-----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, O/ZMNF4REO/YtyKFFhezDi4EcMWFB1g1DQxNL2IfgeHMUwwc/p5CO4dLPr8aVOw/ UJxv0m2xJzzEf1z4mKCpvA== 0000083604-98-000029.txt : 19981116 0000083604-98-000029.hdr.sgml : 19981116 ACCESSION NUMBER: 0000083604-98-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: SEC FILE NUMBER: 001-01430 FILM NUMBER: 98747027 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 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, 1998 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 30, 1998, the Registrant had 64,456,697 shares of Common Stock, no par value, outstanding and entitled to vote. 2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (millions, except per share amounts) - ---------------------------------------------------------------------------- Quarters ended Nine months ended September 30 September 30 - ---------------------------------------------------------------------------- 1998 1997 1998 1997 - ---------------------------------------------------------------------------- REVENUES $1,368 $1,717 $4,479 $5,127 COSTS AND EXPENSES Cost of products sold 1,109 1,410 3,635 4,233 Selling, administrative and general expenses 93 95 282 304 Depreciation and amortization 57 92 193 277 Interest 27 40 94 116 Operational restructuring effects (315) - (11) (31) - ---------------------------------------------------------------------------- 971 1,637 4,193 4,899 - ---------------------------------------------------------------------------- EARNINGS Income before income taxes, extraordinary loss and cumulative effect of accounting change 397 80 286 228 Taxes on income 135 25 89 75 - ---------------------------------------------------------------------------- Income before extraordinary loss and cumulative effect of accounting change 262 55 197 153 Extraordinary loss (60) - (63) - Cumulative effect of accounting change - - (23) - - ---------------------------------------------------------------------------- NET INCOME $ 202 $ 55 $ 111 $ 153 ============================================================================ EARNINGS PER SHARE Basic: Average shares outstanding 69 74 72 73 Income before extraordinary loss and cumulative effect of accounting change $3.80 $0.74 $2.76 $2.09 Extraordinary loss (0.88) - (0.89) - Cumulative effect of accounting change - - (0.32) - - ---------------------------------------------------------------------------- Net income $2.92 $0.74 $1.55 $2.09 ============================================================================ Diluted: Average shares outstanding 69 75 72 74 Income before extraordinary loss and cumulative effect of accounting change $3.80 $0.73 $2.76 $2.08 Extraordinary loss (0.88) - (0.89) - Cumulative effect of accounting change - - (0.32) - - ---------------------------------------------------------------------------- Net income $2.92 $0.73 $1.55 $2.08 ============================================================================ CASH DIVIDENDS PER COMMON SHARE $0.35 $0.35 $1.05 $1.05 ============================================================================ The accompanying notes to consolidated financial statements are an integral part of these statements.
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CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (millions) - ---------------------------------------------------------------------------- September 30 December 31 - ---------------------------------------------------------------------------- 1998 1997 - ---------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 43 $ 70 Receivables, less allowances of $16 (1997 - $16) 890 1,015 Inventories 529 744 Prepaid expenses and other 168 165 - ---------------------------------------------------------------------------- Total current assets 1,630 1,994 Unincorporated joint ventures and associated companies 1,425 1,381 Property, plant and equipment 5,158 6,533 Less allowances for depreciation and amortization 2,995 3,579 - ---------------------------------------------------------------------------- 2,163 2,954 Deferred taxes and other assets 900 897 - ---------------------------------------------------------------------------- Total assets $6,118 $7,226 ============================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, accrued and other liabilities $ 888 $1,074 Short-term borrowings 163 67 Long-term debt 229 142 - ---------------------------------------------------------------------------- Total current liabilities 1,280 1,283 Long-term debt 996 1,501 Postretirement benefits 1,002 1,043 Environmental, deferred taxes and other liabilities 583 660 Stockholders' equity: Common stock 1,533 1,521 Retained earnings 1,289 1,253 Treasury stock, at cost (526) - Accumulated other comprehensive income (39) (35) - ---------------------------------------------------------------------------- Total stockholders' equity 2,257 2,739 Contingent liabilities Total liabilities and stockholders' equity $6,118 $7,226 ============================================================================ The accompanying notes to consolidated financial statements are an integral part of these statements.
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CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (millions) - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Nine months ended September 30 1998 1997 - ---------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 111 $ 153 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 193 277 Operational restructuring effects (11) (40) Extraordinary item 63 - Cumulative effect of accounting change 23 - Changes in operating assets and liabilities net of effects of dispositions: Accounts payable, accrued and other liabilities (149) 3 Receivables (49) (161) Inventories 75 (190) Other (95) 16 - ---------------------------------------------------------------------------- Net cash provided by operating activities 161 58 INVESTING ACTIVITIES Capital investments: Operational (102) (103) Strategic (115) (84) Sales of assets - operational restructuring 1,066 343 Other (24) (5) - ---------------------------------------------------------------------------- Net cash provided by investing activities 825 151 FINANCING ACTIVITIES Increase (decrease) in short-term borrowings 97 (127) Proceeds from long-term debt 250 - Reduction of long-term debt (769) (46) Cash dividends paid (76) (73) Repurchase of common stock (526) Stock options exercised 11 67 - ---------------------------------------------------------------------------- Net cash used in financing activities (1,013) (179) CASH AND CASH EQUIVALENTS Net increase (decrease) (27) 30 At beginning of period 70 38 - ---------------------------------------------------------------------------- At end of period $ 43 $ 68 ============================================================================ The accompanying notes to consolidated financial statements are an integral part of these statements.
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Nine months ended September 30 1998 1997 - ---------------------------------------------------------------------------- SHARES (thousands): Common stock Balance at January 1 73,909 72,719 Issued under employee benefit plans 194 1,182 - ---------------------------------------------------------------------------- Balance at September 30 74,103 73,901 - ---------------------------------------------------------------------------- Treasury stock Balance at January 1 - - Purchased and held as treasury stock (9,647) - - ---------------------------------------------------------------------------- Balance at September 30 (9,647) - - ---------------------------------------------------------------------------- Net common shares outstanding 64,456 73,901 - ---------------------------------------------------------------------------- DOLLARS (millions): Common stock Balance at January 1 $1,521 $1,451 Issued under employee benefit plans 12 70 - ---------------------------------------------------------------------------- Balance at September 30 $1,533 $1,521 - ---------------------------------------------------------------------------- Retained earnings Balance at January 1 $1,253 $1,220 Net income 111 153 Cash dividends declared for common stock (75) (77) - ---------------------------------------------------------------------------- Balance at September 30 $1,289 $1,296 - ---------------------------------------------------------------------------- Treasury stock Balance at January 1 $ - $ - Purchased and held as treasury stock (526) - - ---------------------------------------------------------------------------- Balance at September 30 $ (526) $ - - ---------------------------------------------------------------------------- Accumulated other comprehensive income (loss) Balance at January 1 $ (35) $ (37) Foreign currency translation adjustments 2 (46) Income taxes (6) 2 ----------------------------- Other comprehensive income (loss) (4) (44) - ---------------------------------------------------------------------------- Balance at September 30 (39) (81) - ---------------------------------------------------------------------------- Total stockholders' equity $2,257 $2,736 - ---------------------------------------------------------------------------- COMPREHENSIVE INCOME (millions): Net income $ 111 $ 153 Other comprehensive income (loss) (4) (44) - ---------------------------------------------------------------------------- Comprehensive income $ 107 $ 109 - ---------------------------------------------------------------------------- Comprehensive income for the third quarter of 1998 and 1997 was $213 million and $43 million, respectively. The accompanying notes to consolidated financial statements are an integral part of these statements.
6 REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Quarters and Nine Months Ended September 30, 1998 and 1997 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements were 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. All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. Operating results for the interim periods of 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. Certain amounts have been reclassified to conform to the 1998 presentation. In the tables, dollars are in millions, except per share amounts, and shipments are in thousands of metric tons. A metric ton is equivalent to 2,205 pounds. 2. ACCOUNTING POLICIES COMPREHENSIVE INCOME In the first quarter of 1998, the Company adopted the Financial Accounting Standards Board's (FASB) Statement No. 130, "Reporting Comprehensive Income." Statement No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, adopting the Statement had no impact on the Company's net income or stockholders' equity. Statement No. 130 requires the Company's foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement No. 130. Comprehensive income is presented in the Consolidated Statement of Changes in Stockholders' Equity. REPORTING ON THE COSTS OF START-UP ACTIVITIES In the second quarter of 1998, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires costs of start-up activities and organization costs to be expensed as incurred. It is effective for 1999; however, early application is encouraged. The Company adopted the SOP in the second quarter of 1998 and applied it retroactively to January 1, 1998 as required. The Company recognized a charge for the cumulative effect of accounting change of $23 million in the restated financial statements for the first quarter of 1998. The effect on "income before cumulative effect of accounting change" in the Consolidated Statement of Income for the 1998 and 1997 interim periods was not material. ACCOUNTING FOR THE COSTS OF DEVELOPING OR OBTAINING INTERNAL-USE SOFTWARE In the first quarter of 1998, the AcSEC issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP requires qualifying computer software costs incurred in connection with obtaining or developing software for internal use to be capitalized. The Company currently capitalizes the costs of purchased software and expenses the costs of internally developed software. The Company plans to adopt the SOP in 1999 on a prospective basis when it becomes effective. 7 2. ACCOUNTING POLICIES -- continued DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In the second quarter of 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards for derivative instruments and hedging activities. The Company must adopt this statement by January 1, 2000. The Company has not determined the impact this statement will have on its financial position or results of operations. 3. OPERATIONAL RESTRUCTURING In the nine-month period of 1998, the Company sold the following: - - U.S. recycling operations - - Canadian extrusion facilities - - European rolling mill operations - - an Illinois sheet and plate plant - - North American aluminum beverage can operations The Company has signed a letter of intent to sell its Alabama can stock complex. The sale will include a rolling mill, two nearby reclamation plants that provide input metal to the mill, and a coil coating facility. The Company recorded a pre-tax charge of $304 million ($196 million after taxes) in the second quarter of 1998 for this transaction. Early in the fourth quarter of 1998, the buyer informed the Company that it was critical the buyer negotiate new labor agreements with unions at the complex. The Company has advised union leaders that if (1) the buyer and unions are able to agree on new labor agreements and (2) the Company and the buyer are able to successfully conclude negotiations and complete a sale, the Company would recognize the transaction as a "plant closing" for purposes of benefit payments under its existing labor contracts. Thus, even though the facility would continue to operate, union employees would be eligible for additional retirement and other contractual benefits. This would require the Company to record an additional after-tax restructuring charge in the range of $75 million to $85 million. The Company has also signed a letter of intent to sell its aluminum extrusion operation in Spain. Both of these transactions are subject to one or more of the following: regulatory approvals, transaction financing by the purchaser, negotiation and execution of definitive agreements and/or other customary closing conditions. The Company had signed a letter of intent to sell its can machinery operations. The letter of intent has expired and the Company is pursuing other sales opportunities. The carrying amount for assets to be sold was approximately $400 million at September 30, 1998. The Company has used the proceeds from completed divestitures for debt repayments and repurchases of common stock (see Notes 4 and 7). 8 3. OPERATIONAL RESTRUCTURING -- continued In 1997, the Company sold the following: - - U.S. residential construction products business - - an aluminum reclamation plant in Virginia - - aluminum extrusion plants in Virginia and Texas - - coal properties in Kentucky - - one-half of its wholly-owned interest in a rolling mill and related assets in Canada - - an aluminum powder and paste plant in Kentucky The Company recognized pre-tax gains of $56 million from these sales. Proceeds were used to reduce debt and to temporarily support operating requirements. Also in the nine-month period of 1997, the Company recorded a pre-tax charge of $25 million for termination benefits applicable to approximately 500 corporate headquarters employees. Cash requirements relating to the termination benefits have been paid. 4. EXTRAORDINARY LOSSES The Company had extraordinary losses from debt extinguishments in the third quarter ($60 million) and the nine-month period of 1998 ($63 million). These amounts are net of income tax benefits of $38 million in the third quarter and $39 million in the nine-month period. The debt extinguished consisted of the following: - - $500 million of medium term notes with an average interest rate of 9% and original maturities ranging from 2002 to 2013 - - $79 million of 9% debentures due 2003 - - a mortgage with a remaining balance of approximately $5 million that had a 10% interest rate and required monthly payments of principal and interest until 2009 5. EARNINGS PER SHARE The following reconciles income and average shares for the basic and diluted earnings per share computations for "Income before extraordinary loss and cumulative effect of accounting change."
Quarters ended September 30 ----------------------------- 1998 1997 ----------------------------- Income (numerator): Income before extraordinary loss and cumulative effect of accounting change (Basic and Diluted) $262 $55 Average shares (denominator): Basic 69,241,000 73,747,000 Effect of dilutive securities: Stock options 84,000 791,000 ----------------------------- Diluted 69,325,000 74,538,000 ----------------------------- Per share amount for income before extraordinary loss and cumulative effect of accounting change: Basic earnings per share $3.80 $0.74 Diluted earnings per share $3.80 $0.73 Antidilutive securities excluded: Stock options 3,955,000 150,000
9 5. EARNINGS PER SHARE -- continued
Nine Months ended September 30 ------------------------------- 1998 1997 ------------------------------- Income (numerator): Income before extraordinary loss and cumulative effect of accounting change (Basic and Diluted) $197 $153 Average shares (denominator): Basic 71,474,000 73,247,000 Effect of dilutive securities: Stock options 257,000 658,000 ------------------------------- Diluted 71,731,000 73,905,000 ------------------------------- Per share amount for income before extraordinary loss and cumulative effect of accounting change: Basic earnings per share $2.76 $2.09 Diluted earnings per share $2.76 $2.08 Antidilutive securities excluded: Stock options 2,306,000 387,000
6. FINANCING ARRANGEMENTS In the first quarter of 1998, the Company borrowed $100 million under its Canadian bank credit agreement. The borrowing bears interest at a variable rate (5.8% at September 30, 1998) and requires repayment in a lump sum in 2001. In the second and third quarters of 1998, the Company extinguished approximately $584 million principal amount of debt. See Note 4 for more information concerning these transactions. In the third quarter of 1998, the Company terminated a $100-million interest rate swap originally scheduled to mature in 2001. The small gain realized will be recognized over the remainder of the designated hedge period ending 2001. Early in the fourth quarter, the Company borrowed $150 million under its revolving credit facility that matures in 2001. Interest on the revolving credit facility is at a variable rate (5.6% in October 1998). The proceeds from the borrowing were used to repay $150 million of commercial paper, which was included in long-term debt at September 30, 1998. 7. STOCKHOLDERS' EQUITY Authority to repurchase up to 18 million shares of common stock (including the shares already repurchased) became effective in the second quarter of 1998 with the signing of the definitive agreement for the sale of the Company's North American aluminum beverage can operations. This repurchase authorization includes the five million share repurchase program announced in the first quarter of 1998 and it extends to December 31, 2000. 10 8. COMPANY OPERATIONS In the second quarter of 1998, the Company signed a letter of intent to sell its Alabama can stock complex (see Note 3). As a result, the Company has moved this operation from the "Other" category to the "Restructuring" category in its segment disclosures. The comparative periods of 1997 have been restated to reflect this change.
Packaging Construction Base and and Third Quarter 1998 Materials Consumer Distribution - ----------------------------------------------------------------------------- Customer aluminum shipments 172 34 48 Internal aluminum shipments 94 - - - ----------------------------------------------------------------------------- Total aluminum shipments 266 34 48 Customer revenues: Aluminum $264 $191 $176 Nonaluminum 85 150 79 Intersegment revenues - aluminum 156 - - - ----------------------------------------------------------------------------- Total revenues $505 $341 $255 ============================================================================= Operating income (loss) $ 65 $ 34 $ 13 Interest expense - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change ============================================================================= Third Quarter 1997 - ----------------------------------------------------------------------------- Customer aluminum shipments 144 33 42 Internal aluminum shipments 166 - - - ----------------------------------------------------------------------------- Total aluminum shipments 310 33 42 Customer revenues: Aluminum $262 $194 $158 Nonaluminum 82 152 83 Intersegment revenues - aluminum 290 - - - ----------------------------------------------------------------------------- Total revenues $634 $346 $241 ============================================================================= Operating income (loss) $ 68 $ 33 $ 12 Interest expense - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change =============================================================================
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Third Quarter 1998 Transportation Restructuring Other - ----------------------------------------------------------------------------- Customer aluminum shipments 15 88 9 Internal aluminum shipments - - - - ----------------------------------------------------------------------------- Total aluminum shipments 15 88 9 Customer revenues: Aluminum $76 $299 $ 31 Nonaluminum - - 17 Intersegment revenues - aluminum - - - - ----------------------------------------------------------------------------- Total revenues $76 $299 $ 48 ============================================================================= Operating income (loss) $(7) $ 31 $(28) Interest expense - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change ============================================================================= Third Quarter 1997 - ----------------------------------------------------------------------------- Customer aluminum shipments 15 179 10 Internal aluminum shipments - 3 - - ----------------------------------------------------------------------------- Total aluminum shipments 15 182 10 Customer revenues: Aluminum $78 $642 $ 32 Nonaluminum - 23 11 Intersegment revenues - aluminum - 10 - - ----------------------------------------------------------------------------- Total revenues $78 $675 $ 43 ============================================================================= Operating income (loss) $ - $ 38 $(36) Interest expense Income before income taxes, extraordinary loss and cumulative effect of accounting change =============================================================================
Reconciling Third Quarter 1998 Items Consolidated - ----------------------------------------------------------------------------- Customer aluminum shipments - 366 Internal aluminum shipments (94) - - ----------------------------------------------------------------------------- Total aluminum shipments (94) 366 Customer revenues: Aluminum $ - $1,037 Nonaluminum - 331 Intersegment revenues - aluminum (156) - - ----------------------------------------------------------------------------- Total revenues $(156) $1,368 ============================================================================= Operating income (loss) $ 316 $ 424 Interest expense (27) - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change $ 397 ============================================================================= Third Quarter 1997 - ----------------------------------------------------------------------------- Customer aluminum shipments - 423 Internal aluminum shipments (169) - - ----------------------------------------------------------------------------- Total aluminum shipments (169) 423 Customer revenues: Aluminum $ - $1,366 Nonaluminum - 351 Intersegment revenues - aluminum (300) - - ----------------------------------------------------------------------------- Total revenues $(300) $1,717 ============================================================================= Operating income (loss) $ 5 $ 120 Interest expense (40) - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change $ 80 =============================================================================
12 8. COMPANY OPERATIONS -- continued
Packaging Construction Base and and Nine Months of 1998 Materials Consumer Distribution - ----------------------------------------------------------------------------- Customer aluminum shipments 485 101 140 Internal aluminum shipments 275 - - - ----------------------------------------------------------------------------- Total aluminum shipments 760 101 140 Customer revenues: Aluminum $ 780 $ 571 $511 Nonaluminum 314 430 242 Intersegment revenues - aluminum 445 - - - ----------------------------------------------------------------------------- Total revenues $1,539 $1,001 $753 ============================================================================= Operating income (loss) $ 239 $ 96 $ 29 Interest expense - ----------------------------------------------------------------------------- Income before income taxes extraordinary loss and cumulative effect on accounting change ============================================================================= Nine Months of 1997 - ----------------------------------------------------------------------------- Customer aluminum shipments 367 100 124 Internal aluminum shipments 545 - - - ----------------------------------------------------------------------------- Total aluminum shipments 912 100 124 Customer revenues: Aluminum $ 661 $565 $457 Nonaluminum 281 431 251 Intersegment revenues - aluminum 943 - - - ----------------------------------------------------------------------------- Total revenues $1,885 $996 $708 ============================================================================= Operating income (loss) $ 210 $ 88 $ 34 Interest expense - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change =============================================================================
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Nine Months of 1998 Transportation Restructuring Other - ----------------------------------------------------------------------------- Customer aluminum shipments 46 307 27 Internal aluminum shipments - 4 - - ----------------------------------------------------------------------------- Total aluminum shipments 46 311 27 Customer revenues: Aluminum $244 $1,236 $ 92 Nonaluminum - 5 54 Intersegment revenues - aluminum - 12 - - ----------------------------------------------------------------------------- Total revenues $244 $1,253 $ 146 ============================================================================= Operating income (loss) $(14) $ 110 $ (96) Interest expense - ----------------------------------------------------------------------------- Income before income taxes extraordinary loss and cumulative effect on accounting change ============================================================================= Nine Months of 1997 - ----------------------------------------------------------------------------- Customer aluminum shipments 49 577 28 Internal aluminum shipments - 8 - - ----------------------------------------------------------------------------- Total aluminum shipments 49 585 28 Customer revenues: Aluminum $262 $2,020 $ 96 Nonaluminum - 64 39 Intersegment revenues - aluminum - 27 - - ----------------------------------------------------------------------------- Total revenues $262 $2,111 $ 135 ============================================================================= Operating income (loss) $ 11 $ 92 $(108) Interest expense - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change =============================================================================
Reconciling Nine Months of 1998 Items Consolidated - ----------------------------------------------------------------------------- Customer aluminum shipments - 1,106 Internal aluminum shipments (279) - - ----------------------------------------------------------------------------- Total aluminum shipments (279) 1,106 Customer revenues: Aluminum $ - $3,434 Nonaluminum - 1,045 Intersegment revenues - aluminum (457) - - ----------------------------------------------------------------------------- Total revenues $(457) $4,479 ============================================================================= Operating income (loss) $ 16 $ 380 Interest expense (94) - ----------------------------------------------------------------------------- Income before income taxes extraordinary loss and cumulative effect on accounting change $ 286 ============================================================================= Nine Months of 1997 - ----------------------------------------------------------------------------- Customer aluminum shipments - 1,245 Internal aluminum shipments (553) - - ----------------------------------------------------------------------------- Total aluminum shipments (553) 1,245 Customer revenues: Aluminum $ - $4,061 Nonaluminum - 1,066 Intersegment revenues - aluminum (970) - - ----------------------------------------------------------------------------- Total revenues $(970) $5,127 ============================================================================= Operating income (loss) $ 17 $ 344 Interest expense (116) - ----------------------------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting change $ 228 =============================================================================
RECONCILING ITEMS Reconciling items consist of the following:
Quarters ended September 30 --------------------------------- 1998 1997 --------------------------------- Operating income: Inventory accounting adjustments $ 1 $ 5 Operational restructuring effects - net 315 - --------------------------------- $316 $ 5 =================================
Nine Months ended September 30 --------------------------------- 1998 1997 --------------------------------- Operating income (loss): Inventory accounting adjustments $ 5 $(14) Operational restructuring effects - net 11 31 --------------------------------- $ 16 $ 17 =================================
14 COMPANY OPERATIONS -- continued Inventory accounting adjustments are the elimination of unrealized profits and losses on sales between global business units. Operational restructuring effects are explained in Note 3. 9. CONTINGENT LIABILITIES As previously disclosed in the Company's 1997 Form 10-K, the Company is involved in various worldwide environmental improvement activities resulting from past operations, including designation as a potentially responsible party (PRP), with others, at various Environmental Protection Agency- designated Superfund sites. The Company has recorded amounts (on an undiscounted basis) which, in management's best estimate, will be sufficient to satisfy anticipated costs of known remediation requirements. Estimated costs for future environmental compliance and remediation are necessarily imprecise because of factors such as: - - continuing evolution of environmental laws and regulatory requirements - - availability and application of technology - - identification of presently unknown remediation requirements - - cost allocations among PRPs Further, it is not possible to predict the amount or timing of future costs of environmental remediation that may subsequently be determined. 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 results of operations in a future interim or annual reporting period. 10. 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 footnotes to the financial statements of Reynolds Metals Company. Summarized financial information is as follows: 15 10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM COMPANY OF CANADA, LTD. - continued Canadian Reynolds Metals Company, Ltd.
Quarters Ended Nine Months Ended September 30 September 30 --------------------------------------------- 1998 1997 1998 1997 --------------------------------------------- Net Sales: Customers $ 78 $ 69 $261 $168 Parent and related companies 119 161 368 521 --------------------------------------------- $197 $230 $629 $689 Cost of products sold 178 177 539 539 Net income $ 12 $ 31 $ 61 $ 86
September 30 December 31 1998 1997 ---------------------------------------- Current assets $ 279 $ 179 Noncurrent assets 1,172 1,206 Current liabilities (101) (148) Noncurrent liabilities (453) (415)
Reynolds Aluminum Company of Canada, Ltd.
Quarters Ended Nine Months Ended September 30 September 30 -------------------------------------------- 1998 1997 1998 1997 -------------------------------------------- Net Sales: Customers $ 98 $150 $329 $408 Parent and related companies 121 156 360 491 -------------------------------------------- $219 $306 $689 $899 Cost of products sold 199 247 594 728 Net income $ 12 $ 32 $ 59 $ 90
September 30 December 31 1998 1997 ------------------------------------ Current assets $ 257 $ 208 Noncurrent assets 1,242 1,276 Current liabilities (106) (111) Noncurrent liabilities (481) (445)
16 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the consolidated financial statements and related footnotes included in the Company's 1997 Form 10-K along with the consolidated financial statements and related footnotes included in and referred to in this report. In the tables, dollars are in millions, except per share 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 25, where we have 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 We more than offset the negative impact of lower primary aluminum prices with improved sales volume in several of our ongoing businesses; significant cost reductions in our base materials operations; lower selling, administrative and general expenses; and lower interest expense. Our ability to generate higher operating income at lower pricing levels in 1998, compared to 1997, reflects the benefits of our portfolio review process, including restructuring assets, debt reduction and share repurchases. For information concerning the special items in the following table, see the notes to the consolidated financial statements.
Third Quarter Nine Months 1998 1997 1998 1997 ----------------- ----------------- Results Net income before special items $ 61 $ 55 $ 192 $ 134 Operational restructuring effects (see Note 3) 201 - 5 19 Extraordinary loss (see Note 4) (60) - (63) - Cumulative effect of accounting change (see Note 2) - - (23) - ------------------------------------- Net income $ 202 $ 55 $ 111 $ 153 ===================================== Earnings per share - basic Net income before special items $ 0.89 $0.74 $ 2.69 $1.82 Operational restructuring effects - net 2.91 - 0.07 0.27 Extraordinary loss (0.88) - (0.89) - Cumulative effect of accounting change - - (0.32) - ------------------------------------- Net income $ 2.92 $0.74 $ 1.55 $2.09 =====================================
17 RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS Base Materials
Third Quarter Nine Months ------------------- --------------------- 1998 1997 1998 1997 ------------------- --------------------- Aluminum shipments: Customer 172 144 485 367 Internal 94 166 275 545 ------------------- --------------------- Total 266 310 760 912 =================== ===================== Revenues: Customer - aluminum $264 $262 $ 780 $ 661 - nonaluminum 85 82 314 281 Internal - aluminum 156 290 445 943 ------------------- --------------------- Total $505 $634 $1,539 $1,885 =================== ===================== Operating income $ 65 $ 68 $ 239 $ 210 =================== =====================
The increase in customer aluminum shipments in the 1998 periods reflects continuing strong demand for our rod, foundry and billet products. Our available supply to meet customer needs increased because we no longer need to supply downstream fabricating operations that have been sold. Our available supply also increased because of restarting idle capacity (as discussed below). The sale of certain of our operations resulted in lower internal requirements for primary aluminum, which caused our internal shipments to decline. In addition to reflecting the changes in shipping volume, aluminum revenues were adversely affected in both 1998 periods by lower prices for primary aluminum. Average realized prices for customer shipments were $0.70 per pound in the third quarter of 1998 compared to $0.82 per pound in the third quarter of 1997. Average realized prices for customer shipments were $0.73 per pound in the nine-month period of 1998 compared to $0.82 per pound in the nine-month period of 1997. Higher sales of alumina led to the increase in nonaluminum revenues in both 1998 periods. The additional supply was made possible by significant improvements in production and capacity utilization at our Sherwin, Texas alumina plant. Operating income benefited in the third quarter and nine months of 1998 because of: - - higher customer shipments of aluminum and alumina - - significant cost reductions - - improved capacity utilization - - lower costs for certain raw materials These benefits were offset by: - - lower internal shipments - - lower prices for aluminum and alumina - - restart costs at our primary aluminum plants - - lower technical services income 18 RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued Base Materials - continued Results in both years were negatively impacted by temporarily curtailed capacity at our U.S. primary aluminum plants. In the first quarter of 1998, we began the process of restarting some of this idle capacity. In the third quarter of 1998, we had essentially completed restarts of the following capacity: - - 47,000 metric tons at our Longview, Washington plant - - 41,000 metric tons at our Massena, New York plant - - 74,000 metric tons at our Troutdale, Oregon plant We plan to monitor market conditions before finalizing the schedule to restart the remaining 47,000 metric tons at the Troutdale plant. Packaging and Consumer
Third Quarter Nine Months ----------------- ------------------ 1998 1997 1998 1997 ----------------- ------------------ Customer aluminum shipments 34 33 101 100 Revenues: Customer - aluminum $191 $194 $ 571 $565 - nonaluminum 150 152 430 431 ----------------- ------------------ Total $341 $346 $1,001 $996 ================= ================== Operating income $ 34 $ 33 $ 96 $ 88 ================= ==================
Total shipments and revenues for packaging and consumer products were essentially flat in the 1998 periods as compared to the same periods in 1997. Shipments of packaging products were slightly lower because of strong competition and the discontinuance of certain products. Shipments of consumer products were higher due to strong demand for Reynolds Wrap aluminum foil and a recently introduced product, Hot Bags aluminum foil pouches. Operating income benefited from higher shipments of consumer products and lower costs. Higher product development and marketing costs for new consumer products introduced in 1998 partially offset these benefits. The new consumer products include Hot Bags aluminum foil pouches and Wrappers aluminum foil sheets. Shipments of both products began in the second quarter of 1998. 19 RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued Construction and Distribution
Third Quarter Nine Months ------------------ ------------------- 1998 1997 1998 1997 ------------------ ------------------- Customer aluminum shipments 48 42 140 124 Revenues: Customer - aluminum $176 $158 $511 $457 - nonaluminum 79 83 242 251 ------------------ ------------------- Total $255 $241 $753 $708 ================== =================== Operating income $ 13 $ 12 $ 29 $ 34 ================== ===================
Aluminum shipments and revenues increased in both 1998 periods. These improvements resulted from significantly higher shipments of most products. All of our major distribution products (plate, sheet and extrusions) benefited from strong demand and market share growth in our major domestic markets. Construction products benefited from strong demand and our global expansion efforts. Growth in construction products shipments in Europe and North America was somewhat offset by a decline in shipments to all Asian markets except China. Nonaluminum revenues decreased slightly despite significant increases in stainless steel shipments. Demand was strong for all of our major stainless steel distribution products (plate, sheet and shapes). The effect of the higher shipping volume was offset by lower prices for stainless steel products. Prices for these products continue to be under pressure due to increased imports and strong competition. Operating income in both 1998 periods benefited from the higher shipping volume. This was offset by lower capacity utilization at one of our construction products plants following the scheduled expiration of a steel composite tolling contract in 1997. That tolling customer now has its own production facility and pays us design and production royalties. We also incurred higher marketing costs to globally expand construction products sales. The effect of lower prices for stainless steel products was offset by lower costs for purchases of stainless steel. Transportation
Third Quarter Nine Months ----------------- ----------------- 1998 1997 1998 1997 ----------------- ----------------- Customer aluminum shipments 15 15 46 49 Customer revenues $76 $78 $244 $262 Operating income (loss) (7) - (14) 11 ================= =================
Shipments and revenues in both 1998 periods were adversely affected by volume declines in bumpers and cast aluminum wheels. The decline in bumper shipments resulted from the completion of a contract in 1997 at our Indiana automotive structures plant. Cast aluminum wheel shipments were lower because of decreased demand related to a substantial number of mid-year wheel program conversions and a strike at a customer earlier in the year. The lower shipments of cast aluminum wheels were somewhat offset by higher shipments of forged aluminum wheels from our Virginia plant in both 1998 periods. 20 RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued Transportation - continued Operating income declined in both 1998 periods because of: - - lower shipping volume and its adverse effect on capacity utilization - - lower prices - - start-up costs from the expansion of our forged aluminum wheel plant in Virginia - - operational difficulties at our Wisconsin cast aluminum wheel plant We have been working hard to address the issues affecting this business. In aluminum wheels, facilities in Canada, Italy and Venezuela are operating reasonably well. Our newer plant in Wisconsin has experienced a variety of operational difficulties since it began operation. In 1998, we have substantially completed pre-production certification programs for 16 new wheel models at the plant - a major cost hurdle. This new production volume should help the plant improve, although there are other issues that are currently being addressed. Our automotive structures plant in Indiana has been operating well below capacity as indicated above. We are currently testing a new engine cradle program that should be in production next year and should help improve performance there. In addition, we have entered into a new bumper contract that is scheduled to go into production in 1999. Aside from plant-specific initiatives, we are also evaluating options for our transportation business as a whole, including strategic alliances. Restructuring Shipments, revenues and operating income were adversely affected in both 1998 periods because of sold operations. The effect on operating income in both periods was offset by the ceasing of depreciation of assets held for sale as required by current accounting rules. The depreciation amount was $17 million in the third quarter of 1998 and $54 million in the nine-month period of 1998. For additional information concerning the global business units, see Note 8 to the consolidated financial statements. INTEREST EXPENSE Interest expense decreased in both 1998 periods because of lower amounts of debt outstanding. OTHER EXPENSES The decline in selling, administrative and general expenses and depreciation and amortization in both 1998 periods resulted from our restructuring activities. TAXES ON INCOME The effective tax rates reflected in the income statement differ from the U.S. federal statutory rate principally because of the effects of foreign taxes. YEAR 2000 Problem The Year 2000 issue results from computer programs and systems that rely on two digits rather than four to define the applicable year. Such systems may recognize a date using "00" as the year 1900 rather than the year 2000. As a result, computer systems could fail to operate or make miscalculations, causing disruption of business operations. 21 RESULTS OF OPERATIONS - continued - --------------------- YEAR 2000 - continued Problem - continued Left unrepaired, many of the Company's systems, including information and computer systems and automated equipment, could be affected by the Year 2000 issue. Failure to adequately address the issue could result, among other things, in the temporary inability to manufacture products, process transactions, send invoices, and/or engage in normal business activities. We do not believe the products we sell require remediation to address the Year 2000 issue since they contain no embedded micro-chips or similar electronic components that are date-sensitive. Goal The Company has a formal program to address and resolve potential exposure associated with information and non-information technology systems arising from the Year 2000 issue. Our goal is that none of the Company's critical business operations or computer processes we share with our suppliers and customers will be substantially impaired by the advent of the Year 2000. Year 2000 Remediation Project We are preparing our critical, date-sensitive computer systems, processes and interfacing software for the Year 2000. Our remediation project is focusing on the following three areas: - - Information Systems - Computer hardware and software systems, business application software, end-user computing and communications infra- structure - - Non-Information Systems - Manufacturing equipment and the mechanical systems in our buildings (e.g., HVAC, security, and safety systems) - - Third Parties - Suppliers and customers In the first two areas, Information Systems and Non-Information Systems, the project consists of the following five phases: - - Inventory - Identifying our critical, date-sensitive computer systems that are not ready for the Year 2000 - - Planning - Deciding how to correct those systems - - Conversion - Repairing or replacing hardware and software to make them ready for the Year 2000 - - Pre-installation Testing - Testing those aspects of computer systems that have been repaired or replaced to ensure that year entries after 1999 are interpreted properly, that date-based calculations are computed correctly, and that date-based control systems function accurately - - Installation - Bringing corrected systems on-line We measure progress in each phase as a percentage of actual staff hours expended to staff hours projected for completion of each phase. Our progress will change as various aspects of the project are completed and as new issues are encountered, either as a result of discovering unanticipated problems in our existing systems or acquiring new computer systems or equipment. We also are monitoring our computer and software vendors' readiness statements to assure that readiness changes in their products do not negatively affect our systems. 22 RESULTS OF OPERATIONS - continued - --------------------- YEAR 2000 - continued Year 2000 Remediation Project - continued As of September 30, 1998, our estimated progress with respect to the five phases of our Year 2000 remediation project for Information and Non- Information Systems was approximately as follows:
Information Systems Non-Information Systems ------------------- ----------------------- Inventory 99% 97% Planning 97% 87% Conversion 87% 62% Pre-installation Testing 84% 52% Installation 71% 41% Overall 89% 69%
With respect to Information Systems, the Company expects to substantially complete each of the phases identified above by December 31, 1998. For Non- Information Systems, we expect to substantially complete each of the phases by the end of the second quarter of 1999. Our Year 2000 program also includes assessment of the business impact on the Company resulting from the failure of our suppliers to provide needed products and services. We are assessing the Year 2000 readiness of all our suppliers who are deemed to be critical to each of our operating locations, even though the products or services they provide may not be material to the Company's business as a whole. We have surveyed approximately 2,000 suppliers and rated them low, medium or high risk in their progress toward being ready for the Year 2000. Critical suppliers rated as high risk are receiving our immediate attention for contingency planning or other measures. In addition, we are responding to customer inquiries regarding our Year 2000 program and our progress in addressing the issue. We expect to evaluate the Year 2000 readiness of those customers whose business is material to the Company as a whole as part of our future contingency planning. The Company and certain of its customers and suppliers use Electronic Data Interchange (EDI) to effect business communications. The Company's EDI system software hass been upgraded to support transactions recorded using a four-digit year. Migration of EDI transactions to the four-digit year format will occur as existing EDI transaction formats are modified by the Company and its trading partners on a case by case basis. Some of the Company's customers have indicated they will not modify EDI transaction sets but will rely on other techniques such as data windowing to achieve Year 2000 capability. We are also addressing the Year 2000 readiness of our unconsolidated affiliates. 1999 Activities Quality Assurance - ----------------- In addition to completing the five phases of our Year 2000 remediation project described above, we expect to validate our remediation efforts with additional post-installation testing of certain of our critical computer systems. We also expect to respond to and initiate requests to test with various external agents including certain of our suppliers, customers and some government agencies after they ready their systems. 23 RESULTS OF OPERATIONS - continued - --------------------- YEAR 2000 - continued 1999 Activities - continued Contingency Planning - -------------------- Currently, our contingency planning efforts are focused primarily on working to identify additional sources of supply for critical materials. We anticipate that 1999 will be a year of further contingency planning and monitoring of conditions to determine realistic Year 2000 issues beyond those already addressed. While it is still too early to identify a reasonably likely worst case scenario, our operations, particularly in the Base Materials business, require significant quantities of energy. Curtailments or disruptions of energy supplies would result in full or partial shutdowns of these operations until energy availability could be restored. In addition, unanticipated loss of energy supply could result in damage to production equipment. During 1999, we will be assessing these and other business disruption risks and developing contingency plans to mitigate them. Costs The total cost of our five-phase Year 2000 remediation project is currently expected to be approximately $18 million. Of this amount, approximately $16 million will be for labor costs and $2 million for the purchase of equipment and license agreements. As of September 30, 1998, we had incurred labor costs of $13 million and spent $1 million on equipment and licenses. Our cost projections do not include the post-installation testing and contingency planning expected to occur in 1999; however, we do not anticipate that these costs will be significant. They also do not include any costs of business disruptions from supplier or customer non-performance. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union are scheduled to establish fixed conversion rates between their existing sovereign currencies and a common currency, the euro. The euro will then trade on currency exchanges and be available for non-cash transactions. Between January 1, 1999 and July 1, 2002, participating countries will convert all bills and coins denominated in the legacy currencies to the new euro currency. Based on the information presently available, we do not expect any material adverse effects from the euro conversion on our competitive or financial position or our ongoing results of operations. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- WORKING CAPITAL
September 30 December 31 1998 1997 -------------- ------------- Working capital $ 350 $ 711 Ratio of current assets to current liabilities 1.3/1 1.6/1
Working capital was lower at September 30, 1998 principally because of reduced receivables and inventories resulting from dispositions of assets as a part of the Company's restructuring activities. 24 LIQUIDITY AND CAPITAL RESOURCES - continued - ------------------------------- OPERATING ACTIVITIES We used the net cash provided by operating activities in the nine-month period of 1998 to fund capital investments. INVESTING ACTIVITIES Capital investments totaled $217 million in the nine-month period of 1998. This amount includes $102 million for operating requirements (replacement equipment, environmental control projects, etc.). The remainder was for strategic projects (performance improvements, investments, etc.) principally carried forward from 1997, including: - - the expansion of the Worsley Alumina Refinery in Australia - - the modernization of our U.S. foil plants - - the modification of our Indiana automotive components plant to produce engine cradles In addition, we are doubling the capacity of our forged wheel plant in Virginia. The expansion will cost approximately $32 million, and we expect to substantially complete it in late 1998. We expect capital investments in 1998 to total $350 million. Approximately 42% of this amount will be used for operating requirements. We plan to use the remainder for strategic projects already underway. We expect to fund our capital investments in 1998 with cash generated from operations, supple- mented by borrowings. We used the cash from asset sales to repurchase common stock and to repay debt. FINANCING ACTIVITIES The significant financing activities in the nine-month period of 1998 were: - - extinguishment of debt (see Note 4 to the consolidated financial statements) - - borrowings and the termination of an interest rate swap agreement (see Note 6 to the consolidated financial statements) - - repurchase of common stock (see the Consolidated Statement of Changes in Stockholders' Equity) PORTFOLIO REVIEW We have completed a number of divestitures and have also signed letters of intent to sell our aluminum extrusion operation in Spain and our Alabama can stock complex. For additional information concerning these transactions, see Note 3 to the consolidated financial statements. We have received approximately $1.4 billion in proceeds from divestitures since the inception of our portfolio review in late 1996. With these proceeds, we have reduced debt by approximately $900 million and repurchased 9.6 million shares of common stock for $526 million. 25 LIQUIDITY AND CAPITAL RESOURCES - continued - ------------------------------- PORTFOLIO REVIEW - continued We also plan to sell the following: - - our 27.5% interest in United Arab Manufacturing Company, Ltd., a Saudi Arabian aluminum beverage can manufacturer - - our aluminum recycling plant in Italy - - our can machinery operations (the previously reported letter of intent to sell this operation has expired) In addition, we are working with the other stockholders of Latasa, a Latin American aluminum beverage can manufacturer, to agree upon and implement a process that will permit the sale of our 34.9% interest in Latasa in the near future. 26 RISK FACTORS - ------------ This section should be read in conjunction with Part l, Items 1 (Business), 3 (Legal Proceedings) and 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of the Company's 1997 Form 10- K; Part II, Item 1 (Legal Proceedings) of this report and the Company's report on Form 10-Q for the second quarter of 1998; and the preceding portions of this Item. 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(FN1). 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 items. 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. Although growth in aluminum consumption has flattened out this year, the Company expects favorable conditions in aluminum industry supply/demand fundamentals over the next several years. Consensus expectations for 1998 indicate global economic growth of 1.5-2.5%. The Company is forecasting an increase in global primary aluminum consumption for 1998 of less than 0.5% and for 1999 of 1-2%. Assuming resumption of favorable economic conditions in Asia, the Company's long-term outlook for growth in aluminum consumption is 2.5-4% per year. Economic and/or market conditions other than those forecasted by the Company in the preceding paragraph, particularly in the U.S., Asia and Western Europe, 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 Company's outlook for 1998 and beyond could be jeopardized by repercussions stemming from recent economic problems in Asia, particularly Japan. 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 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, plastics and glass, among others, for various applications in the Company's key markets. Plastic products compete with products made of glass, aluminum, steel, paper, wood and ceramics, among others. 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. _________________________ [FN] (FN1)Forward-looking statements can be identified generally as those containing words such as "should," "will," "will likely result," "hope," "forecast," "outlook," "project," "estimate," "expect," "anticipate," or "plan" and words of similar effect. 27 RISK FACTORS -- continued - ------------ - - 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 and uncertainties about their application to the Company's operations, 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. The Company's contract with the Bonneville Power Administration for the period October 1996 to September 2001 provides fixed rates for electrical power provided to the Company's Washington and Oregon primary aluminum plants. These rates have been approved by federal regulatory authorities but have been appealed in court by a third party. If the appeal is successful, it is possible that higher electricity costs might result. - - A number of the Company's businesses are cyclical and can be influenced by economic conditions. - - A failure to complete the Company's major capital projects, such as expansion of the Worsley Alumina Refinery, as scheduled and within budget could affect the Company's results. - - The Company's results may be adversely affected if it fails to timely meet its Year 2000 readiness goals. The Company's assessments of the effort required to meet its Year 2000 readiness goal and the total cost of its Year 2000 remediation program are based on the Company's best estimates. These were derived using numerous assumptions of future events, including the continued availability of certain resources and other factors. However, we cannot guarantee these estimates are accurate and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. Also, there can be no guarantee that other companies with which the Company does business will be converted on a timely basis or their failure to be Year 2000 compliant will not have an adverse effect on the Company. - - A strike at a customer facility or a significant downturn in the business of a key customer supplied by the Company could affect the Company's results. 28 RISK FACTORS -- continued - ------------ - - Since late 1996, the Company has been conducting a Portfolio Review of all its operations. The Company has announced the signing of a letter of intent for the sale of its can stock complex in North Alabama, which consists of a rolling mill, two reclamation plants and a coil coating facility. It has entered into a letter of intent for the sale of its aluminum extrusion operations in Spain. These transactions are subject to certain conditions, including obtaining regulatory approvals, completion of purchaser financing, completion of definitive agreements and/or other customary closing conditions. In addition, the sale of the North Alabama can stock complex is dependent on the purchaser's ability to successfully negotiate new labor agreements with the applicable unions. As a result of these conditions, the sale of the can stock complex and the Spanish extrusion operation may or may not be completed as contemplated. The Company is also planning to sell its can machinery business, its interest in United Arab Manufacturing Company, Ltd. and its aluminum recycling plant in Italy and is working with the other stockholders of Latasa to agree upon and implement a process that will permit the sale of the Company's interest in Latasa in the near future. However, at this time, the Company has not entered into any letter of intent or agreement for the sale of these assets. 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 worldwide economies and markets in which the Company operates will not change significantly overall. 29 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Forward, futures, option and swap contracts are designated to manage market risks resulting from fluctuations in the aluminum, natural gas, foreign currency and debt markets. Contracts used to manage risks in these markets are not material. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS ----------------- As previously reported in the Registrant's Form 10-Q for the second quarter of 1998, a private antitrust lawsuit styled Hammons v. Alcan Aluminum Corp. et al. was filed in the Superior Court of California for the County of Los Angeles on March 5, 1996 against the Registrant and other aluminum producers. The lawsuit alleged a conspiracy to reduce worldwide and U.S. aluminum production. Estimated damages of approximately $26 billion were sought in the lawsuit, which claimed class action status. Defendants removed the case to the U.S. District Court for the Central District of California (the "District Court"). The District Court granted summary judgment for defendants. On December 11, 1997, the U.S. Court of Appeals for the Ninth Circuit sustained the District Court's dismissal of the case. The plaintiff filed a motion seeking review of the decision by all the judges of the Ninth Circuit. The motion was denied on May 14, 1998. On August 12, 1998, plaintiff petitioned the U.S. Supreme Court to review the case. On October 19, 1998, the U.S. Supreme Court declined to review. Item 2. CHANGES IN SECURITIES --------------------- (a) Recent Sales of Unregistered Securities Under the Registrant's Stock Plan for Outside Directors (the "Plan"), 99 phantom shares, in the aggregate, were granted to the Registrant's nine outside Directors on July 1, 1998, based on an average price of $55.5938 per share. These phantom shares represent dividend equivalents paid on phantom shares previously granted under the Plan. 506 phantom shares, in the aggregate, were granted to the nine outside Directors on September 30, 1998, based on an average price of $52.00 share. These phantom shares represent a quarterly installment of each outside Director's annual grant under the Plan. To the extent that these grants constitute sales of equity securities, the Registrant issued these phantom shares in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, taking into account the nature of the Plan, the number of outside Directors participating in the Plan, the sophistication of the outside Directors and their access to the kind of information that a registration statement would provide. A description of the Plan is contained in the Registrant's Form 10-K for the year ended December 31, 1997 in Part II, Item 5 under the caption "Sale of Unregistered Securities". Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K During the third quarter of 1998, the Registrant filed two Current Reports on Form 8-K with the Commission. The Registrant reported on a Form 8-K dated August 10, 1998 that it had completed the sale of its North American aluminum beverage 30 can operations to Ball Corporation ("Ball") for $746 million in cash. Included in the filing were pro forma financial statements showing the effect on the Company of the disposition of the assets to Ball. The Registrant reported on a Form 8-K dated September 15, 1998 that it had achieved its $900 million debt reduction goal and had repurchased 9.6 million of its common shares as of that date. The report also indicated that $549 million principal amount of debt securities were tendered and accepted for payment in response to the Registrant's fixed-spread tender offer, first announced on August 12, 1998. In addition to the foregoing, the Registrant reported on a Form 8-K dated October 16, 1998, that it had advised local union officials at its Alloys can stock complex in Alabama that the proposed purchaser of the facility had informed the Registrant that it is critical that the purchaser and labor unions representing employees at the complex negotiate new labor agreements with respect to those employees. The report stated additionally that the Registrant had advised the labor leaders at the complex that if (1) the proposed purchaser and the unions are able to agree on a new labor contract and (2) the Registrant and the proposed purchaser are able to successfully conclude negotiations and complete the sale, the Registrant would treat the transaction as a "plant closing" for purposes of benefit payments under its existing labor contracts. 31 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 /s/ Allen M. Earehart ---------------------------- Allen M. Earehart Senior Vice President, Controller (Chief Accounting Officer) DATE: November 13, 1998 32 INDEX TO EXHIBITS EXHIBIT 2 - Asset Purchase Agreement by and among Ball Corporation, Ball Metal Beverage Container Corp. and Reynolds Metals Company dated as of April 22, 1998. The Registrant agrees to furnish to the Commission upon request a copy of the disclosure schedules supplemental to the Asset Purchase Agreement. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1998, EXHIBIT 2) EXHIBIT 3.1 - Restated Certificate of Incorporation, as amended. (File No. 1-1430, 1997 Form 10-K Report, EXHIBIT 3.1) EXHIBIT 3.2 - By-laws, as amended. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1998, 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 December 1, 1997 (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 December 1, 1997, pertaining to Preferred Stock Purchase Rights, EXHIBIT 1) EXHIBIT 4.6 - 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 4.7 - Form of Fixed Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.3) EXHIBIT 4.8 - Form of Floating Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.4) EXHIBIT 4.9 - Form of Book-Entry Fixed Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.15) EXHIBIT 4.10 - Form of Book-Entry Floating Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.16) [FN] ______________________ Incorporated by reference. 33 EXHIBIT 4.11 - Form of 9% Debenture due August 15, 2003. (File No. 1-1430, Form 8-K Report dated August 16, 1991, Exhibit 4(a)) EXHIBIT 4.12 - 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) ("RACC"), as amended. (File No. 1-1430, 1995 Form 10-K Report, EXHIBIT 4.13) EXHIBIT 4.13 - By-Laws of RACC, as amended. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1997, EXHIBIT 4.14) EXHIBIT 4.14 - Articles of Incorporation of Societe Canadienne de Metaux Reynolds, Ltee/Canadian Reynolds Metals Company, Ltd. ("CRM"), as amended. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1997, EXHIBIT 4.15) EXHIBIT 4.15 - By-Laws of CRM, as amended. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1997, EXHIBIT 4.16) EXHIBIT 4.16 - Indenture dated as of April 1, 1993 among RACC, 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 4.17 - First Supplemental Indenture, dated as of December 18, 1995 among RACC, 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 4.18 - 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 1987 Nonqualified Stock Option Plan. (Registration Statement No. 33-13822 on Form S-8, dated April 28, 1987, EXHIBIT 28.1) EXHIBIT 10.2 - Reynolds Metals Company 1992 Nonqualified Stock Option Plan. (Registration Statement No. 33-44400 on Form S-8, dated December 9, 1991, EXHIBIT 28.1) EXHIBIT 10.3 - 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) [FN] _______________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. 34 EXHIBIT 10.4 - 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 10.5 - Supplemental Death Benefit Plan for Officers. (File No. 1-1430, 1986 Form 10-K Report, EXHIBIT 10.8) EXHIBIT 10.6 - Financial Counseling Assistance Plan for Officers. (File No. 1-1430, 1987 Form 10- K Report, EXHIBIT 10.11) EXHIBIT 10.7 - Management Incentive Deferral Plan. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.12) EXHIBIT 10.8 - 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 10.9 - Form of Indemnification Agreement for Directors and Officers. (File No. 1- 1430, Form 8-K Report dated April 29, 1987, EXHIBIT 28.3) EXHIBIT 10.10 - Form of Executive Severance Agreement as amended between Reynolds Metals Company and key executive personnel, including each of the current executive officers. (File No. 1- 1430, 1997 Form 10-K Report, EXHIBIT 10.10) EXHIBIT 10.11 - 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 10.12 - 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 10.13 - 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) EXHIBIT 10.14 - 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 10.15 - 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) [FN] _______________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. 35 EXHIBIT 10.16 - 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 10.17 - 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 10.18 - 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 10.19 - 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 10.20 - 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 10.21 - 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 10.22 - 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 10.23 - 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 10.24 - 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 10.25 - 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 10.26 - 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) [FN] ____________________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. 36 EXHIBIT 10.27 - 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 10.28 - 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 10.29 - 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 10.30 - 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) EXHIBIT 10.31 - 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 10.32 - 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 10.33 - Stock Option Agreement dated August 30, 1996 between Reynolds Metals Company and Jeremiah J. Sheehan. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1996, EXHIBIT 10.43) EXHIBIT 10.34 - Amendment to Deferred Compensation Plan for Outside Directors effective August 15, 1996. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1996, EXHIBIT 10.44) EXHIBIT 10.35 - Amendment to Reynolds Metals Company New Management Incentive Deferral Plan effective January 1, 1996. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.38) EXHIBIT 10.36 - Amendment to Reynolds Metals Company Performance Incentive Plan effective January 1, 1996. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.39) EXHIBIT 10.37 - Reynolds Metals Company Supplemental Incentive Plan. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.40) [FN] ____________________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. 37 EXHIBIT 10.38 - Reynolds Metals Company Stock Plan for Outside Directors. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.41) EXHIBIT 10.39 - Special Executive Severance Package for Certain Employees who Terminate Employment between January 1, 1997 and June 30, 1999 (or, if earlier, the date of completion of employment related actions related to the Company's portfolio review process, as designated by the Company's Chief Executive Officer), approved by the Compensation Committee of the Company's Board of Directors on January 17, 1997 and extended on May 15, 1998. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.42) EXHIBIT 10.40 - Special Award Program for Certain Executives or Key Employees, as approved by the Compensation Committee of the Company's Board of Directors on January 17, 1997. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.43) EXHIBIT 10.41 - Amendment to Reynolds Metals Company 1996 Nonqualified Stock Option Plan effective December 1, 1997. (File No. 1-1430, 1997 Form 10-K Report, EXHIBIT 10.41) EXHIBIT 10.42 - Amendment to Reynolds Metals Company Restricted Stock Plan for Outside Directors effective December 1, 1997. (File No. 1-1430, 1997 Form 10-K Report, EXHIBIT 10.42) EXHIBIT 10.43 - Reynolds Metals Company Long-Term Performance Share Plan. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1998, EXHIBIT 10.43) EXHIBIT 10.44 - Asset Purchase Agreement by and among Ball Corporation, Ball Metal Beverage Container Corp. and Reynolds Metals Company dated as of April 22, 1998. See EXHIBIT 2. EXHIBIT 11 - Omitted; see Part I, Item 1 for computation of earnings per share. EXHIBIT 15 - None EXHIBIT 18 - None EXHIBIT 19 - None EXHIBIT 22 - None EXHIBIT 23 - None [FN] _______________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. 38 EXHIBIT 24 - None EXHIBIT 27 - Financial Data Schedule as of September 30, 1998 EXHIBIT 99 - Description of Reynolds Metals Company Capital Stock. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1998, EXHIBIT 99) 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. [FN] _______________________ Incorporated by reference. EX-27 2
5 This schedule contains summary information extracted from the Reynolds Metals Company Condensed Balance Sheet (Unaudited) for September 30, 1998 and Consolidated Statement of Income (Unaudited) for the Nine Months ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000,000 9-MOS DEC-31-1998 SEP-30-1998 43 0 906 16 529 1630 5158 2995 6118 1280 996 0 0 1533 724 6118 4479 4479 3635 3635 182 0 94 286 89 197 0 (63) (23) 111 1.55 1.55 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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