-----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, RjbdpJdU9ju9KMRmfMqYaQzu7CZcy1fpL7SSS2JX/+YDmReUGLIm2jvmHXDo0kxu 86lsdgZcR8SAZOC1nbETLg== 0000083604-98-000012.txt : 19980514 0000083604-98-000012.hdr.sgml : 19980514 ACCESSION NUMBER: 0000083604-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 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: SEC FILE NUMBER: 001-01430 FILM NUMBER: 98618850 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 March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-1430 REYNOLDS METALS COMPANY A Delaware Corporation (I.R.S. Employer Identification No. 54-0355135) 6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003 Telephone Number (804) 281-2000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ As of April 30, 1998, the Registrant had 72,003,415 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) (millions, except per share amounts) - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Quarters ended March 31 1998 1997 - ----------------------------------------------------------------------------- REVENUES $1,532 $1,624 COSTS AND EXPENSES Cost of products sold 1,251 1,360 Selling, administrative and general expenses 93 102 Depreciation and amortization 70 93 Interest 34 39 Operational restructuring effects - net - (38) - ----------------------------------------------------------------------------- 1,448 1,556 - ----------------------------------------------------------------------------- EARNINGS Income before income taxes 84 68 Taxes on income 26 25 - ----------------------------------------------------------------------------- NET INCOME $ 58 $ 43 ============================================================================= EARNINGS PER SHARE Basic: Average shares outstanding 73 73 Net income $ 0.78 $ 0.59 Diluted: Average shares outstanding 74 74 Net income $ 0.78 $ 0.59 ============================================================================= CASH DIVIDENDS PER COMMON SHARE $ 0.35 $ 0.35 ============================================================================= See notes beginning on page 6.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (millions) - ----------------------------------------------------------------------------- March 31 December 31 - ----------------------------------------------------------------------------- 1998 1997 - ----------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 47 $ 70 Receivables, less allowances of $17 (1997 - $16) 1,014 1,015 Inventories 731 744 Prepaid expenses and other 171 165 - ----------------------------------------------------------------------------- Total current assets 1,963 1,994 Unincorporated joint ventures and associated companies 1,395 1,381 Property, plant and equipment 6,494 6,533 Less allowances for depreciation and amortization 3,585 3,579 - ----------------------------------------------------------------------------- 2,909 2,954 Deferred taxes and other assets 929 897 - ----------------------------------------------------------------------------- Total assets $7,196 $7,226 ============================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, accrued and other liabilities $ 961 $1,074 Short-term borrowings 181 67 Long-term debt 124 142 - ----------------------------------------------------------------------------- Total current liabilities 1,266 1,283 Long-term debt 1,595 1,501 Postretirement benefits 1,038 1,043 Environmental, deferred taxes and other liabilities 658 660 Stockholders' equity: Common stock 1,523 1,521 Retained earnings 1,285 1,253 Treasury stock, at cost (126) - Accumulated other comprehensive income (43) (35) - ----------------------------------------------------------------------------- Total stockholders' equity 2,639 2,739 - ----------------------------------------------------------------------------- Contingent liabilities (Note 8) Total liabilities and stockholders' equity $7,196 $7,226 ============================================================================= See notes beginning on page 6.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (millions) - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Quarters ended March 31 1998 1997 - ---------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 58 $ 43 Adjustments to reconcile to net cash used in operating activities: Depreciation and amortization 70 93 Operational restructuring effects - (38) Changes in operating assets and liabilities net of effects of dispositions: Accounts payable, accrued and other liabilities (111) 18 Receivables (17) (107) Inventories - (63) Other (48) (7) - ---------------------------------------------------------------------------- Net cash used in operating activities (48) (61) INVESTING ACTIVITIES Capital investments: Operational (28) (23) Strategic (29) (40) Sales of assets - operational restructuring 39 177 Other (1) (3) - ---------------------------------------------------------------------------- Net cash provided by (used in) investing activities (19) 111 FINANCING ACTIVITIES Increase (decrease) in short-term borrowings 117 (30) Proceeds from long-term debt 100 - Reduction of long-term debt (23) (15) Cash dividends paid (26) (22) Stock issues (repurchases) and other- net (124) 24 - ---------------------------------------------------------------------------- Net cash provided by (used in) financing activities 44 (43) CASH AND CASH EQUIVALENTS Net increase (decrease) (23) 7 At beginning of period 70 38 - ---------------------------------------------------------------------------- At end of period $ 47 $ 45 ============================================================================ See notes beginning on page 6.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Quarters ended March 31 1998 1997 - ---------------------------------------------------------------------------- SHARES (thousands): Common stock Balance at January 1 73,909 72,719 Issued under employee benefit plans 33 222 - ---------------------------------------------------------------------------- Balance at March 31 73,942 72,991 ============================================================================ Treasury stock Balance at January 1 - - Purchased and held as Treasury stock (2,004) - - ---------------------------------------------------------------------------- Balance at March 31 (2,004) - - ---------------------------------------------------------------------------- Net common shares outstanding 71,938 72,991 ============================================================================ DOLLARS (millions): Common stock Balance at January 1 $1,521 $1,451 Issued under employee benefit plans 2 12 - ---------------------------------------------------------------------------- Balance at March 31 $1,523 $1,463 ============================================================================ Retained earnings Balance at January 1 $1,253 $1,220 Net income 58 43 Cash dividends declared for common stock (26) (26) - ---------------------------------------------------------------------------- Balance at March 31 $1,285 $1,237 ============================================================================ Treasury stock Balance at January 1 $ - - Purchased and held as Treasury stock (126) - - ---------------------------------------------------------------------------- Balance at March 31 $ (126) - ============================================================================ Accumulated other comprehensive income Balance at January 1 $ (35) $ (37) Foreign currency translation adjustments (9) (26) Income taxes 1 2 -------------------------------- Other comprehensive income (8) (24) - ---------------------------------------------------------------------------- Balance at March 31 $ (43) $ (61) ============================================================================ Total stockholders' equity $2,639 $2,639 ============================================================================ COMPREHENSIVE INCOME (millions): Net income $ 58 $ 43 Other comprehensive income (8) (24) - ---------------------------------------------------------------------------- Comprehensive income $ 50 $ 19 ============================================================================ See notes beginning on page 6.
REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Quarters Ended March 31, 1998 and 1997 1. 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 period of 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. Certain amounts have been reclassified to conform to the 1998 presentation. 2. ACCOUNTING POLICIES COMPREHENSIVE INCOME In the first quarter of 1998, the Company adopted the Financial Accounting Standards Board's Statement No. 130, "Reporting Comprehensive Income". Statement No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of the Statement had no impact on the Company's net income or stockholders' equity. Statement No. 130 requires the Company's foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement No. 130. The presentation of comprehensive income is included in the Consolidated Statement of Changes in Stockholders' Equity. ACCOUNTING FOR THE COSTS OF DEVELOPING OR OBTAINING INTERNAL-USE SOFTWARE In the first quarter of 1998, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". The SOP requires qualifying computer software costs incurred in connection with obtaining or developing software for internal use to be capitalized. The Company currently expenses such internal costs as incurred. The Company plans to adopt the SOP in 1999 on a prospective basis when it becomes effective. REPORTING ON THE COSTS OF START-UP ACTIVITIES Early in the second quarter of 1998, AcSEC also issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities". It requires costs of start-up activities and organization costs to be expensed as incurred. The SOP is effective for 1999; however, early application is encouraged. The Company plans to adopt this SOP in the second quarter of 1998 and apply it retroactively to January 1, 1998. The Company expects to recognize a cumulative effect of accounting change charge of approximately $20 million in the restated first quarter of 1998 financial statements. The effect on "income before cumulative effect of accounting change" in the first quarter of 1998 Consolidated Statement of Income is not expected to be material. 3. OPERATIONAL RESTRUCTURING In the first quarter of 1998, the Company sold its U.S. recycling operations and its Canadian extrusion facilities. These transactions had no material impact for the quarter. 3. OPERATIONAL RESTRUCTURING - continued Early in the second quarter of 1998, the Company announced it had reached an agreement for the sale of substantially all of its global can operations. The agreement is subject to regulatory approvals, third party consents and completion of transaction financing by the purchaser. The Company expects to complete this transaction in the second half of 1998. The sale includes North American can operations, which consist of 14 can plants and two end plants. It also includes a 34.9% interest in Latas de Aluminio S.A. (Latasa), which operates can facilities in Brazil, Chile and Argentina, subject to third party consents from Latasa stockholders and lenders. The Company expects to realize proceeds from the transaction of approximately $820 million and an after- tax gain in the range of approximately $160 million to $170 million. The sale does not include the Company's can machinery operations or its 27.5% interest in United Arab Can Manufacturing Company, Ltd. Also early in the second quarter of 1998, the Company announced it had reached an agreement to sell its European rolling mill operations. The transaction is subject to the execution of definitive agreements, regulatory approvals and other customary closing conditions. The Company expects to complete this transaction in the second quarter of 1998. The Company is also negotiating to sell its sheet and plate plant in Illinois. The Company continues to evaluate its alternatives for its Alabama can stock complex, including selling the complex, which may result in a loss. The carrying amount for assets expected to be sold was approximately $1.0 billion at March 31, 1998. The operating income related to the assets expected to be sold was approximately $50 million for the first quarter of 1998. This amount includes approximately $20 million for the ceasing of depreciation of assets to be sold, as required by current accounting rules. The Company plans to use the proceeds from expected asset sales in 1998 to repurchase shares of common stock and to repay debt. In the first quarter of 1997, the Company sold its U.S. residential construction products operations. A pre-tax gain of $38 million was recognized on the sale. 4. EARNINGS PER SHARE The following shows net income and a reconciliation of average shares for the basic and diluted earnings per share computations.
Quarters ended March 31 ----------------------------- 1998 1997 ----------------------------- Income (numerator): Net income (Basic and Diluted) $58 $43 Average shares (denominator): Basic 73,174,000 72,872,000 Effect of dilutive securities: Stock options 372,000 508,000 ----------------------------- Diluted 73,546,000 73,380,000 ----------------------------- Per share amount for net income: Basic earnings per share $0.78 $0.59 Diluted earnings per share $0.78 $0.59 Antidilutive securities excluded: Stock options 1,484,000 861,000
5. FINANCING ARRANGEMENTS In the first quarter of 1998, the Company borrowed $100 million under its Canadian credit facility. The borrowing bears interest at a variable rate (6.0% at March 31, 1998) and requires repayment in a lump sum in 2001. 6. STOCKHOLDERS' EQUITY In the first quarter of 1998, the Company repurchased two million shares of its common stock at market prices. The cost of the repurchase was $126 million. Authority to repurchase up to 18 million shares of common stock became effective in the second quarter of 1998 with the signing of the definitive agreement for the sale of the Company's global can operations. This repurchase authorization includes the five million share repurchase program announced in the first quarter of 1998 and it extends to December 31, 2000. 7. COMPANY OPERATIONS
Packaging Construction Base and and Reconciling First Quarter 1998 Materials Consumer Distribution Transportation Restructuring Other Items Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- Customer aluminum shipments 145 30 46 16 97 28 - 362 Internal aluminum shipments 99 - - - 2 45 (146) - - ----------------------------------------------------------------------------------------------------------------------------------- Total aluminum shipments 244 30 46 16 99 73 (146) 362 Customer revenues: Aluminum $247 $175 $165 $87 $419 $ 87 $ - $1,180 Nonaluminum 115 136 82 - 5 14 - 352 Intersegment revenues - aluminum 163 - - - 7 123 (293) - - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues $525 $311 $247 $87 $431 $224 $(293) $1,532 =================================================================================================================================== Operating income (loss) $ 79 $ 22 $ 8 $ - $ 49 $(43) $ 3 $ 118 Interest expense 34 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 84 =================================================================================================================================== First Quarter 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Customer aluminum shipments 102 31 40 17 154 46 - 390 Internal aluminum shipments 185 - - - 2 45 (232) - - ----------------------------------------------------------------------------------------------------------------------------------- Total aluminum shipments 287 31 40 17 156 91 (232) 390 Customer revenues: Aluminum $179 $170 $144 $89 $541 $136 $ - $1,259 Nonaluminum 112 134 83 - 24 12 - 365 Intersegment revenues - aluminum 311 - - - 8 115 (434) - - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues $602 $304 $227 $89 $573 $263 $(434) $1,624 =================================================================================================================================== Operating income (loss) $ 66 $ 21 $ 8 $ 4 $ 14 $(38) $ 32 $ 107 Interest expense 39 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 68 ===================================================================================================================================
RECONCILING ITEMS Reconciling items consist of the following:
Quarters ended March 31 -------------------------- 1998 1997 -------------------------- Operating income (loss): Inventory accounting adjustments $3 $(6) Operational restructuring effects - net - 38 -------------------------- $3 $32 ==========================
Inventory accounting adjustments are the elimination of unrealized profits on sales between global business units. 8. CONTINGENT LIABILITIES As previously disclosed in the Company's 1997 Form 10-K, the Company is involved in various worldwide environmental improvement activities resulting from past operations, including designation as a potentially responsible party (PRP), with others, at various Environmental Protection Agency-designated Superfund sites. The Company has recorded amounts (on an undiscounted basis) which, in management's best estimate, will be sufficient to satisfy anticipated costs of known remediation requirements. 8. CONTINGENT LIABILITIES - continued Estimated costs for future environmental compliance and remediation are necessarily imprecise because of factors such as: - - continuing evolution of environmental laws and regulatory requirements - - availability and application of technology - - identification of presently unknown remediation requirements - - cost allocations among PRPs Further, it is not possible to predict the amount or timing of future costs of environmental remediation that may subsequently be determined. Based on information presently available, such future costs are not expected to have a material adverse effect on the Company's competitive or financial position or its ongoing results of operations. However, such costs could be material to results of operations in a future interim or annual reporting period. 9. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM COMPANY OF CANADA, LTD. Financial statements and financial statement schedules for Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. have been omitted because certain securities registered under the Securities Act of 1933, of which these entities are obligors (thus subjecting them to reporting requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934), are fully and unconditionally guaranteed by Reynolds Metals Company. Financial information relating to these companies is presented herein in accordance with Staff Accounting Bulletin 53 as an addition to the footnotes to the financial statements of Reynolds Metals Company. Summarized financial information is as follows: 9. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM COMPANY OF CANADA, LTD. - continued
Canadian Reynolds Metals Company, Ltd. Quarters ended March 31 --------------------------- 1998 1997 --------------------------- Net Sales: Customers $ 93 $ 45 Parent and related companies 131 190 --------------------------- $224 $235 Cost of products sold 185 188 Net income $ 28 $ 29 March 31 December 31 1998 1997 --------------------------- Current assets $ 298 $ 179 Noncurrent assets 1,197 1,206 Current liabilities (114) (148) Noncurrent liabilities (516) (415) Reynolds Aluminum Company of Canada, Ltd. Quarters ended March 31 --------------------------- 1998 1997 --------------------------- Net Sales: Customers $119 $119 Parent and related companies 125 176 --------------------------- $244 $295 Cost of products sold 201 244 Net income $ 29 $ 28 March 31 December 31 1998 1997 --------------------------- Current assets $ 247 $ 208 Noncurrent assets 1,257 1,276 Current liabilities (77) (111) Noncurrent liabilities (546) (445)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the consolidated financial statements and related footnotes included in the Company's 1997 Form 10-K along with the consolidated financial statements and related footnotes included in and referred to in this report. In the tables, dollars are in millions, except per share and per pound amounts, and shipments are in thousands of metric tons. A metric ton is equivalent to 2,205 pounds. Management's Discussion and Analysis contains forecasts, projections, estimates, statements of management's plans and objectives for the Company and other forward-looking statements. Please refer to the "Risk Factors" section beginning on page 19, where we have summarized factors that could cause actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. RESULTS OF OPERATIONS - --------------------- Several factors contributed to our strong results for the first quarter of 1998. Increased sales volumes and lower conversion costs in our ongoing operations, lower selling, administrative and general expenses, and lower interest expense were the major contributors to our improved results. In addition, income includes a favorable effect from ceasing to depreciate assets held for sale.
First Quarter 1998 1997 ---------------------- Net income $58 $43 Special items included in net income: Operational restructuring effects - net - 23 Earnings per share - basic $0.78 $0.59 Special items included in earnings per share: Operational restructuring effects - net - 0.32 Average realized prices per pound: Primary aluminum $0.77 $0.80 Fabricated aluminum products 1.88 1.72
Operational restructuring effects in the first quarter of 1997 resulted from a gain on the sale of our U.S. residential construction products business. RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS
Base Materials First Quarter 1998 1997 ------------------------ Aluminum shipments: Customer 145 102 Internal 99 185 ------------------------ Total 244 287 ======================== Revenues: Customer - aluminum $247 $179 - nonaluminum 115 112 Internal - aluminum 163 311 ------------------------ Total $525 $602 ======================== Operating income $ 79 $ 66 ========================
The increase in customer aluminum shipments in the first quarter of 1998 reflected continuing strong demand for our rod, foundry and billet products. Our available supply to meet customer needs increased because we no longer need to supply internally those downstream fabricating operations that have been sold. Our internal shipments declined because of sold operations. In addition to reflecting the changes in shipping volume, aluminum revenues were adversely affected in the first quarter of 1998 by lower prices for primary aluminum. We believe prices were lower mainly because of the economic uncertainty in Asia during the past several months. Higher sales of alumina led to the increase in nonaluminum revenues. The additional supply was made possible by significant improvements in production and capacity utilization at our Sherwin, Texas alumina plant. Operating income improved in the first quarter of 1998 because of: - - higher customer shipments - - significant cost reductions, particularly in alumina operations - - lower costs for certain raw materials These benefits were partially offset by: - - lower internal shipments - - lower prices for primary aluminum - - restart costs at our primary aluminum plants - - lower technical services income Results in both periods were negatively affected by temporarily curtailed capacity at our U.S. primary aluminum plants. In the first quarter of 1998, we restarted limited production at our plant in Troutdale, Oregon and began the process of restarting 47,000 metric tons of production at our plant in Longview, Washington. Early in the second quarter of 1998, we decided to restart our remaining 135,000 metric tons RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued Base Materials - continued of idled primary aluminum capacity. This includes 41,000 metric tons at our Massena, New York plant and 94,000 metric tons at our Troutdale, Oregon plant. We expect these restarts to begin in the third quarter and be substantially completed by the end of 1998. We decided to restart our idled primary aluminum capacity because of our outlook for continued strong demand in the aluminum market. We are projecting aluminum consumption growth of 2.5% to 4% for the next several years.
Packaging and Consumer First Quarter --------------------- 1998 1997 --------------------- Customer aluminum shipments 30 31 Revenues: Customer - aluminum $175 $170 - nonaluminum 136 134 --------------------- Total $311 $304 ===================== Operating income $ 22 $ 21 =====================
Shipments of packaging and consumer products were essentially flat in the first quarter of 1998 as compared to the same period in 1997. Higher prices for aluminum packaging products and higher sales of nonaluminum packaging products contributed to the revenue increase. Operating income benefited from higher aluminum prices and lower material costs. Higher development and marketing costs for new consumer products that will be introduced in 1998 offset these benefits. The new consumer products include Hot Bags, which are designed for cooking meals in a foil pouch, and Wrappers foil sheets. Shipments of both products should begin in the second quarter of 1998. RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued
Construction and Distribution First Quarter --------------------- 1998 1997 --------------------- Customer aluminum shipments 46 40 Revenues: Customer - aluminum $165 $144 - nonaluminum 82 83 --------------------- Total $247 $227 ===================== Operating income $ 8 $ 8 =====================
Shipments increased in the first quarter of 1998 for both construction and distribution aluminum products. The increase in construction products was principally in European markets. Shipments were higher for all of our major aluminum distribution products (plate, sheet and extrusions) due to strong demand in our major domestic markets. The increase in aluminum revenues reflects the higher shipping volumes and higher prices for construction and distribution products. Nonaluminum revenues were essentially flat despite a 6% increase in stainless steel shipments. Demand was especially strong for sheet, pipe and tube products. The effect of the higher shipping volume was mostly offset by lower prices for stainless steel products. Prices for these products continue to be under pressure due to high imports and strong competition. Nonaluminum revenues also decreased in 1998 because we completed a composite material contract with a trailer manufacturer in 1997. Operating income was flat as the benefits from the higher shipping volume were generally offset by higher marketing costs for expansions into new European construction product markets and the effect of the contract completion in 1997 with the trailer manufacturer. The effect of lower prices for stainless steel products was mostly offset by lower prices for raw materials.
Transportation First Quarter --------------------- 1998 1997 --------------------- Customer aluminum shipments 16 17 Customer revenues $87 $89 Operating income - 4 =====================
Slightly lower shipments in the first quarter of 1998 were primarily due to lower sales of aluminum bumpers at our Indiana plant, resulting from the fulfillment of a customer contract that we expect to replace in 1999. Aluminum wheel and heat exchanger shipments were about even with last year. The decline in revenues reflects the lower shipping volume. RESULTS OF OPERATIONS - continued GLOBAL BUSINESS UNITS - continued Transportation - continued Lower shipping volume, lower capacity utilization and wheel plant start-up costs led to the reduction in operating income. Restructuring The decline in shipments and revenues in the first quarter of 1998 was due to the sale of operations in 1997. Operating income improved because we ceased to depreciate assets held for sale, as required by current accounting rules. Higher prices for aluminum plate products also increased operating income. For additional information concerning the global business units, see Note 7 to the consolidated financial statements. INTEREST EXPENSE Interest expense decreased in the first quarter of 1998 compared to the first quarter of 1997 because of lower amounts of debt outstanding. TAXES ON INCOME The effective tax rates reflected in the income statement differ from the U.S. federal statutory rate principally because of the following: - - foreign taxes at different rates - - the effects of percentage depletion allowances LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
WORKING CAPITAL March 31 December 31 1998 1997 -------------------------- Working capital $677 $711 Ratio of current assets to current liabilities 1.6/1 1.6/1
OPERATING ACTIVITIES Cash provided from operations in the first quarter of 1998 was supplemented with funds from financing activities. We used these funds principally to reduce accounts payable, accrued and other liabilities. LIQUIDITY AND CAPITAL RESOURCES - continued - ------------------------------- INVESTING ACTIVITIES Capital investments totaled $57 million in the first quarter of 1998. This amount includes $28 million for operating requirements (replacement equipment, environmental control projects, etc.). The remainder was for strategic projects (performance improvements, investments, etc.) principally carried forward from 1997, including: - - the expansion of the Worsley Alumina Refinery in Australia - - the modernization of our U.S. foil plants - - the modification of our Indiana automotive components plant to produce engine cradles In addition, we are expanding our forged wheel plant in Virginia. The expansion will cost approximately $32 million and is expected to be substantially completed in late 1998. We expect capital investments in 1998 to total $350 million. Approximately 47% of this amount will be used for operating requirements. We plan to use the remainder for those strategic projects already underway. We expect to fund our capital investments in 1998 with cash generated from operations. FINANCING ACTIVITIES The significant financing activities for the first quarter of 1998 were: - - an increase in short-term borrowings of $117 million - - a borrowing of $100 million under our Canadian credit facility (see Note 5) - - the repurchase of common stock (see Note 6) We used the proceeds from borrowings to repurchase common stock and to supplement cash provided from operations. PORTFOLIO REVIEW In the first quarter of 1998, we completed the sales of our U.S. recycling and Canadian extrusion operations. We have agreed to sell our European rolling operations. We are negotiating to sell our sheet and plate plant in Illinois. We continue to evaluate our alternatives for our Alabama can stock complex, including selling it which may result in a loss. We have also agreed to sell substantially all of our global can operations. For a discussion concerning that transaction, see footnote 3 to the consolidated financial statements. The sale does not include the Company's can machinery operations or its 27.5% interest in United Arab Can Manufacturing Company, Ltd. The Company is currently engaged in a separate sale process for the can machinery operations. Once the Company completes the disposition of all assets related to its global can operations, it expects to realize total proceeds in the range of $875 million to $900 million. For additional information about our Portfolio Review, see Note 3 to the consolidated financial statements. 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 1997 Form 10-K; Part II, Item 1( Legal Proceedings) of this report; and the preceding portions of this Item. This report contains (and oral communications made by or on behalf of the Company may contain) forecasts, projections, estimates, statements of management's plans and objectives for the Company and other forward-looking statements. The Company's expectations for the future and related forward-looking statements are based on a number of assumptions and forecasts as to world economic growth and other economic indicators (including rates of inflation, industrial production, housing starts and light vehicle sales), trends in the Company's key markets, global aluminum supply and demand conditions, and aluminum ingot prices, among other items. By their nature, forward-looking statements involve risk and uncertainty, and various factors could cause the Company's actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. Consensus expectations for 1998 indicate global economic growth of 2.5-3%. The Company is forecasting an increase in Western World aluminum consumption for 1998 of approximately 2.5-3.5%. Barring a recession in any major world economy, the Company expects favorable conditions in aluminum industry supply/demand fundamentals to continue for the next several years. The Company's outlook for 1998 and beyond could be jeopardized by repercussions stemming from recent economic problems in Southeast Asia. The Company's outlook for growth in aluminum consumption for the next several years is between 2.5 and 4% per year. The Company expects greater use of aluminum around the world in cars and light trucks. Economic and/or market conditions other than those forecasted by the Company in the preceding paragraph, particularly in the U.S., Asia and Western Europe, could cause the Company's actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. The following factors also could affect the Company's results: - - Primary aluminum is an internationally traded commodity. The price of primary aluminum is subject to worldwide market forces of supply and demand and other influences. Prices can be volatile. The Company's use of contractual arrangements, including fixed-price sales contracts, fixed-price supply contracts, and forward, futures and option contracts, reduces its exposure to this volatility but does not eliminate it. - - The markets for most aluminum products are highly competitive. Certain of the Company's competitors are larger than the Company in terms of total assets and operations and have greater financial resources. Certain foreign governments are involved in the operation and/or ownership of certain competitors and may be motivated by political as well as economic considerations. In addition, aluminum competes with other materials, such as steel, 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. [FN] _________________________ Forward-looking statements can be identified generally as those containing words such as "should," "hope," "forecast," "project," "estimate," "expect," "anticipate," or "plan" and words of similar effect. RISK FACTORS -- continued - ------------ - - The Company spends substantial capital and operating amounts relating to ongoing compliance with environmental laws. In addition, the Company is involved in remedial investigations and actions in connection with past disposal of wastes. Estimating future environmental compliance and remediation costs is imprecise due to the continuing evolution of environmental laws and regulatory requirements and uncertainties about their application to the Company's operations, the availability and application of technology, the identification of currently unknown remediation sites, and the allocation of costs among potentially responsible parties. - - Unanticipated material legal proceedings or investigations, or the disposition of those currently pending against the Company other than as anticipated by management and counsel, could affect the Company's results. - - Changes in the costs of power, resins, caustic soda, green coke and other raw materials can affect results. The Company's contract with the Bonneville Power Administration for the period October 1996 to September 2001 provides fixed rates for electrical power provided to the Company's Washington and Oregon primary aluminum plants. These rates have been approved by federal regulatory authorities but have been appealed in court by a third party. If the appeal is successful, it is possible that higher electricity costs might result. - - A substantial portion of the Company's businesses are cyclical and can be influenced by economic conditions. - - A strike at a customer facility or a significant downturn in the business of a key customer supplied by the Company could affect the Company's results. - - Since late 1996, the Company has been conducting a Portfolio Review of all its operations. The Company has reached agreement to sell its European rolling mill operations and substantially all the assets of its global can operations. These transactions are subject to certain conditions, including completion of financing by purchasers, completion of definitive agreements and obtaining regulatory approvals and third-party consents. As a result, these transactions may or may not be completed as contemplated. We are negotiating to sell our Illinois sheet and plate plant. The Company is also reviewing its options with respect to its Alloys complex in North Alabama, which consists of a rolling mill, two reclamation plants and a coil coating facility, and its extrusion operations in Spain. A sale of the Alloys complex may result in a loss. In addition to the factors referred to above, the Company is exposed to general financial, political, economic and business risks in connection with its worldwide operations. The Company continues to evaluate and manage its operations in a manner to mitigate the effects from exposure to such risks. In general, the Company's expectations for the future are based on the assumption that conditions relating to costs, currency values, competition and the legal, regulatory, financial, political and business environments in the worldwide economies and markets in which the Company operates will not change significantly overall. PART II - OTHER INFORMATION Item 2. CHANGES IN SECURITIES --------------------- (a) Recent Sales of Unregistered Securities Under the Registrant's Stock Plan for Outside Directors (the "Plan"), 86 phantom shares, in the aggregate, were granted to the Registrant's nine outside Directors on January 2, 1998, based on an average price of $59.9063 per share. These phantom shares represent dividend equivalents paid on phantom shares previously granted under the Plan. 506 phantom shares, in the aggregate, were granted to the nine outside Directors on March 31, 1998, based on an average price of $56.25 per share. These phantom shares represent a quarterly installment of each outside Director's annual grant under the Plan. To the extent that these grants constitute sales of equity securities, the Registrant issued these phantom shares in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, taking into account the nature of the Plan, the number of outside Directors participating in the Plan, the sophistication of the outside Directors and their access to the kind of information that a registration statement would provide. A description of the Plan is contained in the Registrant's Form 10-K for the year ended December 31, 1997 in Part II, Item 5 under the caption "Sale of Unregistered Securities". Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the first quarter of 1998. The Registrant filed a Current Report on Form 8-K dated April 23, 1998 reporting under Item 5 that it had reached a definitive agreement on the sale of substantially all of its global can operations to Ball Corporation. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REYNOLDS METALS COMPANY By /s/ Allen M. Earehart --------------------- Allen M. Earehart Vice President, Controller (Chief Accounting Officer) DATE: May 13, 1998 INDEX TO EXHIBITS ----------------- EXHIBIT 2 - None EXHIBIT 3.1 - Restated Certificate of Incorporation, as amended. (File No. 1-1430, 1997 Form 10- K Report, EXHIBIT 3.1) EXHIBIT 3.2 - By-laws, as amended. (File No. 1-1430, 1997 Form 10-K Report, EXHIBIT 3.2) EXHIBIT 4.1 - Restated Certificate of Incorporation. See EXHIBIT 3.1. EXHIBIT 4.2 - By-Laws. See EXHIBIT 3.2. EXHIBIT 4.3 - Indenture dated as of April 1, 1989 (the "Indenture") between Reynolds Metals Company and The Bank of New York, as Trustee, relating to Debt Securities. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1989, EXHIBIT 4(c)) EXHIBIT 4.4 - Amendment No. 1 dated as of November 1, 1991 to the Indenture. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.4) EXHIBIT 4.5 - Rights Agreement dated as of December 1, 1997 (the "Rights Agreement") between Reynolds Metals Company and The Chase Manhattan Bank, N.A. (File No. 1-1430, Registration Statement on Form 8-A dated December 1, 1997, pertaining to Preferred Stock Purchase Rights, EXHIBIT 1) EXHIBIT 4.6 - Form of 9-3/8% Debenture due June 15, 1999. (File No. 1-1430, Form 8-K Report dated June 6, 1989, EXHIBIT 4) EXHIBIT 4.7 - Form of Fixed Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.3) EXHIBIT 4.8 - Form of Floating Rate Medium-Term Note. (Registration Statement No. 33-30882 on Form S-3, dated August 31, 1989, EXHIBIT 4.4) EXHIBIT 4.9 - Form of Book-Entry Fixed Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.15) EXHIBIT 4.10 - Form of Book-Entry Floating Rate Medium-Term Note. (File No. 1-1430, 1991 Form 10-K Report, EXHIBIT 4.16) EXHIBIT 4.11 - Form of 9% Debenture due August 15, 2003. (File No. 1-1430, Form 8-K Report dated August 16, 1991, Exhibit 4(a)) EXHIBIT 4.12 - Articles of Continuance of Societe d'Aluminium Reynolds du Canada, Ltee/Reynolds Aluminum Company of Canada, Ltd. (formerly known as Canadian Reynolds Metals Company, Limited -- Societe Canadienne de Metaux Reynolds, Limitee) ("RACC"), as amended. (File No. 1-1430, 1995 Form 10-K Report, EXHIBIT 4.13) [FN] ______________________ Incorporated by reference. EXHIBIT 4.13 - By-Laws of RACC, as amended. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1997, EXHIBIT 4.14) EXHIBIT 4.14 - Articles of Incorporation of Societe Canadienne de Metaux Reynolds, Ltee/Canadian Reynolds Metals Company, Ltd. ("CRM"), as amended. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1997, EXHIBIT 4.15) EXHIBIT 4.15 - By-Laws of CRM, as amended. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1997, EXHIBIT 4.16) EXHIBIT 4.16 - Indenture dated as of April 1, 1993 among RACC, Reynolds Metals Company and The Bank of New York, as Trustee. (File No. 1-1430, Form 8-K Report dated July 14, 1993, EXHIBIT 4(a)) EXHIBIT 4.17 - First Supplemental Indenture, dated as of December 18, 1995 among RACC, Reynolds Metals Company, CRM and The Bank of New York, as Trustee. (File No. 1-1430, 1995 Form 10-K Report, EXHIBIT 4.18) EXHIBIT 4.18 - Form of 6-5/8% Guaranteed Amortizing Note due July 15, 2002. (File No. 1-1430, Form 8-K Report dated July 14, 1993, EXHIBIT 4(d)) EXHIBIT 10.1 - Reynolds Metals Company 1987 Nonqualified Stock Option Plan. (Registration Statement No. 33-13822 on Form S-8, dated April 28, 1987, EXHIBIT 28.1) EXHIBIT 10.2 - Reynolds Metals Company 1992 Nonqualified Stock Option Plan. (Registration Statement No. 33-44400 on Form S-8, dated December 9, 1991, EXHIBIT 28.1) EXHIBIT 10.3 - Reynolds Metals Company Performance Incentive Plan, as amended and restated effective January 1, 1996. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1995, EXHIBIT 10.4) EXHIBIT 10.4 - Agreement dated December 9, 1987 between Reynolds Metals Company and Jeremiah J. Sheehan. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.9) EXHIBIT 10.5 - Supplemental Death Benefit Plan for Officers. (File No. 1-1430, 1986 Form 10-K Report, EXHIBIT 10.8) EXHIBIT 10.6 - Financial Counseling Assistance Plan for Officers. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.11) EXHIBIT 10.7 - Management Incentive Deferral Plan. (File No. 1-1430, 1987 Form 10-K Report, EXHIBIT 10.12) [FN] _______________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. EXHIBIT 10.8 - Deferred Compensation Plan for Outside Directors as Amended and Restated Effective December 1, 1993. (File No. 1-1430, 1993 Form 10-K Report, EXHIBIT 10.12) EXHIBIT 10.9 - Form of Indemnification Agreement for Directors and Officers. (File No. 1-1430, Form 8- K Report dated April 29, 1987, EXHIBIT 28.3) EXHIBIT 10.10 - Form of Executive Severance Agreement as amended between Reynolds Metals Company and key executive personnel, including each of the individuals listed in Item 4A of the 1997 Form 10-K Report. (File No. 1- 1430, 1997 Form 10-K Report, EXHIBIT 10.10) EXHIBIT 10.11 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective May 20, 1988. (File No. 1-1430, Form 10- Q Report for the Quarter Ended June 30, 1988, EXHIBIT 19(a)) EXHIBIT 10.12 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective October 21, 1988. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1988, EXHIBIT 19(a)) EXHIBIT 10.13 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 1, 1987. (File No. 1-1430, 1988 Form 10-K Report, EXHIBIT 10.22) EXHIBIT 10.14 - Form of Stock Option and Stock Appreciation Right Agreement, as approved February 16, 1990 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, 1989 Form 10-K Report, EXHIBIT 10.24) EXHIBIT 10.15 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 18, 1991. (File No. 1- 1430, 1990 Form 10-K Report, EXHIBIT 10.26) EXHIBIT 10.16 - Form of Stock Option Agreement, as approved April 22, 1992 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, Form 10-Q Report for the Quarter Ended March 31, 1992, EXHIBIT 28(a)) EXHIBIT 10.17 - Reynolds Metals Company Restricted Stock Plan for Outside Directors. (Registration Statement No. 33-53851 on Form S-8, dated May 27, 1994, EXHIBIT 4.6) EXHIBIT 10.18 - Reynolds Metals Company New Management Incentive Deferral Plan. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.30) [FN] _______________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. EXHIBIT 10.19 - Reynolds Metals Company Salary Deferral Plan for Executives. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.31) EXHIBIT 10.20 - Reynolds Metals Company Supplemental Long Term Disability Plan for Executives. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1994, EXHIBIT 10.32) EXHIBIT 10.21 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.34) EXHIBIT 10.22 - Amendment to Reynolds Metals Company 1992 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.35) EXHIBIT 10.23 - Amendment to Reynolds Metals Company New Management Incentive Deferral Plan effective January 1, 1995. (File No. 1- 1430, 1994 Form 10-K Report, EXHIBIT 10.36) EXHIBIT 10.24 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Trustee Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.34) EXHIBIT 10.25 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Employee Pays Premium). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.35) EXHIBIT 10.26 - Form of Split Dollar Life Insurance Agreement (Employee Owner, Employee Pays Premium). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.36) EXHIBIT 10.27 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Third Party Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.37) EXHIBIT 10.28 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Employee Pays Premiums). (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.38) EXHIBIT 10.29 - Reynolds Metals Company 1996 Nonqualified Stock Option Plan. (Registration Statement No. 333-03947 on Form S-8, dated May 17, 1996, EXHIBIT 4.6) EXHIBIT 10.30 - Amendment to Reynolds Metals Company 1992 Nonqualified Stock Option Plan effective January 1, 1993. (Registration Statement No. 333-03947 on Form S-8, dated May 17, 1996, EXHIBIT 99) [FN] ____________________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. EXHIBIT 10.31 - Form of Stock Option Agreement, as approved May 17, 1996 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1996, EXHIBIT 10.41) EXHIBIT 10.32 - Form of Three Party Stock Option Agreement, as approved May 17, 1996 by the Compensation Committee of the Company's Board of Directors. (File No. 1-1430, Form 10-Q Report for the Quarter Ended June 30, 1996, EXHIBIT 10.42) EXHIBIT 10.33 - Stock Option Agreement dated August 30, 1996 between Reynolds Metals Company and Jeremiah J. Sheehan. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1996, EXHIBIT 10.43) EXHIBIT 10.34 - Amendment to Deferred Compensation Plan for Outside Directors effective August 15, 1996. (File No. 1-1430, Form 10-Q Report for the Quarter Ended September 30, 1996, EXHIBIT 10.44) EXHIBIT 10.35 - Amendment to Reynolds Metals Company New Management Incentive Deferral Plan effective January 1, 1996. (File No. 1- 1430, 1996 Form 10-K Report, EXHIBIT 10.38) EXHIBIT 10.36 - Amendment to Reynolds Metals Company Performance Incentive Plan effective January 1, 1996. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.39) EXHIBIT 10.37 - Reynolds Metals Company Supplemental Incentive Plan. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.40) EXHIBIT 10.38 - Reynolds Metals Company Stock Plan for Outside Directors. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.41) EXHIBIT 10.39 - Special Executive Severance Package for Certain Employees who Terminate Employment between January 1, 1997 and June 30, 1998, as approved by the Compensation Committee of the Company's Board of Directors on January 17, 1997. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.42) EXHIBIT 10.40 - Special Award Program for Certain Executives or Key Employees, as approved by the Compensation Committee of the Company's Board of Directors on January 17, 1997. (File No. 1-1430, 1996 Form 10-K Report, EXHIBIT 10.43) EXHIBIT 10.41 - Amendment to Reynolds Metals Company 1996 Nonqualified Stock Option Plan effective December 1, 1997. (File No. 1-1430, 1997 Form 10-K Report, EXHIBIT 10.41) [FN] ____________________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. EXHIBIT 10.42 - Amendment to Reynolds Metals Company Restricted Stock Plan for Outside Directors effective December 1, 1997. (File No. 1- 1430, 1997 Form 10-K Report, EXHIBIT 10.42) EXHIBIT 11 - Omitted; see Part I, Item 1 for computation of earnings per share. EXHIBIT 15 - None EXHIBIT 18 - None EXHIBIT 19 - None EXHIBIT 22 - None EXHIBIT 23 - None EXHIBIT 24 - None EXHIBIT 27 - Financial Data Schedule EXHIBIT 99 - Description of Reynolds Metals Company Capital Stock Pursuant to Item 601 of Regulation S-K, certain instruments with respect to long-term debt of Reynolds Metals Company (the "Registrant") and its consolidated subsidiaries are omitted because such debt does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request. [FN] _______________________ Incorporated by reference. Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. EX-27 2
5 This schedule contains summary financial information extracted from the Reynolds Metals Company Condensed Balance Sheets (Unaudited) for March 31, 1998 and March 31, 1997 and Consolidated Statements of Income (Unaudited) for the Quarters ended March 31, 1998 and March 31, 1997 and is qualified in its entirety by reference to such financial statements. 1000000 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 MAR-31-1998 MAR-31-1997 47 45 0 0 1031 1046 17 18 731 751 1963 1918 6494 6724 3585 3564 7196 7468 1266 1455 1595 1619 0 0 0 0 1523 1463 1116 1176 7196 7468 1532 1615 1532 1624 1251 1360 1251 1360 70 93 0 (38) 34 39 84 68 26 25 58 43 0 0 0 0 0 0 58 43 .78 .59 .78 .59
EX-99 3 Exhibit 99 DESCRIPTION OF REYNOLDS METALS COMPANY CAPITAL STOCK The Company is authorized by its Restated Certificate of Incorporation to issue a total of 221,000,000 shares of capital stock, consisting of (i) 200,000,000 shares of common stock, without par value (the "Common Stock"), (ii) 20,000,000 shares of preferred stock, without par value (the "Preferred Stock"), and (iii) 1,000,000 shares of second preferred stock, $100 par value (the "Second Preferred Stock"). Shares of Preferred Stock and Second Preferred Stock are issuable in one or more series, each with such designations, preferences, rights, qualifications, limitations and restrictions as the Board of Directors of the Company may determine in resolutions providing for their issuance. As of April 30, 1998, there were issued, outstanding and entitled to vote 72,003,415 shares of Common Stock. No shares of Preferred Stock or Second Preferred Stock are currently outstanding, although the Board of Directors has adopted resolutions authorizing the issuance of up to 2,000,000 shares of a Series A Junior Participating Preferred Stock, without par value, issuable upon the occurrence of certain events as described below in the section entitled "Common Stock - Preferred Stock Purchase Rights." Common Stock Dividend Rights and Restrictions on Payment of Dividends. Holders of Common Stock are entitled to receive dividends, when and as declared by the Board of Directors, subject to restrictions which may be imposed by (i) resolutions providing for the issuance of series of Preferred Stock or Second Preferred Stock; and (ii) certain credit agreements of the Company, as described below. Dividends on Preferred Stock and Second Preferred Stock may be cumulative, and no payments or distributions (except in Common Stock or other junior stock) may be made on Common Stock, nor may any Common Stock be acquired by the Company, unless all past and current dividends on Preferred Stock and Second Preferred Stock have been paid or provided for. Under certain of the Company's credit agreements, the Company may not declare or pay dividends on, make any payment on account of, or set apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of, any shares of capital stock of the Company, nor may the Company make any other distribution in respect thereof, if specified events of default (including payment defaults and events relating to bankruptcy, insolvency or reorganization) have occurred and are continuing. No such events of default have occurred. Voting Rights. Holders of Common Stock are entitled to one vote for each share held of record and are not entitled to cumulate votes for the election of directors. As a consequence, holders of more than 50% of the shares of Common Stock voting for the election of directors can elect all of the directors if they so choose; in such event, the holders of the remaining shares of Common Stock would not be able to elect any directors. Holders of Common Stock have voting powers on all matters requiring approval of stockholders, other than certain matters subject to the voting rights of holders of the Company's Preferred Stock and Second Preferred Stock to the extent provided in the applicable resolutions authorizing their issuance or otherwise under Delaware law. Liquidation Rights. In the event of liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in the assets of the Company remaining after payment or provision for payment of all the Company's debts and other liabilities and after the holders of any outstanding series of Preferred Stock and Second Preferred Stock have been paid the full preferential amounts due them. Any preferential rights to be accorded holders of Preferred Stock and Second Preferred Stock will be set forth in resolutions of the Board of Directors authorizing issuance of any series. Preemptive Rights; Assessability. Holders of Common Stock have no preemptive or conversion rights and there are no redemption or sinking fund provisions applicable thereto. The outstanding shares of Common Stock are fully paid and non- assessable. Transfer Agent and Registrar. The transfer agent and registrar for the Common Stock is ChaseMellon Shareholder Services LLC, 450 West 33rd Street, 15th Floor, New York, New York 10001. Preferred Stock Purchase Rights. On November 21, 1997, the Board of Directors of the Company declared a dividend distribution of one Preferred Stock Purchase Right (individually a "Right", and collectively the "Rights") for each outstanding share of Common Stock to stockholders of record at the close of business on December 1, 1997 (the "Record Date"). Each Right entitles the record holder to purchase from the Company, from and after the Distribution Date (as defined below) one one-hundredth of a share of the Company's Series A Junior Participating Preferred Stock, without par value (the "Series A Preferred Stock") at a price of $300 (the "Purchase Price"), subject to adjustment in certain circumstances. The description and terms of the Rights are set forth in a Rights Agreement, dated as of December 1, 1997 (the "Rights Agreement"), between the Company and The Chase Manhattan Bank, N.A., as Rights Agent (the "Rights Agent"). Initially, the Rights are attached to and represented by the certificates representing outstanding shares of Common Stock. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) ten days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) ten business days following the commencement of a tender offer or exchange offer if, upon consummation thereof, the person or group making such offer would be the beneficial owner of 20% or more of the outstanding shares of Common Stock. Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued after December 1, 1997 will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, such separate Rights Certificates alone will evidence the Rights. Except in certain limited circumstances, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. The Rights are not exercisable until the Distribution Date and will expire at the close of business on December 1, 2007, unless earlier exercised or redeemed by the Company as described below. At any time following the Distribution Date, if (i) the Company is the surviving corporation in a merger with an Acquiring Person and its Common Stock is not changed or exchanged, (ii) a Person becomes the beneficial owner of 25% or more of the then outstanding shares of Common Stock (other than pursuant to an offer for all outstanding shares of Common Stock at a price and on terms which the majority of the Continuing Directors (as hereinafter defined) determine to be fair to, and otherwise in the best interests of, stockholders), or (iii) an Acquiring Person receives equity securities (other than pursuant to a pro rata distribution) from the Company, acquires from or transfers to the Company assets with a fair market value exceeding $10,000,000 or engages in certain other "self-dealing" transactions specified in the Rights Agreement, the Rights Agreement requires that proper provision be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. However, Rights are not exercisable following the occurrence of the events set forth above until such time as the Rights are no longer redeemable by the Company as set forth below. Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in this paragraph, any Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by an Acquiring Person shall immediately become null and void. At any time following the Stock Acquisition Date, if (i) the Company engages in a merger or consolidation in which the Company is not the surviving corporation, (ii) the Company engages in a merger or consolidation with another person in which the Company is the surviving corporation, but in which all or part of the Common Stock is changed or exchanged, or (iii) 50% or more of the Company's assets or earning power is sold or transferred, the Rights Agreement requires that proper provision be made so that each holder of a Right (except Rights which previously have been voided as set forth above) shall thereafter have the right to receive, upon the exercise thereof, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Rights may not be so exercised in the case of a merger or consolidation (a) which follows an offer described in clause (ii) of the preceding paragraph and (b) in which the form and amount of consideration is the same as was paid in such offer. The events set forth in this paragraph and in the preceding paragraph are referred to as the "Triggering Events." The Rights Agreement provides that the Company may not consolidate or merge with, or sell 50% of the Company's assets or earning power to, any person which has securities or is bound by agreements which would substantially diminish the benefits of the Rights. The Purchase Price payable, and the number of one one- hundredths of a share of Series A Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on the Series A Preferred Stock or other capital stock, or a subdivision, combination or reclassification of the Series A Preferred Stock, (ii) upon the grant to holders of the Series A Preferred Stock of certain rights or warrants to subscribe for Series A Preferred Stock or securities convertible into Series A Preferred Stock at less than the current market price of the Series A Preferred Stock, or (iii) upon the distribution to holders of the Series A Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends or dividends payable in Series A Preferred Stock) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. The Company may, in lieu of issuing fractional shares of Series A Preferred Stock (other than fractions which are integral multiples of one one-hundredth of a share) upon exercise of the Rights, make a cash payment based on the market price of the Series A Preferred Stock on the last trading date prior to the date of exercise. If the Company is not able to issue shares of Series A Preferred Stock or Common Stock because of the absence of necessary regulatory approval, restrictions contained in the Company's Certificate of Incorporation or for any other reason, a person exercising Rights will be entitled to receive a combination of cash or property or other securities having a value equal to the value of the shares of Preferred or Common Stock which would otherwise have been issued upon exercise of the Rights. At any time until ten days following the Stock Acquisition Date, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right, payable in cash or securities or both (the "Redemption Price"). Upon certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors. Thereafter, this right of redemption may be reinstated if an Acquiring Person reduces his beneficial ownership to 10% or less of the outstanding shares of Common Stock in a transaction or series of transactions not involving the Company and there are no other Acquiring Persons. Immediately upon the action of the Board of Directors of the Company ordering redemption of the Rights, with, where required, the concurrence of a majority of the Continuing Directors, the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. After a Person becomes an Acquiring Person and before any Acquiring Person acquires 50% or more of the outstanding shares of Common Stock, the Company, with the approval of a majority of Continuing Directors, may require a holder to exchange all or any portion of the holder's Rights for one share of Common Stock or one one-hundredth of a share of the Series A Preferred Stock (or in certain circumstances, other securities of the Company) per Right. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income at such time as the Rights become exercisable or are exercised for Common Stock (or other consideration) of the Company or for common stock of the acquiring company as set forth above. Certain provisions of the Rights Agreement relating to the principal economic terms of the Rights may not be amended at any time. Other provisions may be amended by the Board of Directors of the Company prior to the Distribution Date. Thereafter, these provisions of the Rights Agreement may be amended by the Board (in certain circumstances only with the concurrence of the Continuing Directors) in order: to cure any ambiguity, defect or inconsistency; to shorten or lengthen any time period under the Rights Agreement; or in any other respect that will not adversely affect the interest of holders of Rights (excluding the interest of any Acquiring Person); provided, that no amendment to adjust the time period governing redemption may be made if the Rights are not redeemable at the time of such amendment. Shares of Series A Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each one one-hundredth of a share of Series A Preferred Stock will be entitled to (i) an aggregate quarterly dividend equal to the greater of (a) the quarterly dividend declared per share of Common Stock or (b) $.10, (ii) upon liquidation, a minimum preferential liquidation payment of $1.00 and an aggregate liquidation payment equal to the liquidation payment made per share of Common Stock, (iii) one vote, voting together with the shares of Common Stock and (iv) in the event of any merger, consolidation or other transaction in which shares of Common Stock are exchanged, the same amount received per share of Common Stock. These rights are protected by customary anti-dilution provisions. Because of the nature of the Series A Preferred Stock's dividend, liquidation and voting rights, the value of each one one-hundredth of a share of Series A Preferred Stock purchasable upon exercise of each Right should approximate the value of one share of Common Stock. The term "Continuing Director" means any member of the Company's Board of Directors who was a member of the Board prior to the date of the Rights Agreement, and any person who is subsequently elected to the Board if such person is recommended or approved by a majority of the Continuing Directors. Continuing Directors do not include an Acquiring Person, or any representative thereof. Delaware General Corporation Law Section 203 The Company is subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware ("DGCL Section 203"), the "business combination" statute. In general, the statute prohibits a public Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares described in DGCL Section 203), or (iii) on or after such date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders and by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the "interested stockholder". "Business combination" is defined to include mergers, asset sales and certain other transactions resulting in a financial benefit to a stockholder. An "interested stockholder" is defined generally as a person who, together with affiliates and associates, owns (or, within the prior three years, did own) 15% or more of a corporation's voting stock. The Company's Restated Certificate of Incorporation does not exclude the Company from the restrictions imposed under DGCL Section 203. Thus, such statute could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. -----END PRIVACY-ENHANCED MESSAGE-----