT 10.1 - Reynolds Metals Company 1982 Nonqualified Stock Option Plan, as amended through May 17, 1985. (File No. 1-1430, 1985 Form 10-K Report, EXHIBIT 10.2) * EXHIBIT 10.2 - Reynolds Metals Company 1987 Nonqualified Stock Option Plan. (Registration Statement No. 33-13822 on Form S-8, dated April 28, 1987, EXHIBIT 28.1) * EXHIBIT 10.3 - Reynolds Metals Company 1992 Nonqualified Stock Option Plan. (Registration Statement No. 33-44400 on Form S-8, dated December 9, 1991, EXHIBIT 28.1) _______________________ *Incorporated by reference. * EXHIBIT 10.4 - Reynolds Metals Company Performance Incentive Plan, as amended and restated effective January 1, 1996. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended March 31, 1995, EXHIBIT 10.4) * EXHIBIT 10.5 - Agreement dated December 9, 1987 between Reynolds Metals Company and Jeremiah J. Sheehan. (File No. 1-1430, 1987 Form 10- K Report, EXHIBIT 10.9) * EXHIBIT 10.6 - Supplemental Death Benefit Plan for Officers. (File No. 1-1430, 1986 Form 10- K Report, EXHIBIT 10.8) * EXHIBIT 10.7 - Financial Counseling Assistance Plan for Officers. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.11) * EXHIBIT 10.8 - Management Incentive Deferral Plan. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.12) * EXHIBIT 10.9 - Deferred Compensation Plan for Outside Directors as Amended and Restated Effective December 1, 1993. (File No. 1- 1430, 1993 Form 10-K Report, EXHIBIT 10.12) * EXHIBIT 10.10 - Retirement Plan for Outside Directors. (File No. 1-1430, 1986 Form 10-K Report, EXHIBIT 10.10) * EXHIBIT 10.11 - Death Benefit Plan for Outside Directors. (File No. 1-1430, 1986 Form 10-K Report, EXHIBIT 10.11) * EXHIBIT 10.12 - Form of Indemnification Agreement for Directors and Officers. (File No. 1- 1430, Form 8-K Report dated April 29, 1987, EXHIBIT 28.3) * EXHIBIT 10.13 - Form of Executive Severance Agreement between Reynolds Metals Company and key executive personnel, including each of the individuals listed in Item 4A of the Reynolds Metals Company 1995 Form 10-K Report. (File No. 1-1430, 1987 Form 10- K Report, EXHIBIT 10.18) * EXHIBIT 10.14 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective May 20, 1988. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended June 30, 1988, EXHIBIT 19(a)) * EXHIBIT 10.15 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective October 21, 1988. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1988, EXHIBIT 19(a)) * EXHIBIT 10.16 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 1, 1987. (File No. 1- 1430, 1988 Form 10-K Report, EXHIBIT 10.22) ____________________________ * Incorporated by reference. * EXHIBIT 10.17 - Form of Stock Option and Stock Appreciation Right Agreement, as approved February 16, 1990 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, 1989 Form 10-K Report, EXHIBIT 10.24) * EXHIBIT 10.18 - Amendment to Reynolds Metals Company 1982 Nonqualified Stock Option Plan effective January 18, 1991. (File No. 1- 1430, 1990 Form 10-K Report, EXHIBIT 10.25) * EXHIBIT 10.19 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 18, 1991. (File No. 1- 1430, 1990 Form 10-K Report, EXHIBIT 10.26) * EXHIBIT 10.20 - Letter Agreement dated January 18, 1991 between Reynolds Metals Company and William O. Bourke. (File No. 1-1430, 1990 Form 10-K Report, EXHIBIT 10.27) * EXHIBIT 10.21 - Form of Stock Option Agreement, as approved April 22, 1992 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1992, EXHIBIT 28(a)) * EXHIBIT 10.22 - Consulting Agreement dated May 1, 1992 between Reynolds Metals Company and William O. Bourke. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1992, EXHIBIT 28(b)) * EXHIBIT 10.23 - Renewal dated February 18, 1994 of Consulting Agreement dated May 1, 1992 between Reynolds Metals Company and William O. Bourke. (File No. 1-1430, 1993 Form 10-K Report, EXHIBIT 10.28) * EXHIBIT 10.24 - Reynolds Metals Company Restricted Stock Plan for Outside Directors. (Registration Statement No. 33-53851 on Form S-8, dated May 27, 1994, EXHIBIT 4.6) * EXHIBIT 10.25 - Reynolds Metals Company New Management Incentive Deferral Plan. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.30) * EXHIBIT 10.26 - Reynolds Metals Company Salary Deferral Plan for Executives. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.31) * EXHIBIT 10.27 - Reynolds Metals Company Supplemental Long Term Disability Plan for Executives. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.32) * EXHIBIT 10.28 - Amendment to Reynolds Metals Company 1982 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.33) ____________________________ * Incorporated by reference. * EXHIBIT 10.29 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.34) * EXHIBIT 10.30 - Amendment to Reynolds Metals Company 1992 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.35) * EXHIBIT 10.31 - Amendment to Reynolds Metals Company New Management Incentive Deferral Plan effective January 1, 1995. (File No. 1- 1430, 1994 Form 10-K Report, EXHIBIT 10.36) * EXHIBIT 10.32 - Amendment to Reynolds Metals Company New Management Incentive Deferral Plan effective January 1, 1995 through December 31, 1996. (File No. 1-1430, 1994 Form 10-K Report, EXHIBIT 10.37) * EXHIBIT 10.33 - Amendment to Reynolds Metals Company Salary Deferral Plan for Executives effective January 1, 1995 through December 31, 1996. (File No. 1-1430, 1994 Form 10-K Report, EXHIBIT 10.38) * EXHIBIT 10.34 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Trustee Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.34) * EXHIBIT 10.35 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Employee Pays Premium). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.35) * EXHIBIT 10.36 - Form of Split Dollar Life Insurance Agreement (Employee Owner, Employee Pays Premium). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.36) * EXHIBIT 10.37 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Third Party Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.37) * EXHIBIT 10.38 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Employee Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.38) * EXHIBIT 10.39 - Reynolds Metals Company 1996 Nonqualified Stock Option Plan. (Registration Statement No. 333-03947 on Form S-8, dated May 17, 1996, EXHIBIT 4.6) * EXHIBIT 10.40 - Amendment to Reynolds Metals Company 1992 Nonqualified Stock Option Plan effective January 1, 1993. (Registration Statement No. 333-03947 on Form S-8, dated May 17, 1996, EXHIBIT 99) ____________________________ * Incorporated by reference. * EXHIBIT 10.41 - Form of Stock Option Agreement, as approved May 17, 1996 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1996, EXHIBIT 10.41) * EXHIBIT 10.42 - Form of Three Party Stock Option Agreement, as approved May 17, 1996 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1996, EXHIBIT 10.42) EXHIBIT 10.43 - Stock Option Agreement dated August 30, 1996 between Reynolds Metals Company and Jeremiah J. Sheehan EXHIBIT 10.44 - Amendment to Deferred Compensation Plan for Outside Directors effective August 15, 1996 EXHIBIT 11 - Computation of Earnings Per Share EXHIBIT 15 - None EXHIBIT 18 - None EXHIBIT 19 - None EXHIBIT 22 - None EXHIBIT 23 - None EXHIBIT 24 - None EXHIBIT 27 - Financial Data Schedule ____________________________ * Incorporated by reference. Pursuant to Item 601 of Regulation S-K, certain instruments with respect to long-term debt of Reynolds Metals Company (the "Registrant") and its consolidated subsidiaries are omitted because such debt does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request. EX-10 2 EXHIBIT 10.43 STOCK OPTION AGREEMENT THIS AGREEMENT, dated August 30, 1996, between REYNOLDS METALS COMPANY, a Delaware corporation ("Reynolds"), and Jeremiah J. Sheehan "Optionee"). WHEREAS, the Committee designated to administer the Reynolds Metals Company 1996 Nonqualified Stock Option Plan ("Plan") has selected Optionee as a key employee of Reynolds to whom an option is to be granted under the Plan, and has recognized that through Optionee's efforts and because of Optionee's responsibilities, Optionee is in a position to contribute substantially to the overall success and growth of Reynolds; NOW, THEREFORE, the parties agree as follows: 1. Reynolds grants to Optionee an option to purchase from Reynolds 150,000 shares of its Common Stock, no par value, at a price of $53.50 per share, and otherwise in accordance with the terms and conditions stated in the Plan. 2. Subject to the terms of the Plan and of this Agreement (including paragraph 3 below), the option granted hereunder shall be exercisable in whole or part, from time to time, on and after August 30, 1997, but in no event later than the earlier of (a) March 31, 2000 or (b) the date specified in the Plan relating to Optionee's termination of employment with Reynolds and its subsidiaries. No option may be exercised for less than 100 shares of Common Stock unless the Optionee is electing to exercise all the remaining options then exercisable under this Agreement. 3. The option granted hereunder shall be exercisable only if (a) on or before September 30, 1999, the Fair Market Value (as defined in the Plan) of the Common Stock equals or exceeds 150% of the exercise price for a period of 30 consecutive calendar days and (b) Optionee becomes Chief Executive Officer of Reynolds and remains in that position through the date the condition set forth in clause (a) is satisfied. For purposes of applying the 150% ratio in clause (a) of the previous sentence, proportionate adjustments shall be made as appropriate in accordance with Section 6.02 of the Plan in the event of a recapitalization. 4. This Agreement is at all times subject to the terms and conditions of the Plan, which terms and conditions are incorporated herein by reference. 5. All notices to Reynolds must be in writing, addressed to the Director, Employee Financial Services, Reynolds Metals Company, 6601 West Broad Street, Richmond, Virginia 23230-1701, and are effective upon receipt. 6. The effectiveness of this Agreement and of any grant of an option hereunder are subject to compliance with all applicable laws and regulations and to receipt of any governmental approvals necessary for the performance by the parties of their obligations hereunder, including but not limited to compliance with and approvals under all applicable exchange control and securities laws. IN WITNESS WHEREOF, Reynolds and Optionee have executed this Agreement in duplicate as of the date first above written. REYNOLDS METALS COMPANY Richard G. Holder By Richard G. Holder Jeremiah J. Sheehan ______________________________ Optionee EX-10 3 EXHIBIT 10.44 AMENDMENTS TO REYNOLDS METALS COMPANY DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS Sections 4.02(b) and 4.04(d) of the Reynolds Metals Company Deferred Compensation Plan for Outside Directors shall be amended effective August 15, 1996 to be read in their entirety as follows: 4.02(b) If Stock Equivalent Additional Compensation is being paid on the Deferred Compensation, the amount of a lump sum payment shall be equal to (i) the total number of equivalent shares of Company Stock credited to the Participant's account under this Plan as of the last day on which the New York Stock Exchange, Inc. is open in the year the Deferral Termination Date occurs, multiplied by (ii) the closing sales price of Company Stock as reported on New York Stock Exchange - Composite Transactions on such date. This lump sum payment shall be paid as soon as administratively feasible following the later of (i) the end of the year in which the Participant's Deferral Termination Date with respect to such compensation occurs, or (ii) the date on which all of the Participant's transactions under the Plan shall be exempt or excluded from liability under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If annual installments are elected instead of a lump sum, the amount of the installment payment to be made in a calendar year shall be computed by taking (y) the amount that would have been payable after the end of the preceding year had the entire amount remaining as of the end of such year been paid as a single lump sum, divided by (z) the number of installment payments remaining, including the installment about to be paid. The first annual installment shall be paid as soon as administratively feasible following the later of (i) the end of the year in which the Participant's Deferral Termination Date with respect to such compensation occurs, or (ii) the date on which all of the Participant's transactions under the Plan shall be exempt or excluded from liability under Section 16(b) of the Exchange Act. Each annual installment thereafter shall be paid as soon as administratively feasible in each calendar year following the year in which the Deferral Termination Date occurs. * * * * * 4.04(d) Anything herein to the contrary notwith- standing, the Plan Committee shall not accelerate any payment of Deferred Compensation with respect to which Stock Equivalent Additional Compensation is to be paid for so long as such payment could reasonably cause the Participant to become subject to liability under Section 16(b) of the Exchange Act in connection with such payment or any other transaction under the Plan. Executed and adopted pursuant to action taken by the Board of Directors at its meeting held on August 16, 1996. REYNOLDS METALS COMPANY F. Robert Newman By: F. Robert Newman Its: Vice President, Human Resources EX-11 4 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (In millions, except share and per share data) EARNINGS PER SHARE In the third quarter and nine months of 1996, earnings per share equals net income, minus dividends on the Company's preferred stock ("PRIDES"), divided by the weighted-average number of common shares outstanding during the period. In the third quarter and nine months of 1995, earnings per share equals net income divided by the weighted-average number of common shares and common share equivalents outstanding during the period. The number of common share equivalents outstanding was based on the assumed conversion of the PRIDES. For the purpose of this computation, the respective conversion rates of common stock for each share of PRIDES were based on the average market value of the Company's common stock during the applicable period. Common share equivalents relating to the PRIDES were not included in the third quarter or nine months of 1996 since their effect would have been anti-dilutive.
QUARTERS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------- --------------------------- 1996 1995 1996 1995 -------------------------- --------------------------- Weighted-average shares outstanding: Common shares 63,679,000 63,463,000 63,650,000 62,870,000 Common share equivalents - 9,020,000 - 9,719,000 -------------------------- --------------------------- Total 63,679,000 72,483,000 63,650,000 72,589,000 ========================== =========================== Income before cumulative effect of accounting change $26 $112 $103 $305 Less preferred stock dividends 9 - 27 - -------------------------- --------------------------- $17 $112 $76 $305 -------------------------- --------------------------- Cumulative effect of accounting change - - (15) - -------------------------- --------------------------- $17 $112 $61 $305 ========================== =========================== Earnings per share: Income before cumulative effect of accounting change $0.26 $1.56 $1.19 $4.20 Cumulative effect of accounting change - - (0.24) - -------------------------- --------------------------- Net income $0.26 $1.56 $0.95 $4.20 ========================== =========================== Conversion rate - 0.82 - 0.88 Average market value per share of common stock - $60.37 - $53.48 /TABLE EARNINGS PER SHARE (FULLY DILUTED): Earnings per share (fully diluted) equals net income divided by the weighted-average number of common shares and common share equivalents outstanding during the period. The number of common share equivalents outstanding was based on the maximum potential issuance of common shares upon conversion of the PRIDES, which is one share of common for each share of PRIDES. This computation was made for presentation purposes only since its effect was anti- dilutive in 1996 and was not material in 1995.
QUARTERS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------- ------------------------ 1996 1995 1996 1995 -------------------------- ------------------------ Weighted-average shares outstanding: Common shares 63,679,000 63,463,000 63,650,000 62,870,000 Common share equivalents 11,000,000 11,000,000 11,000,000 11,000,000 -------------------------- ------------------------ Total 74,679,000 74,463,000 74,650,000 73,870,000 ========================== ======================== Income before cumulative effect of accounting change $26 $112 $103 $305 Cumulative effect of accounting change - - (15) - -------------------------- ------------------------ Net income $26 $112 $88 $305 ========================== ======================== Earnings per share (fully diluted): Income before cumulative effect of accounting change $0.34 $1.51 $1.38 $4.13 Cumulative effect of accounting change - - (0.21) - -------------------------- ------------------------ Net income $0.34 $1.51 $1.17 $4.13 ========================== ========================
EX-27 5
5 This schedule contains summary financial information extracted from the Reynolds Metals Company Condensed Consolidated Balance Sheet (Unaudited) for September 30, 1996 and Consolidated Statement of Income (Unaudited) for the Nine Months ended September 30, 1996 and is qualified in its entirety by reference to such financial statements. 1000000 9-MOS DEC-31-1996 SEP-30-1996 22 0 1065 22 837 1955 6756 3536 7728 1474 1806 0 505 945 1153 7728 5236 5267 4392 4392 278 0 123 152 49 103 0 0 (15) 88 0.95 0.00 This amount represents total receivables, since trade receivables are not broken out separately at interim dates, in accordance with S-X 10-01(2).
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