-----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, J6q1/MUxKLujgx4ozFGwP5kqgKEoHtLmEDmJ5lLJjw9f6tE1lmNaOZAUwH8K9hbv UPUyUj2E7At3oLW1BiKElA== 0000083604-99-000055.txt : 19991115 0000083604-99-000055.hdr.sgml : 19991115 ACCESSION NUMBER: 0000083604-99-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99746892 BUSINESS ADDRESS: STREET 1: 6601 W BROAD ST STREET 2: PO BOX 27003 CITY: RICHMOND STATE: VA ZIP: 23261 BUSINESS PHONE: 8042812000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-01430 REYNOLDS METALS COMPANY A Delaware Corporation (I.R.S. Employer Identification No. 54-0355135) 6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003 Telephone Number (804) 281-2000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ As of October 29, 1999, the Registrant had 63,227,478 shares of Common Stock, no par value, outstanding and entitled to vote. 2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (millions, except per share amounts) ================================================================== - ----------------------------------------------------------------- Quarters ended Nine months ended September 30 September 30 - ----------------------------------------------------------------- 1999 1998 1999 1998 - ----------------------------------------------------------------- REVENUES $1,209 $1,368 $3,438 $4,479 COSTS AND EXPENSES Cost of products sold 983 1,109 2,856 3,635 Selling, general and administrative expenses 85 93 254 282 Depreciation and amortization 62 57 179 193 Interest 19 27 57 94 Merger-related expenses 12 - 12 - Operational restructuring effects - net - (315) - (11) - ----------------------------------------------------------------- 1,161 971 3,358 4,193 - ----------------------------------------------------------------- EARNINGS Income before income taxes, extraordinary loss and cumulative effect of accounting change 48 397 80 286 Taxes on income 12 135 19 89 - ----------------------------------------------------------------- Income before extraordinary loss and cumulative effect of accounting change 36 262 61 197 Extraordinary loss - (60) - (63) Cumulative effect of accounting change - - - (23) - ----------------------------------------------------------------- NET INCOME $ 36 $ 202 $ 61 $ 111 ================================================================== EARNINGS PER SHARE Basic: Average shares outstanding 63 69 64 72 Income before extraordinary loss and cumulative effect of accounting change $0.56 $3.80 $0.95 $2.76 Extraordinary loss - (0.88) - (0.89) Cumulative effect of accounting change - - - (0.32) - ----------------------------------------------------------------- Net income $0.56 $2.92 $0.95 $1.55 ================================================================== Diluted: Average shares outstanding 63 69 64 72 Income before extraordinary loss and cumulative effect of accounting change $0.56 $3.80 $0.95 $2.76 Extraordinary loss - (0.88) - (0.89) Cumulative effect of accounting change - - - (0.32) - ----------------------------------------------------------------- Net income $0.56 $2.92 $0.95 $1.55 ================================================================== CASH DIVIDENDS PER COMMON SHARE $0.35 $0.35 $1.05 $1.05 ================================================================== The accompanying notes to consolidated financial statements are an integral part of these statements.
2 3
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) ========================================================================= (millions) September 30 December 31 - ------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 62 $ 94 Receivables, less allowances of $9 (1998 - $14) 666 894 Inventories 530 500 Prepaid expenses and other 110 114 - ------------------------------------------------------------------------ Total current assets 1,368 1,602 Unincorporated joint ventures and associated companies 1,622 1,478 Property, plant and equipment 4,305 4,282 Less allowances for depreciation and amortization 2,293 2,258 - ------------------------------------------------------------------------ 2,012 2,024 Deferred taxes and other assets 966 1,030 - ------------------------------------------------------------------------ Total assets $5,968 $6,134 ========================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, accrued and other liabilities $ 809 $ 929 Short-term borrowings 311 116 Long-term debt 138 196 - ------------------------------------------------------------------------ Total current liabilities 1,258 1,241 Long-term debt 1,009 1,035 Postretirement benefits 1,014 1,029 Environmental, deferred taxes and other liabilities 593 635 Stockholders' equity: Common stock 1,560 1,533 Retained earnings 1,216 1,222 Treasury stock, at cost (626) (526) Accumulated other comprehensive income (56) (35) - ------------------------------------------------------------------------ Total stockholders' equity 2,094 2,194 - ------------------------------------------------------------------------ Contingent liabilities (Note 9) Total liabilities and stockholders' equity $5,968 $6,134 ====================================================================== The accompanying notes to consolidated financial statements are an integral part of these statements.
3 4
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) ========================================================================= - ------------------------------------------------------------------------ Nine months ended September 30 (millions) 1999 1998 - ------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 61 $ 111 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 179 193 Operational restructuring effects - (11) Deferred taxes and other (13) 10 Merger-related expenses 12 - Extraordinary item - 63 Cumulative effect of accounting change - 23 Changes in operating assets and liabilities net of effects of dispositions: Accounts payable, accrued and other liabilities (47) (149) Receivables 105 (49) Inventories (34) 75 Environmental and restructuring liabilities (34) (42) Other (56) (63) - ------------------------------------------------------------------------ Net cash provided by operating activities 173 161 INVESTING ACTIVITIES Capital investments: Operational (85) (102) Strategic (291) (115) Operational restructuring proceeds 204 1,066 Other (6) (24) - ------------------------------------------------------------------------ Net cash provided by (used in) investing activities (178) 825 FINANCING ACTIVITIES Increase in short-term borrowings 197 97 Proceeds from long-term debt 250 250 Reduction of long-term debt (333) (769) Cash dividends paid (68) (76) Repurchase of common stock (100) (526) Stock options exercised 27 11 - ------------------------------------------------------------------------ Net cash used in financing activities (27) (1,013) CASH AND CASH EQUIVALENTS Net decrease (32) (27) At beginning of period 94 70 - ------------------------------------------------------------------------ At end of period $ 62 $ 43 ========================================================================= The accompanying notes to consolidated financial statements are an integral part of these statements.
4 5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) ========================================================================= - ------------------------------------------------------------------------ Nine months ended September 30 1999 1998 - ------------------------------------------------------------------------ SHARES (thousands): Common stock Balance at January 1 74,105 73,909 Issued under employee benefit plans 462 194 - ------------------------------------------------------------------------ Balance at September 30 74,567 74,103 - ------------------------------------------------------------------------ Treasury stock Balance at January 1 (9,648) - Purchased and held as treasury stock (1,694) (9,648) - ------------------------------------------------------------------------ Balance at September 30 (11,342) (9,648) - ------------------------------------------------------------------------ Net common shares outstanding 63,225 64,455 - ------------------------------------------------------------------------ DOLLARS (millions): Common stock Balance at January 1 $1,533 $1,521 Issued under employee benefit plans 27 12 - ------------------------------------------------------------------------ Balance at September 30 $1,560 $1,533 - ------------------------------------------------------------------------ Retained earnings Balance at January 1 $1,222 $1,253 Net income (loss) 61 111 Cash dividends declared for common stock (67) (75) - ------------------------------------------------------------------------ Balance at September 30 $1,216 $1,289 - ------------------------------------------------------------------------ Treasury stock Balance at January 1 $ (526) $ - Purchased and held as treasury stock (100) (526) - ------------------------------------------------------------------------ Balance at September 30 $ (626) $ (526) - ------------------------------------------------------------------------ Accumulated other comprehensive income (loss) Balance at January 1 $ (35) $ (35) Foreign currency translation adjustments (21) 2 Income taxes - (6) ------------------------- Other comprehensive income (loss) (21) (4) - ------------------------------------------------------------------------ Balance at September 30 $ (56) $ (39) - ------------------------------------------------------------------------ Total stockholders' equity $2,094 $2,257 - ------------------------------------------------------------------------ COMPREHENSIVE INCOME (millions): Net income (loss) $ 61 $ 111 Other comprehensive income (loss) (21) (4) - ------------------------------------------------------------------------ Comprehensive income (loss) $ 40 $ 107 - ------------------------------------------------------------------------ Comprehensive income was $39 million for the third quarter of 1999 and $213 million for the third quarter of 1998. The accompanying notes to consolidated financial statements are an integral part of these statements.
5 6 REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Quarters Ended September 30, 1999 and 1998 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 periods of 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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, 1998, as amended. Certain amounts have been reclassified to conform to the 1999 presentation. 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. 2. ACCOUNTING POLICIES CUMULATIVE EFFECT OF ACCOUNTING CHANGE In 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires costs of start-up activities and organization costs to be expensed as incurred. The Company adopted the SOP in the second quarter of 1998 and recognized a charge for the cumulative effect of accounting change of $23 million. First quarter 1998 results were retroactively restated to reflect this accounting change. ACCOUNTING FOR THE COSTS OF DEVELOPING OR OBTAINING INTERNAL- USE SOFTWARE In the first quarter of 1999, the Company adopted the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants' 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. In prior years, the Company capitalized costs of purchased software and expensed internal costs of developing software. The effect of adopting this SOP was not material to interim 1999 results, and is not expected to be material for the full year. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards for derivative instruments and hedging activities. The Company must adopt this statement by January 1, 2001. The Company has not determined the impact this statement will have on its financial position or results of operations. 3. MERGER On August 18, 1999, the Company, Alcoa Inc. (Alcoa) and RLM Acquisition Corp., a wholly owned subsidiary of Alcoa, entered into an agreement and plan of merger. Under the merger agreement, each outstanding share of common stock, no par value, of the Company will be converted into 1.06 shares of common stock, par value $1.00 per share, of Alcoa. In connection with the merger agreement, the Company amended its shareholder rights plan to render the plan inapplicable to this transaction. In the third quarter of 1999, the Company recognized $12 million of merger-related expenses. Merger-related expenses are principally for investment banking and legal services and an increase in the expense accrual for a long-term compensation plan, which varies based principally on appreciation of the Company's stock price as compared to the S&P Basic Materials Index. 6 7 3. MERGER- continued The Boards of Directors of both Alcoa and Reynolds have approved the proposed merger, which is subject to customary conditions, including approval by the Company's stockholders and antitrust clearances. On September 29, 1999, the Antitrust Division of the Department of Justice issued a request for additional information and documentary material (a "second request"). Under the applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the merger may not be consummated until the expiration of a statutory waiting period, which expires 20 days after both the Company and Alcoa substantially comply with the second request. The Company and Alcoa will also make filings under the competition laws of Canada and the European Union and other countries where the companies have significant operations. The merger agreement contains certain restrictions on the conduct of the Company's business before completion of the merger. For example, the Company has agreed to operate its business only in the ordinary course, to refrain from taking certain corporate actions without the consent of Alcoa, and not to solicit alternative acquisition proposals. Reference is made to the copy of the merger agreement incorporated by reference herein as Exhibit 2. 4. OPERATIONAL RESTRUCTURING In the first quarter of 1999, the final closing of the sale of the Company's Alabama can stock complex occurred. Early in the fourth quarter of 1999, the Company announced that it had agreed in principle to sell its investment in a Canadian aluminum foil and sheet operation. No gain or loss will be recognized for this transaction, which is subject to regulatory and Board approvals, third party consents, negotiation and execution of definitive agreements and other customary closing conditions. In the nine-month period of 1998, the Company sold the following: . U.S. recycling operations . Canadian extrusion facilities . European rolling mill operations . an Illinois sheet and plate plant . North American aluminum beverage can operations 5. EXTRAORDINARY LOSS The Company had extraordinary losses from debt extinguishments in the third quarter ($60 million) and the nine-month period of 1998 ($63 million). These amounts are net of income tax benefits of $38 million in the third quarter and $39 million in the nine-month period. 7 8 6. EARNINGS PER SHARE The following is a reconciliation of income and average shares for the basic and diluted earnings per share computations for "Income (loss) before extraordinary loss and cumulative effect of accounting change."
Quarters ended September 30 ----------------------------- 1999 1998 ----------------------------- Income (numerator): Income before extraordinary loss and cumulative effect of accounting change (Basic and Diluted) $36 $262 Average shares (denominator): Basic 63,065,000 69,241,000 Effect of dilutive securities: Stock options 288,000 84,000 Stock potentially issuable under a long-term incentive plan 101,000 - ----------------------------- Diluted 63,454,000 69,325,000 ----------------------------- Per share amount: Basic $.56 $3.80 Diluted $.56 $3.80 Antidilutive securities excluded: Stock options 1,301,000 3,955,000
Nine Months ended September 30 -------------------------------- 1999 1998 -------------------------------- Income (numerator): Income before extraordinary loss and cumulative effect of accounting change (Basic and Diluted) $61 $197 Average shares (denominator): Basic 63,888,000 71,474,000 Effect of dilutive securities: Stock options 173,000 257,000 Stock potentially issuable under a long-term incentive plan 54,000 - -------------------------------- Diluted 64,115,000 71,731,000 -------------------------------- Per share amount: Basic $.95 $2.76 Diluted $.95 $2.76 Antidilutive securities excluded: Stock options 2,532,000 2,306,000
7. FINANCING ARRANGEMENTS In the nine months of 1999, the Company: . borrowed $150 million under its revolving credit facilities that bear interest at a variable rate (5.8% at September 30, 1999, based on the London Interbank Offer Rate) and require repayment in a lump sum in 2001 . issued $100 million of medium-term notes (at a fixed rate of 7%), which require annual principal repayments of $20 million between 2005 and 2009 . increased available revolving credit facilities by $185 million (with an annual commitment fee of .125% on the unused portion) 8 9 8. COMPANY OPERATIONS Certain amounts for the third quarter and nine-month period of 1998 have been reclassified to conform to the 1999 presentation. The principal reclassification was to move corporate amounts from the Other category to Reconciling Items.
Packaging Construction Base and and Materials Consumer Distribution =========================================================================== Third Quarter 1999 Customer aluminum shipments 226 36 53 Intersegment aluminum shipments 52 - - - -------------------------------------------------------------------------- Total aluminum shipments 278 36 53 =========================================================================== Revenues: Aluminum $357 $199 $176 Nonaluminum 97 156 80 Intersegment revenues - aluminum 78 - - - -------------------------------------------------------------------------- Total revenues $532 $355 $256 =========================================================================== Segment operating income (loss) $ 78 $ 35 $ 11 Inventory accounting adjustments Corporate amounts Operational restructuring effects - net Merger-related expenses - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== Third Quarter 1998 Customer aluminum shipments 172 34 48 Intersegment aluminum shipments 94 - - - -------------------------------------------------------------------------- Total aluminum shipments 266 34 48 =========================================================================== Revenues: Aluminum $263 $191 $176 Nonaluminum 85 150 79 Intersegment revenues - aluminum 156 - - - -------------------------------------------------------------------------- Total revenues $504 $341 $255 =========================================================================== Segment operating income (loss) $ 65 $ 34 $ 13 Inventory accounting adjustments Corporate amounts Operational restructuring effects - net - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== The reconciling amounts for nonaluminum revenues relate to corporate activities.
9 10
Transportation Restructuring Other =========================================================================== Third Quarter 1999 Customer aluminum shipments 17 - 14 Intersegment aluminum shipments - - - - -------------------------------------------------------------------------- Total aluminum shipments 17 - 14 =========================================================================== Revenues: Aluminum $ 89 $ - $35 Nonaluminum - - 14 Intersegment revenues - aluminum - - - - -------------------------------------------------------------------------- Total revenues $ 89 $ - $49 =========================================================================== Segment operating income (loss) $(15) $ - $ 4 Inventory accounting adjustments Corporate amounts Operational restructuring effects - net Merger-related expenses - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== Third Quarter 1998 Customer aluminum shipments 15 88 9 Intersegment aluminum shipments - - - - -------------------------------------------------------------------------- Total aluminum shipments 15 88 9 =========================================================================== Revenues: Aluminum $75 $299 $26 Nonaluminum - 1 10 Intersegment revenues - aluminum - - - - -------------------------------------------------------------------------- Total revenues $75 $300 $36 =========================================================================== Segment operating income (loss) $(7) $ 31 $(1) Inventory accounting adjustments Corporate amounts Operational restructuring effects - net - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== The reconciling amounts for nonaluminum revenues relate to corporate activities.
Total Reconciling Segments Items Consolidated =========================================================================== Third Quarter 1999 Customer aluminum shipments 346 - 346 Intersegment aluminum shipments 52 (52) - - -------------------------------------------------------------------------- Total aluminum shipments 398 (52) 346 =========================================================================== Revenues: Aluminum $ 856 $ - $ 856 Nonaluminum 347 6 353 Intersegment revenues - aluminum 78 (78) - - -------------------------------------------------------------------------- Total revenues $1,281 $ (72) $1,209 =========================================================================== Segment operating income (loss) $ 113 $ - $ 113 Inventory accounting adjustments - Corporate amounts (34) Operational restructuring effects - net - Merger-related expenses (12) - -------------------------------------------------------------------------- Corporate operating income 67 Interest expense (19) Taxes on income (12) Extraordinary loss - Cumulative effect of accounting change - - -------------------------------------------------------------------------- Net income $ 36 =========================================================================== Third Quarter 1998 Customer aluminum shipments 366 - 366 Intersegment aluminum shipments 94 (94) - - -------------------------------------------------------------------------- Total aluminum shipments 460 (94) 366 =========================================================================== Revenues: Aluminum $1,030 $ - $1,030 Nonaluminum 325 13 338 Intersegment revenues - aluminum 156 (156) - - -------------------------------------------------------------------------- Total revenues $1,511 $(143) $1,368 =========================================================================== Segment operating income (loss) $ 135 $ - $ 135 Inventory accounting adjustments 1 Corporate amounts (27) Operational restructuring effects - net 315 - -------------------------------------------------------------------------- Corporate operating income 424 Interest expense (27) Taxes on income (135) Extraordinary loss (60) Cumulative effect of accounting change - - -------------------------------------------------------------------------- Net income $ 202 =========================================================================== The reconciling amounts for nonaluminum revenues relate to corporate activities.
10 11 8. COMPANY OPERATIONS - continued
Packaging Construction Base and and Materials Consumer Distribution =========================================================================== Nine Months ended September 30, 1999 Customer aluminum shipments 653 107 151 Intersegment aluminum shipments 156 - - - -------------------------------------------------------------------------- Total aluminum shipments 809 107 151 =========================================================================== Revenues: Aluminum $ 973 $ 583 $505 Nonaluminum 257 438 237 Intersegment revenues - aluminum 225 - - - -------------------------------------------------------------------------- Total revenues $1,455 $1,021 $742 =========================================================================== Segment operating income (loss) $ 147 $ 103 $ 32 Inventory accounting adjustments Corporate amounts Operational restructuring effects - net Merger-related expenses - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== Nine Months ended September 30, 1998 Customer aluminum shipments 485 101 140 Intersegment aluminum shipments 275 - - - -------------------------------------------------------------------------- Total aluminum shipments 760 101 140 =========================================================================== Revenues: Aluminum $ 778 $ 571 $511 Nonaluminum 314 430 242 Intersegment revenues - aluminum 445 - - - -------------------------------------------------------------------------- Total revenues $1,537 $1,001 $753 =========================================================================== Segment operating income (loss) $ 239 $ 96 $ 29 Inventory accounting adjustments Corporate amounts Operational restructuring effects - net - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== The reconciling amounts for nonaluminum revenues relate to corporate activities.
11 12
Transportation Restructuring Other =========================================================================== Nine Months ended September 30, 1999 Customer aluminum shipments 54 - 44 Intersegment aluminum shipments - - - - -------------------------------------------------------------------------- Total aluminum shipments 54 - 44 =========================================================================== Revenues: Aluminum $289 $ - $ 99 Nonaluminum - - 23 Intersegment revenues - aluminum - - - - -------------------------------------------------------------------------- Total revenues $289 $ - $122 =========================================================================== Segment operating income (loss) $(23) $ - $ 7 Inventory accounting adjustments Corporate amounts Operational restructuring effects - net Merger-related expenses - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== Nine Months ended September 30, 1998 Customer aluminum shipments 46 307 27 Intersegment aluminum shipments - 4 - - -------------------------------------------------------------------------- Total aluminum shipments 46 311 27 =========================================================================== Revenues: Aluminum $242 $1,236 $ 81 Nonaluminum - 10 22 Intersegment revenues - aluminum - 12 - - -------------------------------------------------------------------------- Total revenues $242 $1,258 $103 =========================================================================== Segment operating income (loss) $(14) $ 111 $ 1 Inventory accounting adjustments Corporate amounts Operational restructuring effects - net - -------------------------------------------------------------------------- Corporate operating income Interest expense Taxes on income Extraordinary loss Cumulative effect of accounting change - -------------------------------------------------------------------------- Net income =========================================================================== The reconciling amounts for nonaluminum revenues relate to corporate activities.
Total Reconciling Segments Items Consolidated =========================================================================== Nine Months ended September 30, 1999 Customer aluminum shipments 1,009 - 1,009 Intersegment aluminum shipments 156 (156) - - -------------------------------------------------------------------------- Total aluminum shipments 1,165 (156) 1,009 =========================================================================== Revenues: Aluminum $2,449 - $2,449 Nonaluminum 955 34 989 Intersegment revenues - aluminum 225 (225) - - -------------------------------------------------------------------------- Total revenues $3,629 $ (191) $3,438 =========================================================================== Segment operating income (loss) $ 266 $ - $ 266 Inventory accounting adjustments (2) Corporate amounts (115) Operational restructuring effects - net - Merger-related expenses (12) - -------------------------------------------------------------------------- Corporate operating income 137 Interest expense (57) Taxes on income (19) Extraordinary loss - Cumulative effect of accounting change - - -------------------------------------------------------------------------- Net income $ 61 =========================================================================== Nine Months ended September 30, 1998 Customer aluminum shipments 1,106 - 1,106 Intersegment aluminum shipments 279 (279) - - -------------------------------------------------------------------------- Total aluminum shipments 1,385 (279) 1,106 =========================================================================== Revenues: Aluminum $3,419 $ - $3,419 Nonaluminum 1,018 42 1,060 Intersegment revenues - aluminum 457 (457) - - -------------------------------------------------------------------------- Total revenues $4,894 $(415) $4,479 =========================================================================== Segment operating income (loss) $ 462 $ - $ 462 Inventory accounting adjustments 5 Corporate amounts (98) Operational restructuring effects - net 11 - -------------------------------------------------------------------------- Corporate operating income 380 Interest expense (94) Taxes on income (89) Extraordinary loss (63) Cumulative effect of accounting change (23) - -------------------------------------------------------------------------- Net income $ 111 =========================================================================== The reconciling amounts for nonaluminum revenues relate to corporate activities.
12 13 9. CONTINGENT LIABILITIES As previously disclosed in the Company's 1998 Form 10-K, as amended, the Company is involved in various worldwide environmental improvement activities resulting from past operations, including designation as a potentially responsible party (PRP), with others, at various Environmental Protection Agency-designated Superfund sites. The Company has recorded amounts (on an undiscounted basis) which, in management's best estimate, will be sufficient to satisfy anticipated costs of known remediation requirements. Estimated costs for future environmental compliance and remediation are necessarily imprecise because of factors such as: . continuing evolution of environmental laws and regulatory requirements . availability and application of technology . identification of presently unknown remediation requirements . cost allocations among PRPs Further, it is not possible to predict the amount or timing of future costs of environmental remediation that may subsequently be determined. Based on information presently available, such future costs are not expected to have a material adverse effect on the Company's competitive or financial position. However, such costs could be material to results of operations in a future interim or annual reporting period. 10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM COMPANY OF CANADA, LTD. Financial statements and financial statement schedules for Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum Company of Canada, Ltd. have been omitted because certain securities registered under the Securities Act of 1933, of which these wholly owned subsidiaries of Reynolds Metals Company (Reynolds) 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. 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. Summarized financial information is as follows:
Canadian Reynolds Metals Company, Ltd. Quarters Ended Nine Months Ended September 30 September 30 ---------------- ------------------- 1999 1998 1999 1998 ---------------- ------------------- Net Sales: Customers $143 $ 78 $385 $261 Parent and related companies 89 119 273 368 ---------------- ------------------- $232 $197 $658 $629 Cost of products sold 193 178 578 539 Net income $ 27 $ 12 $ 42 $ 61
September 30 December 31 1999 1998 ------------------------------------ Current assets $ 322 $ 155 Noncurrent assets 1,183 1,206 Current liabilities (115) (100) Noncurrent liabilities (472) (379)
13 14 10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM COMPANY OF CANADA, LTD. - continued
Reynolds Aluminum Company of Canada, Ltd. Quarters Ended Nine Months Ended September 30 September 30 ---------------- ------------------- 1999 1998 1999 1998 ---------------- ------------------- Net Sales: Customers $143 $ 98 $385 $329 Parent and related companies 89 121 273 360 ---------------- ------------------- $232 $219 $658 $689 Cost of products sold 193 199 578 594 Net income $ 28 $ 12 $ 43 $ 59
September 30 December 31 1999 1998 ------------------------------------ Current assets $ 304 $ 186 Noncurrent assets 1,198 1,228 Current liabilities (106) (103) Noncurrent liabilities (481) (389)
14 15 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 1998 Form 10-K, as amended, 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, objectives and strategies for the Company and other forward- looking statements. Please refer to the "Risk Factors" section beginning on page 23, 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. MERGER - ------ On August 18, 1999, the Company, Alcoa Inc. (Alcoa) and RLM Acquisition Corp., a wholly owned subsidiary of Alcoa, entered into an agreement and plan of merger. Under the merger agreement, each outstanding share of common stock, no par value, of the Company will be converted into 1.06 shares of common stock, par value $1.00 per share, of Alcoa. In connection with the merger agreement, the Company amended its shareholder rights plan to render the plan inapplicable to this transaction. In the third quarter of 1999, the Company recognized $12 million of merger-related expenses. Merger-related expenses are principally for investment banking and legal services and an increase in the expense accrual for a long-term compensation plan, which varies based principally on appreciation of the Company's stock price as compared to the S&P Basic Materials Index. The Company expects total merger-related expenses to be at least $25 million. The Boards of Directors of both Alcoa and Reynolds have approved the proposed merger, which is subject to customary conditions, including approval by the Company's stockholders and antitrust clearances. On September 29, 1999, the Antitrust Division of the Department of Justice issued a request for additional information and documentary material (a "second request"). Under the applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the merger may not be consummated until the expiration of a statutory waiting period, which expires 20 days after both the Company and Alcoa substantially comply with the second request. The Company and Alcoa will also make filings under the competition laws of Canada and the European Union and other countries where the companies have significant operations. The Company hopes to complete the merger in the first quarter of next year. However, no assurances can be made that the merger will be completed by then. The merger agreement contains certain restrictions on the conduct of the Company's business before completion of the merger. For example, the Company has agreed to operate its business only in the ordinary course, to refrain from taking certain corporate actions without the consent of Alcoa, and not to solicit alternative acquisition proposals. Reference is made to the copy of the merger agreement incorporated by reference herein as Exhibit 2. RESULTS OF OPERATIONS - --------------------- Net income was $36 million for the third quarter of 1999 and $61 million for the nine months of 1999 compared with net income of $202 million for the third quarter of 1998 and $111 million for the nine months of 1998. Net income for the third quarter and nine months of 1999 included after-tax merger-related expenses of $9 million. In addition to the extraordinary loss and cumulative effect of accounting change shown in the table below, the third quarter and nine months of 1998 included non-recurring, after-tax income of $201 million and $5 million, respectively, for operational restructuring. For additional information concerning the operational restructuring charges, see Note 4 to the consolidated financial statements. 15 16 RESULTS OF OPERATIONS - continued - ---------------------
Third Quarter Nine Months --------------- -------------- 1999 1998 1999 1998 --------------- -------------- RESULTS Income before extraordinary loss and cumulative effect of accounting change $ 36 $ 262 $ 61 $ 197 Extraordinary loss (see Note 5) - (60) - (63) Cumulative effect of accounting change (see Note 2) - - - (23) --------------- -------------- Net income $ 36 $ 202 $ 61 $ 111 =============== ============== EARNINGS PER SHARE - BASIC Income before extraordinary loss and cumulative effect of accounting change $0.56 $3.80 $0.95 $2.76 Extraordinary loss - (.88) - (.89) Cumulative effect of accounting change - - - (.32) ------------------------------- Net income $0.56 $2.92 $0.95 $1.55 =============================== AVERAGE REALIZED PRICE PER POUND Primary aluminum $0.71 $0.70 $0.68 $0.73
Our profit before tax from operations for the third quarter of 1999 was down $22 million compared to the third quarter of 1998. This decrease was attributable principally to the following factors: . lower aluminum pricing in fabricated aluminum products of $14 million . loss of income on sold operations of $31 million . weaker results in our Transportation unit . a $7 million non-cash charge for foreign currency translation of a Canadian deferred tax liability On the positive side, gains in sales volumes across all global business units, particularly Base Materials and Packaging and Consumer, improved profit before taxes. Quarter-over-quarter improvement in interest expense was $8 million, and SG&A expenses from our ongoing operations were $4 million lower. For the nine-month period, our profit before tax from operations of $92 million was $183 million lower than we experienced for the same period in 1998. Included in the results are three items that had a negative impact: . $143 million of lower aluminum pricing . $111 million from the loss of income on sold operations . $40 million of non-cash charges for foreign currency translation relating to a Canadian deferred tax liability and our investment in can operations in Brazil Contributing $57 million to the favorable ongoing operating results were higher sales volumes and lower conversion costs primarily in our Base Materials unit, and lower SG&A expenses. Year-over-year improvement for the nine-month period in interest expense was $37 million. GLOBAL BUSINESS UNITS The Company is organized into four market-based, global business units. The four global business units and their principal products are as follows: . Base Materials - alumina, carbon products, primary aluminum ingot and billet, and electrical rod . Packaging and Consumer - aluminum and plastic packaging and consumer products; printing products . Construction and Distribution - architectural construction products and the distribution of a wide variety of aluminum and stainless steel products . Transportation - aluminum wheels, heat exchangers and automotive structures 16 17 RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued
Base Materials Third Quarter Nine Months ----------------- ----------------- 1999 1998 1999 1998 ----------------- ----------------- Aluminum shipments: Customer 226 172 653 485 Internal 52 94 156 275 ----------------- ----------------- Total 278 266 809 760 ================= ================= Revenues: Customer - aluminum $357 $263 $ 973 $ 778 - nonaluminum 97 85 257 314 Internal - aluminum 78 156 225 445 ----------------- ----------------- Total $532 $504 $1,455 $1,537 ================= ================= Operating income $ 78 $ 65 $ 147 $ 239 ================= =================
The increase in customer aluminum shipments in the third quarter and nine months of 1999 reflects strong demand for our value- added products (foundry and sheet ingot, billet and rod), which made up approximately 73% of the primary aluminum shipments in these periods. Our available supply to meet customer demand has increased because we no longer need to supply downstream fabricating operations that have been sold, and we restarted idled capacity in 1998. In addition to reflecting the changes in shipping volume, aluminum revenues in the nine-month period of 1999 were significantly affected by lower prices for primary aluminum. Nonaluminum revenues were higher in the third quarter of 1999 because of higher prices for alumina. For the nine-month period of 1999, nonaluminum revenues were lower because prices for alumina were lower than those realized in the nine-month period of 1998. Customer shipments of alumina were also lower due to greater internal use resulting from our restart of idled primary aluminum capacity in 1998. Operating income improved in the third quarter of 1999 because of higher prices for aluminum and alumina, higher shipments of primary aluminum products, improved capacity utilization and lower conversion costs. Operating income for the nine-month period of 1999 was significantly impacted by lower prices for most products. We were able to offset some of this decline with higher shipments of primary aluminum, improved capacity utilization and lower material and conversion costs. Bonneville Power Administration ("BPA") supplies electricity to our smelters at Longview, Washington and Troutdale, Oregon. The current contract with BPA expires in October 2001. BPA has proposed reducing the amount of power supplied to the smelters by one-third and pricing the power on a formula under which charges would vary with world aluminum prices. Assuming "average" world aluminum prices (with the basis for determining what is "average" yet to be settled), the rate charged to Reynolds for the period 2001-2006 would increase by 13% over what we currently pay. We would also have to find other sources for the balance of our power needs. The BPA proposal is subject to full consideration in a rate case, in which we can present arguments to improve the offered rate, and other parties can challenge both the quantity of power being provided to the Reynolds smelters and the rates at which it is to be provided. We expect to participate actively in the resolution of this issue and to continue assessing alternate power sources for the two smelters. We have a 10% equity interest in the Aluminum Smelter Company of Nigeria. The smelter has closed indefinitely due to a lack of working capital. The closing has no material effect on our operations or financial position. 17 18 RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued
PACKAGING AND CONSUMER Third Quarter Nine Months --------------- --------------- 1999 1998 1999 1998 --------------- --------------- Customer aluminum shipments 36 34 107 101 Revenues: Customer - aluminum $199 $191 $ 583 $ 571 - nonaluminum 156 150 438 430 --------------- --------------- Total $355 $341 $1,021 $1,001 =============== =============== Operating income $ 35 $ 34 $ 103 $ 96 =============== ===============
Shipments and revenues were higher in the third quarter and nine months of 1999 because of strong demand for most products, despite declining demand in the tobacco market. The volume impact on revenues was partly offset by lower selling prices. The increases in operating income in both periods reflect the higher shipping volumes, lower conversion costs and lower costs for aluminum raw materials. These benefits were somewhat offset by the effects of lower selling prices. Raw material costs for plastic products were higher in the third quarter of 1999 but were lower in the nine-month period of 1999.
CONSTRUCTION AND DISTRIBUTION Third Quarter Nine Months --------------- --------------- 1999 1998 1999 1998 --------------- --------------- Customer aluminum shipments 53 48 151 140 Revenues: Customer - aluminum $176 $176 $505 $511 - nonaluminum 80 79 237 242 --------------- --------------- Total $256 $255 $742 $753 =============== =============== Operating income $ 11 $ 13 $ 32 $ 29 =============== ===============
Shipments increased in the third quarter and nine months of 1999 because of strong demand for most distribution products. Shipments of construction products reflected weak conditions in several markets outside the U.S., such as Asia and Latin America. Revenues were adversely affected in both periods because of lower prices for most products. The decline in prices for aluminum products reflects lower material costs. Prices for stainless steel products were lower due to global supply/demand imbalances and lower material costs. Operating income was negatively affected in both periods by lower selling prices and margins. These effects were more than offset in the nine-month period of 1999 by lower conversion costs and expenses. 18 19 RESULTS OF OPERATIONS - continued - --------------------- GLOBAL BUSINESS UNITS - continued
TRANSPORTATION Third Quarter Nine Months --------------- --------------- 1999 1998 1999 1998 --------------- --------------- Customer aluminum shipments 17 15 54 46 Customer revenues $89 $75 $289 $242 Operating loss (15) (7) (23) (14)
Shipments and revenues were higher in the third quarter and nine months of 1999 because of strong demand for cast and forged aluminum wheels. Our available supply increased due to improved capacity utilization and the completion of the expansion of our Virginia forged aluminum wheel plant in February 1999. Shipments and revenues in the third quarter of 1998 were adversely affected by a strike at a major customer. Operating losses were greater because of start-up costs relating to an engine cradle program at our Indiana automotive structures plant (see below) and higher conversion costs in wheel operations. These effects were partially offset by lower material costs, improved shipping volume and capacity utilization in wheel and heat exchanger operations, and operating improvements at our Beloit, Wisconsin wheel plant. The Company and an automobile manufacturer are pioneering the first, mass-produced, high-volume, all-aluminum engine cradle. The engine cradle offers significant weight savings, reduces noise and vibration, and provides important safety features. We have incurred high start-up costs because of the complexity of the production process and our acceleration of the timetable to begin production. No other manufacturer has yet produced this particular component. RESTRUCTURING The final closing of the sale of the Alabama can stock complex occurred at the end of the first quarter of 1999. The Company had signed a definitive sales agreement in December 1998 covering the disposition of the complex and agreed to operate it on behalf of the buyer for a management fee until all administrative aspects of the transaction could be completed. As a result, no revenues or operating results are included in the Restructuring category in 1999. OTHER The Other category consists principally of operations in emerging markets, European extrusion operations and investments in Canada, Latin America and Saudi Arabia. Early in the fourth quarter of 1999, the Company announced that it had agreed in principle to sell its investment in a Canadian aluminum foil and sheet operation included in this category. The transaction is subject to regulatory and Board approvals, third party consents, negotiation and execution of definitive agreements and other customary closing conditions. No gain or loss will be recognized for this transaction which is expected to close in the first quarter of 2000. RECONCILING ITEMS The increases in corporate expenses in both 1999 periods were due to foreign currency related losses and charges, principally in Brazil and Canada. For additional information concerning the global business units, see Note 8 to the consolidated financial statements. INTEREST EXPENSE Interest expense decreased in both 1999 periods because of: . lower amounts of debt outstanding . lower average interest rates due to extinguishing higher cost debt . higher amounts for capitalized interest 19 20 RESULTS OF OPERATIONS - continued - --------------------- 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 . credits and other tax benefits YEAR 2000 READINESS DISCLOSURE ISSUE The year 2000 issue results from computer programs and systems that rely on two digits rather than four to define the applicable year. Such systems may treat a date using "00" as the year 1900 rather than the year 2000. As a result, computer systems could fail to operate or make miscalculations, causing disruption of business operations. Left unrepaired, many of the Company's systems, including information and computer systems and automated equipment, could be affected by the year 2000 issue. Failure to adequately address the issue could result in, among other things, the temporary inability to manufacture products, process transactions, send invoices, and/or engage in normal business activities. We do not believe the products we sell require remediation to address the year 2000 issue since they do not depend on the calendar function in the electronic components. GOAL The Company has a formal program to address and resolve potential exposure associated with information and non-information technology systems arising from the year 2000 issue. Our goal is that none of the Company's critical business operations or computer processes we share with our suppliers and customers will be substantially impaired by the advent of the year 2000. Our program is led by our Year 2000 Program Management Office, which recommends processes and tools for year 2000 remediation to the Company's business units and monitors progress. The Program Management Office consolidates progress information into monthly status reports for review by management, the Company's internal auditors and the Board of Directors. The Audit Committee of the Board of Directors is also given periodic briefings on progress and plans from the Program Management Office. YEAR 2000 REMEDIATION PROJECT We have completed preparation of our critical, date-sensitive computer systems, processes and interfacing software which include both our information systems and our non-information systems (e.g., manufacturing and mechanical systems) for the year 2000. Our preparation included five phases: (1) inventory, (2) planning, (3) conversion, (4) pre-installation testing and (5) installation. We continue to monitor our computer and software vendors' readiness statements to assure that readiness changes in their products do not negatively affect our systems. QUALITY ASSURANCE We have substantially completed validation of our remediation efforts with additional post-installation testing of certain critical computer systems. We have also tested the exchange of data with certain suppliers, customers and government agencies. Some additional quality assurance review and testing will continue through year end based upon ongoing monitoring of status information from customers and suppliers. Most computer software package providers continue to monitor test results from their customers as part of their quality assurance programs. We anticipate that software package providers will continue to send us updates in the fourth quarter and into 2000 if needed. We will perform quality assurance testing on these updates. 20 21 RESULTS OF OPERATIONS - continued - --------------------- YEAR 2000 READINESS DISCLOSURE - continued CONTINGENCY PLANNING A key aspect of the Company's contingency planning for the year 2000 focuses on assessment of the business impact on the Company resulting from the possible failure of our suppliers to provide needed products and services. We have surveyed those suppliers who are deemed to be critical to each of our operating locations, even though the products or services they provide may not be material to the Company's business as a whole, to assess their year 2000 readiness. We are currently monitoring over 1,500 suppliers and have completed the process of rating them low, medium or high risk in their progress toward being ready for the year 2000. Critical suppliers rated as high risk received primary attention for contingency planning or other measures such as identifying additional sources of supply for critical materials. In addition, we have nearly completed our plan to have identified additional sources of supply or to develop other contingency plans with respect to those critical suppliers who are not ranked as low risk. We will continue monitoring these suppliers into the year 2000. As of September 30, 1999, we were on schedule with our third party evaluations, having completed approximately 98% of the projected total effort that we currently estimate will be needed. We have completed year 2000 readiness evaluations of our largest customers, none of which are material to our operations as a whole. In addition, we will continue to respond to customer inquiries regarding our year 2000 program and our progress in addressing the issue. The Company currently has in place operating procedures and business continuity plans at its operating locations for responding to unusual, disruptive situations such as power shortages, failures by major suppliers and natural disasters. These existing procedures and plans provide a solid foundation for addressing many year 2000 issues. As unique risks are identified and deemed sufficiently likely to occur, we are making necessary adaptations or additions to our existing procedures and plans. Contingency planning and monitoring to determine realistic year 2000 issues beyond those already addressed will continue for the remainder of the year and into the first quarter of 2000. Several reasonably likely worst case scenarios involve shortages or unanticipated outages of energy requirements. Our operations, particularly in the Base Materials business, require significant quantities of energy. Curtailments or disruptions of energy supplies would result in full or partial shutdowns of these operations until energy availability could be restored. In addition, an unanticipated loss of energy supply could result in damage to production equipment. We continue to assess these and other business disruption risks. COSTS The total cost of our year 2000 remediation project is currently expected to be approximately $22 million. As of September 30, 1999, we had incurred approximately $21 million, which includes labor, equipment and license costs. We have not determined the potential costs of business disruptions from supplier or customer non-performance. LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
WORKING CAPITAL September 30 December 31 1999 1998 -------------- ------------- Working capital $110 $361 Ratio of current assets to current liabilities 1.1/1 1.3/1
The decline in working capital was due in part to the sale of $125 million of accounts receivable under a non-recourse facility. After completing substantially all of our Portfolio Review process, we are able to operate with lower levels of working capital. OPERATING ACTIVITIES Net cash provided by operating activities in the nine-month period of 1999 was used to fund investing activities. It includes the proceeds from the sale of accounts receivable. 21 22 INVESTING ACTIVITIES Capital investments totaled $376 million in the nine-month period of 1999. This amount includes $85 million for operating requirements (replacement equipment, environmental control projects, etc.). The remainder was for strategic projects (performance improvements, investments, etc.) principally carried forward from 1998, including: . expanding the Worsley Alumina Refinery in Australia . modernizing U.S. foil plants . acquiring two producers of flexographic separations and plates for the packaging industry in the U.S. and one in Canada and a U.S. manufacturer of microwaveable containers for the food service industry . establishing a foodservice packaging and consumer products subsidiary in Brazil . expanding a plant in Europe that will produce composite architectural products . acquiring and opening new metals distribution centers . expanding a forged wheel plant in Virginia (completed in the first quarter of 1999) . expanding and modifying an automotive structures plant in Indiana (completed in the second quarter of 1999) Total capital investments planned for 1999 (approximately $440 million) are primarily for those strategic projects now under way and continuing operating requirements. We expect to fund the capital investments remaining in 1999 primarily with cash provided by operating activities supplemented with funds from financing activities. Part of the proceeds from operational restructuring was used to repurchase common stock. FINANCING ACTIVITIES In the nine months of 1999, the Company: . increased short-term borrowings by $197 million . borrowed $150 million under our revolving credit facilities and increased available revolving credit facilities by $185 million (see Note 7) . issued $100 million of medium-term notes (see Note 7), reducing to $13 million the amount of debt securities available for issuance under our shelf registration . increased the authorization to issue commercial paper from $350 million to $500 million . repurchased common stock with part of the proceeds from sales of assets (see the Consolidated Statement of Changes in Stockholders' Equity) We used the proceeds from the borrowings to repay at maturity $100 million of 9 3/8% debentures, to reduce borrowings under our revolving credit facilities and to make other scheduled debt payments. 22 23 RISK FACTORS - ------------ This section should be read in conjunction with Part I, Item 1 (Business), Item 3 (Legal Proceedings) and Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of the Company's 1998 Form 10-K, as amended, 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, objectives and strategies 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, including: . 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 . primary aluminum prices By their nature, forward-looking statements involve risk and uncertainty, and various factors could cause the Company's actual results to differ materially from those projected in a forward- looking statement or affect the extent to which a particular projection is realized. The Company remains optimistic about the demand for aluminum for the remainder of 1999 and 2000. A strong recovery in Asia (excluding Japan) and most of Western Europe coupled with continued strong demand in North America should result in global aluminum consumption growing by at least 3% in 1999. These economic recoveries set the stage for aluminum consumption to resume the forecast long-term trend growth rate of 4% to 5% per year in 2000 and 2001. Economic and/or market conditions other than those forecasted by the Company in the preceding paragraph 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. Because primary aluminum makes up a significant portion of the Company's shipments, changes in aluminum pricing have a rapid effect on the Company's operating results. 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 price volatility but does not eliminate it. . The markets for most aluminum products are highly competitive. Certain of the Company's competitors are larger than the Company in terms of total assets and operations and have greater financial resources. Certain foreign governments are involved in the operation and/or ownership of certain competitors and may be motivated by political as well as economic considerations. In addition, aluminum competes with other materials, such as steel, plastics and glass, among others, for various applications in the Company's key markets. Plastic products compete with similar products made by the Company's competitors, as well as with products made of glass, aluminum, steel, paper, wood and ceramics, among others. Unanticipated actions or developments by or affecting the Company's competitors and/or the willingness of customers to accept substitutions for the products sold by the Company could affect results. [FN] ________________________ Forward-looking statements can be identified generally as those containing words such as "should," "will," "will likely result," "hope," "forecast," "outlook," "project," "estimate," "expect," "anticipate," "scheduled," or "plan" and words of similar effect. 23 24 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. The identification of additional material remediation sites in the future (that are presently unknown) at which the Company may be named as a potentially responsible party could have a material adverse effect on the Company's results of operations in a future interim or annual reporting period. Moreover, estimating future environmental compliance and remediation costs is imprecise due to: - continuing evolution of environmental laws and regulatory requirements and uncertainties about their application to the Company's operations - availability and application of technology - allocation of costs among potentially responsible parties . The Company has investments and activities in various emerging markets, including Russia, China, India and Brazil. While emerging markets offer strong growth potential, they also present a higher degree of risk than more developed markets. In addition to the business risks inherent in developing and servicing new markets, economic conditions may be more volatile, legal systems less developed and predictable, and the possibility of various types of adverse government action more pronounced. . 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 have a material adverse effect on the Company's results of operations for a particular reporting period. . Changes in the costs or availability of supply of power, resins, caustic soda, green coke and other raw materials can materially affect results. Substantial increases in power costs, particularly in the Pacific Northwest, may adversely affect the Company's primary aluminum production plants which require reliable, low-cost power. . A number of the Company's operations are cyclical and can be influenced by economic conditions. . A failure to complete the Company's major capital projects, such as expansion of the Worsley Alumina Refinery (by reason of construction delays or disputes, labor unrest or otherwise), as scheduled and within budget or a failure to successfully launch new growth or strategic business programs, such as the engine cradle program where we are still experiencing excess start-up costs, could affect the Company's results. . The Company's results may be adversely affected if it fails to address successfully the year 2000 issue. While the Company believes it has prepared its information and non-information systems for the advent of the year 2000, a failure to locate and correct all relevant computer codes could result in disruptions of Company operations, some of which may be significant. Also, there can be no guarantee that other entities with which the Company does business will convert their computer applications on a timely basis and no assurance given that their failure to be year 2000 compliant will not have an adverse effect on the Company. . A strike at a customer facility or a significant downturn in the business of a key customer supplied by the Company could affect the Company's results. . The Company's proposed merger with Alcoa Inc. is subject to certain conditions, including approval by the Company's stockholders and antitrust clearance. As discussed under "Merger" in this Item 2, the Antitrust Division of the Department of Justice has issued a second request, and under the applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the merger with Alcoa may not be consummated until expiration of a statutory waiting period which expires 20 days after both the Company and Alcoa substantially comply with the second request. The Company and Alcoa will also make filings under the competition laws of Canada and the European Union and other countries where the companies have significant operations. It is possible that regulatory authorities may impose conditions on the combined operations or require divestitures as a condition to approving the merger. While the Company is working promptly toward completion of the merger, no assurances can be given as to whether regulatory delays will be encountered or regulatory conditions to the merger imposed, or the possible effects of such delays or conditions. 24 25 RISK FACTORS - continued - ------------ 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. 25 26 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Forward, futures, option and swap contracts are designated to manage market risks resulting from fluctuations in the aluminum, natural gas, foreign currency and debt markets. Contracts used to manage risks in these markets are not material. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES (a) Recent Sales of Unregistered Securities Under the Registrant's Stock Plan for Outside Directors (the "Plan"), 106 phantom shares, in the aggregate, were granted to the Registrant's nine outside Directors on July 1, 1999, based on an average price of $59.6250 per share. These phantom shares represent dividend equivalents paid on phantom shares previously granted under the Plan. 756 phantom shares, in the aggregate, were granted to the nine outside Directors on September 30, 1999, based on an average price of $60.00 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, 1998 in Part II, Item 5 under the caption "Sale of Unregistered Securities". ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K During the third quarter of 1999, the Registrant filed two Current Reports on Form 8-K with the Commission, each of which reported matters under Item 5: (1) A Form 8-K filed July 20, 1999, reporting that the Registrant had improved its segment reporting by removing corporate amounts from the Other category and presenting them as separate reconciling items. Filed with the report were reclassified segment disclosures related to the Registrant's financial reports for the quarters ended March 31, 1999 and 1998, other interim periods of 1998, and the fiscal years ended December 31, 1998, 1997 and 1996. (2) A Form 8-K filed August 19, 1999, reporting that the Registrant, Alcoa Inc. and RLM Acquisition Corp. had entered into an agreement and plan of merger. In addition, on October 20, 1999, the Registrant filed a Current Report on Form 8-K reporting under Item 5 that it was filing with the report an unaudited pro forma statement of income for the year ended December 31, 1998 relating to the Registrant's sale of its North American aluminum beverage can operations. 26 27 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 Senior Vice President and Controller (Chief Accounting Officer) DATE: November 12, 1999 27 i INDEX TO EXHIBITS (Attached herewith are Exhibits 10.9 and 27) * EXHIBIT 2 - Agreement and Plan of Merger among Alcoa Inc., RLM Acquisition Corp. and Reynolds Metals Company dated as of August 18, 1999. (File No. 001-01430, Form 8-K Report dated August 19, 1999, EXHIBIT 99.1) * EXHIBIT 3.1 - Restated Certificate of Incorporation, as amended. (File No. 001-01430, 1998 Form 10-K Report, EXHIBIT 3.1) * EXHIBIT 3.2 - By-laws, as amended. (File No. 001-01430, 1998 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 - Form of Common Stock Certificate. (Registration Statement No. 333-79203 on Form S-8, dated May 24, 1999, EXHIBIT 4.2) * EXHIBIT 4.4 - 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. 001-01430, Form 10-Q Report for the Quarter Ended March 31, 1989, EXHIBIT 4(c)) * EXHIBIT 4.5 - Amendment No. 1 dated as of November 1, 1991 to the Indenture. (File No. 001- 01430, 1991 Form 10-K Report, EXHIBIT 4.4) * EXHIBIT 4.6 - Amended and Restated Rights Agreement dated as of March 8, 1999 (the "Rights Agreement") between Reynolds Metals Company and ChaseMellon Shareholder Services, L.L.C. (File No. 001-01430, Form 8-K Report dated March 8, 1999, EXHIBIT 4.1) * EXHIBIT 4.7 - First Amendment dated August 20, 1999 to the Rights Agreement. (File No. 001-01430, Form 8-A/A (Amendment No. 2 to Registration Statement on Form 8-A, pertaining to Preferred Stock Purchase Rights) dated August 19, 1999, EXHIBIT 1) * 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. 001-01430, 1991 Form 10- K Report, EXHIBIT 4.15) ______________________ * Incorporated by reference. i ii * EXHIBIT 4.11 - Form of Book-Entry Floating Rate Medium-Term Note. (File No. 001-01430, 1991 Form 10- K Report, EXHIBIT 4.16) * EXHIBIT 4.12 - Form of 9% Debenture due August 15, 2003. (File No. 001-01430, 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) ("RACC"), as amended. (File No. 001-01430, 1995 Form 10-K Report, EXHIBIT 4.13) * EXHIBIT 4.14 - By-Laws of RACC, as amended. (File No. 001- 01430, Form 10-Q Report for the Quarter Ended March 31, 1997, EXHIBIT 4.14) * EXHIBIT 4.15 - Articles of Incorporation of Societe Canadienne de Metaux Reynolds, Ltee/Canadian Reynolds Metals Company, Ltd. ("CRM"), as amended. (File No. 001- 01430, Form 10-Q Report for the Quarter Ended September 30, 1997, EXHIBIT 4.15) * EXHIBIT 4.16 - By-Laws of CRM, as amended. (File No. 001- 01430, Form 10-Q Report for the Quarter Ended September 30, 1997, EXHIBIT 4.16) * EXHIBIT 4.17 - Indenture dated as of April 1, 1993 among RACC, Reynolds Metals Company and The Bank of New York, as Trustee. (File No. 001-01430, Form 8-K Report dated July 14, 1993, EXHIBIT 4(a)) * EXHIBIT 4.18 - 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. 001-01430, 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. 001-01430, 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 - Amendment and Restatement of Reynolds Metals Company Performance Incentive Plan, as adopted and executed May 21, 1999. (File No. 001-01430, Form 10-Q Report for the Quarter ended June 30, 1999, EXHIBIT 10.3) _______________________ * 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. ii iii =* EXHIBIT 10.4 - Amendment and Restatement of Supplemental Death Benefit Plan for Officers, as adopted and executed April 26, 1999. (File No. 001-01430, Form 10- Q Report for the Quarter ended June 30, 1999, EXHIBIT 10.5) =* EXHIBIT 10.5 - Financial Counseling Assistance Plan for Officers. (File No. 001-01430, 1987 Form 10-K Report, EXHIBIT 10.11) =* EXHIBIT 10.6 - Management Incentive Deferral Plan. (File No. 001-01430, 1987 Form 10-K Report, EXHIBIT 10.12) =* EXHIBIT 10.7 - Amendment and Restatement of Deferred Compensation Plan for Outside Directors, as adopted and executed April 28, 1999. (File No. 001-01430, Form 10-Q Report for the Quarter ended June 30, 1999, EXHIBIT 10.8) =* EXHIBIT 10.8 - Form of Indemnification Agreement for Directors and Officers. (File No. 001- 01430, 1998 Form 10-K Report, EXHIBIT 10.9) = EXHIBIT 10.9 - 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 1998 Form 10-K Report. =* EXHIBIT 10.10 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective May 20, 1988. (File No. 001- 01430, Form 10-Q Report for the Quarter Ended June 30, 1988, EXHIBIT 19(a)) =* EXHIBIT 10.11 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective October 21, 1988. (File No. 001-01430, Form 10-Q Report for the Quarter Ended September 30, 1988, EXHIBIT 19(a)) =* EXHIBIT 10.12 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 1, 1987. (File No. 001-01430, 1988 Form 10-K Report, EXHIBIT 10.22) =* EXHIBIT 10.13 - 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. 001-01430, 1989 Form 10-K Report, EXHIBIT 10.24) =* EXHIBIT 10.14 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective January 18, 1991. (File No. 001-01430, 1990 Form 10-K Report, EXHIBIT 10.26) _______________________ * 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. iii iv =* EXHIBIT 10.15 - Form of Stock Option Agreement, as approved April 22, 1992 by the Compensation Committee of the Company's Board of Directors. (File No. 001-01430, Form 10- Q Report for the Quarter Ended March 31, 1992, EXHIBIT 28(a)) =* EXHIBIT 10.16 - Amendment and Restatement of Reynolds Metals Company Restricted Stock Plan for Outside Directors, as adopted and executed April 28, 1999. (File No. 001- 01430, Form 10-Q report for the Quarter ended June 30, 1999, EXHIBIT 10.17) =* EXHIBIT 10.17 - Amendment and Restatement of Reynolds Metals Company New Management Incentive Deferral Plan, as adopted and executed April 28, 1999. (File No. 001-01430, Form 10-Q Report for the Quarter ended June 30, 1999, EXHBIT 10.18) =* EXHIBIT 10.18 - Amendment and Restatement of Reynolds Metals Company Salary Deferral Plan for Executives, as adopted and executed April 28, 1999. (File N0. 001-01430, Form 10-Q Report for the Quarter ended June 30, 1999, Exhibit 10.19) =* EXHIBIT 10.19 - Amendment and Restatement of Reynolds Metals Company Supplemental Long-Term Disability Plan for Executives, as adopted and executed April 26, 1999. (File No. 001-1430, Form 10-Q Report for the Quarter Ended June 30, 1999, EXHIBIT 10.20) =* EXHIBIT 10.20 - Amendment to Reynolds Metals Company 1987 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 001-01430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.34) =* EXHIBIT 10.21 - Amendment to Reynolds Metals Company 1992 Nonqualified Stock Option Plan effective August 19, 1994. (File No. 001-01430, Form 10-Q Report for the Quarter Ended September 30, 1994, EXHIBIT 10.35) =* EXHIBIT 10.22 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Trustee Pays Premiums). (File No. 001-01430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.34) =* EXHIBIT 10.23 - Form of Split Dollar Life Insurance Agreement (Trustee Owner, Employee Pays Premium). (File No. 001-01430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.35) =* EXHIBIT 10.24 - Form of Split Dollar Life Insurance Agreement (Employee Owner, Employee Pays Premium). (File No. 001-01430, Form 10-Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.36) ____________________________ * 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. iv v =* EXHIBIT 10.25 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Third Party Pays Premiums). (File No. 001-01430, Form 10- Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.37) =* EXHIBIT 10.26 - Form of Split Dollar Life Insurance Agreement (Third Party Owner, Employee Pays Premiums). (File No. 001-01430, Form 10- Q Report for the Quarter Ended June 30, 1995, EXHIBIT 10.38) =* EXHIBIT 10.27 - Amendment and Restatement of Reynolds Metals Company 1996 Nonqualified Stock Option Plan, as adopted and executed April 15, 1999. (File No. 001-01430, Form 10-Q Report for the Quarter ended June 30, 1999, EXHIBIT 10.28) =* EXHIBIT 10.28 - 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 10.29 - Form of Stock Option Agreement, as approved May 17, 1996 by the Compensation Committee of the Company's Board of Directors. (File No. 001-01430, Form 10- Q Report for the Quarter Ended June 30, 1996, EXHIBIT 10.41) =* EXHIBIT 10.30 - 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. 001- 01430, Form 10-Q Report for the Quarter Ended June 30, 1996, EXHIBIT 10.42) =* EXHIBIT 10.31 - Reynolds Metals Company Supplemental Incentive Plan. (File No. 001-01430, 1996 Form 10-K Report, EXHIBIT 10.40) =* EXHIBIT 10.32 - Amendment and Restatement of Reynolds Metals Company Stock Plan for Outside Directors, as adopted and executed April 28, 1999. (File No. 001-01430, Form 10- Q Report for the Quarter ended June 30, 1999, EXHIBIT 10.34) =* EXHIBIT 10.33 - Amendment and Restatement of Reynolds Metals Company Long-Term Performance Share Plan, as adopted and executed April 26, 1999. (File No. 001-01430, Form 10-Q Report for the Quarter Ended June 30, 1999, EXHIBIT 10.37) * EXHIBIT 10.34 - Asset Purchase Agreement by and among Ball Corporation, Ball Metal Beverage Container Corp. and Reynolds Metals Company dated as of April 22, 1998. (File No. 001-01430, Form 10-Q Report for the Quarter Ended June 30, 1998, EXHIBIT 2) ____________________________ * 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. v vi =* EXHIBIT 10.35 - Reynolds Metals Company 1999 Nonqualified Stock Option Plan. (Registration Statement No. 333-79203 on Form S-8, dated May 24, 1999, EXHIBIT 4.5) =* EXHIBIT 10.36 - Form of Stock Option Agreement, as approved May 21, 1999 by the Compensation Committee of the Company's Board of Directors. (File No. 001-01430, Form 10- Q Report for the Quarter Ended June 30, 1999, EXHIBIT 10.40) =* EXHIBIT 10.37 - Form of Three Party Stock Option Agreement, as approved May 21, 1999 by the Compensation Committee of the Company's Board of Directors. (File No. 001- 01430, Form 10-Q Report for the Quarter Ended June 30, 1999, Exhibit 10.41) 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. (File No. 001-01430, Form 10-Q Report for the Quarter Ended March 31, 1999, EXHIBIT 99) Pursuant to Item 601 of Regulation S-K, certain instruments with respect to long-term debt of Reynolds Metals Company (the "Registrant") and its consolidated subsidiaries are omitted because such debt does not exceed ten 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. ____________________________ * 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. vi EX-10 2 EXHIBIT 10.9 EXECUTIVE SEVERANCE AGREEMENT This Agreement ("Agreement") is entered into on _____________, 1999 between REYNOLDS METALS COMPANY, a Delaware corporation ("Reynolds"), and _______________ ("Executive"). WHEREAS, the maintenance of a strong and experienced management is essential in protecting and enhancing the best interests of Reynolds and its stockholders, and in this connection Reynolds recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise and may result in the departure or distraction of management personnel to the detriment of Reynolds and its stockholders; and WHEREAS, the Compensation Committee and the Board of Directors of Reynolds have each determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of management to their regular duties without distraction arising from a possible change in control or a proposed or threatened change in control of Reynolds; and WHEREAS, should Reynolds become subject to any proposed or threatened change in control, it is imperative that the Board be able to call upon management to advise the Board as to whether such change in control would be in the best interests of Reynolds and its stockholders, and to take such other actions as the Board might determine to be appropriate, without concern that management would be distracted by the personal uncertainties and risks created by such a proposed or threatened change in control; and WHEREAS, the Compensation Committee and the Board have received from independent consultants information concerning the adoption of executive severance agreements by other corporations and from management the estimated cost to Reynolds of adoption of each of the material provisions of the form of executive severance agreement presented at the meeting; and WHEREAS, the Compensation Committee and the Board have each carefully reviewed the information presented to them and have determined that the anticipated benefits to Reynolds from entering into such agreements with key executives designated by the Compensation Committee, thereby encouraging their continued attention and dedication to their duties, exceed the anticipated costs to Reynolds of entering into such agreements; and WHEREAS, the Compensation Committee and the Board have each concluded that such agreements are in the best interests of Reynolds and its stockholders; and - 1 - WHEREAS, Executive is a key executive of Reynolds and has been selected by the Compensation Committee to enter into such an agreement with Reynolds; NOW, THEREFORE, to assure Reynolds that it will have the continued dedication of Executive and the availability of Executive's advice and counsel notwithstanding the possibility, threat or occurrence of a change in control of Reynolds, and to induce Executive to remain in the employ of Reynolds, and for other good and valuable consideration, Reynolds and Executive agree as follows: 1. Services During Certain Events. If a third person begins a tender or exchange offer, circulates a proxy to stockholders, or takes other steps to effect a Change in Control (as defined in Section 2), Executive agrees that Executive shall not voluntarily leave the employ of Reynolds and shall render the services contemplated in the recitals to this Agreement, until the third person has abandoned or terminated such person's efforts to effect a Change in Control or until a Change in Control has occurred. 2. Termination Following Change in Control. Except as provided in Section 4, Reynolds shall provide or cause to be provided to Executive the rights and benefits described in Section 3 if Executive's employment by Reynolds is terminated at any time within three years following a Change in Control: (a) Termination by Reynolds. By Reynolds for reasons other than (i) for Cause (as defined in Section 4); or (ii) as a result of Executive's death, permanent disability (as defined in Section 2(f)), or retirement at or after age 65; or (b) Termination by Executive. By Executive following the occurrence of any of the following events without Executive's written consent: (i) the assignment of Executive to any duties or responsibilities that are adversely inconsistent with Executive's position, duties, responsibilities or status immediately preceding such Change in Control, or a change in Executive's reporting responsibilities or titles in effect at such time resulting in a reduction of Executive's responsibilities or position at Reynolds; - 2 - 3 (ii) the reduction of Executive's annual base salary (including any deferred portions thereof), or the failure to increase Executive's annual base salary at least once in each 15 month period, any such increase to be at least at substantially the same level as the increases received by other executives with similar titles and duties; (iii) the failure to continue in effect the incentive plans, employee benefit plans, and other compensation policies, practices and arrangements in which Executive or Executive's eligible family members were eligible to participate or participated immediately before the Change in Control (including without limitation, failure to provide Executive with a number of paid vacation days to which Executive is entitled on the basis of years of service with Reynolds in accordance with Reynolds' vacation policy in effect on the date of the Change in Control), or the failure to continue Executive's participation on substantially the same basis, both in terms of the amount of benefit provided and the level of participation relative to other participants; (iv) the failure to pay to Executive any portion of current compensation within 7 days of the date such compensation is due, or to pay to Executive any portion of an installment of deferred compensation under any deferred compensation program within 30 days of the date such compensation is due, but in any event, if such compensation is due within a reasonable period after the end of a calendar year, by the end of February following such year end; (v) the transfer of Executive to a location more than 50 miles from Executive's location at the time of the Change in Control, or a material increase in the amount of travel normally required of Executive in connection with Executive's employment by Reynolds; (vi) the good faith determination by Executive that due to the Change in Control (including any changes in circumstances at Reynolds that directly or indirectly affect Executive's position, duties, responsibilities or status as in effect immediately preceding such Change in Control) Executive is no longer able effectively to discharge Executive's duties and responsibilities; (For purposes of this Section 3(b), any such good faith determination by Executive shall be conclusive and binding.); (vii) any material breach by Reynolds of any provision of this Agreement; - 3 - 4 (viii) any purported termination of Executive's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 2(d) hereof (and, if applicable, the requirements of Section 2(e) hereof), which purported termination shall not be effective for purposes of this Agreement; [or]or (ix) any failure by Reynolds to obtain the assumption of this Agreement by any successor to Reynolds; [or]Reynolds. anything in this Agreement to the contrary notwithstanding, a termination of employment by Executive for any reason during the 30-day period immediately following the first anniversary of the Change in Control.Any good faith determination by Executive of the occurrence of any of the events specified in paragraphs (i) through (ix) of this Section 2(b) shall be conclusive and binding. (c) Change in Control. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following: (i) Any Person (as defined below) becomes the Beneficial Owner (as defined below), directly or indirectly, of 15% or more of Reynolds' common stock, unless such Person (A) is not deemed an "Acquiring Person" in accordance with Section 1(a) of the Rights Agreement (as defined below), or (B) became a Beneficial Owner of 15% or more of Reynolds common stock in a transaction that did not constitute a Change in Control under Section 2(c)(iii) hereof; (ii) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board (as defined below), and any new directors (other than a director designated by a person who has entered into an agreement with Reynolds to effect a transaction described in Sections 2(c)(i), (iii) or (iv)) whose election by the Board or nomination for election by Reynolds' shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board; (iii) The effective date of a merger or consolidation of Reynolds or any of its subsidiaries with any other entity, other than a merger or consolidation which would result in the voting securities of Reynolds outstanding immediately before such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of theparent or surviving entity or of any other corporation or entity that as a result of such transaction owns entity)Reynolds or all or substantially all of the assets of Reynolds, either directly or through one or more - 4 - 5 subsidiaries (a "parent entity")) more than 51% of the combined voting power of the voting securities of the parent or surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such parent or surviving entity; (iv) The approval by the shareholders of Reynolds of a complete liquidation of Reynolds or an agreement for the sale or disposition by Reynolds of all or substantially all of Reynolds' assets; andor (v) There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) under the 1934 Act (as defined below), whether or not Reynolds is then subject to such reporting requirement. (vi) Certain Definitions. For purposes of this Section 2(c), the following terms shall have the following meanings: (A) "Person" shall have the meaning as set forth in Sections 13(d) and 14(d) of the 1934 Act (as defined below); provided however, that Person shall exclude (i) Reynolds, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of Reynolds, and (iii) any corporation owned, directly or indirectly, by the shareholders of Reynolds in substantially the same proportions as their ownership of stock of Reynolds. (B) "Beneficial Owner" shall have the meaning given to such term in Rule 13d-3 under the 1934 Act; provided however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the shareholders of Reynolds approving a merger of Reynolds with another entity. (C) "Rights Agreement" shall mean the Amended and Restated Rights Agreement dated as of March 8, 1999 between Reynolds and ChaseMellon Shareholder Services, L.L.C., as initially in effect. (D) "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. - 5 - 6 (E) "Board" shall mean the board of directors of Reynolds. (d) Notice of Termination. Any purported termination of Executive's employment under Section 2(a) (other than termination due to death or retirement at or after age 65 which shall terminate Executive's employment automatically) shall be communicated by written Notice of Termination to Executive given in accordance with Section 9(l). Any termination of Executive's employment under Section 2(b) shall be communicated by written Notice of Termination to Reynolds in accordance with Section 9(l). "Notice of Termination" shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (e) Date of Termination. "Date of Termination" shall mean (i) if Executive's employment is terminated due to Executive's death, the date of Executive's death; (ii) if Executive's employment is terminated due to retirement at or after age 65, the date of Executive's retirement; (iii) if Executive's employment is terminated for permanent disability, 30 days after Notice of Termination is given (provided that Executive shall not have returned to full-time performance of Executive's duties during such 30 day period); (iv) if Executive's employment is terminated by Executive pursuant to Section 2(b), the date specified in the Notice of Termination, which shall be at least 30 days from the date such Notice of Termination is given; and (v) if Executive's employment is terminated for Cause, the date specified in the Notice of Termination, which shall be at least 30 days from the date such Notice of Termination is given. Notwithstanding anything to the contrary contained herein, if within 15 days after any Notice of Termination is given, Executive notifies Reynolds that a dispute exists concerning termination for Cause or permanent disability, then the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of Executive and Reynolds, or otherwise; provided however, the Date of Termination shall be extended by a notice of dispute only if - 6 - 7 such notice is given in good faith and Executive pursues the resolution of such dispute with reasonable diligence. (f) Definition of "permanent disability". For purposes of this Agreement, "permanent disability" shall mean a physical or mental infirmity which impairs Executive's ability to substantially perform Executive's duties under this Agreement and which continues for a period of at least 12 consecutive months. 3. Rights and Benefits upon Termination. If Executive's employment is terminated under any of the circumstances set forth in Section 2 ("Termination"), Reynolds agrees to provide or cause to be provided to Executive the following rights and benefits: (a) Salary and Incentive. Executive shall receive within five business days of the Date of Termination a lump sum payment in cash in an amount equal to three times Executive's Earnings (as defined in this Section 3(a)); provided however, that if there are fewer than 36 months remaining from the Date of Termination to the date when Executive reaches age 65, the amount calculated pursuant to this Section 3(a) shall be reduced by multiplying such amount by a fraction, the numerator of which is the number of months (including any fraction of a month) remaining to age 65 and the denominator of which is 36. For purposes of this Section 3(a), "Earnings" shall mean the sum of (i) Executive's annual base salary (at the rate in effect at the Date of Termination, or, if greater, at the rate in effect immediately preceding the Change in Control), plus (ii) an amount equal to the highest cash target incentive opportunity established for Executive for 1998 or any future calendar year (without regard to any possible deferred portions thereof). Earnings shall not include any income attributable to options granted and dividends on shares acquired pursuant to any stock option plan maintained by Reynolds for its employees. For purposes of Section 3(a) and Section 3(c), "highest cash target incentive opportunity" means the largest "target incentive opportunity" (as opposed to the "maximum incentive opportunity") established for Executive's salary grade for any year under the Reynolds Metals Company Performance Incentive Plan and, if applicable, the Reynolds Metals Company Supplemental Incentive Plan or under any successor or replacement annual variable compensation plan(s). (b) Stock Options. If Executive has any outstanding options that will remain exercisable after Termination to the extent the Compensation - 7 - 8 Committee approves, then approval shall be deemed to be granted as of Executive's Termination; (c) Retirement Benefits. Executive shall receive within five business days of the Date of Termination a lump sum payment in cash in an amount equal to the actuarial present value of the excess of (i) what would be Executive's accrued age 65 benefit calculated pursuant to the applicable formula in Reynolds' New Retirement Program for Salaried Employees ("New Retirement Program") (as in effect at the Date of Termination or, if more favorable to Executive, as in effect immediately preceding the Change in Control), if Executive were given additional credited service and age for a period of 36 months following Termination (or such lesser period as shall remain until Executive reaches age 65), with annual earnings during the additional period determined as if (A) Executive's annual base salary at the rate in effect at the Date of Termination, or, if greater, immediately preceding the Change in Control, were continued as base salary for the additional period and (B) an amount equal to the highest cash target incentive opportunity established for Executive for 1998 or any subsequent calendar year (without regard to any possible deferred portions thereof) were paid to Executive on the third Friday of each February of the additional period, such annual earnings to be computed without regard to statutory restrictions on benefits accrued or payable under qualified plans, over (ii) Executive's accrued age 65 benefit, if any, payable under the New Retirement Program, including any benefit payable under Reynolds' Benefit Restoration Plan for New Retirement Program. For purposes of this Section 3(c), actuarial equivalents shall be computed as of the end of the 36 month period and shall be determined using the same methods and assumptions used under the New Retirement Program at the Date of Termination or the date of a Change in Control, whichever results in the greater amount. (d) Welfare Benefit Plans. To the extent Executive is eligible thereunder, Executive (and Executive's eligible family members, to the extent applicable) shall continue to be covered by (i) any group term, supplemental and/or split dollar life insurance plan in effect for Executive on the Date of Termination and (ii) the health care, accident and disability benefit plans of Reynolds in effect on the Date of Termination for employees in the same class or category as Executive, subject in each case to the terms of such plans and to Executive's making any required contributions thereto, to the extent contributions are required of active employees. If Executive is, or Executive's previously eligible family members are, not eligible to continue to be so covered under the terms of any such benefit plan or program, or if Executive is, or Executive's eligible family members are, eligible but the benefits applicable to Executive or Executive's family members are not substantially equivalent to the benefits - 8 - 9 applicable to Executive or Executive's family members immediately prior to the Date of Termination, then, for a period of 36 months following the Date of Termination (or until Executive reaches age 65, if sooner), Reynolds shall either (x) provide such substantially equivalent benefits, or such additional benefits as may be necessary to make the benefits applicable to Executive and Executive's family members substantially equivalent to those in effect before the Date of Termination, through other sources, or (y) provide Executive with a lump sum payment in such amount that, after all taxes on that amount are paid, shall be equal to the cost to Executive of providing such benefit coverage for Executive and Executive's eligible family members; provided however, that if during such period Executive should enter into the employ of another company or firm which provides substantially similar benefit coverage for Executive and Executive's eligible family members, Executive's participation in the comparable benefit provided by Reynolds either directly or through other sources shall cease. Unless Executive and Executive's eligible family members are covered through the plan of another employer, at the termination of the health care benefits coverage described in this Section 3(d), Executive and Executive's eligible family members shall be entitled to convert such coverage to an individual policy to the extent this conversion privilege is available; if such an individual policy is not then available, Executive and Executive's eligible family members shall be entitled to continuation coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code"), and under any other applicable law, to the extent required by such laws, as if Executive had terminated employment with Reynolds on the date such health care benefits coverage terminates. The lump sum shall be determined on a present value basis using the interest rate provided in Section 1274(b)(2)(B) of the Code on the Date of Termination. In addition, the "Rule of 90" age and service- based premium requirement under the Reynolds Retiree Health Care Plan shall be waived to the extent it would otherwise apply to Executive. Nothing contained in this Section 3(d) shall be deemed to require or permit termination or restriction of Executive's coverage under any plan or program of Reynolds or any successor plan or program thereto to which Executive is entitled under the terms of such plan or program, whether at the end of the aforementioned 36-month period or at any other time. (e) Vehicle. Within five business days of Termination, Reynolds shall transfer to Executive, free and clear of any liens or encumbrances, the ownership of the vehicle, if any, provided by Reynolds to Executive at the Date of Termination. After transfer of ownership, Executive shall be solely responsible for maintaining the vehicle. (f) Other Benefit Plans and Perquisites. The specific arrangements referred to in this Section 3 are not intended to exclude - 9 - 10 Executive's participation in other benefit plans or enjoyment of other perquisites which are available to executive personnel generally in the class or category of Executive or to preclude such other compensation or benefits as may be authorized from time to time by the Board of Directors of Reynolds or by its Compensation Committee; provided however, that any payments hereunder shall be in lieu of, and not in addition to, any amounts that would otherwise be payable to Executive upon termination of employment pursuant to Reynolds' Termination Allowance Policy or any successor severance pay plan. (g) Excise Taxes. If Executive becomes entitled to payments ("CIC Payments") from Reynolds or any Successor (as defined below) that are subject to the tax ("Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), Executive shall receive at the time specified below an additional amount ("Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the CIC Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 3(g), shall be equal to the CIC Payments (net of any required payroll withholding taxes on the CIC Payments themselves). For purposes of determining whether any payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's Termination (whether pursuant to the terms of this Agreement or under any other plan, arrangement or agreement with Reynolds, with any person whose actions result in a Change in Control, or with any person affiliated with Reynolds or such person (all such persons other than Reynolds, "Successors")) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by Reynolds' independent auditors and acceptable to Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i) above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by Reynolds' independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of - 10 - 11 the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the Date of Termination, Executive shall repay to Reynolds at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax reduction) plus interest received by Executive attributable to any Excise Tax refund. If the Excise Tax is determined to exceed the amount taken into account hereunder at the Date of Termination (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Reynolds shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-Up Payment shall be made not later than the fifth business day following the Date of Termination; provided however, that if the amount of such payment cannot be finally determined on or before such day, Reynolds shall pay Executive on such day an estimate as determined in good faith by Reynolds of the minimum amount of such payment and shall pay the remainder of such payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. If the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by Reynolds to Executive payable on the fifth business day after demand by Reynolds (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). Anything herein to the contrary notwithstanding, any Gross-Up Payment otherwise due to Executive hereunder shall be reduced by the amount of any similar type of gross-up payments already received by Executive from Reynolds or any Successor outside this Agreement. - 11 - 12 (h) No Duty to Mitigate. Executive's entitlement to benefits hereunder shall not be governed by any duty to mitigate Executive's damages by seeking further employment nor offset by any compensation which Executive may receive from future employment. (i) Payment Obligations Absolute. Reynolds' obligation to pay or cause to be paid to Executive the benefits and to make the arrangements provided in this Section 3 shall be absolute and unconditional and shall not be affected by any circumstances, including without limitation any breach or alleged breach of Section 5, any setoff, counterclaim, recoupment, defense or any other right which Reynolds may have against Executive or anyone else. All amounts payable by or on behalf of Reynolds hereunder shall be paid without notice or demand. Each and every payment made hereunder by or on behalf of Reynolds shall be final and Reynolds and its subsidiaries shall not, for any reason whatsoever, seek to recover all or any part of such payment from Executive or from whoever shall be entitled thereto. 4. Conditions to the Obligations of Reynolds. Reynolds shall have no obligation to provide or cause to be provided to Executive the rights and benefits described in Section 3 hereof if either of the following events shall occur: (a) Termination for Cause. Reynolds shall terminate Executive's employment for Cause. For purposes of this Agreement, termination of employment for "Cause" shall mean termination solely for conviction of a felony or willful engagement in illegal conduct which is materially and demonstrably injurious to Reynolds; provided however, Executive may not be deemed terminated for Cause unless and until Reynolds has delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board finding that, in the Board's good faith opinion, Executive is guilty of conduct defined as justifying termination for Cause and specifying the particulars thereof in reasonable detail. (b) Resignation as Director and/or Officer. Executive shall not, promptly after the Date of Termination and upon receiving a written request to do so, resign as a director and/or officer of Reynolds and of each subsidiary and affiliate of Reynolds for which Executive is then serving as a director and/or officer. 5. Confidentiality; Non-Solicitation; Cooperation; Consultancy. (a) Confidentiality. Executive agrees that at all times following Termination, Executive shall not, without the prior written consent of Reynolds, disclose to any person, firm or corporation any confidential information of - 12 - 13 Reynolds or its subsidiaries which is now known to Executive or which hereafter may become known to Executive as a result of Executive's employment or association with Reynolds and which is helpful to a competitor in any material respect; provided however, that the foregoing shall not apply to confidential information which becomes publicly disseminated by means other than a breach of this Agreement. (b) Non-Solicitation. Executive agrees that for a period of three years following the Date of Termination (or until Executive reaches age 65, whichever is sooner) Executive shall not induce or attempt to induce, either directly or indirectly, any management or executive employee of Reynolds or of any of its subsidiaries to terminate such employee's employment. (c) Cooperation. Executive agrees that, at all times following Termination, Executive shall furnish such information and render such assistance and cooperation as may reasonably be requested in connection with any litigation or legal proceedings concerning Reynolds or any of its subsidiaries (other than any legal proceedings concerning Executive's employment). In connection with such cooperation, Reynolds shall pay or reimburse Executive for reasonable expenses actually incurred. (d) Consultation. Executive agrees that for a period of 36 months following the Date of Termination (or until Executive reaches age 65, if sooner), Executive shall be available to Reynolds and its subsidiaries for consultation with senior officers of Reynolds and of its subsidiaries; provided however, that Executive shall not be required to perform such consulting services (i) for more than five days in any month and (ii) for more than 30 hours in any month. It is expressly agreed that Executive's consulting services will be required at such time and such places as will result in the least inconvenience to Executive, taking into consideration Executive's other business commitments during such period which may obligate Executive to honor such other commitments prior to Executive's rendering services hereunder. It is further agreed that Executive's consulting services shall be rendered by personal consultation at Executive's principal residence or office, wherever maintained, or by correspondence through mail, telephone, facsimile, electronic mail or other similar modes of communication at times, including weekends and evenings, most convenient to Executive. Reynolds and Executive agree that if during such period Executive should engage in full-time employment, Executive shall not be required to consult at times that will conflict with Executive's responsibilities with respect to such employment or if Executive's employer denies Executive permission to act as a consultant. In connection with such consulting services, Reynolds shall pay or reimburse Executive for reasonable expenses actually incurred. (e) Remedies for Breach. It is recognized that damages in the event of breach of paragraphs (a) and (b) of this Section 5 by Executive would be - 13 - 14 difficult, if not impossible, to ascertain, and it is therefore agreed that Reynolds, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. The existence of this right shall not preclude Reynolds from pursuing any other rights and remedies at law or in equity which Reynolds may have. 6. Term of Agreement. The term of this Agreement shall become effective upon the execution hereof by Reynolds and shall continue unless terminated by written agreement between Executive and Reynolds. No benefits shall be payable hereunder unless there has been a Change ofin Control before termination of Executive's employment. 7. Suits, Actions, Proceedings and Expenses. (a) Executive's compensation during any disagreement, dispute, controversy, claim, suit, action or proceeding (collectively, a "Dispute"), arising out of or relating to this Agreement or the interpretation of this Agreement shall be as follows. If there is a Termination followed by a Dispute as to whether Executive is entitled to the payments and other benefits provided under this Agreement, then, during the period of that Dispute: (i) Reynolds shall pay Executive fifty percent (50%) of the amounts specified in Sections 3(a), 3(b) and 3(c) that are in Dispute; (ii) Reynolds shall provide Executive with the other benefits provided in Sections 3(d), 3(e), 3(f) and 3(g) of this Agreement; and (iii) Reynolds shall pay Executive one hundred percent (100%) of the amounts specified in Sections 3(a), 3(b) and 3(c) that are not in Dispute; provided however, if the Dispute is resolved against Executive, Executive shall promptly refund to Reynolds all payments Executive receives under Section 7(a)(i) of this Agreement, plus interest at the rate provided in Section 1274(d)(b)(2)(B) of the Code, compounded quarterly. If the Dispute is resolved in Executive's favor, promptly after resolution of the Dispute, Reynolds shall pay to Executive the sum that was withheld during the period of the Dispute plus interest at the rate provided in Section 1274(d)(b)(2)(B) of the Code, compounded quarterly. (b) Reynolds shall pay to Executive all legal fees and expenses incurred by Executive in connection with any Dispute arising out of or relating to - 14 - 15 this Agreement or the interpretation thereof (including, without limitation, all such fees and expenses, if any, (A) arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof, (B) incurred in contesting or disputing any termination of Executive's employment, (C) seeking to obtain or enforce any right or benefit provided by this Agreement, or (D) in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (c) If a Dispute arises out of or relates to this Agreement or the interpretation of this Agreement, Executive shall be entitled to an adjudication of the Dispute in the courts of the United States of America located in the City of Richmond, Virginia, and/or of the courts of the Commonwealth of Virginia in the City of Richmond, Virginia or, at Executive's option, in Chesterfield, Goochland, Hanover or Henrico Counties, and Reynolds irrevocably and unconditionally consents to submit to the exclusive jurisdiction of such courts for any Dispute. Reynolds further agrees not to commence any action, suit or proceeding relating thereto except in such courts. Reynolds and Executive hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the courts of the United States of America located in the City of Richmond, Virginia, and in the courts of the Commonwealth of Virginia, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (d) Alternatively, Executive, at Executive's option, may seek an award in arbitration, in which event, Reynolds shall appoint as the sole and exclusive arbiter of such Dispute a committee of three members of the Board immediately before the Change in Control, who are not directors of Reynolds or its affiliates at the time of such Dispute. The decision of such committee and the award of any monetary judgment or other relief by such committee shall be final and binding upon Executive and Reynolds and shall not be subject to appeal. Judgment may be entered upon the decision and award of such committee by Executive or Reynolds in any court of competent jurisdiction. Reynolds shall pay the persons selected pursuant to this Section 7(c) a reasonable fee for their services, and shall reimburse such persons for their expenses in this capacity. In addition, Reynolds shall, to the maximum extent permitted by law, indemnify and hold harmless such persons of and from any and all claims, damages or expenses of any nature whatsoever relating to or arising from their activities in this capacity. If Reynolds is unable to appoint the committee referred to above after good faith efforts to do so, or if such committee cannot reach agreement, any remaining Dispute shall be settled, at Executive's option, either by adjudication on the terms set forth above, or by arbitration in the City of - 15 - 16 Richmond in accordance with the commercial arbitration rules then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by Reynolds and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by any party in accordance with applicable law in any court of competent jurisdiction. 8. Successors; Binding Agreement. (a) This Agreement shall inure to the benefit of and be binding upon Reynolds and its successors and assigns. Reynolds shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Reynolds to expressly assume and agree to perform this Agreement. Failure of Reynolds to obtain such assumption and agreement prior to a Change in Control shall be a breach of this Agreement and shall entitle Executive to terminate Executive's employment pursuant to Section 2(b)(vii). (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there is no such designee, Executive's estate. 9. Miscellaneous. (a) Assignment. No right, benefit or interest hereunder shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, except by will or the laws of descent and distribution, and any attempt thereat shall be void; and no right, benefit or interest hereunder shall, prior to receipt of payment, be in any manner liable for or subject to the recipient's debts, contracts, liabilities, engagements or torts; provided however, that Executive may assign any right, benefit or interest hereunder if such assignment is permitted under the terms of any plan or policy of insurance or annuity contract governing such right, benefit or interest. (b) Construction of Agreement. This Agreement is not, and nothing herein shall be deemed to create, a commitment of continued employment of Executive by Reynolds or by any of its subsidiaries. (c) Statutory References. Any reference in this Agreement to a specific statutory provision shall include that provision and any comparable - 16 - 17 provision or provisions of future legislation amending, modifying, supplementing or superseding the referenced provision. (d) Amendment. This Agreement may not be amended, modified or terminated except by written agreement of both parties. Anything in this Agreement to the contrary notwithstanding, at any time before a Change in Control occurs, Executive shall, at Reynolds' written request enter into an amendment to this Agreement to change the percentage referred to in Section 2(c)(i) to a percentage that is not more than 25%, so long as such change is consistent with a contemporaneous change of a similar nature in the Rights Agreement. (e) Waiver. No provision of this Agreement may be waived except by a writing signed by the party to be bound thereby. Executive may at any time or from time to time waive any or all of the rights and benefits provided for herein which have not been received by Executive at the time of such waiver. In addition, prior to the last day of the calendar year in which Executive's Termination occurs, Executive may waive any or all rights and benefits provided for herein which have been received by Executive; provided that Executive repays to Reynolds (or, if the benefit was received from an employee benefit plan, to such plan) the amount of the benefit received (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). Any waiver of benefits pursuant to this section shall be irrevocable. (f) Severability. If any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be considered an original and all of which together shall constitute one agreement. (h) Number and Gender. All words used in this Agreement shall be construed to be of such number or gender as the circumstances require. (i) Taxes. Any payment or delivery required under this Agreement shall be subject to all requirements of the law with regard to withholding of taxes, filing, making of reports and the like, and Reynolds shall use its best efforts to satisfy promptly all such requirements. (j) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. - 17 - 18 (k) Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all other prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein, including, without limitation, any prior severance agreement, is hereby terminated and canceled; provided however, except as specifically provided in Section 3(f) regarding Reynolds' Termination Allowance Policy, any of Executive's rights hereunder shall be in addition to any rights Executive may otherwise have under benefit plans or agreements of Reynolds to which Executive is a party or in which Executive is a participant, including, but not limited to, any Reynolds' sponsored employee benefit plans, long term share performance or other long term incentive plans and stock option plans. Provisions of this Agreement shall not in any way abrogate Executive's rights under such other plans or agreements. (l) Notice. All notices required or permitted to be given under this Agreement shall be given in writing or other permanently recorded form to the parties at the addresses set forth below, or to such other address(es) as may be provided by notice given in accordance with this Section 9(l): If to Reynolds, to: Reynolds Metals Company Attention: Corporate Secretary 6601 West Broad Street Richmond, Virginia 23230 Facsimile Number: 804-281-3740 If to Executive, to the address set forth below Executive's signature line, or if no address appears at the signature line, at the last known home address of Executive in Reynolds' records. A notice shall be deemed to have been duly given (1) if delivered by hand or courier, on the date of delivery; (2) if sent by United States mail, 7 days after posting; (3) if sent by facsimile, on production of a transmission report by the machine from which the facsimile was sent which indicates that the facsimile was sent in its entirety to the facsimile number of its recipient. Facsimile notices shall be confirmed by sending the original document by hand, courier or United States mail. - 18 - 19 Each of the parties has therefore caused this Agreement to be duly executed as of the _____ day of ____________, 1999. REYNOLDS METALS COMPANY By____________________________ Title: Chairman of the Board and Chief Executive Officer EXECUTIVE ______________________________ Address:______________________ ______________________________ ______________________________ - 19 - EX-27 3
5 This schedule contains summary information extracted from the Reynolds Metals Company Condensed Balance Sheet (Unaudited) for September 30, 1999 and Consolidated Statement of Income (Unaudited) for the nine months ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000,000 9-MOS DEC-31-1999 SEP-30-1999 62 0 675 9 530 1368 4305 2293 5968 1258 1009 0 0 1560 534 5968 3438 3438 2856 2856 179 0 57 80 19 61 0 0 0 61 .95 .95
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