-----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, FGkWUt5o5lIvVRj8KpVdFcczd2xY2jA32Lo4HTTom/Vqpxwowbro+FG+U9SvKt17 JCG9TzHU0rlos2nBjCBRoQ== 0000083604-00-000002.txt : 20000202 0000083604-00-000002.hdr.sgml : 20000202 ACCESSION NUMBER: 0000083604-00-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991230 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000118 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: 8-K SEC ACT: SEC FILE NUMBER: 001-01430 FILM NUMBER: 508452 BUSINESS ADDRESS: STREET 1: 6601 W BROAD ST STREET 2: PO BOX 27003 CITY: RICHMOND STATE: VA ZIP: 23261 BUSINESS PHONE: 8042812000 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 30, 1999 REYNOLDS METALS COMPANY ----------------------- (Exact name of Registrant as specified in its charter) Delaware 001-01430 54-0355135 -------- --------- ---------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification Number) 6601 West Broad Street, P.O. Box 27003, Richmond, Virginia 23261-7003 - ---------------------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (804) 281-2000 -------------- (Registrant's telephone number, including area code) 2 ITEM 5. OTHER EVENTS - ---------------------- The Registrant hereby incorporates by reference in this report the information under the heading "Unaudited Pro Forma Condensed Consolidated Financial Statements" set forth in Exhibit 99 filed herewith. This information also appears at pages 50-58 of the proxy statement and prospectus dated December 30, 1999 included in the Registration Statement on Form S-4 (No. 333- 93849) filed by Alcoa Inc. ("Alcoa") with the Securities and Exchange Commission in connection with the pending stock-for- stock merger transaction with the Registrant. With respect to the potential benefit from synergies to be achieved by Alcoa following completion of the merger with the Registrant, the following statements were included in a Current Report on Form 8-K filed by Alcoa on January 10, 2000: "Alcoa reiterated that it is targeting, and plans to achieve, cost and efficiency savings of approximately $200 million (pre-tax) by the end of the second year after the closing of the stock-for-stock merger transaction with Reynolds Metals Company. The projected cost synergies, approximately half of which are anticipated for the first year after closing, will be in addition to Alcoa's ongoing $1.1 billion (pre-tax) cost-reduction program." * * * * * Statements included or incorporated by reference in this report concerning future expectations, including regarding the future results of Alcoa and the Registrant, constitute forward- looking statements. Such statements involve a number of risks and uncertainties. For each of these statements, the Registrant claims the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors, along with those discussed in the Registrant's Form 10-Q Report for the quarter ended September 30, 1999 under "Management's Discussion and Analysis of Financial Condition and Results of Operations", could cause actual results to differ materially from those projected: . materially adverse changes in economic or industry conditions generally or in the markets served by the Registrant and Alcoa; . political and economic risk associated with foreign activities, including political instability in relevant areas of the world and fluctuations in foreign currencies; . changes in the supply and demand for and the price of aluminum, aluminum products, and other products; . material changes in available technology; . operating factors such as supply disruptions, the failure of equipment or processes to meet specifications, changes in operating conditions, substantial increases in power costs, and weather; . failure to complete capital projects as scheduled and within budget or failure to successfully launch new growth or strategic business programs; . labor relations; . environmental risks and liability under federal, state and foreign environmental laws and regulations; . changes in laws and regulations, both U.S. and foreign, or their interpretation and application, including changes in tax laws and interpretation and application of tax laws; . unanticipated legal proceedings or investigations or the disposition of current proceedings other than as anticipated by the Registrant's and Alcoa's managements; . relationships with and financial and operating conditions of customers or suppliers; . the actions of competitors; . the timing, process of, and conditions imposed in connection with the receipt of governmental permits and approvals relating to the merger; 2 3 . the ability to integrate the businesses of Alcoa and the Registrant and to realize expected synergies and strategic benefits successfully after the merger; . the challenges inherent in diverting management's focus and resources from other strategic opportunities and from operational matters during the integration process; and . opportunities that may be presented to and pursued by the combined company after the merger. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS c) Exhibits. 99 Unaudited Pro Forma Condensed Consolidated Financial Statements relating to the proposed merger of the Registrant with Alcoa Inc. 3 4 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 hereunto duly authorized. REYNOLDS METALS COMPANY By: ALLEN M. EAREHART ----------------------- Allen M. Earehart Senior Vice President and Controller Dated: January 18, 2000 4 5 EXHIBIT LIST No. --- 99 Unaudited Pro Forma Condensed Consolidated Financial Statements relating to the proposed merger of the Registrant with Alcoa Inc. 5 EX-99 2 EXHIBIT 99 50 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following Unaudited Pro Forma Condensed Consolidated Financial Statements are based on and should be read in conjunction with the historical consolidated financial statements of Alcoa and Reynolds, including the notes thereto, which are incorporated by reference in this proxy statement and prospectus. These financial statements have been adjusted to give effect to (1) Alcoa's merger with Alumax Inc., which was completed in July 1998, (2) Reynolds' sale of its North American aluminum beverage can operations in August 1998 and (3) the proposed merger with Reynolds. The Unaudited Pro Forma Condensed Consolidated Earnings Statement does not (a) purport to represent what the results of operations actually would have been if the above transactions had occurred as of the date indicated or what such results will be for any future periods or (b) give effect to certain nonrecurring charges expected to result from the Reynolds acquisition. The Unaudited Pro Forma Condensed Consolidated Earnings Statements for the nine month period ended September 30, 1999 and for the year ended December 31, 1998 give effect to the Reynolds merger and related transactions as if such transactions had occurred on January 1, 1998. The Unaudited Pro Forma Condensed Consolidated Earnings Statement for Alcoa for the year ended December 31, 1998 also gives effect to the Alumax merger as if such merger had occurred on January 1, 1998. The Unaudited Pro Forma Earnings Statement for Reynolds for the year ended December 31, 1998, presents the consolidated results of operations of the company assuming that the disposition of the company's North American Can Operations had occurred as of January 1, 1998. The operations consisted of 14 can plants, two end plants and a headquarters building. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1999 gives effect to the Reynolds merger and related transactions as if such transactions had occurred on that date. The pro forma adjustments are based upon available information and include certain assumptions and adjustments that the managements of Alcoa and Reynolds believe to be reasonable. These adjustments are directly attributable to the transactions referenced above and are expected to have a continuing impact on Alcoa's business, results of operations and financial position. Alcoa and Reynolds are currently awaiting approval for the merger transaction from various government authorities. Therefore, at the present time, the amount of information that the two companies can share is limited. Reynolds has certain severance plans, agreements and policies applicable to its executive management and salaried employees. It is probable that some covered persons will become entitled to severance benefits under these arrangements following the completion of the merger. The maximum amount payable under such arrangements is in the range of $200 to $225 million. The actual amount to be paid cannot be determined at present because Alcoa has not yet identified the employees who might be affected. In addition, Alcoa has initiated an assessment of restructuring costs and potential benefits from synergies; however, for the reasons noted above, these studies cannot be completed. Based on these facts, an estimate of the potential benefit from synergies or the amount of restructuring costs is not yet available. However, it is possible that the amounts involved related to the effects of restructuring could have a material impact on the purchase price allocation. The purchase of Reynolds will be accounted for using the purchase method of accounting, so the total purchase costs of the acquisition will be allocated to the tangible and intangible assets and liabilities acquired based upon their estimated fair values. The purchase price allocation is preliminary, based on facts currently known to the companies. Alcoa and Reynolds are not aware of any significant unrecorded obligations or contingencies, other than the severance arrangements referred to above, and, except as noted above, do not believe that the final purchase price allocation will materially differ from that included in the pro forma financial information contained herein. The final allocation of the purchase price will be made based upon valuations and other studies that have not been completed. 50 51 ALCOA INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 (DOLLARS IN MILLIONS)
HISTORICAL HISTORICAL REYNOLDS PRO FORMA ALCOA (B) ADJUSTMENTS PRO FORMA ---------- ---------- ----------- --------- ASSETS Current Assets Cash, cash equivalents and short-term investments....... $ 297 $ 62 $ (35)(E) $ 324 Receivables from customers, less allowances.............. 2,406 666 -- 3,072 Inventories................... 1,584 530 259 (E) 2,373 Prepaid expenses and other current assets............... 468 110 -- 578 -------- ------- ------- -------- Total current assets........ 4,755 1,368 224 6,347 Properties, plant and equipment at cost........................ 18,136 4,305 2,319 (E) 24,760 Less: accumulated depreciation, depletion and amortization..... (9,158) (2,293) -- (11,451) -------- ------- ------- -------- Net properties, plant and equipment...................... 8,978 2,012 2,319 13,309 Goodwill........................ 1,333 -- 858 (E) 2,191 Other assets.................... 1,799 2,588 -- 4,387 -------- ------- ------- -------- Total Assets................ $ 16,865 $ 5,968 $ 3,401 $ 26,234 ======== ======= ======= ======== LIABILITIES Short-term borrowings........... $ 612 $ 311 $ (286)(D) $ 637 Accounts payable and accrued liabilities.................... 2,515 809 (25)(D) 3,299 Long-term debt due within one year........................... 48 138 -- 186 -------- ------- ------- -------- Total current liabilities... 3,175 1,258 (311) 4,122 Long-term debt.................. 2,669 1,009 -- 3,678 Accrued postretirement benefits....................... 1,750 1,014 -- 2,764 Other noncurrent liabilities and deferred credits............... 1,906 593 127 (E) -- -- 858 (E) 3,484 -------- ------- -------- Total liabilities........... 9,500 3,874 674 14,048 Minority interests.......... 1,409 -- -- 1,409 Shareholders' Equity Preferred Stock............... 56 -- -- 56 Common Stock.................. 395 1,560 (1,560)(E) 72 (F) 467 Additional Capital............ 1,712 -- 4,749 (F) 6,461 Retained earnings............. 5,728 1,216 286 (D) 25 (D) (1,527)(E) 5,728 Treasury stock, at cost......... (1,310) (626) 626 (E) (1,310) Accumulated other comprehensive income......................... (625) (56) 56 (E) (625) -------- ------- ------- -------- Total shareholders' equity.. 5,956 2,094 2,727 10,777 -------- ------- ------- -------- Total Liabilities and Equity..................... $ 16,865 $ 5,968 $ 3,401 $ 26,234 ======== ======= ======= ======== The accompanying notes are an integral part of the pro forma condensed consolidated financial statements.
51 52 ALCOA INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL HISTORICAL PRO FORMA PRO ALCOA REYNOLDS (B) ADJUSTMENTS FORMA ---------- ------------ ----------- ------- Revenues Sales......................... $12,070 $3,434 $ (101) (G) $15,403 Other income.................. 78 4 -- 82 ------- ------ ------ ------- 12,148 3,438 (101) 15,485 Cost and Expenses Cost of goods sold............ 9,388 2,856 (101) (G) 12,143 Selling, general administrative and other expenses..................... 597 236 (10) (H) 823 Research and development expenses..................... 91 18 -- 109 Provision for depreciation, depletion and amortization... 663 179 86 (I) 928 Interest expense.............. 153 57 (13) (J) 197 Merger-related expenses....... -- 12 (12) (K) -- ------- ------ ------ ------- 10,892 3,358 (50) 14,200 Earnings Income before taxes on income....................... 1,256 80 (51) 1,285 Provision for taxes on income....................... 402 19 (12) (L) 409 ------- ------ ------ ------- Income from operations...... 854 61 (39) 876 Minority Interests............ (134) -- -- (134) ------- ------ ------ ------- Net income...................... $ 720 $ 61 $ (39) $ 742 ======= ====== ====== ======= Earnings per share Basic......................... $ 1.96 $ 0.95 -- $ 1.69 Diluted....................... $ 1.91 $ 0.95 -- $ 1.65 Weighted average shares outstanding: (in millions) Basic......................... 367 64 (64) (M) 72 (M) 439 Diluted....................... 376 64 (64) (M) 72 (M) 448 The accompanying notes are in an integral part of the pro forma condensed consolidated financial statements.
52 53 ALCOA INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ALCOA REYNOLDS PRO FORMA PRO FORMA (A) PRO FORMA (C) ADJUSTMENTS PRO FORMA ------------- ------------- ----------- --------- Revenues Sales.................... $ 16,766 $ 5,067 $ (173)(G) $ 21,660 Other income............. 152 20 -- 172 -------- ------- ------ -------- 16,918 5,087 (173) 21,832 Costs and Expenses Cost of goods sold....... 12,977 4,097 (173)(G) 16,901 Selling, general administrative and other expenses................ 917 336 (14)(H) 1,239 Research and development expenses................ 131 31 -- 162 Provision for depreciation, depletion and amortization........ 940 252 114 (I) 1,306 Interest expense......... 262 72 (17)(J) 317 Special items............ -- 480 -- 480 -------- ------- ------ -------- 15,227 5,268 (90) 20,405 Earnings Income before taxes on income, extraordinary loss and the cumulative effect of accounting change.................. 1,691 (181) (83) 1,427 Provision for taxes on income.................. 577 (99) (22)(L) 456 -------- ------- ------ -------- Income from operations... 1,114 (82) (61) 971 Minority Interests....... (238) -- -- (238) -------- ------- ------ -------- Income before extraordinary loss and the cumulative effect of accounting change........ $ 876 $ (82) $ (61) $ 733 ======== ======= ====== ======== Earnings per share--before extraordinary loss and the cumulative effect of accounting change Basic.................... $ 2.36 $ (1.24) -- $ 1.65 Diluted.................. $ 2.35 $ (1.24) -- $ 1.65 Weighted average shares outstanding: (in millions) Basic.................... 370 66 (66)(M) 72 (M) 442 Diluted.................. 372 66 (66)(M) 72 (M) 444 The accompanying notes are an integral part of the pro forma condensed consolidated financial statements.
53 54 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in millions, except per-share amounts) (A)In July 1998, Alcoa acquired Alumax Inc. for approximately $2.8 billion consisting of cash of approximately $1.5 billion and stock of approximately $1.3 billion. The transaction was accounted for using the purchase method. The following Unaudited Pro Forma Condensed Consolidated Earnings Statement for the year ended December 31, 1998 gives effect to this transaction as if such transaction had occurred on January 1, 1998. Accordingly, the results of Alumax for the first six months of 1998 have been included with the historical 1998 results of Alcoa. Pro forma adjustments have been included as appropriate. ALCOA INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL HISTORICAL ALCOA PRO ALCOA ALUMAX FORMA DECEMBER 31, JUNE 30, PRO FORMA DECEMBER 31, 1998 1998 ADJUSTMENTS 1998 ------------ ---------- ----------- ------------ Revenues Sales....................... $15,340 $1,555 $(129)(1) $16,766 Other income................ 150 2 -- 152 ------- ------ ----- ------- 15,490 1,557 (129) 16,918 Costs and Expenses Cost of goods sold.......... 11,934 1,172 (129)(1) 12,977 Selling, general administrative and other expenses................... 783 170 (36)(2) 917 Research and development expenses................... 128 3 -- 131 Provision for depreciation, depletion and amortization............... 842 79 22 (3) (3)(4) 940 Interest expense............ 198 35 34 (5) (5)(6) 262 ------- ------ ----- ------- 13,885 1,459 (117) 15,227 Earnings Income before taxes on income..................... 1,605 98 (12) 1,691 Provision for taxes on income..................... 514 51 12 (7) 577 ------- ------ ----- ------- Income from operations...... 1,091 47 (24) 1,114 Minority Interests.......... (238) -- -- (238) ------- ------ ----- ------- Net Income................... $ 853 $ 47 $ (24) $ 876 ======= ====== ===== ======= Earnings per share Basic....................... $ 2.44 $ 0.87 -- $ 2.36 Diluted..................... $ 2.42 $ 0.85 -- $ 2.35 Weighted average shares outstanding: (in millions) Basic....................... 333 55 (55)(8) 37 (8) 370 Diluted..................... 335 56 (56)(8) 37 (8) 372
54 55 - ------------- (1) Represents the elimination of inter-company sales and purchases between Alcoa and Alumax. (2) Represents an adjustment to stock option costs expensed by Alumax but included as part of the purchase price by Alcoa. (3) Pro forma adjustments have been included to adjust depreciation expense based on property, plant and equipment fair values and the amortization of goodwill. An average useful life of 25 years was assumed for fixed assets and a 40-year amortization period was assumed for goodwill. (4) Represents an adjustment to eliminate the amortization of Alumax pre-operating costs. (5) Represents interest expense related to long-term debt issued to finance the acquisition. (6) Represents an adjustment to record interest expense based on the fair value of the Alumax financial instruments. (7) Represents income taxes related to pro forma adjustments at the statutory rate, and the impact of certain non-deductible costs. (8) Represents the conversion of Alumax common stock and the issuance of 37 million shares of Alcoa common stock in connection with the Alumax merger. (B)Certain reclassifications have been made to the Reynolds historical financial statements to conform to the presentation to be used by Alcoa upon completion of the merger. (C)On August 10, 1998, Reynolds completed the sale of its North American aluminum beverage can operations to Ball Corporation for $746 million in cash. The Unaudited Pro Forma Condensed Consolidated Earnings Statement for the year ended December 31, 1998, presents the consolidated results of operations of Reynolds assuming that the disposition of the North American Can Operations had occurred as of January 1, 1998. Notes (1) through (5) to the following Reynolds Unaudited Pro Forma Condensed Consolidated Earnings Statement for the year ended December 31, 1998 describe the adjustments made for that presentation. 55 56 REYNOLDS METALS COMPANY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
LESS: HISTORICAL NORTH AMERICAN PRO FORMA REYNOLDS REYNOLDS CAN OPERATIONS(1) ADJUSTMENTS PRO FORMA ---------- ----------------- ----------- --------- Revenues Sales..................... $5,839 $ 772 $ -- $5,067 Other income.............. 20 -- -- 20 ------ ----- ----- ------ 5,859 772 -- 5,087 Costs and Expenses Cost of products sold..... 4,774 (677) -- 4,097 Selling, general administrative and other expenses................. 347 (11) -- 336 Research and development expenses................. 31 -- -- 31 Provision for depreciation, depletion and amortization......... 252 -- -- 252 Interest expense.......... 114 -- (42)(2) 72 Special items............. 144 -- 336 (3) 480 ------ ----- ----- ------ 5,662 (688) 294 5,268 Earnings Income before taxes on income, extraordinary loss and cumulative effect of accounting change................... 197 (84) (294) (181) Provision for taxes on income (credit).......... 45 (32) (112)(4) (99) ------ ----- ----- ------ Income Before Extraordinary Loss and Cumulative Effect of Accounting Change...... $ 152 $ (52) $(182) $ (82) ====== ===== ===== ====== Earnings per share before extraordinary loss and cumulative effect of accounting change Basic:.................... $ 2.18 -- -- $(1.24) Diluted:.................. $ 2.18 -- -- $(1.24) Weighted average shares outstanding (in millions) Basic:.................... 70 -- (4)(5) 66 Diluted:.................. 70 -- (4)(5) 66 The accompanying notes to unaudited pro forma financial information are an integral part of these statements.
56 57 - -------------- (1) The amounts included in the North American Can Operations column on the income statement reflects the direct activity of the operations from January 1, 1998 through August 10, 1998, the date of their disposition. Depreciation expense was not included in the operations' expenses for the year 1998. In 1998, the operations were accounted for as an asset held for sale and, as required by current accounting rules, depreciation was stopped. Pretax income has been tax effected at Reynolds' statutory rate (38%). (2) This pro forma adjustment represents the estimated reduction in interest expense as a result of long-term debt being reduced by $470 million. Interest expense was calculated using the weighted average interest rate (approximately 9%) on the long-term debt expected to be extinguished. (3) This pro forma adjustment eliminates the gain realized on the disposition. (4) Pretax income has been tax effected at Reynolds' statutory rate (38%). (5) The shares used for pro forma earnings per share reflect $208 million of proceeds being used to repurchase approximately 3,690,000 shares of Reynolds common stock. (D)It has been assumed that all Reynolds employee stock options were exercised for Reynolds shares before the merger. The cash received from the exercise was assumed to be utilized to reduce short-term debt. In addition, the appropriate tax benefit has been recorded as a credit to equity. The following details the exercise of the Reynolds employee stock options: September 30, 1999 ------------------ Stock options outstanding............................... 5,067,925 Weighted average exercise price per share............... $56.49 Cash received upon exercise of stock options at the weighted average exercise price........................ 286 million Tax benefit related to stock option exercise............ 25 million Total Reynolds shares outstanding after the exercise of stock options is as follows: September 30, 1999 ------------------ Number of Reynolds shares issued and outstanding (including deferred awards).......................................... 63,224,978 Number of Reynolds shares issued upon exercise of outstanding Reynolds stock options........................ 5,067,925 ---------- 68,292,903 ========== (E)The Reynolds acquisition is to be accounted for as a purchase business combination. The Unaudited Pro Forma Condensed Consolidated Financial Statements do not include any adjustments related to Reynolds severance arrangements, restructuring costs or recurring benefits from synergies. Alcoa and Reynolds are currently awaiting approval for the merger transaction from various government authorities. Therefore, at the present time, the amount of information that the two companies can share is limited. Reynolds has certain severance plans, agreements and policies applicable to its executive management and salaried employees. It is probable that some covered persons will become entitled to severance benefits under these arrangements following the completion of the merger. The maximum amount payable under such arrangements is in the range of $200 to $225 million. The actual amount to be paid cannot be determined at present because Alcoa has not yet identified the employees who might be affected. In addition, Alcoa has initiated an assessment of restructuring costs and potential benefits from synergies; however, for the reasons noted above, these studies cannot be completed. Based on these facts, an estimate of the potential benefit from synergies or the amount of restructuring costs is not yet available. However, it is possible that the amounts involved related to the effects of restructuring could have a material impact on the purchase price allocation. The purchase price includes an adjustment for deferred income taxes representing the difference between the assigned values and the tax basis of the assets and liabilities acquired. The purchase price, including acquisition costs, has been allocated as follows: 57 58
September 30, 1999 -------------------- Purchase price: Acquisition of outstanding shares of common stock (see note E)................................................ $ 4,821 Acquisition expenses incurred by Alcoa.................. 35 Less: Cash received from the exercise of outstanding Reynolds stock options................................. $ (286) Tax benefit from the exercise of outstanding Reynolds stock options.................................. (25) Book value of net assets acquired.................... (2,094) (2,405) --------- --------- Increase in basis....................................... $ 2,451 ========= Allocation of increase in basis: Increase in inventory value to convert LIFO to fair value.................................................. $ 259 Increase in the fair value of property, plant and equipment.............................................. 2,319 Adjust pension and postretirement accruals.............. (127) Increase in goodwill.................................... 858 Increase in deferred tax liabilities--long-term......... (858) --------- $ 2,451 =========
The purchase price allocation is preliminary and further refinements may be made based on the completion of final valuation studies. (F)Represents the issuance of Alcoa common stock for all of the common stock of Reynolds at an exchange ratio of 1.06 shares of Alcoa common stock per share of Reynolds common stock. In accordance with generally accepted accounting principles, the value of Alcoa stock to be issued was determined based on the market price of such Alcoa common stock over a reasonable period of time before and after August 18, 1999, the date the merger agreement was executed. This resulted in a value of $66.60 per share of Alcoa stock. Based on these facts, a value of $70.60 was ascribed to each share of Reynolds common stock. Therefore, the acquisition of 68,292,903 shares of Reynolds common stock at a value of $70.60 totaled $4.821 billion. The following details the issuance of common stock in connection with the merger agreement. September 30, 1999 ------------------ Total stock acquisition price paid in shares of Alcoa common stock................................. $4,821 Par value of Alcoa common stock issued at $66.60.... (72) ------ Additional capital.................................. $4,749 ====== (G)Represents the elimination of inter-company sales and purchases between Alcoa and Reynolds. (H)Represents lower pension and OPEB expenses as a result of recording a pro forma adjustment to record unrecognized actuarial losses and unrecognized prior service costs. See note D. (I)Pro forma adjustments have been included to adjust depreciation expense based on property, plant and equipment fair values and the amortization of goodwill. An average useful life of 25 years was assumed for fixed assets and a 40-year amortization period was assumed for goodwill. (J)Cash received from the exercise of Reynolds employee stock options was assumed to be used to reduce short-term debt. This adjustment reflects the lower interest expense that would be recognized as a result of this reduction in debt. (K)Represents the elimination of merger-related costs from the pro forma statement of income. (L)Represents income taxes related to pro forma adjustments at the statutory rate and the impact of certain non-deductible costs. (M)Represents the conversion of Reynolds common stock and the issuance of 72 million shares of Alcoa common stock in connection with the merger. 58 -----END PRIVACY-ENHANCED MESSAGE-----