SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 20, 1999
REYNOLDS METALS COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 001-01430 54-0355135
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(State of Incorporation) (Commission (IRS Employer
File Number) Identification Number)
6601 West Broad Street
P.O. Box 27003
Richmond, Virginia 23261-7003
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(Address of Principal Executive Offices,
including zip code)
(804) 281-2000
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(Registrant's Telephone Number, including area code)
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Item 5. Other Events.
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On May 20, 1999, the Registrant issued a press release
containing the remarks of Jeremiah J. Sheehan, Chairman of the Board
and Chief Executive Officer of the Registrant, at the Registrant's
Annual Meeting of Stockholders held on that date. The remarks were
as follows:
"I am pleased to report that Reynolds Metals Company over the last
two years has significantly improved its focus and increased its
profitability at lower pricing levels. These accomplishments are
the result of progress with our Portfolio Review and other
operational improvements.
In 1998, earnings from operations increased compared to 1997 and
compared to our pre-restructuring base year of 1996. We achieved
this with realized primary aluminum prices that were 12% lower
than in 1997 and 5% lower than in 1996.
The primary goal of our Portfolio Review is to increase
shareholder value. When I became CEO in October of 1996, I
outlined a broad plan for this process. It consists of four
parts: 1) restructure our assets, 2) strengthen our balance
sheet, 3) reorganize globally, and 4) grow our business.
In terms of where we are now, we have completed the first three
parts and we are well-positioned for the fourth. We are proud of
the fact that we have accomplished what we told you we would do.
I'd like now to summarize our recent accomplishments.
We have restructured by exiting a number of businesses through
asset sales. Total proceeds were $1.7 billion. We used these
proceeds to reduce debt and repurchase shares. Reducing debt has
also enabled us to decrease our interest expense by $80 million
annually, compared to 1996.
We have reorganized from a geographic structure into four market-
based global business units, which are: 1) Base Materials, 2)
Construction and Distribution, 3) Transportation, and 4) Packaging
and Consumer. The combination of reorganizing and selling assets
enabled us to reduce corporate expenses by $44 million annually.
Comparing our 1998 performance to 1996, our last full year before
restructuring, EPS from operations more than doubled despite the
lower pricing I described earlier. We believe that if aluminum
prices had been the same in 1998 as they were in 1996, our EPS
from operations would have almost tripled.
Return on Stockholders' Equity and Return on Capital have improved
substantially. I would also like to note that Reynolds was the
only major aluminum producer that improved its return on capital
in 1998, compared to 1997.
We have adopted EVA(R) as one of our key performance measures. The
goal we have previously announced is to reach EVA(R) breakeven by
2001 at LME pricing of 70-cents per pound. We are well on our way
to achieving this through conversion cost reduction, SG&A expense
reduction, deployment of capital, and improved asset utilization.
In 1996, our EVA(R) was $525 million negative. Through 1998, we
improved this by $273 million. As the result of restructuring,
cost reduction and improved asset utilization, we have realized
50% of the goal. Additional improvements in these areas in 1999
will enable us to reach 65% of our goal. The remaining 35% will
come from completing the Worsley expansion, as well as future cost
reductions and improved asset utilization. Of this final 35%, our
original announced goal was that 20% would come from price
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improvement. Now, we believe we can achieve EVA(R) breakeven in the
year 2001 based on the 1996 LME price of 68 cents per pound.
Next, I will address Reynolds growth plans and strategic direction
for the future. When we talk about growth, we don't mean just
revenues or assets. We are also talking about profitability,
improving EVA(R) and, most importantly, delivering long-term
shareholder value.
Currently, we have a number of internal growth initiatives under
way. These include capacity expansions, new products, entering
new geographic markets, and small-to-medium size acquisitions. We
also are continuing our rigorous pursuit of cost reductions and
other operational improvements. I'd like to review some of these
activities now.
An expansion underway at the Worsley alumina refinery in Australia
will enable us to increase our alumina capacity by 767,000 metric
tons annually. Worsley is projected to be the lowest cost alumina
refinery in the world after this expansion. It will then account
for nearly 50% of Reynolds' total alumina capacity.
Growth in our primary aluminum capacity is most likely to occur
through brownfield expansions, acquisitions, alliances, or
incrementally. For example, we expect to gain 30,000 metric tons
through "capacity creep" over the next five years.
Our primary metals business will also grow through increased sales
of value-added products such as billet, rod, foundry and sheet
ingot. We expect 70% of our 1999 primary sales to be in the form
of value-added products, enabling us to realize a premium over
Midwest prices.
Our growing construction business produces a broad range of
products for commercial and industrial buildings. Our flagship
product is Reynobond aluminum composite panels. Reynobond has
been used worldwide for a number of major buildings and is
currently being installed at the new Beijing airport. A new
production line is under construction in France and scheduled to
come on stream in December 1999. It will enhance our ability to
supply markets in Europe, the Middle East and China.
We are North America's largest aluminum distributor and among the
top three in stainless steel. We operate under the name Reynolds
Aluminum Supply Company -- or RASCO -- as we call it. As a leader
in supply chain management, with advanced information systems,
RASCO has experienced growth of 7% per year over the last five
years. This compares to growth of 5-6% per year for the
specialty metals distribution industry in which they compete.
We are geographically expanding RASCO's service capabilities in
key North American markets such as Seattle, Houston, Chicago,
eastern Canada and central Mexico. Excellent opportunities also
exist to increase scale through acquisitions and alliances, and we
are currently pursuing several possibilities.
Our Transportation business unit sells into a market that has
excellent growth potential. Automakers are increasing their use
of lightweight materials to improve fuel consumption and thereby
reduce emissions.
The use of aluminum wheels as standard equipment on cars and light
trucks in North America has grown rapidly in the last decade and
now represents over 50% of the market. Reynolds wheel capacity
was 2 million units in 1991 and has grown to 6.7 million this
year.
In the structures market, we are pioneering a new product with
excellent potential -- the first, mass-produced, high-volume, all-
aluminum engine cradle. Now in commercial production, it is going
into GM's Chevrolet Impala and Monte Carlo models. Our engine
cradle offers significant weight savings, and reduces noise and
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vibration. It also provides an important safety feature. In the
event of a collision, the structure is designed so that the engine
falls forward and down, rather than moving back toward the
passengers.
We look to the Packaging and Consumer Products business as a key
growth vehicle for the future. We plan to achieve this through
new products, line extensions, new distribution channels,
acquisitions, and by expanding globally.
We are the leading North American producer of foil liner stock for
cigarette packaging, and our prospects for expanding into global
markets are excellent. Most recently our Spanish foil operation
began producing this product for the European market.
Pharmaceutical packaging is another growth market where we are a
leading producer. We recently initiated a $10 million project to
expand and upgrade our operations.
In the foodservice market, Reynolds holds the #1 position for foil
products and a very strong #2 position for plastic products. We
continue to grow this product line, as well as pursue new market
segments and expand our export sales. Last month we announced a
new foodservice and consumer products subsidiary in Brazil. This
expands our presence in the South American market, and we are
projecting sales of $30 million in the first year.
We also have an acquisition under review in the shrink film and
tamper evident packaging market.
Another key strength is our capability for graphics and printing.
This business has increased 50% over the past five years,
primarily through acquisitions, and we currently have the leading
market share position. We have completed two acquisitions for
this business so far this year and expect to complete a few more.
We are probably best known for the fact that we manufacture and
market a line of consumer products under the Reynolds brand name
throughout the U.S. and in more than 65 countries. Our future
consumer products growth will be the result of new products and
geographic expansion outside North America, such as the Brazilian
venture previously mentioned. Last year we introduced two new
products -- "Hot Bags" foil bags and "Wrappers" foil sheets. So
far they have met with fine market acceptance.
We also participate in the private label consumer products market
with both aluminum foil and plastic film products. Our Presto
Products Company subsidiary will market two significant new
products in the second quarter -- a slider bag and a line of
plastic storage containers. These will be the first such private
label entries in the U.S.
Longer term, we regard emerging markets as an excellent growth
opportunity. The per capita aluminum consumption of developed
countries is 40-70 pounds. For underdeveloped countries it's
under 10 pounds. We have a team of experts focused on developing
opportunities that capitalize on our strengths in emerging markets
such as Russia, China and India.
From what I've just described, you can see we are working on many
projects that will add to our future growth and profitability. In
addition to these opportunities, we are separately looking at the
significant growth that can be achieved through merger and
acquisition activity.
Our board of directors and management have been engaged in intense
strategic planning and analysis work. We have worked closely, and
are continuing to work closely, with investment bankers in this
process. Comprehensive presentations have been made to the board
throughout the process by management and by our investment
bankers, with the most recent being at a special board meeting
last month.
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As a result of that meeting, there is consensus among management,
the board of directors and our investment bankers as to our future
direction. First and foremost, we are all committed to increasing
shareholder value. At this time, none of us sees any financial
engineering "quick fix" solution along the lines of a separation
of our businesses as a way to provide significant value to our
shareholders. We all see greater possibilities in the approach we
are pursuing. We will continue to focus on organic growth and
operational improvements. At the same time, we will also seek
significant growth through merger and acquisition activity.
I'd like now to conclude my formal remarks by summarizing the key
points made today. Reynolds is without question stronger, more
focused and more profitable at lower pricing levels as a result of
our restructuring.
We have achieved significant cost reductions and other operational
improvements, and we will continue these efforts.
We have realized substantial EVA(R) improvement and have plans in
place to reach breakeven by 2001, without relying on price
improvement.
We have many growth initiatives underway, and we are evaluating
others.
We believe we are doing well on what we can control, and our
accomplishments are being enhanced by recently improving aluminum
industry fundamentals.
We are optimistic that by following the strategy I've outlined,
Reynolds will produce a competitive return for its shareholders."
# # #
Statements in this report concerning future expectations
constitute forward-looking statements. Such statements involve a
number of risks and uncertainties. Among other factors that could
cause actual results to differ materially from those projected
are: (1) adverse changes in cyclical demand conditions or
material costs; (2) failure to achieve Reynolds' cost reduction
goals or to successfully implement its strategic growth programs;
(3) failure to complete Reynolds' major capital projects as
scheduled and within budget; and (4) the other risk factors
summarized in Reynolds' SEC reports, including but not limited to
those summarized in Management's Discussion and Analysis in its
Form 10-Q Report for the quarter ended March 31, 1999.
EVA(R) is a registered trademark of Stern Stewart & Co.
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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 hereunto duly authorized.
REYNOLDS METALS COMPANY
By: /s/ D. Michael Jones
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D. Michael Jones
Senior Vice President and General Counsel
Dated: May 28, 1999
