-----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, VHbuEnNQ376RJH0a2t7x/SPrqV2utK/fTei+EPCELSeBI1EniCDiZx7ndD++Mu6v rqcNbc06mW8WNMFJx8qBZA== 0000083604-96-000017.txt : 19960814 0000083604-96-000017.hdr.sgml : 19960814 ACCESSION NUMBER: 0000083604-96-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REYNOLDS METALS CO CENTRAL INDEX KEY: 0000083604 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 540355135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01430 FILM NUMBER: 96609453 BUSINESS ADDRESS: STREET 1: 6601 W BROAD ST STREET 2: PO BOX 27003 CITY: RICHMOND STATE: VA ZIP: 23261 BUSINESS PHONE: 8042812000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-1430 REYNOLDS METALS COMPANY A Delaware Corporation (I.R.S. Employer Identification No. 54-0355135) 6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003 Telephone Number (804) 281-2000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ As of July 31, 1996, the Registrant had 63,677,834 shares of Common Stock, no par value, outstanding and entitled to vote. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - --------------------------------------------------------------------------- - -------------- Reynolds Metals Company
Quarters ended Six months ended June 30 June 30 - --------------------------------------------------------------------------- - -------------- (In millions, except per share amounts) 1996 1995 1996 1995 - --------------------------------------------------------------------------- - -------------- Revenues Net sales $1,823 $1,864 $3,485 $3,515 Equity, interest and other income 12 10 25 20 - --------------------------------------------------------------------------- - -------------- 1,835 1,874 3,510 3,535 - --------------------------------------------------------------------------- - ------------------------- - --------------------------------------------------------------------------- - -------------- Costs and expenses Cost of products sold 1,519 1,486 2,899 2,805 Selling, administrative and general expenses 105 110 216 214 Provision for depreciation and amortization 80 77 160 153 Interest - principally on long-term obligations 42 44 84 87 Operational restructuring costs - - 37 - - --------------------------------------------------------------------------- - -------------- 1,746 1,717 3,396 3,259 - --------------------------------------------------------------------------- - -------------- Income before income taxes and cumulative effect of accounting change 89 157 114 276 Taxes on income 29 46 37 83 - --------------------------------------------------------------------------- - -------------- Income before cumulative effect of accounting change 60 111 77 193 Cumulative effect of accounting change - - (15) - - --------------------------------------------------------------------------- - -------------- Net income 60 111 62 193 Preferred stock dividends 9 9 18 18 - --------------------------------------------------------------------------- - -------------- Net income available to common shareholders $ 51 $ 102 $ 44 $ 175 =========================================================================== ============== Earnings per share Average shares outstanding 64 73 64 73 Income before cumulative effect of accounting change $0.81 $1.51 $0.93 $2.64 Cumulative effect of accounting change - - (0.24) - - --------------------------------------------------------------------------- - -------------- Net income $0.81 $1.51 $0.69 $2.64 =========================================================================== ============== Cash dividends per common share $0.35 $0.30 $0.70 $0.55 - --------------------------------------------------------------------------- - --------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) - -------------------------------------------------------------------------- Reynolds Metals Company June 30 December 31 - -------------------------------------------------------------------------- (In millions) 1996 1995 - -------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 27 $ 39 Receivables, less allowances of $22 (1995 - $20) 1,102 1,043 Inventories 891 891 Prepaid expenses 54 41 - -------------------------------------------------------------------------- Total current assets 2,074 2,014 Unincorporated joint ventures and associated companies 1,341 1,286 Property, plant and equipment 6,690 6,600 Less allowances for depreciation and amortization 3,472 3,377 - -------------------------------------------------------------------------- 3,218 3,223 Deferred taxes and other assets 1,235 1,217 - -------------------------------------------------------------------------- Total assets $7,868 $7,740 ========================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable, accrued and other liabilities $1,051 $1,155 Short-term borrowings 389 111 Long-term debt 110 101 - -------------------------------------------------------------------------- Total current liabilities 1,550 1,367 Long-term debt 1,836 1,853 Postretirement benefits 1,205 1,213 Environmental, deferred taxes and other liabilities 671 690 Stockholders' equity Preferred stock 505 505 Common stock 945 941 Retained earnings 1,255 1,256 Cumulative currency translation adjustments (36) (22) Pension liability adjustment (63) (63) - -------------------------------------------------------------------------- Total stockholders' equity 2,606 2,617 - -------------------------------------------------------------------------- Total liabilities and stockholders' equity $7,868 $7,740 ========================================================================== CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) - -------------------------------------------------------------------------- Reynolds Metals Company Six Months Ended June 30 - -------------------------------------------------------------------------- (In millions) 1996 1995 - -------------------------------------------------------------------------- Operating activities Net Income $ 62 $193 Adjustments to reconcile to net cash provided by (used in) operating activities: Depreciation and amortization 160 153 Operational restructuring costs 37 - Cumulative effect of accounting change 15 - Changes in operating assets and liabilities: Accounts payable, accrued and other liabilities (89) (116) Receivables (71) (187) Inventories (10) (161) Other (97) (63) - -------------------------------------------------------------------------- Net cash provided by (used in) operating activities 7 (181) Investing activities Capital investments: Operational (89) (91) Strategic (94) (84) Investments (46) (35) Maturities of investments in debt securities - 54 Other investing activities - net (6) 24 - -------------------------------------------------------------------------- Net cash used in investing activities (235) (132) Financing activities Increase in borrowings (principally short-term) 279 95 Cash dividends paid (63) (49) - -------------------------------------------------------------------------- Net cash provided by financing activities 216 46 Cash and cash equivalents Net decrease ( 12) (267) At beginning of period 39 308 - -------------------------------------------------------------------------- At end of period $ 27 $ 41 ========================================================================== REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 1996 and 1995 Note A - Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods of 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10- K for the year ended December 31, 1995. Note B - Operational Restructuring Costs In the first quarter of 1996, the Company recorded operational restructuring costs of $37 million (pre-tax), which relate principally to employee termination costs associated with the planned closing of the Company's aluminum beverage can plant located in Houston, Texas. The facility's 1.4-billion-can annual capacity was determined to be in excess of the Company's domestic customer needs due to productivity gains within the Company's can- making system and slower overall growth in the domestic demand for cans. Operations at the facility will cease in early 1997, at which time the Company intends to transfer some equipment to other of its domestic and international can operations and sell the plant and property. Note C - Cumulative Effect of Accounting Change In the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121"). The Company recognized an after- tax loss of $15 million for the cumulative effect of adopting SFAS No. 121. The loss was for the impairment of assets held for sale, principally undeveloped land. Note D - Earnings per share In the second quarter and six months of 1996, earnings per share equals net income, minus dividends on the Company's preferred stock ("PRIDES"), divided by the weighted-average number of common shares outstanding during the period. In the second quarter and six months of 1995, earnings per share equals net income divided by the weighted-average number of common shares and common share equivalents outstanding during the period. The number of common share equivalents outstanding was based on the assumed conversion of the PRIDES. For the purpose of this computation, the respective conversion rates of common stock for each share of PRIDES (0.96 share in the second quarter and 0.94 share in the six month period of 1995) were based on the average market value of the Company's common stock ($49.41 in the second quarter and $50.03 in the six-month period of 1995). Common share equivalents relating to the PRIDES were not included in the second quarter or six months of 1996 since their effect would have been anti-dilutive. Note E - Financing arrangements In the first quarter of 1996, the Company entered into $400 million of interest rate swap agreements, which effectively convert a portion of its debt (principally medium-term notes) from fixed-rate to variable-rate. Under these agreements, payments are received based on a fixed rate (6.0%) and made based on a variable rate (5.25% at June 30, 1996). These arrangements mature in 2001. The variable rate is based on the London Interbank Offer Rate. In the second quarter of 1996, the Company amended its $500- million revolving credit facility to extend the term and lower the cost. The expiration date was extended from 2000 to 2001. The annual commitment fee on the facility was lowered from .125% to .10%. No amounts were outstanding under the facility at June 30, 1996. Note F - Contingent liabilities As previously disclosed in the Company's annual report on Form 10- K for the year ended December 31, 1995, the Company is involved in various worldwide environmental improvement activities resulting from past operations, including designation as a potentially responsible party, with others, at various Environmental Protection Agency designated Superfund sites. The Company has recorded amounts which, in management's best estimate, will be sufficient to satisfy anticipated costs of known remediation requirements. As a result of factors such as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of presently unknown remediation sites and the allocation of costs among potentially responsible parties, estimated costs for future environmental compliance and remediation are necessarily imprecise. Based on information presently available, such future costs are not expected to have a material adverse effect on the Company's competitive or financial position or its ongoing results of operations. However, such costs could be material to future quarterly or annual results of operations. Note G - Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. Financial statements and financial statement schedules for Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. have been omitted because certain securities registered under the Securities Act of 1933, of which these entities are obligors (thus subjecting them to reporting requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934), are fully and unconditionally guaranteed by Reynolds Metals Company. Financial information relating to these companies is presented herein in accordance with Staff Accounting Bulletin 53 as an addition to the notes to the financial statements of Reynolds Metals Company. Summarized financial information is as follows: Note G - Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. - continued Canadian Reynolds Metals Company, Ltd. Quarters ended June 30 Six Months ended June 30 ---------------------- ------------------------ 1996 1995 1996 1995 ---------------------- ------------------------ Net Sales: Customers $ 58 $ 61 $106 $103 Parent company 154 156 323 356 ---------------------- ------------------------ 212 217 429 459 Cost of products sold 179 135 333 302 Net income $ 15 $ 55 $ 52 $106 June 30 December 31 1996 1995 ------------ ------------- Current assets $253 $112 Noncurrent assets 1,252 1,266 Current liabilities (149) (91) Noncurrent liabilities (612) (617) Reynolds Aluminum Company of Canada, Ltd. Quarters ended June 30 Six Months ended June 30 ----------------------- ------------------------- 1996 1995 1996 1995 ----------------------- ------------------------- Net Sales: Customers $142 $136 $259 $249 Parent company 134 140 277 319 ----------------------- ------------------------- 276 276 536 568 Cost of products sold 237 178 436 393 Net income $15 $59 $47 $109 June 30 December 31 1996 1995 --------- ------------- Current assets $368 $221 Noncurrent assets 1,395 1,407 Current liabilities (279) (199) Noncurrent liabilities (639) (632) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following information should be read in conjunction with the consolidated financial statements and related notes included in the Company's annual report on Form 10-K for the year ended December 31, 1995, along with the consolidated financial statements and related notes included in and referred to in this report. In the tables, dollars are in millions, except per pound amounts, and shipments are in thousands of metric tons. A metric ton is equivalent to 2,205 pounds. RESULTS OF OPERATIONS The Company earned net income of $60 million ($0.81 per share) and $62 million ($0.69 per share) in the second quarter and six months of 1996, respectively, compared to net income of $111 million ($1.51 per share) in the second quarter of 1995 and $193 million ($2.64 per share) in the six months of 1995. The results for the first six months of 1996 include after-tax charges of $38 million ($0.60 per share) for the effects of a restructuring charge and an accounting change recorded in the first quarter of 1996. (See Notes B and C.) The Company's results for the second quarter and six months were affected by lower realized prices for primary aluminum (approximately 16% lower than the 1995 second quarter), as well as price declines in a number of fabricated products. The Company's results reflect continued softness in the overall global aluminum market, primarily attributable to a protracted soft landing in the U.S. economy and continued weakness in Europe and other areas, that has caused end users to liquidate excess inventories. Other factors affecting results include higher costs for certain raw materials, particularly in the production of alumina, and severe winter weather conditions earlier in the year which resulted in facility curtailments and lower volumes, particularly in the distribution and building products businesses. OPERATING AREA ANALYSIS - ----------------------- Shipments and Net Sales - ----------------------- Second Quarter --------------------------------------------- 1996 1995 --------------------------------------------- Shipments Net Sales Shipments Net Sales --------------------------------------------- Finished Products and Other sales Packaging and containers: Aluminum 96 $502 101 $510 Nonaluminum 149 134 Other aluminum 41 142 41 147 Other nonaluminum 139 129 --------------------------------------------- 137 932 142 920 --------------------------------------------- Production and Processing Primary aluminum 100 171 78 159 Sheet and plate 100 305 106 359 Extrusions 52 180 52 205 Other aluminum 43 127 48 128 Other nonaluminum 108 93 --------------------------------------------- 295 891 284 944 --------------------------------------------- Total 432 $1,823 426 $1,864 ============================================= Average realized price per pound: Fabricated aluminum products $1.81 $1.87 Primary aluminum $0.77 $0.92 Six Months ------------------------------------------- 1996 1995 ------------------------------------------- Shipments Net Sales Shipments Net Sales Finished Products and Other sales Packaging and containers: Aluminum 179 $940 183 $912 Nonaluminum 279 257 Other aluminum 79 275 85 298 Other nonaluminum 266 257 ------------------------------------------- 258 1,760 268 1,724 ------------------------------------------- Production and Processing Primary aluminum 181 313 139 292 Sheet and plate 191 597 212 689 Extrusions 103 358 108 400 Other aluminum 82 240 91 251 Other nonaluminum 217 159 ------------------------------------------- 557 1,725 550 1,791 ------------------------------------------- Total 815 $3,485 818 $3,515 =========================================== Average realized price per pound: Fabricated aluminum products $1.82 $1.80 Primary aluminum $0.78 $0.95 SHIPMENTS AND NET SALES Finished Products and Other Sales Shipments of aluminum packaging and containers in both 1996 periods were slightly lower due to decreased shipments of cans and ends. Lower can and end shipments were due to a decline in beer can volumes and lower export sales to South America as the Company's partially owned new facilities there are starting operations. Higher shipments of laminated aluminum foil were realized in both periods due to the acquisition of a laminated aluminum products plant in the second quarter of 1995. Shipments of other aluminum products were lower in the six- month period of 1996 due to severe winter weather conditions experienced earlier in the year. These conditions adversely affected the Company's building products and distribution businesses. The Company's distribution business was also affected by lower activity in the transportation market, especially for trucks and trailers. Shipments of building products rebounded due to improved weather conditions in the second quarter of 1996. The increases in net sales in both periods were due to higher prices for cans and foil products and higher nonaluminum sales. The increases in nonaluminum sales resulted primarily from higher sales of printing cylinders and plastics due to the acquisitions of a printing cylinder engraving company and a flexible packaging operation in the second and fourth quarters of 1995, respectively. These increases were slightly offset by lower prices for distributor products. Production and Processing Primary aluminum shipments fluctuate from period to period because of variations in internal requirements and changes in customer demand for value-added foundry ingot and billet. The acquisition of an additional 25% interest in the Becancour, Quebec primary aluminum production facility in the fourth quarter of 1995 contributed to the increase in primary aluminum shipments in the second quarter and six-month periods of 1996, in addition to providing primary aluminum for use in the Company's fabricating operations. The decreases in average realized prices for primary aluminum were attributable to weak economic conditions and the continuing excess inventory liquidation process. Most other products in this operating area realized declines in shipments and prices in both periods due to the factors described under "Results of Operations," and for the six-month period, the severe winter weather experienced earlier in the year. These conditions generally affected most markets served by this operating area. Higher shipments were realized for aluminum wheels due to additional capacity at the Company's new wheel facility in Wisconsin. The increases in other nonaluminum sales were due to strong demand for alumina earlier in the year and, in the six-month period, carbon products. Due to subsequently deteriorating conditions in the alumina market, however, the Company announced early in the third quarter of 1996 that it has started the process to temporarily curtail 250,000 metric tons of alumina production capacity at its 1.6-million-metric-tons-per-year Texas alumina refinery. This temporary curtailment is not expected to have a material impact on future operating results and will not affect the Company's ability to meet the requirements of its primary aluminum production operations. Costs and Expenses The increases in cost of products sold were due to higher costs for purchased materials, particularly in the production of alumina, and lower capacity utilization at aluminum fabricating facilities. Costs were favorably impacted by performance- improvement programs and lower outside purchases of primary aluminum due to the acquisition of an additional 25% interest in the Becancour, Quebec primary aluminum production facility in the fourth quarter of 1995. The declines in interest expense were due to lower effective interest rates, which were mostly offset by higher amounts of debt outstanding. SHIPMENTS AND NET SALES- continued Costs and Expenses- continued In the second quarter of 1996, the Company signed new six- year labor contracts with its major unions that represent a majority of its domestic hourly employees. Major provisions of the new agreements include wage increases of $1.15 an hour over the first five years (plus incremental increases in 1997 and 1999), enhanced pension benefits and other benefits. At the end of the fifth year, the economic provisions of the contracts will be reopened. If agreement cannot be reached, the economic provisions will be submitted to arbitration for one additional year. The Company and the unions also agreed to work cooperatively on customer requirements, business objectives and shareholder and union interests. In addition, the agreements contain broad, new provisions for employee safety, job security and influence, control and accountability in the work environment. Labor costs are expected to increase by approximately $15 million in the second half of 1996. In the first quarter of 1996, the Company recorded operational restructuring costs of $37 million that relate principally to employee termination costs associated with the planned closing of an aluminum beverage can plant located in Houston, Texas. The Company's strategy for its U.S. can business is to aggressively reduce costs and increase production efficiencies through modernization programs and new technologies. The closing of the Houston facility will provide the Company with annual cost savings of approximately $18 million. As a result of improved efficiencies system-wide, the Company will essentially maintain its current annual domestic aluminum beverage can production capacity. (See Note B.) On a quarterly basis, the Company updates the status of all significant existing or potential environmental issues, develops or revises estimates of costs to satisfy known remediation requirements and adjusts its accruals accordingly. Based on information presently available, such future costs are not expected to have a material adverse effect on the Company's competitive or financial position or its ongoing results of operations. However, it is not possible to predict the amount or timing of future costs of environmental requirements which may subsequently be determined. Such costs could be material to future quarterly or annual results of operations. Various suits and claims are pending against the Company. In the opinion of management, after consultation with counsel, disposition of these suits and claims, either individually or in the aggregate, will not have a material adverse effect on the Company's competitive or financial position or its ongoing results of operations. No assurance can be given, however, that the disposition of one or more of such suits or claims in a particular reporting period will not be material in relation to the reported results for such period. Taxes on Income The effective tax rates reflected in the statement of income differ from the U.S. federal statutory rate because of state and foreign taxes and the effects of percentage depletion allowances. Cumulative Effect of Accounting Change In the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. (See Note C.) SHIPMENTS AND NET SALES- continued Operating Outlook The Company continues to remain optimistic regarding favorable, long-term aluminum industry fundamentals. The Company expects aluminum demand to benefit later in the year from a strengthening U.S. economy, the beginning of a recovery in Europe and strength in Asia and Latin America. These expected improvements are coming later than the Company anticipated, however, and the deterioration in aluminum prices the Company is currently experiencing will make it difficult in the near term to achieve significant gains over current operating results. The Company has a number of programs underway to improve performance and reduce costs. These programs include (1) modernization of a California can plant that will improve production efficiencies; (2) process improvements in the Company's flexible packaging operations; (3) improvement of can stock production through process improvements and completion of capital projects underway; and (4) improvements at European sheet and extrusion operations. These four programs alone are expected to generate savings of approximately $5 million in the second half of 1996 and more than $50 million annually when fully implemented. LIQUIDITY AND CAPITAL RESOURCES Working Capital Working capital totaled $524 million at June 30, 1996, compared to $647 million at December 31, 1995. The ratio of current assets to current liabilities was 1.3/1 at June 30, 1996, compared to 1.5/1 at December 31, 1995. Operating Activities In the first six months of 1996, cash generated from operations was mostly offset by reductions in accounts payable, accrued and other liabilities and increases in receivables. Investing Activities Capital investments of $229 million in the first six months of 1996 included $89 million for operating requirements (i.e., replacement equipment, capital maintenance, environmental control projects, etc.). The remainder was for continuing performance improvement and strategic investment projects including the modernization of aluminum can and end facilities; expansions at foil, plastic film and extrusion facilities; quality improvements at a can sheet facility in Alabama; the modification and equipping of a purchased facility in Wisconsin to produce aluminum wheels that was substantially completed in the second quarter of 1996; and the acquisition of an interest in a Chinese joint venture as discussed below. In the second quarter of 1996, the Company acquired an interest in a joint venture in China that produces aluminum foil and extrusions. The operation, Bohai Aluminium Industries, Ltd., includes a large aluminum fabricating facility that was built in the mid-1980's and expanded later that decade. The facility manufactures aluminum foil, primarily for the food, pharmaceutical and tobacco industries, and extrusions for the automotive and building products markets. Financing Activities Cash provided by financing activities in the first six months of 1996 was used to fund investing activities. The principal source of funds was from the issuance of $255 million of commercial paper at a weighted-average rate of 5.6%. LIQUIDITY AND CAPITAL RESOURCES - continued Financing Activities - continued In the first quarter of 1996, the Company entered into $400 million of interest rate swap agreements and, in the second quarter of 1996, the Company amended its $500-million revolving credit facility. (See Note E.) Financial Outlook Capital investments in 1996 are expected to be between $450 and $475 million, with approximately 44% of this amount allocated for operating requirements. Remaining investments to be spent in 1996 will be for continuing expenditures for those performance improvement and strategic investment projects underway and the construction of a new wheel facility as discussed below. Capital investments in 1996 are expected to be funded with cash generated from operations, supplemented with short-term borrowings as needed. The Company plans to repay part of the short-term borrowings later in the year as economic and business conditions improve. In the second quarter of 1996, the Company announced plans to build a $34-million facility in Virginia to manufacture aluminum wheels. Production is expected to start in early 1997. The facility will use a manufacturing process that combines the Company's computer-controlled, flow-formed casting technology with forging to produce lightweight wheels with added styling flexibility. The facility will initially employ approximately 80 to 125 people. A part of the Company's strategy is to sell non-core assets and redeploy the proceeds into strategic businesses. The Company announced in the third quarter of 1996 that it intends to sell its coal properties in western Kentucky, which it acquired in the 1960's when it considered building an aluminum reduction plant in the area. The properties include surface and mineral rights on about 16,000 acres, mineral rights on an additional 32,000 acres (approximately) and varying percentages of oil and gas rights on about 6,400 of the acres. A recent study by an independent firm estimated coal reserves on the properties at approximately 280 million tons. The Company expects a gain on the sale. The Company believes its available financial resources, together with internally generated funds, are sufficient to meet its business needs at the present time and for the foreseeable future. The Company continues to exceed the financial ratio requirements contained in its financing arrangements and expects to do so for the foreseeable future. At June 30, 1996, $150 million of the Company's $1.65- billion shelf registration remained available for the issuance of debt securities. RISK FACTORS This section should be read in conjunction with Part I, Items 1 (Business), 3 (Legal Proceedings) and 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of the Company's annual report on Form 10-K for the year ended December 31, 1995 and Part II, Item 1 (Legal Proceedings) of the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1996 and this report. This report contains (and oral communications made by or on behalf of the Company may contain) forecasts, projections, estimates, statements of management's plans and objectives for the Company and other forward-looking statements. The Company's expectations for the future and related forward-looking statements are based on a number of assumptions and forecasts as to world economic growth and other economic indicators (including rates of inflation, industrial production, housing starts and light vehicle sales), trends in the Company's key markets, global aluminum supply and demand conditions, and aluminum ingot prices, among other things. By their nature, forward-looking statements involve risk and uncertainty, and various factors could cause the Company's actual results to differ from RISK FACTORS - continued those projected in a forward-looking statement or affect the extent to which a particular projection is realized. The Company believes aluminum industry fundamentals will improve later in 1996, although the improvement will not materialize as soon as had been earlier anticipated. The Company's outlook for improvement is based on its expectations of a strengthening U. S. economy, the beginning of a recovery in Europe, and strength in Asia and Latin America. After the current liquidation of excess inventories by customers is completed, which the Company anticipates will occur by the end of the 1996 third quarter, and barring a recession in any major world economy, the Company expects improved conditions in aluminum industry supply/demand fundamentals to continue for the next several years. The Company's outlook for growth in aluminum consumption for the remainder of this decade is an average of 4% per year. The Company expects greater use of aluminum around the world in automobiles and other light vehicles; a slowing in the growth in U.S. aluminum beverage can shipments to about 2% per year and a 5% annual increase in global shipments, with rapid growth of the aluminum beverage can market in Latin America, Asia, the Middle East, and other developing economies; and increased use of aluminum in the building and construction markets, particularly in Eastern Europe and the Commonwealth of Independent States and as a result of new construction projects in emerging markets. Economic and/or market conditions other than as forecast by the Company in the preceding paragraph, particularly in the U.S., Japan and Germany (which are large consumers of aluminum) and in South America, could cause the Company's actual results to differ from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. The following factors also could affect the Company's results: * Primary aluminum is an internationally traded commodity. The price of primary aluminum is subject to worldwide market forces of supply and demand and other influences. Prices can be volatile. The Company's strategy of being a vertically integrated producer of value-added aluminum products, and its use of contractual arrangements including fixed-price sales contracts, fixed-price supply contracts, and forward, futures and option contracts, reduces its exposure to this volatility but does not eliminate it. * The markets for most aluminum products are highly competitive. Certain of the Company's competitors are larger than the Company in terms of total assets and operations and have greater financial resources. Certain foreign governments are involved in the operation and/or ownership of certain competitors, and may be motivated by political as well as economic considerations. In addition, aluminum competes with other materials, such as steel, vinyl, plastics and glass, among others, for various applications in the Company's key markets. Unanticipated actions or developments by or affecting the Company's competitors and/or the willingness of customers to accept substitutions for the products sold by the Company could affect results. * The Company spends substantial capital and operating amounts relating to ongoing compliance with environmental laws. In addition, the Company is involved in remedial investigations and actions in connection with past disposal of wastes. Estimating future environmental compliance and remediation costs is imprecise due to the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown remediation sites, and the allocation of costs among potentially responsible parties. RISK FACTORS - continued * Unanticipated material legal proceedings or investigations, or the disposition of those currently pending against the Company other than as anticipated by management and counsel, could affect the Company's results. * Changes in the costs of power, resins, caustic soda, green coke and other raw materials can affect results. A new five- year contract with the Bonneville Power Administration for the period October 1996 - September 2001 would provide a fixed rate for electrical power that is 16% less than rates now in effect for the Company's Longview, Washington and Troutdale, Oregon primary aluminum production plants. The new contract is subject to regulatory review and approval and is critical to the competitive position of those two smelters. * The Company's key transportation and building and construction markets are cyclical, and sales to those markets in particular can be influenced by economic conditions. In addition to the factors referred to above, the Company is exposed to general financial, political, economic and business risks in connection with its worldwide operations. The Company continues to evaluate and manage its operations in a manner to mitigate the effects from exposure to such risks. In general, the Company's expectations for the future are based on the assumption that conditions relating to costs, currency values, competition and the legal, regulatory, financial, political and business environments in the economies and markets in which the Company operates will not change significantly overall. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS As previously reported in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, 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. Estimated damages of approximately $26 billion were sought in the lawsuit, which claims class action status. Defendants removed the case to the U.S. District Court for the Central District of California (the "District Court"). On July 1, 1996, the District Court granted summary judgment for defendants. Plaintiff filed a motion for reconsideration with the District Court, which was denied on July 16, 1996. On July 18, 1996, plaintiff filed a notice of appeal to the U.S. Court of Appeals for the 9th Circuit. The Registrant is confident that its conduct has been in compliance with the antitrust laws. Item 5. OTHER INFORMATION The following changes in the Registrant's management and Board of Directors will become effective on October 1, 1996: (a) Richard G. Holder will retire as Chairman of the Board and Chief Executive Officer and as a member of the Board of Directors; (b) Jeremiah J. Sheehan (currently President and Chief Operating Officer and a member of the Board of Directors) will succeed Mr. Holder as Chairman of the Board and Chief Executive Officer, the office of President and Chief Operating Officer to remain vacant; (c) Randolph N. Reynolds (currently Vice Chairman and a member of the Board of Directors) and J. Wilt Wagner (currently Executive Vice President, Raw Materials, Metals and Industrial Products) each will become Vice Chairman and Executive Officer; and (d) Mr. Wagner will become a member of the Board of Directors. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the second quarter of 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REYNOLDS METALS COMPANY By Allen M. Earehart Allen M. Earehart Vice President, Controller (Chief Accounting Officer) DATE: August 13, 1996 INDEX TO EXHIBITS EXHIBIT 2 - None * EXHIBIT 3.1 - Restated Certificate of Incorporation, as amended to the date hereof. (Registration Statement No. 333-00929 on Form S-8, dated February 14, 1996, EXHIBIT 4.1) * EXHIBIT 3.2 - By-Laws, as amended to the date hereof. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1996, EXHIBIT 3.2) EXHIBIT 4.1 - Restated Certificate of Incorporation. See EXHIBIT 3.1. EXHIBIT 4.2 - By-Laws. See EXHIBIT 3.2. * EXHIBIT 4.3 - Indenture dated as of April 1, 1989 (the "Indenture") between Reynolds Metals Company and The Bank of New York, as Trustee, relating to Debt Securities. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1989, EXHIBIT 4(c)) * EXHIBIT 4.4 - Amendment No. 1 dated as of November 1, 1991 to the Indenture. (File No. 1- 1430, 1991 Form 10-K Report, EXHIBIT 4.4) * EXHIBIT 4.5 - Rights Agreement dated as of November 23, 1987 (the "Rights Agreement") between Reynolds Metals Company and The Chase Manhattan Bank, N.A. (File No. 1- 1430, Registration Statement on Form 8-A dated November 23, 1987, pertaining to Preferred Stock Purchase Rights, EXHIBIT 1) * EXHIBIT 4.6 - Amendment No. 1 dated as of December 19, 1991 to the Rights Agreement. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.11) * EXHIBIT 4.7 - Form of 9-3/8% Debenture due June 15, 1999. (File No. 1-1430, Form 8-K Report dated June 6, 1989, EXHIBIT 4) * EXHIBIT 4.8 - Form of Fixed Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.3) * EXHIBIT 4.9 - Form of Floating Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.4) * EXHIBIT 4.10 - Form of Book-Entry Fixed Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.15) * EXHIBIT 4.11 - Form of Book-Entry Floating Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.16) _______________________ *Incorporated by reference. * EXHIBIT 4.12 - Form of 9% Debenture due August 15, 2003. (File No. 1-1430, Form 8-K Report dated August 16, 1991, Exhibit 4(a)) * EXHIBIT 4.13 - Articles of Continuance of Societe d'Aluminium Reynolds du Canada, Ltee/Reynolds Aluminum Company of Canada, Ltd. (formerly known as Canadian Reynolds Metals Company, Limited -- Societe Canadienne de Metaux Reynolds, Limitee) ("REYCAN"), as amended to the date hereof. (File No. 1-1430, 1995 Form 10-K Report, EXHIBIT 4.13) * EXHIBIT 4.14 - By-Laws of REYCAN, as amended to the date hereof. (File No. 1-1430, 1995 Form 10- K Report, EXHIBIT 4.14) * EXHIBIT 4.15 - Articles of Incorporation of Societe Canadienne de Metaux Reynolds, Ltee/Canadian Reynolds Metals Company, Ltd. ("CRM"), as amended to the date hereof. (File No. 1-1430, 1995 Form 10- K Report, EXHIBIT 4.15) * EXHIBIT 4.16 - By-Laws of CRM, as amended to the date hereof. (File No. 1-1430, 1995 Form 10- K Report, EXHIBIT 4.16) * EXHIBIT 4.17 - Indenture dated as of April 1, 1993 among REYCAN, Reynolds Metals Company and The Bank of New York, as Trustee. (File No. 1-1430, Form 8-K Report dated July 14, 1993, EXHIBIT 4(a)) * EXHIBIT 4.18 - First Supplemental Indenture, dated as of December 18, 1995 among REYCAN, Reynolds Metals Company, CRM and The Bank of New York, as Trustee. (File No. 1-1430, 1995 Form 10-K Report, EXHIBIT 4.18) * EXHIBIT 4.19 - Form of 6-5/8% Guaranteed Amortizing Note due July 15, 2002. (File No. 1-1430, Form 8- K Report dated July 14, 1993, EXHIBIT 4(d)) * EXHIBIT 10.1 - Reynolds Metals Company 1982 Nonqualified Stock Option Plan, as amended through May 17, 1985. (File No. 1-1430, 1985 Form 10-K Report, EXHIBIT 10.2) * EXHIBIT 10.2 - Reynolds Metals Company 1987 Nonqualified Stock Option Plan. (Registration Statement No. 33-13822 on Form S-8, dated April 28, 1987, EXHIBIT 28.1) * EXHIBIT 10.3 - Reynolds Metals Company 1992 Nonqualified Stock Option Plan. (Registration Statement No. 33-44400 on Form S-8, dated December 9, 1991, EXHIBIT 28.1) * EXHIBIT 10.4 - Reynolds Metals Company Performance Incentive Plan, as amended and restated effective January 1, 1996. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended March 31, 1995, EXHIBIT 10.4) _______________________ *Incorporated by reference. * EXHIBIT 10.5 - Agreement dated December 9, 1987 between Reynolds Metals Company and Jeremiah J. Sheehan. (File No. 1-1430, 1987 Form 10- K Report, EXHIBIT 10.9) * EXHIBIT 10.6 - Supplemental Death Benefit Plan for Officers. (File No. 1-1430, 1986 Form 10- K Report, EXHIBIT 10.8) * EXHIBIT 10.7 - Financial Counseling Assistance Plan for Officers. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.11) * EXHIBIT 10.8 - Management Incentive Deferral Plan. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.12) * EXHIBIT 10.9 - Deferred Compensation Plan for Outside Directors as Amended and Restated Effective December 1, 1993. (File No. 1- 1430, 1993 Form 10-K Report, EXHIBIT 10.12) * EXHIBIT 10.10 - Retirement Plan for Outside Directors. (File No. 1-1430, 1986 Form 10-K Report, EXHIBIT 10.10) * EXHIBIT 10.11 - Death Benefit Plan for Outside Directors. (File No. 1-1430, 1986 Form 10-K Report, EXHIBIT 10.11) * EXHIBIT 10.12 - Form of Indemnification Agreement for Directors and Officers. (File No. 1- 1430, Form 8-K Report dated April 29, 1987, EXHIBIT 28.3) * EXHIBIT 10.13 - Form of Executive Severance Agreement between Reynolds Metals Company and key executive personnel, including each of the individuals listed in Item 4A of the Reynolds Metals Company 1995 Form 10-K Report. (File No. 1-1430, 1987 Form 10- K Report, EXHIBIT 10.18) * EXHIBIT 10.14 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective May 20, 1988. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended June 30, 1988, EXHIBIT 19(a)) * EXHIBIT 10.15 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective October 21, 1988. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1988, EXHIBIT 19(a)) * EXHIBIT 10.16 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 1, 1987. (File No. 1- 1430, 1988 Form 10-K Report, EXHIBIT 10.22) * EXHIBIT 10.17 - Form of Stock Option and Stock Appreciation Right Agreement, as approved February 16, 1990 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, 1989 Form 10-K Report, EXHIBIT 10.24) ____________________________ * Incorporated by reference. * EXHIBIT 10.18 - Amendment to Reynolds Metals Company 1982 Nonqualified Stock Option Plan effective January 18, 1991. (File No. 1- 1430, 1990 Form 10-K Report, EXHIBIT 10.25) * EXHIBIT 10.19 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 18, 1991. (File No. 1- 1430, 1990 Form 10-K Report, EXHIBIT 10.26) * EXHIBIT 10.20 - Letter Agreement dated January 18, 1991 between Reynolds Metals Company and William O. Bourke. (File No. 1-1430, 1990 Form 10-K Report, EXHIBIT 10.27) * EXHIBIT 10.21 - Form of Stock Option Agreement, as approved April 22, 1992 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1992, EXHIBIT 28(a)) * EXHIBIT 10.22 - Consulting Agreement dated May 1, 1992 between Reynolds Metals Company and William O. Bourke. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1992, EXHIBIT 28(b)) * EXHIBIT 10.23 - Renewal dated February 18, 1994 of Consulting Agreement dated May 1, 1992 between Reynolds Metals Company and William O. Bourke. (File No. 1-1430, 1993 Form 10-K Report, EXHIBIT 10.28) * EXHIBIT 10.24 - Reynolds Metals Company Restricted Stock Plan for Outside Directors. (Registration Statement No. 33-53851 on Form S-8, dated May 27, 1994, EXHIBIT 4.6) * EXHIBIT 10.25 - Reynolds Metals Company New Management Incentive Deferral Plan. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.30) * EXHIBIT 10.26 - Reynolds Metals Company Salary Deferral Plan for Executives. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.31) * EXHIBIT 10.27 - Reynolds Metals Company Supplemental Long Term Disability Plan for Executives. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.32) * EXHIBIT 10.28 - Amendment to Reynolds Metals Company 1982 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.33) * EXHIBIT 10.29 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.34) ____________________________ * Incorporated by reference. * EXHIBIT 10.30 - Amendment to Reynolds Metals Company 1992 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1- 1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.35) * EXHIBIT 10.31 - Amendment to Reynolds Metals Company New Management Incentive Deferral Plan effective January 1, 1995. (File No. 1- 1430, 1994 Form 10-K Report, EXHIBIT 10.36) * EXHIBIT 10.32 - Amendment to Reynolds Metals Company New Management Incentive Deferral Plan effective January 1, 1995 through December 31, 1996. (File No. 1-1430, 1994 Form 10-K Report, EXHIBIT 10.37) * EXHIBIT 10.33 - Amendment to Reynolds Metals Company Salary Deferral Plan for Executives effective January 1, 1995 through December 31, 1996. (File No. 1-1430, 1994 Form 10-K Report, EXHIBIT 10.38) * EXHIBIT 10.34 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Trustee Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.34) * EXHIBIT 10.35 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Employee Pays Premium). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.35) * EXHIBIT 10.36 - Form of Split Dollar Life Insurance Agreement (Employee Owner, Employee Pays Premium). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.36) * EXHIBIT 10.37 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Third Party Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.37) * EXHIBIT 10.38 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Employee Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.38) * EXHIBIT 10.39 - Reynolds Metals Company 1996 Nonqualified Stock Option Plan. (Registration Statement No. 333-03947 on Form S-8, dated May 17, 1996, EXHIBIT 4.6) * EXHIBIT 10.40 - Amendment to Reynolds Metals Company 1992 Nonqualified Stock Option Plan effective January 1, 1993. (Registration Statement No. 333-03947 on Form S-8, dated May 17, 1996, EXHIBIT 99) EXHIBIT 10.41 - Form of Stock Option Agreement, as approved May 17, 1996 by the Compensation Committee of the Company's Board of Directors ____________________________ * Incorporated by reference. EXHIBIT 10.42 - Form of Three Party Stock Option Agreement, as approved May 17, 1996 by the Compensation Committee of the Company's Board of Directors EXHIBIT 11 - Computation of Earnings Per Share EXHIBIT 15 - None EXHIBIT 18 - None EXHIBIT 19 - None EXHIBIT 22 - None EXHIBIT 23 - None EXHIBIT 24 - None EXHIBIT 27 - Financial Data Schedule Pursuant to Item 601 of Regulation S-K, certain instruments with respect to long-term debt of Reynolds Metals Company (the "Registrant") and its consolidated subsidiaries are omitted because such debt does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request. EX-10 2 EXHIBIT 10.41 STOCK OPTION AGREEMENT THIS AGREEMENT, dated ____________________ between REYNOLDS METALS COMPANY, a Delaware corporation ("Reynolds"), and ___________________________________________ ("Optionee"). WHEREAS, the Committee designated to administer the Reynolds Metals Company 1996 Nonqualified Stock Option Plan ("Plan") has selected Optionee as an Eligible Employee (as defined in the Plan) to whom an option is to be granted under the Plan, and has recognized that through Optionee's efforts and because of Optionee's responsibilities, Optionee is in a position to contribute substantially to the overall success and growth of Reynolds; NOW, THEREFORE, the parties agree as follows: 1. Reynolds grants to Optionee an option to purchase from Reynolds the number of shares of its Common Stock, no par value, listed on the Schedule(s) hereto and executed by Reynolds and Optionee, at the prices indicated opposite such shares on such Schedule(s), and otherwise in accordance with the terms and conditions stated in the Plan. 2. Subject to the terms of the Plan, the option shall be exercisable in whole or part, from time to time, on and after the date or dates indicated opposite such shares on the Schedule(s) hereto, but in no event later than the earlier of (a) ten years from the date of the grant or (b) the date specified in the Plan relating to Optionee's termination of employment with Reynolds and its subsidiaries. No option may be exercised for less than 100 shares of Common Stock unless the Optionee is electing to exercise all the remaining options then exercisable on the applicable Schedule. 3. This Agreement is at all times subject to the terms and conditions of the Plan, which terms and conditions are incorporated herein by reference. Optionee is aware that under the Plan no option may be exercised if his or her employment terminates for any reason within one year of the date of the grant, except as otherwise permitted under the terms of the Plan. 4. All notices to Reynolds must be in writing, addressed to the Director, Employee Financial Services, Reynolds Metals Company, 6601 West Broad Street, Richmond, Virginia 23230-1701, and are effective upon receipt. 5. The effectiveness of this Agreement and of any grant of an option hereunder are subject to compliance with all applicable laws and regulations and to receipt of any governmental approvals necessary for the performance by the parties of their obligations hereunder, including but not limited to compliance with and approvals under all applicable exchange control and securities laws. IN WITNESS WHEREOF, Reynolds and Optionee have executed this Agreement in duplicate as of the date first above written. REYNOLDS METALS COMPANY By____________________________ ______________________________ Optionee SCHEDULE DATED __________ TO Stock Option Agreement dated __________ between Reynolds Metals Company and [Optionee] No. Shares of Option Exercisable Common Stock Price On and After - ------------- ------ ------------ This Schedule is subject at all times to the terms and conditions of the above-referenced Agreement and of the Reynolds Metals Company 1996 Nonqualified Stock Option Plan. REYNOLDS METALS COMPANY By: _______________________________ ___________________________________ Optionee EX-10 3 EXHIBIT 10.42 THREE PARTY STOCK OPTION AGREEMENT THIS AGREEMENT, dated _________________ among REYNOLDS METALS COMPANY, a Delaware corporation ("Reynolds"), __________ _______________________________________________________________, a ____________ corporation ("Subsidiary"), and ________________ ___________________________________ ("Optionee"). WHEREAS, the Committee designated to administer the Reynolds Metals Company 1996 Nonqualified Stock Option Plan ("Plan") has selected Optionee as an Eligible Employee (as defined in the Plan) to whom an option is to be granted under the Plan, and has recognized that through Optionee's efforts and because of Optionee's responsibilities, Optionee is in a position to contribute substantially to the overall success and growth of Reynolds and Subsidiary; NOW, THEREFORE, the parties agree as follows: 1. Optionee will have an option to purchase from Subsidiary the number of shares of Reynolds Common Stock, no par value, listed on the Schedule(s) hereto, at the prices indicated opposite such shares on such Schedule(s), and otherwise in accordance with the terms and conditions stated in the Plan. Reynolds agrees on the date of any option exercise by Optionee to transfer to Subsidiary the number of shares of Reynolds Common Stock to which such exercise relates in exchange for the payment to Reynolds by Subsidiary of the Fair Market Value (as defined in the Plan) of such shares. 2. Subject to the terms of the Plan, the option shall be exercisable in whole or part, from time to time, on and after the date or dates indicated opposite such shares on the Schedule(s) hereto, but in no event later than the earlier of (a) ten years from the date of the grant or (b) the date specified in the Plan relating to Optionee's termination of employment with Reynolds and its subsidiaries. No option may be exercised for less than 100 shares of Common Stock unless the Optionee is electing to exercise all the remaining options then exercisable on the applicable Schedule. 3. This Agreement is at all times subject to the terms and conditions of the Plan, which terms and conditions are incorporated herein by reference. Optionee is aware that under the Plan no option may be exercised if his or her employment terminates for any reason within one year of the date of the grant, except as otherwise permitted under the terms of the Plan. 4. All notices by Optionee hereunder must be delivered both to Reynolds and to Subsidiary and must be in writing, in the English language, and addressed to, in the case of Subsidiary, _______________________, and in the case of Reynolds, the Director, Employee Financial Services, Reynolds Metals Company, 6601 West Broad Street, Richmond, Virginia 23230-1701. Notices by Optionee will be effective upon the later of their receipt by Reynolds or by Subsidiary. 5. Subsidiary's obligations hereunder may be assigned to Reynolds or to any corporation now or hereafter in existence (a) in which Reynolds owns, directly or indirectly, a voting stock interest of more than fifty percent (50%) or (b) which is otherwise considered a "Subsidiary" for purposes of the Plan. Any such assignment shall relieve Subsidiary of all obligations hereunder. 6. The effectiveness of this Agreement and of any grant of an option hereunder are subject to compliance with all applicable laws and regulations and to receipt of any governmental approvals necessary for the performance by the parties of their obligations hereunder, including but not limited to compliance with and approvals under all applicable exchange control and securities laws. IN WITNESS WHEREOF, Reynolds, Subsidiary and Optionee have executed this Agreement in triplicate as of the date first above written. REYNOLDS METALS COMPANY By____________________________ [SUBSIDIARY] By____________________________ ______________________________ Optionee SCHEDULE DATED _______________ TO Three Party Stock Option Agreement dated __________________ among Reynolds Metals Company [Subsidiary] and [Optionee] No. Shares of Option Exercisable Reynolds Common Stock Price On and After - --------------------- ------ ------------ This Schedule is subject at all times to the terms and conditions of the above-referenced Agreement and of the Reynolds Metals Company 1996 Nonqualified Stock Option Plan. REYNOLDS METALS COMPANY By: __________________________ [SUBSIDIARY] By: __________________________ ______________________________ Optionee EX-11 4 EXHIBIT 11 REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In millions, except per share data) EARNINGS PER SHARE In the second quarter and six months of 1996, earnings per share equals net income, minus dividends on the Company's preferred stock ("PRIDES"), divided by the weighted-average number of common shares outstanding during the period. In the second quarter and six months of 1995, earnings per share equals net income divided by the weighted-average number of common shares and common share equivalents outstanding during the period. The number of common share equivalents outstanding was based on the assumed conversion of the PRIDES. For the purpose of this computation, the respective conversion rates of common stock for each share of PRIDES were based on the average market value of the Company's common stock during the applicable period. Common share equivalents relating to the PRIDES were not included in the second quarter or six months of 1996 since their effect would have been anti-dilutive.
QUARTERS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- - ------------------------ 1996 1995 1996 1995 ----------------------- - ------------------------ Weighted-average shares outstanding: Common shares 63,666,000 62,926,000 63,635,000 62,573,000 Common share equivalents - 10,518,000 - - 10,388,000 ----------------------- - ------------------------ Total 63,666,000 73,444,000 63,635,000 72,961,000 ======================= ======================== Income before cumulative effect of accounting change $60 $111 $77 $193 Less preferred stock dividends 9 - 18 - ----------------------- - ------------------------ 51 111 59 193 ----------------------- - ------------------------ Cumulative effect of accounting change - - (15) - ----------------------- - ------------------------ $51 $111 $44 $193 ======================= ======================== Earnings per share: Income before cumulative effect of accounting change $0.81 $1.51 $0.93 $2.64 Cumulative effect of accounting change - - (0.24) - ----------------------- - ------------------------ Net income $0.81 $1.51 $0.69 $2.64 ======================= ======================== Conversion rate - 0.96 - - 0.94 Average market value of common stock - $49.41 - - $50.03 /TABLE EARNINGS PER SHARE (FULLY DILUTED): Earnings per share (fully diluted) equals net income divided by the weighted-average number of common shares and common share equivalents outstanding during the period. The number of common share equivalents was based on the maximum potential issuance of common shares upon conversion of PRIDES, which is one share of common for each share of PRIDES. This computation was made for presentation purposes only since its effect was anti-dilutive in 1996 and was not material in 1995.
QUARTERS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------- - -------------------------- 1996 1995 1996 1995 ------------------------- - -------------------------- Weighted-average shares outstanding: Common shares 63,666,000 62,926,000 63,635,000 62,573,000 Common share equivalents 11,000,000 11,000,000 11,000,000 11,000,000 ------------------------- - -------------------------- Total 74,666,000 73,926,000 74,635,000 73,573,000 ========================= ========================== Income before cumulative effect of accounting change $60 $111 $77 $193 Cumulative effect of accounting change - - (15) - ------------------------- - -------------------------- Net income $60 $111 $62 $193 ========================= ========================== Earnings per share (fully diluted): Income before cumulative effect of accounting change $0.81 $1.50 $1.04 $2.62 Cumulative effect of accounting change - - (0.21) - ------------------------- - -------------------------- Net income $0.81 $1.50 $0.83 $2.62 ========================= ==========================
EX-27 5
5 This schedule contains summary financial information extracted from the Reynolds Metals Company Condensed Consolidated Balance Sheet (Unaudited) for June 30, 1996 and Consolidated Statement of Income (Unaudited) for the Six Months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 1000000 6-MOS DEC-31-1996 JUN-30-1996 27 0 1124 22 891 2074 6690 3472 7868 1550 1836 0 505 945 1156 7868 3485 3510 2899 2899 197 0 84 114 37 77 0 0 (15) 62 .69 0.0 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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