SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-1430
REYNOLDS METALS COMPANY
A Delaware Corporation
(I.R.S. Employer Identification No. 54-0355135)
6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003
Telephone Number (804) 281-2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
As of April 30, 1998, the Registrant had 72,003,415 shares of
Common Stock, no par value, outstanding and entitled to vote.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (millions, except per share
amounts)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Quarters ended March 31 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
REVENUES $1,532 $1,624
COSTS AND EXPENSES
Cost of products sold 1,251 1,360
Selling, administrative and general expenses 93 102
Depreciation and amortization 70 93
Interest 34 39
Operational restructuring effects - net - (38)
- -----------------------------------------------------------------------------
1,448 1,556
- -----------------------------------------------------------------------------
EARNINGS
Income before income taxes 84 68
Taxes on income 26 25
- -----------------------------------------------------------------------------
NET INCOME $ 58 $ 43
=============================================================================
EARNINGS PER SHARE
Basic:
Average shares outstanding 73 73
Net income $ 0.78 $ 0.59
Diluted:
Average shares outstanding 74 74
Net income $ 0.78 $ 0.59
=============================================================================
CASH DIVIDENDS PER COMMON SHARE $ 0.35 $ 0.35
=============================================================================
See notes beginning on page 6.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (millions)
- -----------------------------------------------------------------------------
March 31 December 31
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47 $ 70
Receivables, less allowances of $17 (1997 - $16) 1,014 1,015
Inventories 731 744
Prepaid expenses and other 171 165
- -----------------------------------------------------------------------------
Total current assets 1,963 1,994
Unincorporated joint ventures and associated
companies 1,395 1,381
Property, plant and equipment 6,494 6,533
Less allowances for depreciation and
amortization 3,585 3,579
- -----------------------------------------------------------------------------
2,909 2,954
Deferred taxes and other assets 929 897
- -----------------------------------------------------------------------------
Total assets $7,196 $7,226
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities $ 961 $1,074
Short-term borrowings 181 67
Long-term debt 124 142
- -----------------------------------------------------------------------------
Total current liabilities 1,266 1,283
Long-term debt 1,595 1,501
Postretirement benefits 1,038 1,043
Environmental, deferred taxes and other
liabilities 658 660
Stockholders' equity:
Common stock 1,523 1,521
Retained earnings 1,285 1,253
Treasury stock, at cost (126) -
Accumulated other comprehensive income (43) (35)
- -----------------------------------------------------------------------------
Total stockholders' equity 2,639 2,739
- -----------------------------------------------------------------------------
Contingent liabilities (Note 8)
Total liabilities and stockholders' equity $7,196 $7,226
=============================================================================
See notes beginning on page 6.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (millions)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Quarters ended March 31 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 58 $ 43
Adjustments to reconcile to net cash used in
operating activities:
Depreciation and amortization 70 93
Operational restructuring effects - (38)
Changes in operating assets and liabilities
net of effects of dispositions:
Accounts payable, accrued and other
liabilities (111) 18
Receivables (17) (107)
Inventories - (63)
Other (48) (7)
- ----------------------------------------------------------------------------
Net cash used in operating activities (48) (61)
INVESTING ACTIVITIES
Capital investments:
Operational (28) (23)
Strategic (29) (40)
Sales of assets - operational restructuring 39 177
Other (1) (3)
- ----------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (19) 111
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 117 (30)
Proceeds from long-term debt 100 -
Reduction of long-term debt (23) (15)
Cash dividends paid (26) (22)
Stock issues (repurchases) and other- net (124) 24
- ----------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 44 (43)
CASH AND CASH EQUIVALENTS
Net increase (decrease) (23) 7
At beginning of period 70 38
- ----------------------------------------------------------------------------
At end of period $ 47 $ 45
============================================================================
See notes beginning on page 6.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Quarters ended March 31 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
SHARES (thousands):
Common stock
Balance at January 1 73,909 72,719
Issued under employee benefit plans 33 222
- ----------------------------------------------------------------------------
Balance at March 31 73,942 72,991
============================================================================
Treasury stock
Balance at January 1 - -
Purchased and held as Treasury stock (2,004) -
- ----------------------------------------------------------------------------
Balance at March 31 (2,004) -
- ----------------------------------------------------------------------------
Net common shares outstanding 71,938 72,991
============================================================================
DOLLARS (millions):
Common stock
Balance at January 1 $1,521 $1,451
Issued under employee benefit plans 2 12
- ----------------------------------------------------------------------------
Balance at March 31 $1,523 $1,463
============================================================================
Retained earnings
Balance at January 1 $1,253 $1,220
Net income 58 43
Cash dividends declared for common stock (26) (26)
- ----------------------------------------------------------------------------
Balance at March 31 $1,285 $1,237
============================================================================
Treasury stock
Balance at January 1 $ - -
Purchased and held as Treasury stock (126) -
- ----------------------------------------------------------------------------
Balance at March 31 $ (126) -
============================================================================
Accumulated other comprehensive income
Balance at January 1 $ (35) $ (37)
Foreign currency translation adjustments (9) (26)
Income taxes 1 2
--------------------------------
Other comprehensive income (8) (24)
- ----------------------------------------------------------------------------
Balance at March 31 $ (43) $ (61)
============================================================================
Total stockholders' equity $2,639 $2,639
============================================================================
COMPREHENSIVE INCOME (millions):
Net income $ 58 $ 43
Other comprehensive income (8) (24)
- ----------------------------------------------------------------------------
Comprehensive income $ 50 $ 19
============================================================================
See notes beginning on page 6.
</TABLE>
<PAGE>
REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 1998 and 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the interim period of
1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997. Certain amounts have
been reclassified to conform to the 1998 presentation.
2. ACCOUNTING POLICIES
COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted the Financial
Accounting Standards Board's Statement No. 130, "Reporting
Comprehensive Income". Statement No. 130 establishes new rules
for the reporting and display of comprehensive income and its
components; however, the adoption of the Statement had no impact
on the Company's net income or stockholders' equity. Statement
No. 130 requires the Company's foreign currency translation
adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified
to conform to the requirements of Statement No. 130. The
presentation of comprehensive income is included in the
Consolidated Statement of Changes in Stockholders' Equity.
ACCOUNTING FOR THE COSTS OF DEVELOPING OR OBTAINING INTERNAL-USE
SOFTWARE
In the first quarter of 1998, the Accounting Standards Executive
Committee (AcSEC) of the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use". The SOP requires qualifying computer software
costs incurred in connection with obtaining or developing
software for internal use to be capitalized. The Company
currently expenses such internal costs as incurred. The Company
plans to adopt the SOP in 1999 on a prospective basis when it
becomes effective.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
Early in the second quarter of 1998, AcSEC also issued Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities". It requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP is
effective for 1999; however, early application is encouraged.
The Company plans to adopt this SOP in the second quarter of 1998
and apply it retroactively to January 1, 1998. The Company
expects to recognize a cumulative effect of accounting change
charge of approximately $20 million in the restated first quarter
of 1998 financial statements. The effect on "income before
cumulative effect of accounting change" in the first quarter of
1998 Consolidated Statement of Income is not expected to be
material.
3. OPERATIONAL RESTRUCTURING
In the first quarter of 1998, the Company sold its U.S. recycling
operations and its Canadian extrusion facilities. These
transactions had no material impact for the quarter.
<PAGE>
3. OPERATIONAL RESTRUCTURING - continued
Early in the second quarter of 1998, the Company announced it had
reached an agreement for the sale of substantially all of its
global can operations. The agreement is subject to regulatory
approvals, third party consents and completion of transaction
financing by the purchaser. The Company expects to complete this
transaction in the second half of 1998. The sale includes North
American can operations, which consist of 14 can plants and two
end plants. It also includes a 34.9% interest in Latas de
Aluminio S.A. (Latasa), which operates can facilities in Brazil,
Chile and Argentina, subject to third party consents from Latasa
stockholders and lenders. The Company expects to realize proceeds
from the transaction of approximately $820 million and an after-
tax gain in the range of approximately $160 million to $170
million. The sale does not include the Company's can machinery
operations or its 27.5% interest in United Arab Can Manufacturing
Company, Ltd.
Also early in the second quarter of 1998, the Company announced
it had reached an agreement to sell its European rolling mill
operations. The transaction is subject to the execution of
definitive agreements, regulatory approvals and other customary
closing conditions. The Company expects to complete this
transaction in the second quarter of 1998.
The Company is also negotiating to sell its sheet and plate plant
in Illinois. The Company continues to evaluate its alternatives for its
Alabama can stock complex, including selling the complex, which may result
in a loss.
The carrying amount for assets expected to be sold was
approximately $1.0 billion at March 31, 1998. The operating
income related to the assets expected to be sold was
approximately $50 million for the first quarter of 1998. This
amount includes approximately $20 million for the ceasing of
depreciation of assets to be sold, as required by current
accounting rules.
The Company plans to use the proceeds from expected asset sales in 1998 to
repurchase shares of common stock and to repay debt.
In the first quarter of 1997, the Company sold its U.S.
residential construction products operations. A pre-tax gain of
$38 million was recognized on the sale.
4. EARNINGS PER SHARE
The following shows net income and a reconciliation of average
shares for the basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
Quarters ended March 31
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Income (numerator):
Net income (Basic and Diluted) $58 $43
Average shares (denominator):
Basic 73,174,000 72,872,000
Effect of dilutive securities:
Stock options 372,000 508,000
-----------------------------
Diluted 73,546,000 73,380,000
-----------------------------
Per share amount for net income:
Basic earnings per share $0.78 $0.59
Diluted earnings per share $0.78 $0.59
Antidilutive securities excluded:
Stock options 1,484,000 861,000
</TABLE>
<PAGE>
5. FINANCING ARRANGEMENTS
In the first quarter of 1998, the Company borrowed $100 million
under its Canadian credit facility. The borrowing bears interest
at a variable rate (6.0% at March 31, 1998) and requires
repayment in a lump sum in 2001.
6. STOCKHOLDERS' EQUITY
In the first quarter of 1998, the Company repurchased two million
shares of its common stock at market prices. The cost of the
repurchase was $126 million.
Authority to repurchase up to 18 million shares of common stock
became effective in the second quarter of 1998 with the signing
of the definitive agreement for the sale of the Company's global
can operations. This repurchase authorization includes the five
million share repurchase program announced in the first quarter
of 1998 and it extends to December 31, 2000.
<PAGE>
7. COMPANY OPERATIONS
<PAGE>
<TABLE>
<CAPTION>
Packaging Construction
Base and and Reconciling
First Quarter 1998 Materials Consumer Distribution Transportation Restructuring Other Items Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer aluminum shipments 145 30 46 16 97 28 - 362
Internal aluminum shipments 99 - - - 2 45 (146) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total aluminum shipments 244 30 46 16 99 73 (146) 362
Customer revenues:
Aluminum $247 $175 $165 $87 $419 $ 87 $ - $1,180
Nonaluminum 115 136 82 - 5 14 - 352
Intersegment revenues -
aluminum 163 - - - 7 123 (293) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues $525 $311 $247 $87 $431 $224 $(293) $1,532
===================================================================================================================================
Operating income (loss) $ 79 $ 22 $ 8 $ - $ 49 $(43) $ 3 $ 118
Interest expense 34
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 84
===================================================================================================================================
First Quarter 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Customer aluminum shipments 102 31 40 17 154 46 - 390
Internal aluminum shipments 185 - - - 2 45 (232) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total aluminum shipments 287 31 40 17 156 91 (232) 390
Customer revenues:
Aluminum $179 $170 $144 $89 $541 $136 $ - $1,259
Nonaluminum 112 134 83 - 24 12 - 365
Intersegment revenues -
aluminum 311 - - - 8 115 (434) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues $602 $304 $227 $89 $573 $263 $(434) $1,624
===================================================================================================================================
Operating income (loss) $ 66 $ 21 $ 8 $ 4 $ 14 $(38) $ 32 $ 107
Interest expense 39
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 68
===================================================================================================================================
</TABLE>
<PAGE>
<PAGE>
RECONCILING ITEMS
Reconciling items consist of the following:
<TABLE>
<CAPTION>
Quarters ended March 31
--------------------------
1998 1997
--------------------------
<S> <C> <C>
Operating income (loss):
Inventory accounting adjustments $3 $(6)
Operational restructuring effects - net - 38
--------------------------
$3 $32
==========================
</TABLE>
Inventory accounting adjustments are the elimination of
unrealized profits on sales between global business units.
8. CONTINGENT LIABILITIES
As previously disclosed in the Company's 1997 Form 10-K, the
Company is involved in various worldwide environmental
improvement activities resulting from past operations, including
designation as a potentially responsible party (PRP), with
others, at various Environmental Protection Agency-designated
Superfund sites. The Company has recorded amounts (on an
undiscounted basis) which, in management's best estimate, will be
sufficient to satisfy anticipated costs of known remediation
requirements.
<PAGE>
8. CONTINGENT LIABILITIES - continued
Estimated costs for future environmental compliance and
remediation are necessarily imprecise because of factors such as:
- - continuing evolution of environmental laws and regulatory requirements
- - availability and application of technology
- - identification of presently unknown remediation requirements
- - cost allocations among PRPs
Further, it is not possible to predict the amount or timing of
future costs of environmental remediation that may subsequently
be determined. Based on information presently available, such
future costs are not expected to have a material adverse effect
on the Company's competitive or financial position or its ongoing
results of operations. However, such costs could be material to
results of operations in a future interim or annual reporting
period.
9. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM
COMPANY OF CANADA, LTD.
Financial statements and financial statement schedules for
Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum
Company of Canada, Ltd. have been omitted because certain
securities registered under the Securities Act of 1933, of which
these entities are obligors (thus subjecting them to reporting
requirements under Section 13 or 15(d) of the Securities Exchange
Act of 1934), are fully and unconditionally guaranteed by
Reynolds Metals Company. Financial information relating to these
companies is presented herein in accordance with Staff Accounting
Bulletin 53 as an addition to the footnotes to the financial
statements of Reynolds Metals Company. Summarized financial
information is as follows:
<PAGE>
9. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM
COMPANY OF CANADA, LTD. - continued
<TABLE>
<CAPTION>
Canadian Reynolds Metals Company, Ltd.
Quarters ended March 31
---------------------------
1998 1997
---------------------------
<S> <C> <C>
Net Sales:
Customers $ 93 $ 45
Parent and related companies 131 190
---------------------------
$224 $235
Cost of products sold 185 188
Net income $ 28 $ 29
<CAPTION>
March 31 December 31
1998 1997
---------------------------
<S> <C> <C>
Current assets $ 298 $ 179
Noncurrent assets 1,197 1,206
Current liabilities (114) (148)
Noncurrent liabilities (516) (415)
<CAPTION>
Reynolds Aluminum Company of Canada, Ltd.
Quarters ended March 31
---------------------------
1998 1997
---------------------------
<S> <C> <C>
Net Sales:
Customers $119 $119
Parent and related companies 125 176
---------------------------
$244 $295
Cost of products sold 201 244
Net income $ 29 $ 28
<CAPTION>
March 31 December 31
1998 1997
---------------------------
<S> <C> <C>
Current assets $ 247 $ 208
Noncurrent assets 1,257 1,276
Current liabilities (77) (111)
Noncurrent liabilities (546) (445)
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and related footnotes included
in the Company's 1997 Form 10-K along with the consolidated
financial statements and related footnotes included in and
referred to in this report. In the tables, dollars are in
millions, except per share and per pound amounts, and shipments
are in thousands of metric tons. A metric ton is equivalent to
2,205 pounds.
Management's Discussion and Analysis contains forecasts,
projections, estimates, statements of management's plans and
objectives for the Company and other forward-looking statements.
Please refer to the "Risk Factors" section beginning on page 19,
where we have summarized factors that could cause actual results
to differ materially from those projected in a forward-looking
statement or affect the extent to which a particular projection
is realized.
RESULTS OF OPERATIONS
- ---------------------
Several factors contributed to our strong results for the first
quarter of 1998. Increased sales volumes and lower conversion
costs in our ongoing operations, lower selling, administrative
and general expenses, and lower interest expense were the major
contributors to our improved results. In addition, income includes
a favorable effect from ceasing to depreciate assets held for sale.
<TABLE>
<CAPTION>
First Quarter
1998 1997
----------------------
<S> <C> <C>
Net income $58 $43
Special items included in net income:
Operational restructuring effects - net - 23
Earnings per share - basic $0.78 $0.59
Special items included in earnings per share:
Operational restructuring effects - net - 0.32
Average realized prices per pound:
Primary aluminum $0.77 $0.80
Fabricated aluminum products 1.88 1.72
</TABLE>
Operational restructuring effects in the first quarter of 1997
resulted from a gain on the sale of our U.S. residential
construction products business.
<PAGE>
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS
<TABLE>
<CAPTION>
Base Materials
First Quarter
1998 1997
------------------------
<S> <C> <C>
Aluminum shipments:
Customer 145 102
Internal 99 185
------------------------
Total 244 287
========================
Revenues:
Customer - aluminum $247 $179
- nonaluminum 115 112
Internal - aluminum 163 311
------------------------
Total $525 $602
========================
Operating income $ 79 $ 66
========================
</TABLE>
The increase in customer aluminum shipments in the first quarter
of 1998 reflected continuing strong demand for our rod, foundry
and billet products. Our available supply to meet customer needs
increased because we no longer need to supply internally those
downstream fabricating operations that have been sold. Our
internal shipments declined because of sold operations.
In addition to reflecting the changes in shipping volume,
aluminum revenues were adversely affected in the first quarter of
1998 by lower prices for primary aluminum. We believe prices were
lower mainly because of the economic uncertainty in Asia during
the past several months.
Higher sales of alumina led to the increase in nonaluminum
revenues. The additional supply was made possible by significant
improvements in production and capacity utilization at our
Sherwin, Texas alumina plant.
Operating income improved in the first quarter of 1998 because of:
- - higher customer shipments
- - significant cost reductions, particularly in alumina operations
- - lower costs for certain raw materials
These benefits were partially offset by:
- - lower internal shipments
- - lower prices for primary aluminum
- - restart costs at our primary aluminum plants
- - lower technical services income
Results in both periods were negatively affected by temporarily
curtailed capacity at our U.S. primary aluminum plants. In the
first quarter of 1998, we restarted limited production at our
plant in Troutdale, Oregon and began the process of restarting
47,000 metric tons of production at our plant in Longview,
Washington. Early in the second quarter of 1998, we decided to
restart our remaining 135,000 metric tons
<PAGE>
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
Base Materials - continued
of idled primary aluminum capacity. This includes 41,000 metric
tons at our Massena, New York plant and 94,000 metric tons at our
Troutdale, Oregon plant. We expect these restarts to begin in the
third quarter and be substantially completed by the end of 1998.
We decided to restart our idled primary aluminum capacity because
of our outlook for continued strong demand in the aluminum
market. We are projecting aluminum consumption growth of 2.5% to
4% for the next several years.
<TABLE>
<CAPTION>
Packaging and Consumer
First Quarter
---------------------
1998 1997
---------------------
<S> <C> <C>
Customer aluminum shipments 30 31
Revenues:
Customer - aluminum $175 $170
- nonaluminum 136 134
---------------------
Total $311 $304
=====================
Operating income $ 22 $ 21
=====================
</TABLE>
Shipments of packaging and consumer products were essentially
flat in the first quarter of 1998 as compared to the same period
in 1997.
Higher prices for aluminum packaging products and higher sales of
nonaluminum packaging products contributed to the revenue
increase.
Operating income benefited from higher aluminum prices and lower
material costs. Higher development and marketing costs for new
consumer products that will be introduced in 1998 offset these
benefits. The new consumer products include Hot Bags, which are
designed for cooking meals in a foil pouch, and Wrappers foil
sheets. Shipments of both products should begin in the second
quarter of 1998.
<PAGE>
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
<TABLE>
<CAPTION>
Construction and Distribution
First Quarter
---------------------
1998 1997
---------------------
<S> <C> <C>
Customer aluminum shipments 46 40
Revenues:
Customer - aluminum $165 $144
- nonaluminum 82 83
---------------------
Total $247 $227
=====================
Operating income $ 8 $ 8
=====================
</TABLE>
Shipments increased in the first quarter of 1998 for both
construction and distribution aluminum products. The increase in
construction products was principally in European markets.
Shipments were higher for all of our major aluminum distribution
products (plate, sheet and extrusions) due to strong demand in
our major domestic markets.
The increase in aluminum revenues reflects the higher shipping
volumes and higher prices for construction and distribution
products.
Nonaluminum revenues were essentially flat despite a 6% increase
in stainless steel shipments. Demand was especially strong for
sheet, pipe and tube products. The effect of the higher shipping
volume was mostly offset by lower prices for stainless steel
products. Prices for these products continue to be under pressure
due to high imports and strong competition. Nonaluminum revenues
also decreased in 1998 because we completed a composite material
contract with a trailer manufacturer in 1997.
Operating income was flat as the benefits from the higher
shipping volume were generally offset by higher marketing costs
for expansions into new European construction product markets and
the effect of the contract completion in 1997 with the trailer
manufacturer. The effect of lower prices for stainless steel
products was mostly offset by lower prices for raw materials.
<TABLE>
<CAPTION>
Transportation
First Quarter
---------------------
1998 1997
---------------------
<S> <C> <C>
Customer aluminum shipments 16 17
Customer revenues $87 $89
Operating income - 4
=====================
</TABLE>
Slightly lower shipments in the first quarter of 1998 were
primarily due to lower sales of aluminum bumpers at our Indiana
plant, resulting from the fulfillment of a customer contract that
we expect to replace in 1999. Aluminum wheel and heat exchanger
shipments were about even with last year.
The decline in revenues reflects the lower shipping volume.
<PAGE>
RESULTS OF OPERATIONS - continued
GLOBAL BUSINESS UNITS - continued
Transportation - continued
Lower shipping volume, lower capacity utilization and wheel plant
start-up costs led to the reduction in operating income.
Restructuring
The decline in shipments and revenues in the first quarter of
1998 was due to the sale of operations in
1997. Operating income improved because we ceased to depreciate
assets held for sale, as required by current accounting rules.
Higher prices for aluminum plate products also increased
operating income.
For additional information concerning the global business units,
see Note 7 to the consolidated financial statements.
INTEREST EXPENSE
Interest expense decreased in the first quarter of 1998 compared
to the first quarter of 1997 because of lower amounts of debt
outstanding.
TAXES ON INCOME
The effective tax rates reflected in the income statement differ
from the U.S. federal statutory rate principally because of the
following:
- - foreign taxes at different rates
- - the effects of percentage depletion allowances
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
<TABLE>
<CAPTION>
WORKING CAPITAL
March 31 December 31
1998 1997
--------------------------
<S> <C> <C>
Working capital $677 $711
Ratio of current assets to current liabilities 1.6/1 1.6/1
</TABLE>
OPERATING ACTIVITIES
Cash provided from operations in the first quarter of 1998 was
supplemented with funds from financing activities. We used these
funds principally to reduce accounts payable, accrued and other
liabilities.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - continued
- -------------------------------
INVESTING ACTIVITIES
Capital investments totaled $57 million in the first quarter of
1998. This amount includes $28 million for operating
requirements (replacement equipment, environmental control
projects, etc.). The remainder was for strategic projects
(performance improvements, investments, etc.) principally carried
forward from 1997, including:
- - the expansion of the Worsley Alumina Refinery in Australia
- - the modernization of our U.S. foil plants
- - the modification of our Indiana automotive components plant
to produce engine cradles
In addition, we are expanding our forged wheel plant in Virginia.
The expansion will cost approximately $32 million and is expected
to be substantially completed in late 1998.
We expect capital investments in 1998 to total $350 million.
Approximately 47% of this amount will be used for operating
requirements. We plan to use the remainder for those strategic
projects already underway. We expect to fund our capital
investments in 1998 with cash generated from operations.
FINANCING ACTIVITIES
The significant financing activities for the first quarter of
1998 were:
- - an increase in short-term borrowings of $117 million
- - a borrowing of $100 million under our Canadian credit
facility (see Note 5)
- - the repurchase of common stock (see Note 6)
We used the proceeds from borrowings to repurchase common stock
and to supplement cash provided from operations.
PORTFOLIO REVIEW
In the first quarter of 1998, we completed the sales of our U.S.
recycling and Canadian extrusion operations. We have agreed to
sell our European rolling operations. We are negotiating to sell
our sheet and plate plant in Illinois. We continue to evaluate
our alternatives for our Alabama can stock complex, including
selling it which may result in a loss.
We have also agreed to sell substantially all of our global can
operations. For a discussion concerning that transaction, see
footnote 3 to the consolidated financial statements. The sale
does not include the Company's can machinery operations or its
27.5% interest in United Arab Can Manufacturing Company, Ltd.
The Company is currently engaged in a separate sale process for
the can machinery operations. Once the Company completes the
disposition of all assets related to its global can operations,
it expects to realize total proceeds in the range of $875 million
to $900 million.
For additional information about our Portfolio Review, see Note 3
to the consolidated financial statements.
<PAGE>
RISK FACTORS
- ------------
This section should be read in conjunction with Part I, Items 1
(Business), 3 (Legal Proceedings) and 7 (Management's Discussion
and Analysis of Financial Condition and Results of Operations) of
the Company's 1997 Form 10-K; Part II, Item 1( Legal Proceedings)
of this report; and the preceding portions of this Item.
This report contains (and oral communications made by or on
behalf of the Company may contain) forecasts, projections,
estimates, statements of management's plans and objectives for
the Company and other forward-looking statements<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.
Consensus expectations for 1998 indicate global economic growth
of 2.5-3%. The Company is forecasting an increase in Western
World aluminum consumption for 1998 of approximately 2.5-3.5%.
Barring a recession in any major world economy, the Company
expects favorable conditions in aluminum industry supply/demand
fundamentals to continue for the next several years. The
Company's outlook for 1998 and beyond could be jeopardized by
repercussions stemming from recent economic problems in Southeast
Asia. The Company's outlook for growth in aluminum consumption
for the next several years is between 2.5 and 4% per year. The
Company expects greater use of aluminum around the world in cars
and light trucks.
Economic and/or market conditions other than those forecasted by
the Company in the preceding paragraph, particularly in the U.S.,
Asia and Western Europe, could cause the Company's actual results
to differ materially from those projected in a forward-looking
statement or affect the extent to which a particular projection
is realized.
The following factors also could affect the Company's results:
- - Primary aluminum is an internationally traded commodity. The
price of primary aluminum is subject to worldwide market forces
of supply and demand and other influences. Prices can be
volatile. The Company's use of contractual arrangements,
including fixed-price sales contracts, fixed-price supply
contracts, and forward, futures and option contracts, reduces its
exposure to this volatility but does not eliminate it.
- - The markets for most aluminum products are highly
competitive. Certain of the Company's competitors are larger than
the Company in terms of total assets and operations and have
greater financial resources. Certain foreign governments are
involved in the operation and/or ownership of certain competitors
and may be motivated by political as well as economic
considerations. In addition, aluminum competes with other
materials, such as steel, vinyl, plastics and glass, among
others, for various applications in the Company's key markets.
Unanticipated actions or developments by or affecting the
Company's competitors and/or the willingness of customers to
accept substitutions for the products sold by the Company could
affect results.
[FN]
_________________________
<FN1>Forward-looking statements can be identified generally as those
containing words such as "should," "hope," "forecast," "project,"
"estimate," "expect," "anticipate," or "plan" and words of
similar effect.
</FN>
<PAGE>
RISK FACTORS -- continued
- ------------
- - The Company spends substantial capital and operating amounts
relating to ongoing compliance with environmental laws. In
addition, the Company is involved in remedial investigations and
actions in connection with past disposal of wastes. Estimating
future environmental compliance and remediation costs is
imprecise due to the continuing evolution of environmental laws
and regulatory requirements and uncertainties about their
application to the Company's operations, the availability and
application of technology, the identification of currently
unknown remediation sites, and the allocation of costs among
potentially responsible parties.
- - Unanticipated material legal proceedings or investigations,
or the disposition of those currently pending against the Company
other than as anticipated by management and counsel, could affect
the Company's results.
- - Changes in the costs of power, resins, caustic soda, green
coke and other raw materials can affect results. The Company's
contract with the Bonneville Power Administration for the period
October 1996 to September 2001 provides fixed rates for
electrical power provided to the Company's Washington and Oregon
primary aluminum plants. These rates have been approved by
federal regulatory authorities but have been appealed in court by
a third party. If the appeal is successful, it is possible that
higher electricity costs might result.
- - A substantial portion of the Company's businesses are cyclical and
can be influenced by economic conditions.
- - A strike at a customer facility or a significant downturn in
the business of a key customer supplied by the Company could
affect the Company's results.
- - Since late 1996, the Company has been conducting a Portfolio
Review of all its operations. The Company has reached agreement
to sell its European rolling mill operations and substantially
all the assets of its global can operations. These transactions
are subject to certain conditions, including completion of
financing by purchasers, completion of definitive agreements and
obtaining regulatory approvals and third-party consents. As a
result, these transactions may or may not be completed as
contemplated. We are negotiating to sell our Illinois sheet and
plate plant. The Company is also reviewing its options with
respect to its Alloys complex in North Alabama, which consists of
a rolling mill, two reclamation plants and a coil coating
facility, and its extrusion operations in Spain. A sale of the
Alloys complex may result in a loss.
In addition to the factors referred to above, the Company is
exposed to general financial, political, economic and business
risks in connection with its worldwide operations. The Company
continues to evaluate and manage its operations in a manner to
mitigate the effects from exposure to such risks. In general, the
Company's expectations for the future are based on the assumption
that conditions relating to costs, currency values, competition
and the legal, regulatory, financial, political and business
environments in the worldwide economies and markets in which the
Company operates will not change significantly overall.
<PAGE>
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
---------------------
(a) Recent Sales of Unregistered Securities
Under the Registrant's Stock Plan for Outside Directors (the
"Plan"), 86 phantom shares, in the aggregate, were granted
to the Registrant's nine outside Directors on January 2,
1998, based on an average price of $59.9063 per share.
These phantom shares represent dividend equivalents paid on
phantom shares previously granted under the Plan. 506
phantom shares, in the aggregate, were granted to the nine
outside Directors on March 31, 1998, based on an average
price of $56.25 per share. These phantom shares represent a
quarterly installment of each outside Director's annual
grant under the Plan.
To the extent that these grants constitute sales of equity
securities, the Registrant issued these phantom shares in
reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, taking into account the
nature of the Plan, the number of outside Directors
participating in the Plan, the sophistication of the outside
Directors and their access to the kind of information that a
registration statement would provide.
A description of the Plan is contained in the Registrant's
Form 10-K for the year ended December 31, 1997 in Part II,
Item 5 under the caption "Sale of Unregistered Securities".
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
See Index to Exhibits.
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the
first quarter of 1998. The Registrant filed a Current
Report on Form 8-K dated April 23, 1998 reporting under
Item 5 that it had reached a definitive agreement on the
sale of substantially all of its global can operations to
Ball Corporation.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
REYNOLDS METALS COMPANY
By /s/ Allen M. Earehart
---------------------
Allen M. Earehart
Vice President, Controller
(Chief Accounting Officer)
DATE: May 13, 1998
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT 2 - None
<F1> EXHIBIT 3.1 - Restated Certificate of Incorporation, as
amended. (File No. 1-1430, 1997 Form 10-
K Report, EXHIBIT 3.1)
<F1> EXHIBIT 3.2 - By-laws, as amended. (File No. 1-1430, 1997 Form
10-K Report, EXHIBIT 3.2)
EXHIBIT 4.1 - Restated Certificate of Incorporation.
See EXHIBIT 3.1.
EXHIBIT 4.2 - By-Laws. See EXHIBIT 3.2.
<F1> 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))
<F1> 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)
<F1> 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)
<F1> 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)
<F1> 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)
<F1> 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)
<F1> EXHIBIT 4.9 - Form of Book-Entry Fixed Rate Medium-Term Note.
(File No. 1-1430, 1991 Form 10-K Report,
EXHIBIT 4.15)
<F1> EXHIBIT 4.10 - Form of Book-Entry Floating Rate Medium-Term
Note. (File No. 1-1430, 1991 Form 10-K
Report, EXHIBIT 4.16)
<F1> 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))
<F1> EXHIBIT 4.12 - Articles of Continuance of Societe d'Aluminium
Reynolds du Canada, Ltee/Reynolds
Aluminum Company of Canada, Ltd.
(formerly known as Canadian Reynolds
Metals Company, Limited -- Societe
Canadienne de Metaux Reynolds, Limitee)
("RACC"), as amended. (File No. 1-1430,
1995 Form 10-K Report, EXHIBIT 4.13)
[FN]
______________________
<F1> Incorporated by reference.
</FN>
<PAGE>
<F1> 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)
<F1> 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)
<F1> 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)
<F1> 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))
<F1> 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)
<F1> 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))
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> EXHIBIT 10.5 - Supplemental Death Benefit Plan for
Officers. (File No. 1-1430, 1986 Form
10-K Report, EXHIBIT 10.8)
<F1><F2> EXHIBIT 10.6 - Financial Counseling Assistance Plan for Officers.
(File No. 1-1430, 1987 Form 10-K Report,
EXHIBIT 10.11)
<F1><F2> EXHIBIT 10.7 - Management Incentive Deferral Plan.
(File No. 1-1430, 1987 Form 10-K Report,
EXHIBIT 10.12)
[FN]
_______________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<PAGE>
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> EXHIBIT 10.10 - Form of Executive Severance Agreement as amended
between Reynolds Metals Company and key
executive personnel, including each of
the individuals listed in Item 4A of the
1997 Form 10-K Report. (File No. 1-
1430, 1997 Form 10-K Report, EXHIBIT
10.10)
<F1><F2> 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))
<F1><F2> 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))
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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))
<F1><F2> 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)
<F1><F2> EXHIBIT 10.18 - Reynolds Metals Company New Management Incentive
Deferral Plan. (File No. 1-1430, Form
10-Q Report for the Quarter Ended June
30, 1994, EXHIBIT 10.30)
[FN]
_______________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<PAGE>
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> EXHIBIT 10.30 - Amendment to Reynolds Metals Company 1992
Nonqualified Stock Option Plan effective
January 1, 1993. (Registration
Statement No. 333-03947 on Form S-8,
dated May 17, 1996, EXHIBIT 99)
[FN]
____________________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 601 of
Regulation S-K.
</FN>
<PAGE>
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> 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)
<F1><F2> EXHIBIT 10.37 - Reynolds Metals Company Supplemental Incentive
Plan. (File No. 1-1430, 1996 Form 10-K
Report, EXHIBIT 10.40)
<F1><F2> EXHIBIT 10.38 - Reynolds Metals Company Stock Plan for Outside
Directors. (File No. 1-1430, 1996 Form
10-K Report, EXHIBIT 10.41)
<F1><F2> EXHIBIT 10.39 - Special Executive Severance Package for
Certain Employees who Terminate Employment
between January 1, 1997 and June 30,
1998, as approved by the Compensation
Committee of the Company's Board of
Directors on January 17, 1997. (File No.
1-1430, 1996 Form 10-K Report, EXHIBIT
10.42)
<F1><F2> 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)
<F1><F2> EXHIBIT 10.41 - Amendment to Reynolds Metals Company 1996
Nonqualified Stock Option Plan effective
December 1, 1997. (File No. 1-1430,
1997 Form 10-K Report, EXHIBIT 10.41)
[FN]
____________________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 601 of
Regulation S-K.
</FN>
<PAGE>
<F1><F2> EXHIBIT 10.42 - Amendment to Reynolds Metals Company Restricted
Stock Plan for Outside Directors
effective December 1, 1997. (File No. 1-
1430, 1997 Form 10-K Report, EXHIBIT
10.42)
EXHIBIT 11 - Omitted; see Part I, Item 1 for
computation of earnings per share.
EXHIBIT 15 - None
EXHIBIT 18 - None
EXHIBIT 19 - None
EXHIBIT 22 - None
EXHIBIT 23 - None
EXHIBIT 24 - None
EXHIBIT 27 - Financial Data Schedule
EXHIBIT 99 - Description of Reynolds Metals Company
Capital Stock
Pursuant to Item 601 of Regulation S-K, certain instruments
with respect to long-term debt of Reynolds Metals Company (the
"Registrant") and its consolidated subsidiaries are omitted
because such debt does not exceed 10 percent of the total assets
of the Registrant and its subsidiaries on a consolidated basis.
The Registrant agrees to furnish a copy of any such instrument to
the Commission upon request.
[FN]
_______________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Reynolds Metals Company Condensed Balance Sheets (Unaudited) for March 31,
1998 and March 31, 1997 and Consolidated Statements of Income (Unaudited) for
the Quarters ended March 31, 1998 and March 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 47 45
<SECURITIES> 0 0
<RECEIVABLES> 1031 1046
<ALLOWANCES> 17 18
<INVENTORY> 731 751
<CURRENT-ASSETS> 1963 1918
<PP&E> 6494 6724
<DEPRECIATION> 3585 3564
<TOTAL-ASSETS> 7196 7468
<CURRENT-LIABILITIES> 1266 1455
<BONDS> 1595 1619
0 0
0 0
<COMMON> 1523 1463
<OTHER-SE> 1116 1176
<TOTAL-LIABILITY-AND-EQUITY> 7196 7468
<SALES> 1532 1615
<TOTAL-REVENUES> 1532 1624
<CGS> 1251 1360
<TOTAL-COSTS> 1251 1360
<OTHER-EXPENSES> 70 93
<LOSS-PROVISION> 0 (38)
<INTEREST-EXPENSE> 34 39
<INCOME-PRETAX> 84 68
<INCOME-TAX> 26 25
<INCOME-CONTINUING> 58 43
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 58 43
<EPS-PRIMARY> .78 .59
<EPS-DILUTED> .78 .59
</TABLE>
Exhibit 99
DESCRIPTION OF REYNOLDS METALS COMPANY CAPITAL STOCK
The Company is authorized by its Restated Certificate of
Incorporation to issue a total of 221,000,000 shares of capital
stock, consisting of (i) 200,000,000 shares of common stock,
without par value (the "Common Stock"), (ii) 20,000,000 shares of
preferred stock, without par value (the "Preferred Stock"), and
(iii) 1,000,000 shares of second preferred stock, $100 par value
(the "Second Preferred Stock"). Shares of Preferred Stock and
Second Preferred Stock are issuable in one or more series, each
with such designations, preferences, rights, qualifications,
limitations and restrictions as the Board of Directors of the
Company may determine in resolutions providing for their
issuance.
As of April 30, 1998, there were issued, outstanding and
entitled to vote 72,003,415 shares of Common Stock. No shares of
Preferred Stock or Second Preferred Stock are currently
outstanding, although the Board of Directors has adopted
resolutions authorizing the issuance of up to 2,000,000 shares of
a Series A Junior Participating Preferred Stock, without par
value, issuable upon the occurrence of certain events as
described below in the section entitled "Common Stock - Preferred
Stock Purchase Rights."
Common Stock
Dividend Rights and Restrictions on Payment of Dividends.
Holders of Common Stock are entitled to receive dividends, when
and as declared by the Board of Directors, subject to
restrictions which may be imposed by (i) resolutions providing
for the issuance of series of Preferred Stock or Second Preferred
Stock; and (ii) certain credit agreements of the Company, as
described below. Dividends on Preferred Stock and Second
Preferred Stock may be cumulative, and no payments or
distributions (except in Common Stock or other junior stock) may
be made on Common Stock, nor may any Common Stock be acquired by
the Company, unless all past and current dividends on Preferred
Stock and Second Preferred Stock have been paid or provided for.
Under certain of the Company's credit agreements, the Company may
not declare or pay dividends on, make any payment on account of,
or set apart assets for a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition
of, any shares of capital stock of the Company, nor may the
Company make any other distribution in respect thereof, if
specified events of default (including payment defaults and
events relating to bankruptcy, insolvency or reorganization) have
occurred and are continuing. No such events of default have
occurred.
Voting Rights. Holders of Common Stock are entitled to one
vote for each share held of record and are not entitled to
cumulate votes for the election of directors. As a consequence,
holders of more than 50% of the shares of Common Stock voting for
the election of directors can elect all of the directors if they
so choose; in such event, the holders of the remaining shares of
Common Stock would not be able to elect any directors. Holders
of Common Stock have voting powers on all matters requiring
approval of stockholders, other than certain matters subject to
the voting rights of holders of the Company's Preferred Stock and
Second Preferred Stock to the extent provided in the applicable
resolutions authorizing their issuance or otherwise under
Delaware law.
<PAGE>
Liquidation Rights. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in the assets of the Company
remaining after payment or provision for payment of all the
Company's debts and other liabilities and after the holders of
any outstanding series of Preferred Stock and Second Preferred
Stock have been paid the full preferential amounts due them. Any
preferential rights to be accorded holders of Preferred Stock and
Second Preferred Stock will be set forth in resolutions of the
Board of Directors authorizing issuance of any series.
Preemptive Rights; Assessability. Holders of Common Stock
have no preemptive or conversion rights and there are no
redemption or sinking fund provisions applicable thereto. The
outstanding shares of Common Stock are fully paid and non-
assessable.
Transfer Agent and Registrar. The transfer agent and
registrar for the Common Stock is ChaseMellon Shareholder
Services LLC, 450 West 33rd Street, 15th Floor, New York, New
York 10001.
Preferred Stock Purchase Rights. On November 21, 1997, the
Board of Directors of the Company declared a dividend
distribution of one Preferred Stock Purchase Right (individually
a "Right", and collectively the "Rights") for each outstanding
share of Common Stock to stockholders of record at the close of
business on December 1, 1997 (the "Record Date"). Each Right
entitles the record holder to purchase from the Company, from and
after the Distribution Date (as defined below) one one-hundredth
of a share of the Company's Series A Junior Participating
Preferred Stock, without par value (the "Series A Preferred
Stock") at a price of $300 (the "Purchase Price"), subject to
adjustment in certain circumstances. The description and terms
of the Rights are set forth in a Rights Agreement, dated as of
December 1, 1997 (the "Rights Agreement"), between the Company
and The Chase Manhattan Bank, N.A., as Rights Agent (the "Rights
Agent").
Initially, the Rights are attached to and represented by the
certificates representing outstanding shares of Common Stock.
The Rights will separate from the Common Stock and a Distribution
Date will occur upon the earlier of (i) ten days following a
public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding shares of Common Stock (the "Stock
Acquisition Date"), or (ii) ten business days following the
commencement of a tender offer or exchange offer if, upon
consummation thereof, the person or group making such offer would
be the beneficial owner of 20% or more of the outstanding shares
of Common Stock. Until the Distribution Date, (i) the Rights
will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates,
(ii) new Common Stock certificates issued after December 1, 1997
will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any
certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable
following the Distribution Date, Rights Certificates will be
mailed to holders of record of the Common Stock as of the close
of business on the Distribution Date and, thereafter, such
separate
<PAGE>
Rights Certificates alone will evidence the Rights.
Except in certain limited circumstances, only shares of Common
Stock issued prior to the Distribution Date will be issued with
Rights.
The Rights are not exercisable until the Distribution Date
and will expire at the close of business on December 1, 2007,
unless earlier exercised or redeemed by the Company as described
below.
At any time following the Distribution Date, if (i) the
Company is the surviving corporation in a merger with an
Acquiring Person and its Common Stock is not changed or
exchanged, (ii) a Person becomes the beneficial owner of 25% or
more of the then outstanding shares of Common Stock (other than
pursuant to an offer for all outstanding shares of Common Stock
at a price and on terms which the majority of the Continuing
Directors (as hereinafter defined) determine to be fair to, and
otherwise in the best interests of, stockholders), or (iii) an
Acquiring Person receives equity securities (other than pursuant
to a pro rata distribution) from the Company, acquires from or
transfers to the Company assets with a fair market value
exceeding $10,000,000 or engages in certain other "self-dealing"
transactions specified in the Rights Agreement, the Rights
Agreement requires that proper provision be made so that each
holder of a Right will thereafter have the right to receive, upon
the exercise thereof, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right. However,
Rights are not exercisable following the occurrence of the events
set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below. Notwithstanding
any of the foregoing, following the occurrence of any of the
events set forth in this paragraph, any Rights that are, or
(under certain circumstances specified in the Rights Agreement)
were, beneficially owned by an Acquiring Person shall immediately
become null and void.
At any time following the Stock Acquisition Date, if (i) the
Company engages in a merger or consolidation in which the Company
is not the surviving corporation, (ii) the Company engages in a
merger or consolidation with another person in which the Company
is the surviving corporation, but in which all or part of the
Common Stock is changed or exchanged, or (iii) 50% or more of the
Company's assets or earning power is sold or transferred, the
Rights Agreement requires that proper provision be made so that
each holder of a Right (except Rights which previously have been
voided as set forth above) shall thereafter have the right to
receive, upon the exercise thereof, common stock of the acquiring
company having a value equal to two times the exercise price of
the Right. The Rights may not be so exercised in the case of a
merger or consolidation (a) which follows an offer described in
clause (ii) of the preceding paragraph and (b) in which the form
and amount of consideration is the same as was paid in such
offer. The events set forth in this paragraph and in the
preceding paragraph are referred to as the "Triggering Events."
The Rights Agreement provides that the Company may not
consolidate or merge with, or sell 50% of the Company's assets or
earning power to, any person which has securities or is bound by
agreements which would substantially diminish the benefits of the
Rights.
<PAGE>
The Purchase Price payable, and the number of one one-
hundredths of a share of Series A Preferred Stock or other
securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i)
in the event of a stock dividend on the Series A Preferred Stock
or other capital stock, or a subdivision, combination or
reclassification of the Series A Preferred Stock, (ii) upon the
grant to holders of the Series A Preferred Stock of certain
rights or warrants to subscribe for Series A Preferred Stock or
securities convertible into Series A Preferred Stock at less than
the current market price of the Series A Preferred Stock, or
(iii) upon the distribution to holders of the Series A Preferred
Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends or dividends payable in Series A
Preferred Stock) or of subscription rights or warrants (other
than those referred to above).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. The Company
may, in lieu of issuing fractional shares of Series A Preferred
Stock (other than fractions which are integral multiples of one
one-hundredth of a share) upon exercise of the Rights, make a
cash payment based on the market price of the Series A Preferred
Stock on the last trading date prior to the date of exercise.
If the Company is not able to issue shares of Series A
Preferred Stock or Common Stock because of the absence of
necessary regulatory approval, restrictions contained in the
Company's Certificate of Incorporation or for any other reason, a
person exercising Rights will be entitled to receive a
combination of cash or property or other securities having a
value equal to the value of the shares of Preferred or Common
Stock which would otherwise have been issued upon exercise of the
Rights.
At any time until ten days following the Stock Acquisition
Date, the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $.01 per Right, payable
in cash or securities or both (the "Redemption Price"). Upon
certain circumstances set forth in the Rights Agreement, the
decision to redeem shall require the concurrence of a majority of
the Continuing Directors. Thereafter, this right of redemption
may be reinstated if an Acquiring Person reduces his beneficial
ownership to 10% or less of the outstanding shares of Common
Stock in a transaction or series of transactions not involving
the Company and there are no other Acquiring Persons.
Immediately upon the action of the Board of Directors of the
Company ordering redemption of the Rights, with, where required,
the concurrence of a majority of the Continuing Directors, the
Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
After a Person becomes an Acquiring Person and before any
Acquiring Person acquires 50% or more of the outstanding shares
of Common Stock, the Company, with the approval of a majority of
Continuing Directors, may require a holder to exchange all or any
portion of the holder's Rights for one share of Common Stock or
one one-hundredth of a share of the Series A Preferred Stock (or
in certain circumstances, other securities of the Company) per
Right.
Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends.
While
<PAGE>
the distribution of the Rights will not be taxable to
stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income at such time as the
Rights become exercisable or are exercised for Common Stock (or
other consideration) of the Company or for common stock of the
acquiring company as set forth above.
Certain provisions of the Rights Agreement relating to the
principal economic terms of the Rights may not be amended at any
time. Other provisions may be amended by the Board of Directors
of the Company prior to the Distribution Date. Thereafter, these
provisions of the Rights Agreement may be amended by the Board
(in certain circumstances only with the concurrence of the
Continuing Directors) in order: to cure any ambiguity, defect or
inconsistency; to shorten or lengthen any time period under the
Rights Agreement; or in any other respect that will not adversely
affect the interest of holders of Rights (excluding the interest
of any Acquiring Person); provided, that no amendment to adjust
the time period governing redemption may be made if the Rights
are not redeemable at the time of such amendment.
Shares of Series A Preferred Stock purchasable upon exercise
of the Rights will not be redeemable. Each one one-hundredth of
a share of Series A Preferred Stock will be entitled to (i) an
aggregate quarterly dividend equal to the greater of (a) the
quarterly dividend declared per share of Common Stock or (b)
$.10, (ii) upon liquidation, a minimum preferential liquidation
payment of $1.00 and an aggregate liquidation payment equal to
the liquidation payment made per share of Common Stock, (iii) one
vote, voting together with the shares of Common Stock and (iv) in
the event of any merger, consolidation or other transaction in
which shares of Common Stock are exchanged, the same amount
received per share of Common Stock. These rights are protected
by customary anti-dilution provisions. Because of the nature of
the Series A Preferred Stock's dividend, liquidation and voting
rights, the value of each one one-hundredth of a share of Series
A Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
The term "Continuing Director" means any member of the
Company's Board of Directors who was a member of the Board prior
to the date of the Rights Agreement, and any person who is
subsequently elected to the Board if such person is recommended
or approved by a majority of the Continuing Directors.
Continuing Directors do not include an Acquiring Person, or any
representative thereof.
<PAGE>
Delaware General Corporation Law Section 203
The Company is subject to the provisions of Section 203 of
the General Corporation Law of the State of Delaware ("DGCL
Section 203"), the "business combination" statute. In general,
the statute prohibits a public Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i)
prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder,
(ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced
(excluding certain shares described in DGCL Section 203), or
(iii) on or after such date, the business combination is approved
by the board of directors of the corporation and authorized at an
annual or special meeting of stockholders and by the affirmative
vote of at least two-thirds of the outstanding voting stock that
is not owned by the "interested stockholder". "Business
combination" is defined to include mergers, asset sales and
certain other transactions resulting in a financial benefit to a
stockholder. An "interested stockholder" is defined generally as
a person who, together with affiliates and associates, owns (or,
within the prior three years, did own) 15% or more of a
corporation's voting stock. The Company's Restated Certificate
of Incorporation does not exclude the Company from the
restrictions imposed under DGCL Section 203. Thus, such statute
could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to the
Company and, accordingly, may discourage attempts to acquire the
Company.
