EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are based on and should be read in conjunction with the historical
consolidated financial statements of Alcoa and Reynolds, including the notes
thereto. These financial statements have been adjusted to give effect to the
merger with Reynolds. The Unaudited Pro Forma Condensed Consolidated Earnings
Statement does not (a) purport to represent what the results of operations
actually would have been if the above transaction had occurred as of the date
indicated or what such results will be for any future periods or (b) give effect
to certain nonrecurring charges expected to result from the Reynolds
acquisition.
The Unaudited Pro Forma Condensed Consolidated Earnings Statements for the
three month period ended March 31, 2000 and for the year ended December 31, 1999
give effect to the Reynolds merger and related transactions as if such
transactions had occurred on January 1, 1999. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 2000 gives effect to the Reynolds
merger and related transactions as if such transaction had occurred on that
date.
The pro forma adjustments are based upon available information and include
certain assumptions and adjustments that the management of Alcoa believes to be
reasonable. These adjustments are directly attributable to the transaction
referenced above and are expected to have a continuing impact on Alcoa's
business, results of operations and financial position. Reynolds has certain
severance plans, agreements and policies applicable to its executive management
and salaried employees. Some covered persons are entitled to severance benefits
under these arrangements. The amount payable under these arrangements will range
from $215 to $250 million pre-tax. The final amount to be paid has not been
determined as Alcoa is presently in the process of determining which employees
will be affected. However, the known amount of $215 million has been reflected
in the purchase price allocation. Alcoa has announced a curtailment of
Reynolds' Troutdale, Oregon smelter. This will result in severance and related
costs of $85 million pre-tax which has been included in the range of severance
benefits discussed above. Alcoa has completed a preliminary assessment of
potential benefits from synergies which are estimated at this time to be $300
million over the next two years. The Unaudited Pro Forma Condensed Consolidated
Financial Statements do not include any adjustments related to synergies.
The merger with Reynolds has been accounted for using the purchase method
of accounting. The total purchase costs of the acquisition will be allocated to
the tangible and intangible assets and liabilities acquired based upon their
estimated fair values. The purchase price allocation is preliminary, based on
facts currently known to Alcoa. Management is not aware of any significant
unrecorded obligations or contingencies, other than the severance and related
costs referred to above, and, except as noted above, does not believe that
the final purchase price allocation will materially differ from that included
in the pro forma financial information contained herein. The final
allocation of the purchase price will be made based upon valuations and
other studies that have not been completed.
As part of the merger agreement, Alcoa agreed to divest the following
Reynolds operations:
- Reynolds 56% stake in its alumina refinery at Worsley, Australia,
- Reynolds 50% stake in its alumina refinery at Stade, Germany,
- 100% of Reynolds alumina refinery at Sherwin, Texas and
- 25% of Reynolds interest in its aluminum smelter at Longview, Washington
These divestitures are required to be completed within six months of the merger
date of May 3, 2000 (nine months for Worsley). The Unaudited Pro Forma
Condensed Consolidated Financial Statements have been adjusted, in
accordance with EITF 87-11 "Allocation of Purchase Price to Assets to
be Sold," to record the impact of these divestitures. The net assets
to be divested have been reported as Assets held for sale in the Unaudited
Pro Forma Condensed Consolidated Balance Sheet and the results of operations
from these assets have been removed from the Unaudited Pro Forma Condensed
Consolidated Earnings Statements.
On June 9, 2000, Alcoa completed a two-for-one stock split that was approved by
shareholders on May 12, 2000. Per share amounts in this 8-K/A have been
labeled as pre-split or post-split to eliminate uncertainty.
<TABLE>
<CAPTION>
Alcoa Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2000
(dollars in millions)
Historical Historical Pro Forma Pro Forma
Alcoa Reynolds Adjustments
(A)
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash, cash equivalents and short-term $ 289 $ 54 $ (30) (B) $ 313
investments
Receivables from customers, less 2,538 722 (50) (D) 3,210
allowances
Inventories 1,645 586 284 (B)
(44) (D) 2,471
Prepaid expenses and other current 489 62 (1) (D) 550
assets
------ ----- ----- -----
Total current assets 4,961 1,424 159 6,544
Properties, plant and equipment 18,363 4,335 1,611 (B)
(2,343) (B)
(873) (D) 21,093
Less: accumulated depreciation, (9,360) (2,343) 2,343 (B) (9,360)
depletion and amortization
------ ----- ----- -----
Net properties, plant and equipment 9,003 1,992 883 11,733
Goodwill 1,338 - 1,089 (B) 2,427
Other assets including assets held 1,808 2,623 1,055 (D) 5,486
for sale
------- ----- ------ ------
Total Assets $17,110 $6,039 $ 3,041 $26,190
======= ===== ====== =======
Liabilities
Short term borrowings $ 684 $ 177 - $ 861
Accounts payable and accrued 2,640 798 $ (73) (D)
liabilities 215 (B) 3,580
Long-term debt due within one year 302 147 - 449
----- ----- ----- -----
Total current liabilities 3,626 1,122 142 4,890
Long-term debt 2,406 1,150 - 3,556
Accrued postretirement benefits 1,705 966 (261) (B) 2,410
Other noncurrent liabilities and 1,901 584 (16) (D)
deferred costs
730 (B) 3,199
------ ----- ----- -----
Total liabilities 9,638 3,822 595 14,055
Minority interests 1,475 13 31 (D) 1,519
Shareholders' Equity
Preferred stock 56 - - 56
Common stock 790 1,588 (1,588) (B)
135 (C) 925
Additional capital 1,363 - 4,367 (C) 5,730
Retained earnings 6,232 1,305 (1,305) (B) 6,232
Common stock to be issued under - - 117 (B) 117
options
Treasury stock, at cost (1,727) (626) 626 (B) (1,727)
Accumulated other comprehensive income (717) (63) 63 (B) (717)
----- ----- ----- -----
Total shareholders' equity 5,997 2,204 2,415 10,616
------ ----- ----- ------
Total Liabilities and Equity $17,110 $6,039 $ 3,041 $26,190
====== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited pro
forma condensed consolidated financial statements.
<TABLE>
<CAPTION>
Alcoa Inc.
Unaudited Pro Forma Condensed Consolidated Earnings Statement
For the Three-month Period Ended
March 31, 2000
(dollars in millions, except per share amounts)
Historical Historical Pro Forma Pro Forma
Alcoa Reynolds Adjustments
(A)
<S> <C> <C> <C> <C>
Revenues
Sales $4,531 $1,313 $(55) (E)
(64) (D) $ 5,725
Other income 41 6 - 47
----- ----- --- ------
4,572 1,319 (119) 5,772
Costs and Expenses
Cost of goods sold 3,332 1,047 (55) (E)
(16) (D) 4,308
Selling, general administrative and 227 82 (1) (D) 308
other expenses
Research and development expenses 39 6 - 45
Provision for depreciation, depletion 225 61 17 (G)
and amortization (8) (D) 295
Interest expense 51 18 - 69
Merger-related expenses - 7 (7) (H) -
----- ----- --- -----
3,874 1,221 (70) 5,025
Earnings
Income before taxes on income 698 98 (49) 747
Provision for taxes on income 238 27 (15) (I) 250
----- ----- --- -----
Income from operations 460 71 (34) 497
Minority interests (105) - (2) (D) (107)
----- ----- --- -----
Net Income $ 355 $ 71 $(36) $ 390
==== ==== === =====
Earnings per Share (post-split)
Basic $0.49 $1.11 - $0.45
Diluted $0.48 $1.10 - $0.44
Weighted average shares outstanding (post-split):
Basic 732 64 (64) (J)
135 (J) 867
Diluted 744 64 (64) (J)
136 (J) 880
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
<TABLE>
<CAPTION>
Alcoa Inc.
Unaudited Pro Forma Condensed Consolidated Earnings Statement
For the Year Ended December 31, 1999
(dollars in millions, except per share amounts)
Historical Historical Pro Forma Pro Forma
Alcoa Reynolds Adjustments
(A)
<S> <C> <C> <C> <C>
Revenues
Sales $16,323 $4,780 $(191) (E)
(196) (D) $20,716
Other income 124 16 (1) (D) 139
------ ----- ---- ------
16,447 4,796 (388) 20,855
Costs and Expenses
Cost of goods sold 12,536 3,928 (191) (E)
(123) (D) 16,150
Selling, general administrative and 851 336 (17) (F)
other expenses (4) (D) 1,166
Research and development expenses 128 25 - 153
Provision for depreciation, depletion 888 242 69 (G)
and amortization (37) (D) 1,162
Interest expense 195 75 - 270
Merger-related expenses - 19 (19) (H) -
------ ----- ---- ------
14,598 4,625 (322) 18,901
Earnings
Income before taxes on income 1,849 171 (66) 1,954
Provision for taxes on income 553 47 (14) (I) 586
------ ----- ---- ------
Income from operations 1,296 124 (52) 1,368
Minority interests (242) - (4) (D) (246)
------ ----- ---- ------
Net Income $1,054 $ 124 $(56) $ 1,122
===== ===== ==== ======
Earnings per Share (post-split)
Basic $1.44 $1.95 - $1.29
Diluted $1.41 $1.94 - $1.27
Weighted average shares outstanding (post-split):
Basic 734 64 (64) (J)
135 (J) 869
Diluted 748 64 (64) (J)
136 (J) 884
</TABLE>
The accompanying notes are an integral part of the unaudited pro
forma condensed consolidated financial statements.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(dollars in millions, except per-share amounts)
(A) Certain reclassifications have been made to the Reynolds historical
financial statements to conform to the presentation to be used by Alcoa.
(B) The Reynolds merger is accounted for as a purchase business combination.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
include any adjustments related to Reynolds restructuring costs or
recurring benefits from synergies, except for the Troutdate smelter
discussed below. Reynolds has certain severance plans, agreements and
policies applicable to its executive management and salaried employees. It
is probable that some covered persons will become entitled to severance
benefits under these arrangements following the completion of the merger.
The amount payable under such arrangements will range from $215 to $250
pre-tax. The final amount to be paid has not been determined at
present because Alcoa is in the process of determining which employees will
be affected. However, the known amount of $215 has been reflected in the
purchase price allocation. Alcoa has announced a curtailment of Reynolds'
Troutdale, Oregon smelter. This will result in severance and related
costs of $85 million pre-tax which has been included in the range of
severance benefits discussed above. Alcoa has completed a preliminary
assessment of potential benefits from synergies which are estimated at
this time to be $300 over the next two years.
The purchase price includes an adjustment for deferred income taxes
representing the difference between the assigned values and the tax basis
of the assets and liabilities acquired. Outstanding Reynolds employee stock
options as of May 3, 2000 have been converted to the equivalent Alcoa
options. These options were then valued using the Black Scholes Model with
a four year life, 29% volatility, 5% risk free interest rate and a 1.6%
dividend yield with the resulting value of $117 being added to the
purchase price. The weighted average fair market value of these
options is $21 per-share (pre-split). The purchase price, including
acquisition costs, has been allocated as follows:
Purchase price:
Acquisition of outstanding shares of common stock (see note C).. $4,502
Acquisition expenses incurred by Alcoa.......................... 30
Conversion of outstanding Reynolds options to Alcoa options..... 117
Less: Book value of net assets acquired........................ (2,204)
------
Increase in basis............................................... $2,445
======
Allocation of increase in basis:
Increase in inventory value to convert LIFO to fair value....... $284
Increase in the fair value of property, plant and equipment
and intangibles not including goodwill........................ 1,756
Severance benefits.............................................. (215)
Adjust pension and postretirement accruals...................... 261
Increase in goodwill............................................ 1,089
Increase in deferred tax liabilities--long term................. (730)
-----
$2,445
======
The purchase price allocation is preliminary and further adjustments may be made
based on the completion of final valuation and other studies.
(C) Represents the issuance of Alcoa common stock for all of the common stock
of Reynolds at an exchange ratio of 1.06 (pre-split) shares of Alcoa common
stock per share of Reynolds common stock. In accordance with generally
accepted accounting principles, the value of Alcoa stock to be issued was
determined based on the market price of such Alcoa common stock over a
reasonable period of time before and after August 18, 1999, the date the
merger agreement was executed. This resulted in a value of $66.60 per share
(pre-split) of Alcoa stock. Based on these facts, a value of $70.60
(pre-split) was ascribed to each share of Reynolds common stock. Therefore,
the acquisition of 63,765,418 shares of Reynolds common stock at a value of
$70.60 (pre-split) totaled $4,502.
The following details the issuance of common stock in connection with the
merger agreement.
<TABLE>
<S> <C>
Total stock acquisition price paid in shares of Alcoa common stock..... $4,502
Par value of Alcoa common stock issued at $33.30 (post-split).......... (135)
----
Additional capital..................................................... $4,367
=====
</TABLE>
(D) Represents the Assets, Liabilities, Equity and Results of Operations from
Reynolds operations that Alcoa has agreed to divest as part of the merger
agreement. These assets include the refineries at Worsley, Australia (56%),
Stade, Germany (50%) and Sherwin, Texas (100%), as well as a 25% interest
in the aluminum smelter at Longview, Washington.
(E) Represents the elimination of inter-company sales and purchases between
Alcoa and Reynolds.
(F) Represents lower pension and OPEB expenses as a result of recording a pro
forma adjustment for pension and post-retirement accruals.
(G) Pro forma adjustments have been included to adjust depreciation expense
based on property, plant and equipment fair values and the amortization of
goodwill. An average useful life of 25 years was assumed for fixed assets
and intangibles not including goodwill and a 40-year amortization period
was assumed for goodwill.
(H) Represents the elimination of merger-related costs from the pro forma
statement of income.
(I) Represents income taxes related to pro forma adjustments at the statutory
rate and the impact of certain non-deductible costs.
(J) Represents the conversion of Reynolds common stock and the issuance of 135
million (post-split) shares of Alcoa common stock in connection with the
merger. Also included is the dilutive impact of the outstanding Reynolds
employees' stock options that have been converted to equivalent Alcoa
options.
