<PAGE> 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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-1430
REYNOLDS METALS COMPANY
A Delaware Corporation
(I.R.S. Employer Identification No. 54-0355135)
6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003
Telephone Number (804) 281-2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
As of October 30, 1998, the Registrant had 64,456,697 shares of Common
Stock, no par value, outstanding and entitled to vote.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (millions, except per share
amounts)
- ----------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
- ----------------------------------------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $1,368 $1,717 $4,479 $5,127
COSTS AND EXPENSES
Cost of products sold 1,109 1,410 3,635 4,233
Selling, administrative and
general expenses 93 95 282 304
Depreciation and
amortization 57 92 193 277
Interest 27 40 94 116
Operational restructuring
effects (315) - (11) (31)
- ----------------------------------------------------------------------------
971 1,637 4,193 4,899
- ----------------------------------------------------------------------------
EARNINGS
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting change 397 80 286 228
Taxes on income 135 25 89 75
- ----------------------------------------------------------------------------
Income before extraordinary
loss and cumulative effect
of accounting change 262 55 197 153
Extraordinary loss (60) - (63) -
Cumulative effect of
accounting change - - (23) -
- ----------------------------------------------------------------------------
NET INCOME $ 202 $ 55 $ 111 $ 153
============================================================================
EARNINGS PER SHARE
Basic:
Average shares outstanding 69 74 72 73
Income before extraordinary
loss and cumulative effect
of accounting change $3.80 $0.74 $2.76 $2.09
Extraordinary loss (0.88) - (0.89) -
Cumulative effect of
accounting change - - (0.32) -
- ----------------------------------------------------------------------------
Net income $2.92 $0.74 $1.55 $2.09
============================================================================
Diluted:
Average shares outstanding 69 75 72 74
Income before extraordinary
loss and cumulative effect
of accounting change $3.80 $0.73 $2.76 $2.08
Extraordinary loss (0.88) - (0.89) -
Cumulative effect of
accounting change - - (0.32) -
- ----------------------------------------------------------------------------
Net income $2.92 $0.73 $1.55 $2.08
============================================================================
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.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (millions)
- ----------------------------------------------------------------------------
September 30 December 31
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43 $ 70
Receivables, less allowances of $16 (1997 - $16) 890 1,015
Inventories 529 744
Prepaid expenses and other 168 165
- ----------------------------------------------------------------------------
Total current assets 1,630 1,994
Unincorporated joint ventures and associated companies 1,425 1,381
Property, plant and equipment 5,158 6,533
Less allowances for depreciation and amortization 2,995 3,579
- ----------------------------------------------------------------------------
2,163 2,954
Deferred taxes and other assets 900 897
- ----------------------------------------------------------------------------
Total assets $6,118 $7,226
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities $ 888 $1,074
Short-term borrowings 163 67
Long-term debt 229 142
- ----------------------------------------------------------------------------
Total current liabilities 1,280 1,283
Long-term debt 996 1,501
Postretirement benefits 1,002 1,043
Environmental, deferred taxes and other liabilities 583 660
Stockholders' equity:
Common stock 1,533 1,521
Retained earnings 1,289 1,253
Treasury stock, at cost (526) -
Accumulated other comprehensive income (39) (35)
- ----------------------------------------------------------------------------
Total stockholders' equity 2,257 2,739
Contingent liabilities
Total liabilities and stockholders' equity $6,118 $7,226
============================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (millions)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Nine months ended September 30 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 111 $ 153
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 193 277
Operational restructuring effects (11) (40)
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 (149) 3
Receivables (49) (161)
Inventories 75 (190)
Other (95) 16
- ----------------------------------------------------------------------------
Net cash provided by operating activities 161 58
INVESTING ACTIVITIES
Capital investments:
Operational (102) (103)
Strategic (115) (84)
Sales of assets - operational restructuring 1,066 343
Other (24) (5)
- ----------------------------------------------------------------------------
Net cash provided by investing activities 825 151
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 97 (127)
Proceeds from long-term debt 250 -
Reduction of long-term debt (769) (46)
Cash dividends paid (76) (73)
Repurchase of common stock (526)
Stock options exercised 11 67
- ----------------------------------------------------------------------------
Net cash used in financing activities (1,013) (179)
CASH AND CASH EQUIVALENTS
Net increase (decrease) (27) 30
At beginning of period 70 38
- ----------------------------------------------------------------------------
At end of period $ 43 $ 68
============================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Nine months ended September 30 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
SHARES (thousands):
Common stock
Balance at January 1 73,909 72,719
Issued under employee benefit plans 194 1,182
- ----------------------------------------------------------------------------
Balance at September 30 74,103 73,901
- ----------------------------------------------------------------------------
Treasury stock
Balance at January 1 - -
Purchased and held as treasury stock (9,647) -
- ----------------------------------------------------------------------------
Balance at September 30 (9,647) -
- ----------------------------------------------------------------------------
Net common shares outstanding 64,456 73,901
- ----------------------------------------------------------------------------
DOLLARS (millions):
Common stock
Balance at January 1 $1,521 $1,451
Issued under employee benefit plans 12 70
- ----------------------------------------------------------------------------
Balance at September 30 $1,533 $1,521
- ----------------------------------------------------------------------------
Retained earnings
Balance at January 1 $1,253 $1,220
Net income 111 153
Cash dividends declared for common stock (75) (77)
- ----------------------------------------------------------------------------
Balance at September 30 $1,289 $1,296
- ----------------------------------------------------------------------------
Treasury stock
Balance at January 1 $ - $ -
Purchased and held as treasury stock (526) -
- ----------------------------------------------------------------------------
Balance at September 30 $ (526) $ -
- ----------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Balance at January 1 $ (35) $ (37)
Foreign currency translation adjustments 2 (46)
Income taxes (6) 2
-----------------------------
Other comprehensive income (loss) (4) (44)
- ----------------------------------------------------------------------------
Balance at September 30 (39) (81)
- ----------------------------------------------------------------------------
Total stockholders' equity $2,257 $2,736
- ----------------------------------------------------------------------------
COMPREHENSIVE INCOME (millions):
Net income $ 111 $ 153
Other comprehensive income (loss) (4) (44)
- ----------------------------------------------------------------------------
Comprehensive income $ 107 $ 109
- ----------------------------------------------------------------------------
Comprehensive income for the third quarter of 1998 and 1997 was $213
million and $43 million, respectively.
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</TABLE>
<PAGE> 6
REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1998 and 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements were
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. All adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation
were included. Operating results for the interim periods of 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
Certain amounts have been reclassified to conform to the 1998 presentation.
In the tables, dollars are in millions, except per share amounts, and
shipments are in thousands of metric tons. A metric ton is equivalent to
2,205 pounds.
2. ACCOUNTING POLICIES
COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted the Financial Accounting
Standards Board's (FASB) Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, adopting the
Statement had no impact on the Company's net income or stockholders' equity.
Statement No. 130 requires the Company's foreign currency translation
adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of Statement No. 130. Comprehensive income is presented in the
Consolidated Statement of Changes in Stockholders' Equity.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
In the second quarter of 1998, the Accounting Standards Executive Committee
(AcSEC) 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. It is effective for 1999; however, early
application is encouraged. The Company adopted the SOP in the second
quarter of 1998 and applied it retroactively to January 1, 1998 as required.
The Company recognized a charge for the cumulative effect of accounting
change of $23 million in the restated financial statements for the first
quarter of 1998. The effect on "income before cumulative effect of
accounting change" in the Consolidated Statement of Income for the 1998 and
1997 interim periods was not material.
ACCOUNTING FOR THE COSTS OF DEVELOPING OR OBTAINING INTERNAL-USE SOFTWARE
In the first quarter of 1998, the AcSEC issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The SOP
requires qualifying computer software costs incurred in connection with
obtaining or developing software for internal use to be capitalized. The
Company currently capitalizes the costs of purchased software and expenses
the costs of internally developed software. The Company plans to adopt the
SOP in 1999 on a prospective basis when it becomes effective.
<PAGE> 7
2. ACCOUNTING POLICIES -- continued
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the second quarter of 1998, the FASB 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, 2000. The Company has not determined the impact this
statement will have on its financial position or results of operations.
3. OPERATIONAL RESTRUCTURING
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
The Company has signed a letter of intent to sell its Alabama can stock
complex. The sale will include a rolling mill, two nearby reclamation
plants that provide input metal to the mill, and a coil coating facility.
The Company recorded a pre-tax charge of $304 million ($196 million after
taxes) in the second quarter of 1998 for this transaction. Early in the
fourth quarter of 1998, the buyer informed the Company that it was critical
the buyer negotiate new labor agreements with unions at the complex. The
Company has advised union leaders that if (1) the buyer and unions are able
to agree on new labor agreements and (2) the Company and the buyer are able
to successfully conclude negotiations and complete a sale, the Company would
recognize the transaction as a "plant closing" for purposes of benefit
payments under its existing labor contracts. Thus, even though the facility
would continue to operate, union employees would be eligible for additional
retirement and other contractual benefits. This would require the Company
to record an additional after-tax restructuring charge in the range of $75
million to $85 million.
The Company has also signed a letter of intent to sell its aluminum
extrusion operation in Spain.
Both of these transactions are subject to one or more of the following:
regulatory approvals, transaction financing by the purchaser, negotiation
and execution of definitive agreements and/or other customary closing
conditions.
The Company had signed a letter of intent to sell its can machinery
operations. The letter of intent has expired and the Company is pursuing
other sales opportunities.
The carrying amount for assets to be sold was approximately $400 million at
September 30, 1998.
The Company has used the proceeds from completed divestitures for debt
repayments and repurchases of common stock (see Notes 4 and 7).
<PAGE> 8
3. OPERATIONAL RESTRUCTURING -- continued
In 1997, the Company sold the following:
- - U.S. residential construction products business
- - an aluminum reclamation plant in Virginia
- - aluminum extrusion plants in Virginia and Texas
- - coal properties in Kentucky
- - one-half of its wholly-owned interest in a rolling mill and related
assets in Canada
- - an aluminum powder and paste plant in Kentucky
The Company recognized pre-tax gains of $56 million from these sales.
Proceeds were used to reduce debt and to temporarily support operating
requirements.
Also in the nine-month period of 1997, the Company recorded a pre-tax charge
of $25 million for termination benefits applicable to approximately 500
corporate headquarters employees. Cash requirements relating to the
termination benefits have been paid.
4. EXTRAORDINARY LOSSES
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. The debt extinguished
consisted of the following:
- - $500 million of medium term notes with an average interest rate of 9%
and original maturities ranging from 2002 to 2013
- - $79 million of 9% debentures due 2003
- - a mortgage with a remaining balance of approximately $5 million that
had a 10% interest rate and required monthly payments of principal and
interest until 2009
5. EARNINGS PER SHARE
The following reconciles income and average shares for the basic and diluted
earnings per share computations for "Income before extraordinary loss and
cumulative effect of accounting change."
<TABLE>
<CAPTION>
Quarters ended September 30
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Income (numerator):
Income before extraordinary loss and
cumulative effect of accounting
change (Basic and Diluted) $262 $55
Average shares (denominator):
Basic 69,241,000 73,747,000
Effect of dilutive securities:
Stock options 84,000 791,000
-----------------------------
Diluted 69,325,000 74,538,000
-----------------------------
Per share amount for income before
extraordinary loss and cumulative
effect of accounting change:
Basic earnings per share $3.80 $0.74
Diluted earnings per share $3.80 $0.73
Antidilutive securities excluded:
Stock options 3,955,000 150,000
</TABLE>
<PAGE> 9
5. EARNINGS PER SHARE -- continued
<TABLE>
<CAPTION>
Nine Months ended September 30
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
Income (numerator):
Income before extraordinary loss and
cumulative effect of accounting change
(Basic and Diluted) $197 $153
Average shares (denominator):
Basic 71,474,000 73,247,000
Effect of dilutive securities:
Stock options 257,000 658,000
-------------------------------
Diluted 71,731,000 73,905,000
-------------------------------
Per share amount for income before
extraordinary loss and cumulative
effect of accounting change:
Basic earnings per share $2.76 $2.09
Diluted earnings per share $2.76 $2.08
Antidilutive securities excluded:
Stock options 2,306,000 387,000
</TABLE>
6. FINANCING ARRANGEMENTS
In the first quarter of 1998, the Company borrowed $100 million under its
Canadian bank credit agreement. The borrowing bears interest at a variable
rate (5.8% at September 30, 1998) and requires repayment in a lump sum in
2001.
In the second and third quarters of 1998, the Company extinguished
approximately $584 million principal amount of debt. See Note 4 for more
information concerning these transactions.
In the third quarter of 1998, the Company terminated a $100-million interest
rate swap originally scheduled to mature in 2001. The small gain realized
will be recognized over the remainder of the designated hedge period ending
2001.
Early in the fourth quarter, the Company borrowed $150 million under its
revolving credit facility that matures in 2001. Interest on the revolving
credit facility is at a variable rate (5.6% in October 1998). The proceeds
from the borrowing were used to repay $150 million of commercial paper,
which was included in long-term debt at September 30, 1998.
7. STOCKHOLDERS' EQUITY
Authority to repurchase up to 18 million shares of common stock (including
the shares already repurchased) became effective in the second quarter of
1998 with the signing of the definitive agreement for the sale of the
Company's North American aluminum beverage can operations. This repurchase
authorization includes the five million share repurchase program announced
in the first quarter of 1998 and it extends to December 31, 2000.
<PAGE> 10
8. COMPANY OPERATIONS
In the second quarter of 1998, the Company signed a letter of intent to sell
its Alabama can stock complex (see Note 3). As a result, the Company has
moved this operation from the "Other" category to the "Restructuring"
category in its segment disclosures. The comparative periods of 1997 have
been restated to reflect this change.
<TABLE>
<CAPTION>
Packaging Construction
Base and and
Third Quarter 1998 Materials Consumer Distribution
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Customer aluminum shipments 172 34 48
Internal aluminum shipments 94 - -
- -----------------------------------------------------------------------------
Total aluminum shipments 266 34 48
Customer revenues:
Aluminum $264 $191 $176
Nonaluminum 85 150 79
Intersegment revenues - aluminum 156 - -
- -----------------------------------------------------------------------------
Total revenues $505 $341 $255
=============================================================================
Operating income (loss) $ 65 $ 34 $ 13
Interest expense
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting change
=============================================================================
Third Quarter 1997
- -----------------------------------------------------------------------------
Customer aluminum shipments 144 33 42
Internal aluminum shipments 166 - -
- -----------------------------------------------------------------------------
Total aluminum shipments 310 33 42
Customer revenues:
Aluminum $262 $194 $158
Nonaluminum 82 152 83
Intersegment revenues - aluminum 290 - -
- -----------------------------------------------------------------------------
Total revenues $634 $346 $241
=============================================================================
Operating income (loss) $ 68 $ 33 $ 12
Interest expense
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect
of accounting change
=============================================================================
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
Third Quarter 1998 Transportation Restructuring Other
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Customer aluminum shipments 15 88 9
Internal aluminum shipments - - -
- -----------------------------------------------------------------------------
Total aluminum shipments 15 88 9
Customer revenues:
Aluminum $76 $299 $ 31
Nonaluminum - - 17
Intersegment revenues - aluminum - - -
- -----------------------------------------------------------------------------
Total revenues $76 $299 $ 48
=============================================================================
Operating income (loss) $(7) $ 31 $(28)
Interest expense
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting change
=============================================================================
Third Quarter 1997
- -----------------------------------------------------------------------------
Customer aluminum shipments 15 179 10
Internal aluminum shipments - 3 -
- -----------------------------------------------------------------------------
Total aluminum shipments 15 182 10
Customer revenues:
Aluminum $78 $642 $ 32
Nonaluminum - 23 11
Intersegment revenues - aluminum - 10 -
- -----------------------------------------------------------------------------
Total revenues $78 $675 $ 43
=============================================================================
Operating income (loss) $ - $ 38 $(36)
Interest expense
Income before income taxes,
extraordinary loss and
cumulative effect
of accounting change
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciling
Third Quarter 1998 Items Consolidated
- -----------------------------------------------------------------------------
<S> <C> <C>
Customer aluminum shipments - 366
Internal aluminum shipments (94) -
- -----------------------------------------------------------------------------
Total aluminum shipments (94) 366
Customer revenues:
Aluminum $ - $1,037
Nonaluminum - 331
Intersegment revenues - aluminum (156) -
- -----------------------------------------------------------------------------
Total revenues $(156) $1,368
=============================================================================
Operating income (loss) $ 316 $ 424
Interest expense (27)
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect
of accounting change $ 397
=============================================================================
Third Quarter 1997
- -----------------------------------------------------------------------------
Customer aluminum shipments - 423
Internal aluminum shipments (169) -
- -----------------------------------------------------------------------------
Total aluminum shipments (169) 423
Customer revenues:
Aluminum $ - $1,366
Nonaluminum - 351
Intersegment revenues - aluminum (300) -
- -----------------------------------------------------------------------------
Total revenues $(300) $1,717
=============================================================================
Operating income (loss) $ 5 $ 120
Interest expense (40)
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect
of accounting change $ 80
=============================================================================
</TABLE>
<PAGE> 12
8. COMPANY OPERATIONS -- continued
<TABLE>
<CAPTION>
Packaging Construction
Base and and
Nine Months of 1998 Materials Consumer Distribution
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Customer aluminum shipments 485 101 140
Internal aluminum shipments 275 - -
- -----------------------------------------------------------------------------
Total aluminum shipments 760 101 140
Customer revenues:
Aluminum $ 780 $ 571 $511
Nonaluminum 314 430 242
Intersegment revenues - aluminum 445 - -
- -----------------------------------------------------------------------------
Total revenues $1,539 $1,001 $753
=============================================================================
Operating income (loss) $ 239 $ 96 $ 29
Interest expense
- -----------------------------------------------------------------------------
Income before income taxes
extraordinary loss and
cumulative effect
on accounting change
=============================================================================
Nine Months of 1997
- -----------------------------------------------------------------------------
Customer aluminum shipments 367 100 124
Internal aluminum shipments 545 - -
- -----------------------------------------------------------------------------
Total aluminum shipments 912 100 124
Customer revenues:
Aluminum $ 661 $565 $457
Nonaluminum 281 431 251
Intersegment revenues - aluminum 943 - -
- -----------------------------------------------------------------------------
Total revenues $1,885 $996 $708
=============================================================================
Operating income (loss) $ 210 $ 88 $ 34
Interest expense
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting change
=============================================================================
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
Nine Months of 1998 Transportation Restructuring Other
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Customer aluminum shipments 46 307 27
Internal aluminum shipments - 4 -
- -----------------------------------------------------------------------------
Total aluminum shipments 46 311 27
Customer revenues:
Aluminum $244 $1,236 $ 92
Nonaluminum - 5 54
Intersegment revenues - aluminum - 12 -
- -----------------------------------------------------------------------------
Total revenues $244 $1,253 $ 146
=============================================================================
Operating income (loss) $(14) $ 110 $ (96)
Interest expense
- -----------------------------------------------------------------------------
Income before income taxes
extraordinary loss and
cumulative effect
on accounting change
=============================================================================
Nine Months of 1997
- -----------------------------------------------------------------------------
Customer aluminum shipments 49 577 28
Internal aluminum shipments - 8 -
- -----------------------------------------------------------------------------
Total aluminum shipments 49 585 28
Customer revenues:
Aluminum $262 $2,020 $ 96
Nonaluminum - 64 39
Intersegment revenues - aluminum - 27 -
- -----------------------------------------------------------------------------
Total revenues $262 $2,111 $ 135
=============================================================================
Operating income (loss) $ 11 $ 92 $(108)
Interest expense
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect
of accounting change
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciling
Nine Months of 1998 Items Consolidated
- -----------------------------------------------------------------------------
<S> <C> <C>
Customer aluminum shipments - 1,106
Internal aluminum shipments (279) -
- -----------------------------------------------------------------------------
Total aluminum shipments (279) 1,106
Customer revenues:
Aluminum $ - $3,434
Nonaluminum - 1,045
Intersegment revenues - aluminum (457) -
- -----------------------------------------------------------------------------
Total revenues $(457) $4,479
=============================================================================
Operating income (loss) $ 16 $ 380
Interest expense (94)
- -----------------------------------------------------------------------------
Income before income taxes
extraordinary loss and
cumulative effect
on accounting change $ 286
=============================================================================
Nine Months of 1997
- -----------------------------------------------------------------------------
Customer aluminum shipments - 1,245
Internal aluminum shipments (553) -
- -----------------------------------------------------------------------------
Total aluminum shipments (553) 1,245
Customer revenues:
Aluminum $ - $4,061
Nonaluminum - 1,066
Intersegment revenues - aluminum (970) -
- -----------------------------------------------------------------------------
Total revenues $(970) $5,127
=============================================================================
Operating income (loss) $ 17 $ 344
Interest expense (116)
- -----------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and
cumulative effect
of accounting change $ 228
=============================================================================
</TABLE>
RECONCILING ITEMS
Reconciling items consist of the following:
<TABLE>
<CAPTION>
Quarters ended September 30
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
Operating income:
Inventory accounting adjustments $ 1 $ 5
Operational restructuring effects - net 315 -
---------------------------------
$316 $ 5
=================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months ended September 30
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
Operating income (loss):
Inventory accounting adjustments $ 5 $(14)
Operational restructuring effects - net 11 31
---------------------------------
$ 16 $ 17
=================================
</TABLE>
<PAGE> 14
COMPANY OPERATIONS -- continued
Inventory accounting adjustments are the elimination of unrealized profits
and losses on sales between global business units. Operational
restructuring effects are explained in Note 3.
9. CONTINGENT LIABILITIES
As previously disclosed in the Company's 1997 Form 10-K, the Company is
involved in various worldwide environmental improvement activities resulting
from past operations, including designation as a potentially responsible
party (PRP), with others, at various Environmental Protection Agency-
designated Superfund sites. The Company has recorded amounts (on an
undiscounted basis) which, in management's best estimate, will be sufficient
to satisfy anticipated costs of known remediation requirements.
Estimated costs for future environmental compliance and remediation are
necessarily imprecise because of factors such as:
- - continuing evolution of environmental laws and regulatory requirements
- - availability and application of technology
- - identification of presently unknown remediation requirements
- - cost allocations among PRPs
Further, it is not possible to predict the amount or timing of future costs
of environmental remediation that may subsequently be determined. Based on
information presently available, such future costs are not expected to have
a material adverse effect on the Company's competitive or financial position
or its ongoing results of operations. However, such costs could be material
to results of operations in a future interim or annual reporting period.
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 entities are obligors (thus subjecting them to
reporting requirements under Section 13 or 15(d) of the Securities Exchange
Act of 1934), are fully and unconditionally guaranteed by Reynolds Metals
Company. Financial information relating to these companies is presented
herein in accordance with Staff Accounting Bulletin 53 as an addition to the
footnotes to the financial statements of Reynolds Metals Company.
Summarized financial information is as follows:
<PAGE> 15
10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM COMPANY OF
CANADA, LTD. - continued
Canadian Reynolds Metals Company, Ltd.
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30 September 30
---------------------------------------------
1998 1997 1998 1997
---------------------------------------------
<S> <C> <C> <C> <C>
Net Sales:
Customers $ 78 $ 69 $261 $168
Parent and related companies 119 161 368 521
---------------------------------------------
$197 $230 $629 $689
Cost of products sold 178 177 539 539
Net income $ 12 $ 31 $ 61 $ 86
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
----------------------------------------
<S> <C> <C>
Current assets $ 279 $ 179
Noncurrent assets 1,172 1,206
Current liabilities (101) (148)
Noncurrent liabilities (453) (415)
</TABLE>
Reynolds Aluminum Company of Canada, Ltd.
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30 September 30
--------------------------------------------
1998 1997 1998 1997
--------------------------------------------
<S> <C> <C> <C> <C>
Net Sales:
Customers $ 98 $150 $329 $408
Parent and related companies 121 156 360 491
--------------------------------------------
$219 $306 $689 $899
Cost of products sold 199 247 594 728
Net income $ 12 $ 32 $ 59 $ 90
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------------------------------
<S> <C> <C>
Current assets $ 257 $ 208
Noncurrent assets 1,242 1,276
Current liabilities (106) (111)
Noncurrent liabilities (481) (445)
</TABLE>
<PAGE> 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company's 1997 Form 10-K along with the consolidated financial statements
and related footnotes included in and referred to in this report. In the
tables, dollars are in millions, except per share amounts, and shipments are
in thousands of metric tons. A metric ton is equivalent to 2,205 pounds.
Management's Discussion and Analysis contains forecasts, projections,
estimates, statements of management's plans and objectives for the Company
and other forward-looking statements. Please refer to the "Risk Factors"
section beginning on page 25, where we have summarized factors that could
cause actual results to differ materially from those projected in a forward-
looking statement or affect the extent to which a particular projection is
realized.
RESULTS OF OPERATIONS
We more than offset the negative impact of lower primary aluminum prices
with improved sales volume in several of our ongoing businesses; significant
cost reductions in our base materials operations; lower selling,
administrative and general expenses; and lower interest expense. Our
ability to generate higher operating income at lower pricing levels in 1998,
compared to 1997, reflects the benefits of our portfolio review process,
including restructuring assets, debt reduction and share repurchases. For
information concerning the special items in the following table, see the
notes to the consolidated financial statements.
<TABLE>
<CAPTION>
Third Quarter Nine Months
1998 1997 1998 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Results
Net income before special items $ 61 $ 55 $ 192 $ 134
Operational restructuring effects (see
Note 3) 201 - 5 19
Extraordinary loss (see Note 4) (60) - (63) -
Cumulative effect of accounting change
(see Note 2) - - (23) -
-------------------------------------
Net income $ 202 $ 55 $ 111 $ 153
=====================================
Earnings per share - basic
Net income before special items $ 0.89 $0.74 $ 2.69 $1.82
Operational restructuring effects - net 2.91 - 0.07 0.27
Extraordinary loss (0.88) - (0.89) -
Cumulative effect of accounting change - - (0.32) -
-------------------------------------
Net income $ 2.92 $0.74 $ 1.55 $2.09
=====================================
</TABLE>
<PAGE> 17
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS
Base Materials
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------------- ---------------------
1998 1997 1998 1997
------------------- ---------------------
<S> <C> <C> <C> <C>
Aluminum shipments:
Customer 172 144 485 367
Internal 94 166 275 545
------------------- ---------------------
Total 266 310 760 912
=================== =====================
Revenues:
Customer - aluminum $264 $262 $ 780 $ 661
- nonaluminum 85 82 314 281
Internal - aluminum 156 290 445 943
------------------- ---------------------
Total $505 $634 $1,539 $1,885
=================== =====================
Operating income $ 65 $ 68 $ 239 $ 210
=================== =====================
</TABLE>
The increase in customer aluminum shipments in the 1998 periods reflects
continuing strong demand for our rod, foundry and billet products. Our
available supply to meet customer needs increased because we no longer need
to supply downstream fabricating operations that have been sold. Our
available supply also increased because of restarting idle capacity (as
discussed below). The sale of certain of our operations resulted in lower
internal requirements for primary aluminum, which caused our internal
shipments to decline.
In addition to reflecting the changes in shipping volume, aluminum revenues
were adversely affected in both 1998 periods by lower prices for primary
aluminum. Average realized prices for customer shipments were $0.70 per
pound in the third quarter of 1998 compared to $0.82 per pound in the third
quarter of 1997. Average realized prices for customer shipments were $0.73
per pound in the nine-month period of 1998 compared to $0.82 per pound in
the nine-month period of 1997.
Higher sales of alumina led to the increase in nonaluminum revenues in both
1998 periods. The additional supply was made possible by significant
improvements in production and capacity utilization at our Sherwin, Texas
alumina plant.
Operating income benefited in the third quarter and nine months of 1998
because of:
- - higher customer shipments of aluminum and alumina
- - significant cost reductions
- - improved capacity utilization
- - lower costs for certain raw materials
These benefits were offset by:
- - lower internal shipments
- - lower prices for aluminum and alumina
- - restart costs at our primary aluminum plants
- - lower technical services income
<PAGE> 18
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
Base Materials - continued
Results in both years were negatively impacted by temporarily curtailed
capacity at our U.S. primary aluminum plants. In the first quarter of 1998,
we began the process of restarting some of this idle capacity. In the third
quarter of 1998, we had essentially completed restarts of the following
capacity:
- - 47,000 metric tons at our Longview, Washington plant
- - 41,000 metric tons at our Massena, New York plant
- - 74,000 metric tons at our Troutdale, Oregon plant
We plan to monitor market conditions before finalizing the schedule to
restart the remaining 47,000 metric tons at the Troutdale plant.
Packaging and Consumer
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------- ------------------
1998 1997 1998 1997
----------------- ------------------
<S> <C> <C> <C> <C>
Customer aluminum shipments 34 33 101 100
Revenues:
Customer - aluminum $191 $194 $ 571 $565
- nonaluminum 150 152 430 431
----------------- ------------------
Total $341 $346 $1,001 $996
================= ==================
Operating income $ 34 $ 33 $ 96 $ 88
================= ==================
</TABLE>
Total shipments and revenues for packaging and consumer products were
essentially flat in the 1998 periods as compared to the same periods in
1997. Shipments of packaging products were slightly lower because of strong
competition and the discontinuance of certain products. Shipments of
consumer products were higher due to strong demand for Reynolds Wrap
aluminum foil and a recently introduced product, Hot Bags aluminum foil
pouches.
Operating income benefited from higher shipments of consumer products and
lower costs. Higher product development and marketing costs for new
consumer products introduced in 1998 partially offset these benefits. The
new consumer products include Hot Bags aluminum foil pouches and Wrappers
aluminum foil sheets. Shipments of both products began in the second
quarter of 1998.
<PAGE> 19
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
Construction and Distribution
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------------ -------------------
1998 1997 1998 1997
------------------ -------------------
<S> <C> <C> <C> <C>
Customer aluminum shipments 48 42 140 124
Revenues:
Customer - aluminum $176 $158 $511 $457
- nonaluminum 79 83 242 251
------------------ -------------------
Total $255 $241 $753 $708
================== ===================
Operating income $ 13 $ 12 $ 29 $ 34
================== ===================
</TABLE>
Aluminum shipments and revenues increased in both 1998 periods. These
improvements resulted from significantly higher shipments of most products.
All of our major distribution products (plate, sheet and extrusions)
benefited from strong demand and market share growth in our major domestic
markets. Construction products benefited from strong demand and our global
expansion efforts. Growth in construction products shipments in Europe and
North America was somewhat offset by a decline in shipments to all Asian
markets except China.
Nonaluminum revenues decreased slightly despite significant increases in
stainless steel shipments. Demand was strong for all of our major stainless
steel distribution products (plate, sheet and shapes). The effect of the
higher shipping volume was offset by lower prices for stainless steel
products. Prices for these products continue to be under pressure due to
increased imports and strong competition.
Operating income in both 1998 periods benefited from the higher shipping
volume. This was offset by lower capacity utilization at one of our
construction products plants following the scheduled expiration of a steel
composite tolling contract in 1997. That tolling customer now has its own
production facility and pays us design and production royalties. We also
incurred higher marketing costs to globally expand construction products
sales. The effect of lower prices for stainless steel products was offset
by lower costs for purchases of stainless steel.
Transportation
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------- -----------------
1998 1997 1998 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Customer aluminum shipments 15 15 46 49
Customer revenues $76 $78 $244 $262
Operating income (loss) (7) - (14) 11
================= =================
</TABLE>
Shipments and revenues in both 1998 periods were adversely affected by
volume declines in bumpers and cast aluminum wheels. The decline in bumper
shipments resulted from the completion of a contract in 1997 at our Indiana
automotive structures plant. Cast aluminum wheel shipments were lower
because of decreased demand related to a substantial number of mid-year
wheel program conversions and a strike at a customer earlier in the year.
The lower shipments of cast aluminum wheels were somewhat offset by higher
shipments of forged aluminum wheels from our Virginia plant in both 1998
periods.
<PAGE> 20
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
Transportation - continued
Operating income declined in both 1998 periods because of:
- - lower shipping volume and its adverse effect on capacity utilization
- - lower prices
- - start-up costs from the expansion of our forged aluminum wheel plant
in Virginia
- - operational difficulties at our Wisconsin cast aluminum wheel plant
We have been working hard to address the issues affecting this business. In
aluminum wheels, facilities in Canada, Italy and Venezuela are operating
reasonably well. Our newer plant in Wisconsin has experienced a variety of
operational difficulties since it began operation. In 1998, we have
substantially completed pre-production certification programs for 16 new
wheel models at the plant - a major cost hurdle. This new production volume
should help the plant improve, although there are other issues that are
currently being addressed. Our automotive structures plant in Indiana has been
operating well below capacity as indicated above. We are currently testing
a new engine cradle program that should be in production next year and
should help improve performance there. In addition, we have entered into a
new bumper contract that is scheduled to go into production in 1999. Aside
from plant-specific initiatives, we are also evaluating options for our
transportation business as a whole, including strategic alliances.
Restructuring
Shipments, revenues and operating income were adversely affected in both
1998 periods because of sold operations. The effect on operating income in
both periods was offset by the ceasing of depreciation of assets held for
sale as required by current accounting rules. The depreciation amount was
$17 million in the third quarter of 1998 and $54 million in the nine-month
period of 1998.
For additional information concerning the global business units, see Note 8
to the consolidated financial statements.
INTEREST EXPENSE
Interest expense decreased in both 1998 periods because of lower amounts of
debt outstanding.
OTHER EXPENSES
The decline in selling, administrative and general expenses and depreciation
and amortization in both 1998 periods resulted from our restructuring
activities.
TAXES ON INCOME
The effective tax rates reflected in the income statement differ from the
U.S. federal statutory rate principally because of the effects of foreign
taxes.
YEAR 2000
Problem
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
recognize 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.
<PAGE> 21
RESULTS OF OPERATIONS - continued
- ---------------------
YEAR 2000 - continued
Problem - continued
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, among other
things, in 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 contain no embedded micro-chips
or similar electronic components that are date-sensitive.
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.
Year 2000 Remediation Project
We are preparing our critical, date-sensitive computer systems, processes
and interfacing software for the Year 2000. Our remediation project is
focusing on the following three areas:
- - Information Systems - Computer hardware and software systems, business
application software, end-user computing and communications infra-
structure
- - Non-Information Systems - Manufacturing equipment and the mechanical
systems in our buildings (e.g., HVAC, security, and safety systems)
- - Third Parties - Suppliers and customers
In the first two areas, Information Systems and Non-Information Systems, the
project consists of the following five phases:
- - Inventory - Identifying our critical, date-sensitive computer systems
that are not ready for the Year 2000
- - Planning - Deciding how to correct those systems
- - Conversion - Repairing or replacing hardware and software to make them
ready for the Year 2000
- - Pre-installation Testing - Testing those aspects of computer systems
that have been repaired or replaced to ensure that year entries
after 1999 are interpreted properly, that date-based calculations
are computed correctly, and that date-based control systems
function accurately
- - Installation - Bringing corrected systems on-line
We measure progress in each phase as a percentage of actual staff hours
expended to staff hours projected for completion of each phase. Our
progress will change as various aspects of the project are completed and as
new issues are encountered, either as a result of discovering unanticipated
problems in our existing systems or acquiring new computer systems or
equipment. We also are monitoring our computer and software vendors'
readiness statements to assure that readiness changes in their products do
not negatively affect our systems.
<PAGE> 22
RESULTS OF OPERATIONS - continued
- ---------------------
YEAR 2000 - continued
Year 2000 Remediation Project - continued
As of September 30, 1998, our estimated progress with respect to the five
phases of our Year 2000 remediation project for Information and Non-
Information Systems was approximately as follows:
<TABLE>
<CAPTION>
Information Systems Non-Information Systems
------------------- -----------------------
<S> <C> <C>
Inventory 99% 97%
Planning 97% 87%
Conversion 87% 62%
Pre-installation
Testing 84% 52%
Installation 71% 41%
Overall 89% 69%
</TABLE>
With respect to Information Systems, the Company expects to substantially
complete each of the phases identified above by December 31, 1998. For Non-
Information Systems, we expect to substantially complete each of the phases
by the end of the second quarter of 1999.
Our Year 2000 program also includes assessment of the business impact on the
Company resulting from the failure of our suppliers to provide needed
products and services. We are assessing the Year 2000 readiness of all our
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. We have surveyed approximately 2,000
suppliers and rated them low, medium or high risk in their progress toward
being ready for the Year 2000. Critical suppliers rated as high risk are
receiving our immediate attention for contingency planning or other
measures.
In addition, we are responding to customer inquiries regarding our Year 2000
program and our progress in addressing the issue. We expect to evaluate the
Year 2000 readiness of those customers whose business is material to the
Company as a whole as part of our future contingency planning.
The Company and certain of its customers and suppliers use Electronic Data
Interchange (EDI) to effect business communications. The Company's EDI
system software hass been upgraded to support transactions recorded using a
four-digit year. Migration of EDI transactions to the four-digit year
format will occur as existing EDI transaction formats are modified by the
Company and its trading partners on a case by case basis. Some of the
Company's customers have indicated they will not modify EDI transaction sets
but will rely on other techniques such as data windowing to achieve Year 2000
capability.
We are also addressing the Year 2000 readiness of our unconsolidated
affiliates.
1999 Activities
Quality Assurance
- -----------------
In addition to completing the five phases of our Year 2000 remediation
project described above, we expect to validate our remediation efforts with
additional post-installation testing of certain of our critical computer
systems. We also expect to respond to and initiate requests to test with
various external agents including certain of our suppliers, customers and
some government agencies after they ready their systems.
<PAGE> 23
RESULTS OF OPERATIONS - continued
- ---------------------
YEAR 2000 - continued
1999 Activities - continued
Contingency Planning
- --------------------
Currently, our contingency planning efforts are focused primarily on working
to identify additional sources of supply for critical materials. We anticipate
that 1999 will be a year of further contingency planning and monitoring of
conditions to determine realistic Year 2000 issues beyond those already
addressed. While it is still too early to identify a reasonably likely worst
case scenario, 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, unanticipated
loss of energy supply could result in damage to production equipment.
During 1999, we will be assessing these and other business disruption
risks and developing contingency plans to mitigate them.
Costs
The total cost of our five-phase Year 2000 remediation project is currently
expected to be approximately $18 million. Of this amount, approximately $16
million will be for labor costs and $2 million for the purchase of equipment
and license agreements. As of September 30, 1998, we had incurred labor
costs of $13 million and spent $1 million on equipment and licenses. Our
cost projections do not include the post-installation testing and
contingency planning expected to occur in 1999; however, we do not
anticipate that these costs will be significant. They also do not include
any costs of business disruptions from supplier or customer non-performance.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their
existing sovereign currencies and a common currency, the euro. The euro will
then trade on currency exchanges and be available for non-cash transactions.
Between January 1, 1999 and July 1, 2002, participating countries will
convert all bills and coins denominated in the legacy currencies to the new
euro currency. Based on the information presently available, we do not
expect any material adverse effects from the euro conversion on our
competitive or financial position or our ongoing results of operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
-------------- -------------
<S> <C> <C>
Working capital $ 350 $ 711
Ratio of current assets to current liabilities 1.3/1 1.6/1
</TABLE>
Working capital was lower at September 30, 1998 principally because of
reduced receivables and inventories resulting from dispositions of assets as
a part of the Company's restructuring activities.
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES - continued
- -------------------------------
OPERATING ACTIVITIES
We used the net cash provided by operating activities in the nine-month
period of 1998 to fund capital investments.
INVESTING ACTIVITIES
Capital investments totaled $217 million in the nine-month period of 1998.
This amount includes $102 million for operating requirements (replacement
equipment, environmental control projects, etc.). The remainder was for
strategic projects (performance improvements, investments, etc.) principally
carried forward from 1997, including:
- - the expansion of the Worsley Alumina Refinery in Australia
- - the modernization of our U.S. foil plants
- - the modification of our Indiana automotive components plant to produce
engine cradles
In addition, we are doubling the capacity of our forged wheel plant in
Virginia. The expansion will cost approximately $32 million, and we expect
to substantially complete it in late 1998.
We expect capital investments in 1998 to total $350 million. Approximately
42% of this amount will be used for operating requirements. We plan to use
the remainder for strategic projects already underway. We expect to fund
our capital investments in 1998 with cash generated from operations, supple-
mented by borrowings.
We used the cash from asset sales to repurchase common stock and to repay
debt.
FINANCING ACTIVITIES
The significant financing activities in the nine-month period of 1998 were:
- - extinguishment of debt (see Note 4 to the consolidated financial
statements)
- - borrowings and the termination of an interest rate swap agreement (see
Note 6 to the consolidated financial statements)
- - repurchase of common stock (see the Consolidated Statement of Changes
in Stockholders' Equity)
PORTFOLIO REVIEW
We have completed a number of divestitures and have also signed letters of
intent to sell our aluminum extrusion operation in Spain and our Alabama can
stock complex. For additional information concerning these transactions,
see Note 3 to the consolidated financial statements.
We have received approximately $1.4 billion in proceeds from divestitures
since the inception of our portfolio review in late 1996. With these
proceeds, we have reduced debt by approximately $900 million and repurchased
9.6 million shares of common stock for $526 million.
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES - continued
- -------------------------------
PORTFOLIO REVIEW - continued
We also plan to sell the following:
- - our 27.5% interest in United Arab Manufacturing Company, Ltd., a Saudi
Arabian aluminum beverage can manufacturer
- - our aluminum recycling plant in Italy
- - our can machinery operations (the previously reported letter of intent
to sell this operation has expired)
In addition, we are working with the other stockholders of Latasa, a Latin
American aluminum beverage can manufacturer, to agree upon and implement a
process that will permit the sale of our 34.9% interest in Latasa in the
near future.
<PAGE> 26
RISK FACTORS
- ------------
This section should be read in conjunction with Part l, Items 1 (Business),
3 (Legal Proceedings) and 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) of the Company's 1997 Form 10-
K; Part II, Item 1 (Legal Proceedings) of this report and the Company's
report on Form 10-Q for the second quarter of 1998; and the preceding
portions of this Item.
This report contains (and oral communications made by or on behalf of the
Company may contain) forecasts, projections, estimates, statements of
management's plans and objectives for the Company and other forward-looking
statements(FN1). The Company's expectations for the future and related
forward-looking statements are based on a number of assumptions and
forecasts as to world economic growth and other economic indicators
(including rates of inflation, industrial production, housing starts and
light vehicle sales), trends in the Company's key markets, global aluminum
supply and demand conditions, and aluminum ingot prices, among other items.
By their nature, forward-looking statements involve risk and uncertainty,
and various factors could cause the Company's actual results to differ
materially from those projected in a forward-looking statement or affect the
extent to which a particular projection is realized.
Although growth in aluminum consumption has flattened out this year, the
Company expects favorable conditions in aluminum industry supply/demand
fundamentals over the next several years. Consensus expectations for 1998
indicate global economic growth of 1.5-2.5%. The Company is forecasting an
increase in global primary aluminum consumption for 1998 of less than 0.5%
and for 1999 of 1-2%. Assuming resumption of favorable economic conditions in
Asia, the Company's long-term outlook for growth in aluminum consumption is
2.5-4% per year.
Economic and/or market conditions other than those forecasted by the Company
in the preceding paragraph, particularly in the U.S., Asia and Western
Europe, could cause the Company's actual results to differ materially from
those projected in a forward-looking statement or affect the extent to which
a particular projection is realized. The Company's outlook for 1998 and
beyond could be jeopardized by repercussions stemming from recent economic
problems in Asia, particularly Japan.
The following factors also could affect the Company's results:
- - Primary aluminum is an internationally traded commodity. The price of
primary aluminum is subject to worldwide market forces of supply and
demand and other influences. Prices can be volatile. The Company's use
of contractual arrangements, including fixed-price sales contracts, fixed-
price supply contracts, and forward, futures and option contracts,
reduces its exposure to this volatility but does not eliminate it.
- - The markets for most aluminum products are highly competitive.
Certain of the Company's competitors are larger than the Company in terms
of total assets and operations and have greater financial resources.
Certain foreign governments are involved in the operation and/or
ownership of certain competitors and may be motivated by political as
well as economic considerations. In addition, aluminum competes with
other materials, such as steel, plastics and glass, among others, for
various applications in the Company's key markets. Plastic products
compete 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]
(FN1)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," or
"plan" and words of similar effect.
</FN>
<PAGE> 27
RISK FACTORS -- continued
- ------------
- - The Company spends substantial capital and operating amounts relating
to ongoing compliance with environmental laws. In addition, the Company
is involved in remedial investigations and actions in connection with
past disposal of wastes. Estimating future environmental compliance and
remediation costs is imprecise due to the continuing evolution of
environmental laws and regulatory requirements and uncertainties about
their application to the Company's operations, the availability and
application of technology, the identification of currently unknown
remediation sites, and the allocation of costs among potentially
responsible parties.
- - Unanticipated material legal proceedings or investigations, or the
disposition of those currently pending against the Company other than as
anticipated by management and counsel, could affect the Company's
results.
- - Changes in the costs of power, resins, caustic soda, green coke and
other raw materials can affect results. The Company's contract with the
Bonneville Power Administration for the period October 1996 to September
2001 provides fixed rates for electrical power provided to the Company's
Washington and Oregon primary aluminum plants. These rates have been
approved by federal regulatory authorities but have been appealed in
court by a third party. If the appeal is successful, it is possible that
higher electricity costs might result.
- - A number of the Company's businesses 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, as scheduled and within budget
could affect the Company's results.
- - The Company's results may be adversely affected if it fails to timely
meet its Year 2000 readiness goals. The Company's assessments of the
effort required to meet its Year 2000 readiness goal and the total cost
of its Year 2000 remediation program are based on the Company's best
estimates. These were derived using numerous assumptions of future
events, including the continued availability of certain resources and
other factors. However, we cannot guarantee these estimates are accurate
and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes,
and similar uncertainties. Also, there can be no guarantee that other
companies with which the Company does business will be converted on a
timely basis or 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.
<PAGE> 28
RISK FACTORS -- continued
- ------------
- - Since late 1996, the Company has been conducting a Portfolio Review of
all its operations. The Company has announced the signing of a letter of
intent for the sale of its can stock complex in North Alabama, which
consists of a rolling mill, two reclamation plants and a coil coating
facility. It has entered into a letter of intent for the sale of its
aluminum extrusion operations in Spain. These transactions are subject
to certain conditions, including obtaining regulatory approvals,
completion of purchaser financing, completion of definitive agreements
and/or other customary closing conditions. In addition, the sale of the
North Alabama can stock complex is dependent on the purchaser's ability
to successfully negotiate new labor agreements with the applicable
unions. As a result of these conditions, the sale of the can stock
complex and the Spanish extrusion operation may or may not be completed
as contemplated. The Company is also planning to sell its can machinery
business, its interest in United Arab Manufacturing Company, Ltd. and its
aluminum recycling plant in Italy and is working with the other
stockholders of Latasa to agree upon and implement a process that will
permit the sale of the Company's interest in Latasa in the near future.
However, at this time, the Company has not entered into any letter of
intent or agreement for the sale of these assets.
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.
<PAGE> 29
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 1. LEGAL PROCEEDINGS
-----------------
As previously reported in the Registrant's Form 10-Q for the second quarter
of 1998, a private antitrust lawsuit styled Hammons v. Alcan Aluminum Corp.
et al. was filed in the Superior Court of California for the County of Los
Angeles on March 5, 1996 against the Registrant and other aluminum
producers. The lawsuit alleged a conspiracy to reduce worldwide and U.S.
aluminum production. Estimated damages of approximately $26 billion were
sought in the lawsuit, which claimed class action status. Defendants
removed the case to the U.S. District Court for the Central District of
California (the "District Court"). The District Court granted summary
judgment for defendants. On December 11, 1997, the U.S. Court of Appeals
for the Ninth Circuit sustained the District Court's dismissal of the case.
The plaintiff filed a motion seeking review of the decision by all the
judges of the Ninth Circuit. The motion was denied on May 14, 1998. On
August 12, 1998, plaintiff petitioned the U.S. Supreme Court to review the
case. On October 19, 1998, the U.S. Supreme Court declined to review.
Item 2. CHANGES IN SECURITIES
---------------------
(a) Recent Sales of Unregistered Securities
Under the Registrant's Stock Plan for Outside Directors (the "Plan"),
99 phantom shares, in the aggregate, were granted to the Registrant's
nine outside Directors on July 1, 1998, based on an average price of
$55.5938 per share. These phantom shares represent dividend
equivalents paid on phantom shares previously granted under the Plan.
506 phantom shares, in the aggregate, were granted to the nine outside
Directors on September 30, 1998, based on an average price of $52.00
share. These phantom shares represent a quarterly installment of each
outside Director's annual grant under the Plan.
To the extent that these grants constitute sales of equity securities,
the Registrant issued these phantom shares in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended,
taking into account the nature of the Plan, the number of outside
Directors participating in the Plan, the sophistication of the outside
Directors and their access to the kind of information that a
registration statement would provide.
A description of the Plan is contained in the Registrant's Form 10-K
for the year ended December 31, 1997 in Part II, Item 5 under the
caption "Sale of Unregistered Securities".
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
See Index to Exhibits.
(b) Reports on Form 8-K
During the third quarter of 1998, the Registrant filed two
Current Reports on Form 8-K with the Commission. The
Registrant reported on a Form 8-K dated August 10, 1998 that
it had completed the sale of its North American aluminum
beverage
<PAGE> 30
can operations to Ball Corporation ("Ball") for
$746 million in cash. Included in the filing were pro forma
financial statements showing the effect on the Company of the
disposition of the assets to Ball. The Registrant
reported on a Form 8-K dated September 15, 1998 that it had
achieved its $900 million debt reduction goal and had
repurchased 9.6 million of its common shares as of that
date. The report also indicated that $549 million principal
amount of debt securities were tendered and accepted for
payment in response to the Registrant's fixed-spread tender
offer, first announced on August 12, 1998.
In addition to the foregoing, the Registrant reported on a
Form 8-K dated October 16, 1998, that it had advised local
union officials at its Alloys can stock complex in Alabama
that the proposed purchaser of the facility had informed the
Registrant that it is critical that the purchaser and labor
unions representing employees at the complex negotiate new
labor agreements with respect to those employees. The
report stated additionally that the Registrant had advised
the labor leaders at the complex that if (1) the proposed
purchaser and the unions are able to agree on a new labor
contract and (2) the Registrant and the proposed purchaser
are able to successfully conclude negotiations and complete
the sale, the Registrant would treat the transaction as a
"plant closing" for purposes of benefit payments under its
existing labor contracts.
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REYNOLDS METALS COMPANY
By /s/ Allen M. Earehart
----------------------------
Allen M. Earehart
Senior Vice President, Controller
(Chief Accounting Officer)
DATE: November 13, 1998
<PAGE> 32
INDEX TO EXHIBITS
<FN1> EXHIBIT 2 - Asset Purchase Agreement by and
among Ball Corporation, Ball Metal Beverage
Container Corp. and Reynolds Metals Company dated
as of April 22, 1998. The Registrant agrees to
furnish to the Commission upon request a copy of
the disclosure schedules supplemental to the Asset
Purchase Agreement. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended June 30, 1998, EXHIBIT
2)
<FN1> EXHIBIT 3.1 - Restated Certificate of Incorporation, as
amended. (File No. 1-1430, 1997
Form 10-K Report, EXHIBIT 3.1)
<FN1> EXHIBIT 3.2 - By-laws, as amended. (File No. 1-1430, Form
10-Q Report for the Quarter Ended June
30, 1998, EXHIBIT 3.2)
EXHIBIT 4.1 - Restated Certificate of Incorporation.
See EXHIBIT 3.1.
EXHIBIT 4.2 - By-laws. See EXHIBIT 3.2.
<FN1> EXHIBIT 4.3 - Indenture dated as of April 1, 1989 (the
"Indenture") between Reynolds Metals
Company and The Bank of New York, as Trustee,
relating to Debt Securities. (File No. 1-1430,
Form 10-Q Report for the Quarter Ended March 31,
1989, EXHIBIT 4(c))
<FN1> EXHIBIT 4.4 - Amendment No. 1 dated as of November 1, 1991
to the Indenture. (File No. 1-1430, 1991
Form 10-K Report, EXHIBIT 4.4)
<FN1> EXHIBIT 4.5 - Rights Agreement dated as of December 1, 1997
(the "Rights Agreement") between Reynolds
Metals Company and The Chase Manhattan
Bank, N.A. (File No. 1-1430, Registration
Statement on Form 8-A dated December 1, 1997,
pertaining to Preferred Stock Purchase Rights,
EXHIBIT 1)
<FN1> EXHIBIT 4.6 - Form of 9-3/8% Debenture due June 15, 1999.
(File No. 1-1430, Form 8-K Report
dated June 6, 1989, EXHIBIT 4)
<FN1> EXHIBIT 4.7 - Form of Fixed Rate Medium-Term Note.
(Registration Statement No. 33-30882 on Form
S-3, dated August 31, 1989, EXHIBIT 4.3)
<FN1> EXHIBIT 4.8 - Form of Floating Rate Medium-Term Note.
(Registration Statement No. 33-30882 on
Form S-3, dated August 31, 1989, EXHIBIT 4.4)
<FN1> EXHIBIT 4.9 - Form of Book-Entry Fixed Rate Medium-Term
Note. (File No. 1-1430, 1991 Form 10-K
Report, EXHIBIT 4.15)
<FN1> EXHIBIT 4.10 - Form of Book-Entry Floating Rate Medium-Term
Note. (File No. 1-1430, 1991 Form 10-K Report,
EXHIBIT 4.16)
[FN]
______________________
<FN1> Incorporated by reference.
</FN>
<PAGE> 33
<FN1> EXHIBIT 4.11 - Form of 9% Debenture due August 15, 2003.
(File No. 1-1430, Form 8-K Report dated
August 16, 1991, Exhibit 4(a))
<FN1> EXHIBIT 4.12 - Articles of Continuance of Societe
d'Aluminium Reynolds du Canada,
Ltee/Reynolds Aluminum Company of Canada,
Ltd. (formerly known as Canadian Reynolds Metals
Company, Limited -- Societe Canadienne de Metaux
Reynolds, Limitee) ("RACC"), as amended. (File No.
1-1430, 1995 Form 10-K Report, EXHIBIT 4.13)
<FN1> EXHIBIT 4.13 - By-Laws of RACC, as amended. (File
No. 1-1430, Form 10-Q Report for
the Quarter Ended March 31, 1997, EXHIBIT 4.14)
<FN1> EXHIBIT 4.14 - Articles of Incorporation of Societe Canadienne
de Metaux Reynolds, Ltee/Canadian Reynolds
Metals Company, Ltd. ("CRM"), as amended.
(File No. 1-1430, Form 10-Q Report for
the Quarter Ended September 30, 1997,
EXHIBIT 4.15)
<FN1> EXHIBIT 4.15 - By-Laws of CRM, as amended. (File
No. 1-1430, Form 10-Q Report for
the Quarter Ended September 30, 1997, EXHIBIT 4.16)
<FN1> EXHIBIT 4.16 - Indenture dated as of April 1, 1993
among RACC, Reynolds Metals
Company and The Bank of New York, as Trustee.
(File No. 1-1430, Form 8-K Report dated July 14,
1993, EXHIBIT 4(a))
<FN1> EXHIBIT 4.17 - First Supplemental Indenture, dated as of
December 18, 1995 among RACC, Reynolds
Metals Company, CRM and The Bank of
New York, as Trustee. (File No. 1-
1430, 1995 Form 10-K Report, EXHIBIT 4.18)
<FN1> EXHIBIT 4.18 - Form of 6-5/8% Guaranteed Amortizing
Note due July 15, 2002. (File No. 1-1430,
Form 8-K Report dated July 14, 1993,
EXHIBIT 4(d))
<FN1><FN2> 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)
<FN1><FN2> 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)
<FN1><FN2> EXHIBIT 10.3 - Reynolds Metals Company Performance
Incentive Plan, as amended and restated
effective January 1, 1996. (File No. 1-1430,
Form 10-Q Report for the Quarter Ended
March 31, 1995, EXHIBIT 10.4)
[FN]
_______________________
<FN1> Incorporated by reference.
<FN2> Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<PAGE> 34
<FN1><FN2> EXHIBIT 10.4 - Agreement dated December 9, 1987 between
Reynolds Metals Company and Jeremiah
J. Sheehan. (File No. 1-1430, 1987 Form 10-K
Report, EXHIBIT 10.9)
<FN1><FN2> EXHIBIT 10.5 - Supplemental Death Benefit Plan for Officers.
(File No. 1-1430, 1986 Form 10-K
Report, EXHIBIT 10.8)
<FN1><FN2> EXHIBIT 10.6 - Financial Counseling Assistance Plan for
Officers. (File No. 1-1430, 1987 Form 10-
K Report, EXHIBIT 10.11)
<FN1><FN2> EXHIBIT 10.7 - Management Incentive Deferral Plan.
(File No. 1-1430, 1987 Form 10-K Report,
EXHIBIT 10.12)
<FN1><FN2> EXHIBIT 10.8 - Deferred Compensation Plan for Outside
Directors as Amended and Restated Effective
December 1, 1993. (File No. 1-1430, 1993 Form 10-K
Report, EXHIBIT 10.12)
<FN1><FN2> EXHIBIT 10.9 - Form of Indemnification Agreement for
Directors and Officers. (File No. 1-
1430, Form 8-K Report dated April 29, 1987, EXHIBIT
28.3)
<FN1><FN2> EXHIBIT 10.10 - Form of Executive Severance Agreement
as amended between Reynolds Metals
Company and key executive personnel, including each
of the current executive officers. (File No. 1-
1430, 1997 Form 10-K Report, EXHIBIT 10.10)
<FN1><FN2> EXHIBIT 10.11 - Amendment to Reynolds Metals Company 1987
Nonqualified Stock Option Plan
effective May 20, 1988. (File No. 1-1430, Form 10-
Q Report for the Quarter Ended June 30, 1988,
EXHIBIT 19(a))
<FN1><FN2> EXHIBIT 10.12 - Amendment to Reynolds Metals Company 1987
Nonqualified Stock Option Plan
effective October 21, 1988. (File No. 1-1430, Form
10-Q Report for the Quarter Ended September 30,
1988, EXHIBIT 19(a))
<FN1><FN2> EXHIBIT 10.13 - Amendment to Reynolds Metals Company 1987
Nonqualified Stock Option Plan
effective January 1, 1987. (File No. 1-1430, 1988
Form 10-K Report, EXHIBIT 10.22)
<FN1><FN2> EXHIBIT 10.14 - Form of Stock Option and Stock Appreciation
Right Agreement, as approved February
16, 1990 by the Compensation Committee of the
Company's Board of Directors. (File No. 1-1430,
1989 Form 10-K Report, EXHIBIT 10.24)
<FN1><FN2> EXHIBIT 10.15 - Amendment to Reynolds Metals Company 1987
Nonqualified Stock Option Plan
effective January 18, 1991. (File No. 1-1430, 1990
Form 10-K Report, EXHIBIT 10.26)
[FN]
_______________________
<FN1> Incorporated by reference.
<FN2> Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<PAGE> 35
<FN1><FN2> EXHIBIT 10.16 - Form of Stock Option Agreement, as approved
April 22, 1992 by the Compensation
Committee of the Company's Board of Directors.
(File No. 1-1430, Form 10-Q Report for the Quarter
Ended March 31, 1992, EXHIBIT 28(a))
<FN1><FN2> EXHIBIT 10.17 - Reynolds Metals Company Restricted Stock
Plan for Outside Directors. (Registration
Statement No. 33-53851 on Form S-8,
dated May 27, 1994, EXHIBIT 4.6)
<FN1><FN2> EXHIBIT 10.18 - Reynolds Metals Company New Management
Incentive Deferral Plan. (File No. 1-
1430, Form 10-Q Report for the Quarter Ended June
30, 1994, EXHIBIT 10.30)
<FN1><FN2> EXHIBIT 10.19 - Reynolds Metals Company Salary Deferral
Plan for Executives. (File No. 1-1430,
Form 10-Q Report for the Quarter Ended June 30,
1994, EXHIBIT 10.31)
<FN1><FN2> EXHIBIT 10.20 - Reynolds Metals Company Supplemental Long
Term Disability Plan for Executives.
(File No. 1-1430, Form 10-Q Report for
the Quarter Ended June 30, 1994, EXHIBIT 10.32)
<FN1><FN2> EXHIBIT 10.21 - Amendment to Reynolds Metals Company 1987
Nonqualified Stock Option Plan effective
August 19, 1994. (File No. 1-1430, Form
10-Q Report for the Quarter Ended September 30,
1994, EXHIBIT 10.34)
<FN1><FN2> EXHIBIT 10.22 - Amendment to Reynolds Metals Company 1992
Nonqualified Stock Option Plan effective
August 19, 1994. (File No. 1-1430, Form
10-Q Report for the Quarter Ended September 30,
1994, EXHIBIT 10.35)
<FN1><FN2> EXHIBIT 10.23 - Amendment to Reynolds Metals Company New
Management Incentive Deferral Plan
effective January 1, 1995. (File No. 1-1430, 1994
Form 10-K Report, EXHIBIT 10.36)
<FN1><FN2> EXHIBIT 10.24 - Form of Split Dollar Life Insurance Agreement
(Trustee Owner, Trustee Pays Premiums). (File
No. 1-1430, Form 10-Q Report for the Quarter
Ended June 30, 1995, EXHIBIT 10.34)
<FN1><FN2> EXHIBIT 10.25 - Form of Split Dollar Life Insurance Agreement
(Trustee Owner, Employee Pays Premium). (File
No. 1-1430, Form 10-Q Report for the Quarter
Ended June 30, 1995, EXHIBIT 10.35)
<FN1><FN2> EXHIBIT 10.26 - Form of Split Dollar Life Insurance Agreement
(Employee Owner, Employee Pays Premium). (File
No. 1-1430, Form 10-Q Report for the Quarter
Ended June 30, 1995, EXHIBIT 10.36)
[FN]
____________________________
<FN1> Incorporated by reference.
<FN2> Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<PAGE> 36
<FN1><FN2> EXHIBIT 10.27 - Form of Split Dollar Life Insurance Agreement
(Third Party Owner, Third Party Pays Premiums).
(File No. 1-1430, Form 10-Q Report for the
Quarter Ended June 30, 1995, EXHIBIT 10.37)
<FN1><FN2> EXHIBIT 10.28 - Form of Split Dollar Life Insurance Agreement
(Third Party Owner, Employee Pays Premiums).
(File No. 1-1430, Form 10-Q Report for the
Quarter Ended June 30, 1995, EXHIBIT 10.38)
<FN1><FN2> EXHIBIT 10.29 - Reynolds Metals Company 1996 Nonqualified Stock
Option Plan. (Registration Statement No.
333-03947 on Form S-8, dated May 17,
1996, EXHIBIT 4.6)
<FN1><FN2> EXHIBIT 10.30 - Amendment to Reynolds Metals Company 1992
Nonqualified Stock Option Plan effective
January 1, 1993. (Registration Statement
No. 333-03947 on Form S-8, dated May 17, 1996,
EXHIBIT 99)
<FN1><FN2> EXHIBIT 10.31 - Form of Stock Option Agreement, as approved
May 17, 1996 by the Compensation
Committee of the Company's Board of Directors.
(File No. 1-1430, Form 10-Q Report for the Quarter
Ended June 30, 1996, EXHIBIT 10.41)
<FN1><FN2> EXHIBIT 10.32 - Form of Three Party Stock Option Agreement,
as approved May 17, 1996 by the Compensation
Committee of the Company's Board of
Directors. (File No. 1-1430, Form 10-Q Report for
the Quarter Ended June 30, 1996, EXHIBIT 10.42)
<FN1><FN2> EXHIBIT 10.33 - Stock Option Agreement dated August 30,
1996 between Reynolds Metals Company and
Jeremiah J. Sheehan. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended September 30, 1996,
EXHIBIT 10.43)
<FN1><FN2> EXHIBIT 10.34 - Amendment to Deferred Compensation Plan
for Outside Directors effective
August 15, 1996. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended September 30, 1996,
EXHIBIT 10.44)
<FN1><FN2> EXHIBIT 10.35 - Amendment to Reynolds Metals Company New
Management Incentive Deferral Plan
effective January 1, 1996. (File No. 1-1430, 1996
Form 10-K Report, EXHIBIT 10.38)
<FN1><FN2> EXHIBIT 10.36 - Amendment to Reynolds Metals Company Performance
Incentive Plan effective January 1, 1996.
(File No. 1-1430, 1996 Form 10-K
Report, EXHIBIT 10.39)
<FN1><FN2> EXHIBIT 10.37 - Reynolds Metals Company Supplemental Incentive
Plan. (File No. 1-1430, 1996
Form 10-K Report, EXHIBIT 10.40)
[FN]
____________________________
<FN1> Incorporated by reference.
<FN2> Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<PAGE> 37
<FN1><FN2> EXHIBIT 10.38 - Reynolds Metals Company Stock Plan for
Outside Directors. (File No. 1-1430, 1996
Form 10-K Report, EXHIBIT 10.41)
<FN1><FN2> EXHIBIT 10.39 - Special Executive Severance Package for
Certain Employees who Terminate
Employment between January 1, 1997 and June 30,
1999 (or, if earlier, the date of completion of
employment related actions related to the Company's
portfolio review process, as designated by the
Company's Chief Executive Officer), approved by the
Compensation Committee of the Company's Board of
Directors on January 17, 1997 and extended on May
15, 1998. (File No. 1-1430, 1996 Form 10-K Report,
EXHIBIT 10.42)
<FN1><FN2> EXHIBIT 10.40 - Special Award Program for Certain Executives
or Key Employees, as approved by the Compensation
Committee of the Company's Board of Directors
on January 17, 1997. (File No. 1-1430,
1996 Form 10-K Report, EXHIBIT 10.43)
<FN1><FN2> EXHIBIT 10.41 - Amendment to Reynolds Metals Company 1996
Nonqualified Stock Option Plan effective December 1,
1997. (File No. 1-1430, 1997 Form 10-K
Report, EXHIBIT 10.41)
<FN1><FN2> EXHIBIT 10.42 - Amendment to Reynolds Metals Company Restricted
Stock Plan for Outside Directors effective
December 1, 1997. (File No. 1-1430, 1997
Form 10-K Report, EXHIBIT 10.42)
<FN1><FN2> EXHIBIT 10.43 - Reynolds Metals Company Long-Term Performance
Share Plan. (File No. 1-1430, Form
10-Q Report for the Quarter Ended June 30, 1998,
EXHIBIT 10.43)
EXHIBIT 10.44 - Asset Purchase Agreement by and among
Ball Corporation, Ball Metal Beverage
Container Corp. and Reynolds Metals
Company dated as of April 22, 1998. See EXHIBIT 2.
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
[FN]
_______________________
<FN1> Incorporated by reference.
<FN2> Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<PAGE> 38
EXHIBIT 24 - None
EXHIBIT 27 - Financial Data Schedule as of September 30, 1998
<FN1> EXHIBIT 99 - Description of Reynolds Metals Company
Capital Stock. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended March
31, 1998, 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
10 percent of the total assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant agrees to furnish a copy of any such
instrument to the Commission upon request.
[FN]
_______________________
<FN1> Incorporated by reference.
</FN>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Reynolds Metals
Company Condensed Balance Sheet (Unaudited) for September 30, 1998 and
Consolidated Statement of Income (Unaudited) for the Nine Months ended September
30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 906<F1>
<ALLOWANCES> 16
<INVENTORY> 529
<CURRENT-ASSETS> 1630
<PP&E> 5158
<DEPRECIATION> 2995
<TOTAL-ASSETS> 6118
<CURRENT-LIABILITIES> 1280
<BONDS> 996
0
0
<COMMON> 1533
<OTHER-SE> 724
<TOTAL-LIABILITY-AND-EQUITY> 6118
<SALES> 4479
<TOTAL-REVENUES> 4479
<CGS> 3635
<TOTAL-COSTS> 3635
<OTHER-EXPENSES> 182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 286
<INCOME-TAX> 89
<INCOME-CONTINUING> 197
<DISCONTINUED> 0
<EXTRAORDINARY> (63)
<CHANGES> (23)
<NET-INCOME> 111
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
<FN>
<F1>This amount represents total receivables since trade receivables are not
broken
out separately at interim dates, in accordance with S-X 10-01 (2).
</FN>
</TABLE>
