SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-01430
REYNOLDS METALS COMPANY
A Delaware Corporation
(I.R.S. Employer Identification No. 54-0355135)
6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003
Telephone Number (804) 281-2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
As of October 29, 1999, the Registrant had 63,227,478 shares of
Common Stock, no par value, outstanding and entitled to vote.
<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
- -----------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $1,209 $1,368 $3,438 $4,479
COSTS AND EXPENSES
Cost of products sold 983 1,109 2,856 3,635
Selling, general and
administrative expenses 85 93 254 282
Depreciation and amortization 62 57 179 193
Interest 19 27 57 94
Merger-related expenses 12 - 12 -
Operational restructuring
effects - net - (315) - (11)
- -----------------------------------------------------------------
1,161 971 3,358 4,193
- -----------------------------------------------------------------
EARNINGS
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting change 48 397 80 286
Taxes on income 12 135 19 89
- -----------------------------------------------------------------
Income before extraordinary
loss and cumulative effect
of accounting change 36 262 61 197
Extraordinary loss - (60) - (63)
Cumulative effect of
accounting change - - - (23)
- -----------------------------------------------------------------
NET INCOME $ 36 $ 202 $ 61 $ 111
==================================================================
EARNINGS PER SHARE
Basic:
Average shares outstanding 63 69 64 72
Income before extraordinary
loss and cumulative effect
of accounting change $0.56 $3.80 $0.95 $2.76
Extraordinary loss - (0.88) - (0.89)
Cumulative effect of
accounting change - - - (0.32)
- -----------------------------------------------------------------
Net income $0.56 $2.92 $0.95 $1.55
==================================================================
Diluted:
Average shares outstanding 63 69 64 72
Income before extraordinary
loss and cumulative effect
of accounting change $0.56 $3.80 $0.95 $2.76
Extraordinary loss - (0.88) - (0.89)
Cumulative effect of
accounting change - - - (0.32)
- -----------------------------------------------------------------
Net income $0.56 $2.92 $0.95 $1.55
==================================================================
CASH DIVIDENDS PER
COMMON SHARE $0.35 $0.35 $1.05 $1.05
==================================================================
The accompanying notes to consolidated financial statements are
an integral part of these statements.
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
=========================================================================
(millions) September 30 December 31
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62 $ 94
Receivables, less allowances of $9 (1998 - $14) 666 894
Inventories 530 500
Prepaid expenses and other 110 114
- ------------------------------------------------------------------------
Total current assets 1,368 1,602
Unincorporated joint ventures and associated
companies 1,622 1,478
Property, plant and equipment 4,305 4,282
Less allowances for depreciation and amortization 2,293 2,258
- ------------------------------------------------------------------------
2,012 2,024
Deferred taxes and other assets 966 1,030
- ------------------------------------------------------------------------
Total assets $5,968 $6,134
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities $ 809 $ 929
Short-term borrowings 311 116
Long-term debt 138 196
- ------------------------------------------------------------------------
Total current liabilities 1,258 1,241
Long-term debt 1,009 1,035
Postretirement benefits 1,014 1,029
Environmental, deferred taxes and other
liabilities 593 635
Stockholders' equity:
Common stock 1,560 1,533
Retained earnings 1,216 1,222
Treasury stock, at cost (626) (526)
Accumulated other comprehensive income (56) (35)
- ------------------------------------------------------------------------
Total stockholders' equity 2,094 2,194
- ------------------------------------------------------------------------
Contingent liabilities (Note 9)
Total liabilities and stockholders' equity $5,968 $6,134
======================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
=========================================================================
- ------------------------------------------------------------------------
Nine months ended September 30 (millions) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 61 $ 111
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 179 193
Operational restructuring effects - (11)
Deferred taxes and other (13) 10
Merger-related expenses 12 -
Extraordinary item - 63
Cumulative effect of accounting change - 23
Changes in operating assets and liabilities net
of effects of dispositions:
Accounts payable, accrued and other liabilities (47) (149)
Receivables 105 (49)
Inventories (34) 75
Environmental and restructuring liabilities (34) (42)
Other (56) (63)
- ------------------------------------------------------------------------
Net cash provided by operating activities 173 161
INVESTING ACTIVITIES
Capital investments:
Operational (85) (102)
Strategic (291) (115)
Operational restructuring proceeds 204 1,066
Other (6) (24)
- ------------------------------------------------------------------------
Net cash provided by (used in) investing activities (178) 825
FINANCING ACTIVITIES
Increase in short-term borrowings 197 97
Proceeds from long-term debt 250 250
Reduction of long-term debt (333) (769)
Cash dividends paid (68) (76)
Repurchase of common stock (100) (526)
Stock options exercised 27 11
- ------------------------------------------------------------------------
Net cash used in financing activities (27) (1,013)
CASH AND CASH EQUIVALENTS
Net decrease (32) (27)
At beginning of period 94 70
- ------------------------------------------------------------------------
At end of period $ 62 $ 43
=========================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
=========================================================================
- ------------------------------------------------------------------------
Nine months ended September 30 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
SHARES (thousands):
Common stock
Balance at January 1 74,105 73,909
Issued under employee benefit plans 462 194
- ------------------------------------------------------------------------
Balance at September 30 74,567 74,103
- ------------------------------------------------------------------------
Treasury stock
Balance at January 1 (9,648) -
Purchased and held as treasury stock (1,694) (9,648)
- ------------------------------------------------------------------------
Balance at September 30 (11,342) (9,648)
- ------------------------------------------------------------------------
Net common shares outstanding 63,225 64,455
- ------------------------------------------------------------------------
DOLLARS (millions):
Common stock
Balance at January 1 $1,533 $1,521
Issued under employee benefit plans 27 12
- ------------------------------------------------------------------------
Balance at September 30 $1,560 $1,533
- ------------------------------------------------------------------------
Retained earnings
Balance at January 1 $1,222 $1,253
Net income (loss) 61 111
Cash dividends declared for common stock (67) (75)
- ------------------------------------------------------------------------
Balance at September 30 $1,216 $1,289
- ------------------------------------------------------------------------
Treasury stock
Balance at January 1 $ (526) $ -
Purchased and held as treasury stock (100) (526)
- ------------------------------------------------------------------------
Balance at September 30 $ (626) $ (526)
- ------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Balance at January 1 $ (35) $ (35)
Foreign currency translation adjustments (21) 2
Income taxes - (6)
-------------------------
Other comprehensive income (loss) (21) (4)
- ------------------------------------------------------------------------
Balance at September 30 $ (56) $ (39)
- ------------------------------------------------------------------------
Total stockholders' equity $2,094 $2,257
- ------------------------------------------------------------------------
COMPREHENSIVE INCOME (millions):
Net income (loss) $ 61 $ 111
Other comprehensive income (loss) (21) (4)
- ------------------------------------------------------------------------
Comprehensive income (loss) $ 40 $ 107
- ------------------------------------------------------------------------
Comprehensive income was $39 million for the third quarter of 1999 and $213
million for the third quarter of 1998.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</TABLE>
5
<PAGE> 6
REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Quarters Ended September 30, 1999 and 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the interim periods of 1999
are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31,
1998, as amended. Certain amounts have been reclassified to
conform to the 1999 presentation. In the tables, dollars
are in millions, except per share and per pound amounts, and
shipments are in thousands of metric tons. A metric ton is
equivalent to 2,205 pounds.
2. ACCOUNTING POLICIES
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities." The SOP requires costs of start-up
activities and organization costs to be expensed as
incurred. The Company adopted the SOP in the second quarter
of 1998 and recognized a charge for the cumulative effect of
accounting change of $23 million. First quarter 1998
results were retroactively restated to reflect this
accounting change.
ACCOUNTING FOR THE COSTS OF DEVELOPING OR OBTAINING INTERNAL-
USE SOFTWARE
In the first quarter of 1999, the Company adopted the
Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants' Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP
requires qualifying computer software costs incurred in
connection with obtaining or developing software for
internal use to be capitalized. In prior years, the Company
capitalized costs of purchased software and expensed
internal costs of developing software. The effect of
adopting this SOP was not material to interim 1999 results,
and is not expected to be material for the full year.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes new
accounting and reporting standards for derivative
instruments and hedging activities. The Company must adopt
this statement by January 1, 2001. The Company has not
determined the impact this statement will have on its
financial position or results of operations.
3. MERGER
On August 18, 1999, the Company, Alcoa Inc. (Alcoa) and RLM
Acquisition Corp., a wholly owned subsidiary of Alcoa,
entered into an agreement and plan of merger. Under the
merger agreement, each outstanding share of common stock, no
par value, of the Company will be converted into 1.06 shares
of common stock, par value $1.00 per share, of Alcoa. In
connection with the merger agreement, the Company amended
its shareholder rights plan to render the plan inapplicable
to this transaction. In the third quarter of 1999, the
Company recognized $12 million of merger-related expenses.
Merger-related expenses are principally for investment
banking and legal services and an increase in the expense
accrual for a long-term compensation plan, which varies
based principally on appreciation of the Company's stock
price as compared to the S&P Basic Materials Index.
6
<PAGE> 7
3. MERGER- continued
The Boards of Directors of both Alcoa and Reynolds have
approved the proposed merger, which is subject to customary
conditions, including approval by the Company's stockholders
and antitrust clearances. On September 29, 1999, the
Antitrust Division of the Department of Justice issued a
request for additional information and documentary material
(a "second request"). Under the applicable provisions of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
the merger may not be consummated until the expiration of a
statutory waiting period, which expires 20 days after both
the Company and Alcoa substantially comply with the second
request. The Company and Alcoa will also make filings under
the competition laws of Canada and the European Union and
other countries where the companies have significant
operations.
The merger agreement contains certain restrictions on the
conduct of the Company's business before completion of the
merger. For example, the Company has agreed to operate its
business only in the ordinary course, to refrain from taking
certain corporate actions without the consent of Alcoa, and
not to solicit alternative acquisition proposals.
Reference is made to the copy of the merger agreement
incorporated by reference herein as Exhibit 2.
4. OPERATIONAL RESTRUCTURING
In the first quarter of 1999, the final closing of the sale
of the Company's Alabama can stock complex occurred. Early
in the fourth quarter of 1999, the Company announced that it
had agreed in principle to sell its investment in a Canadian
aluminum foil and sheet operation. No gain or loss will be
recognized for this transaction, which is subject to
regulatory and Board approvals, third party consents,
negotiation and execution of definitive agreements and other
customary closing conditions.
In the nine-month period of 1998, the Company sold the
following:
. U.S. recycling operations
. Canadian extrusion facilities
. European rolling mill operations
. an Illinois sheet and plate plant
. North American aluminum beverage can operations
5. EXTRAORDINARY LOSS
The Company had extraordinary losses from debt
extinguishments in the third quarter ($60 million) and the
nine-month period of 1998 ($63 million). These amounts are
net of income tax benefits of $38 million in the third
quarter and $39 million in the nine-month period.
7
<PAGE> 8
6. EARNINGS PER SHARE
The following is a reconciliation of income and average
shares for the basic and diluted earnings per share
computations for "Income (loss) before extraordinary loss
and cumulative effect of accounting change."
<TABLE>
<CAPTION>
Quarters ended September 30
-----------------------------
1999 1998
-----------------------------
<S> <C> <C>
Income (numerator):
Income before extraordinary loss and
cumulative effect of accounting change
(Basic and Diluted) $36 $262
Average shares (denominator):
Basic 63,065,000 69,241,000
Effect of dilutive securities:
Stock options 288,000 84,000
Stock potentially issuable under a
long-term incentive plan 101,000 -
-----------------------------
Diluted 63,454,000 69,325,000
-----------------------------
Per share amount:
Basic $.56 $3.80
Diluted $.56 $3.80
Antidilutive securities excluded:
Stock options 1,301,000 3,955,000
</TABLE>
<TABLE>
<CAPTION>
Nine Months ended September 30
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Income (numerator):
Income before extraordinary loss and
cumulative effect of accounting
change (Basic and Diluted) $61 $197
Average shares (denominator):
Basic 63,888,000 71,474,000
Effect of dilutive securities:
Stock options 173,000 257,000
Stock potentially issuable under
a long-term incentive plan 54,000 -
--------------------------------
Diluted 64,115,000 71,731,000
--------------------------------
Per share amount:
Basic $.95 $2.76
Diluted $.95 $2.76
Antidilutive securities excluded:
Stock options 2,532,000 2,306,000
</TABLE>
7. FINANCING ARRANGEMENTS
In the nine months of 1999, the Company:
. borrowed $150 million under its revolving credit
facilities that bear interest at a variable rate (5.8% at
September 30, 1999, based on the London Interbank Offer
Rate) and require repayment in a lump sum in 2001
. issued $100 million of medium-term notes (at a fixed
rate of 7%), which require annual principal repayments of
$20 million between 2005 and 2009
. increased available revolving credit facilities by $185
million (with an annual commitment fee of .125% on the
unused portion)
8
<PAGE> 9
8. COMPANY OPERATIONS
Certain amounts for the third quarter and nine-month period of 1998 have been
reclassified to conform to the 1999 presentation. The principal
reclassification was to move corporate amounts from the Other category to
Reconciling Items.
<TABLE>
<CAPTION>
Packaging Construction
Base and and
Materials Consumer Distribution
===========================================================================
<S> <C> <C> <C>
Third Quarter 1999
Customer aluminum shipments 226 36 53
Intersegment aluminum shipments 52 - -
- --------------------------------------------------------------------------
Total aluminum shipments 278 36 53
===========================================================================
Revenues:
Aluminum $357 $199 $176
Nonaluminum 97 156 80
Intersegment revenues - aluminum 78 - -
- --------------------------------------------------------------------------
Total revenues $532 $355 $256
===========================================================================
Segment operating income (loss) $ 78 $ 35 $ 11
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
Merger-related expenses
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
Third Quarter 1998
Customer aluminum shipments 172 34 48
Intersegment aluminum shipments 94 - -
- --------------------------------------------------------------------------
Total aluminum shipments 266 34 48
===========================================================================
Revenues:
Aluminum $263 $191 $176
Nonaluminum 85 150 79
Intersegment revenues - aluminum 156 - -
- --------------------------------------------------------------------------
Total revenues $504 $341 $255
===========================================================================
Segment operating income (loss) $ 65 $ 34 $ 13
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
The reconciling amounts for nonaluminum revenues relate to corporate
activities.
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Transportation Restructuring Other
===========================================================================
<S> <C> <C> <C>
Third Quarter 1999
Customer aluminum shipments 17 - 14
Intersegment aluminum shipments - - -
- --------------------------------------------------------------------------
Total aluminum shipments 17 - 14
===========================================================================
Revenues:
Aluminum $ 89 $ - $35
Nonaluminum - - 14
Intersegment revenues - aluminum - - -
- --------------------------------------------------------------------------
Total revenues $ 89 $ - $49
===========================================================================
Segment operating income (loss) $(15) $ - $ 4
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
Merger-related expenses
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
Third Quarter 1998
Customer aluminum shipments 15 88 9
Intersegment aluminum shipments - - -
- --------------------------------------------------------------------------
Total aluminum shipments 15 88 9
===========================================================================
Revenues:
Aluminum $75 $299 $26
Nonaluminum - 1 10
Intersegment revenues - aluminum - - -
- --------------------------------------------------------------------------
Total revenues $75 $300 $36
===========================================================================
Segment operating income (loss) $(7) $ 31 $(1)
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
The reconciling amounts for nonaluminum revenues relate to corporate
activities.
</TABLE>
<TABLE>
<CAPTION>
Total Reconciling
Segments Items Consolidated
===========================================================================
<S> <C> <C> <C>
Third Quarter 1999
Customer aluminum shipments 346 - 346
Intersegment aluminum shipments 52 (52) -
- --------------------------------------------------------------------------
Total aluminum shipments 398 (52) 346
===========================================================================
Revenues:
Aluminum $ 856 $ - $ 856
Nonaluminum 347 6 353
Intersegment revenues - aluminum 78 (78) -
- --------------------------------------------------------------------------
Total revenues $1,281 $ (72) $1,209
===========================================================================
Segment operating income (loss) $ 113 $ - $ 113
Inventory accounting adjustments -
Corporate amounts (34)
Operational restructuring effects - net -
Merger-related expenses (12)
- --------------------------------------------------------------------------
Corporate operating income 67
Interest expense (19)
Taxes on income (12)
Extraordinary loss -
Cumulative effect of accounting change -
- --------------------------------------------------------------------------
Net income $ 36
===========================================================================
Third Quarter 1998
Customer aluminum shipments 366 - 366
Intersegment aluminum shipments 94 (94) -
- --------------------------------------------------------------------------
Total aluminum shipments 460 (94) 366
===========================================================================
Revenues:
Aluminum $1,030 $ - $1,030
Nonaluminum 325 13 338
Intersegment revenues - aluminum 156 (156) -
- --------------------------------------------------------------------------
Total revenues $1,511 $(143) $1,368
===========================================================================
Segment operating income (loss) $ 135 $ - $ 135
Inventory accounting adjustments 1
Corporate amounts (27)
Operational restructuring effects - net 315
- --------------------------------------------------------------------------
Corporate operating income 424
Interest expense (27)
Taxes on income (135)
Extraordinary loss (60)
Cumulative effect of accounting change -
- --------------------------------------------------------------------------
Net income $ 202
===========================================================================
The reconciling amounts for nonaluminum revenues relate to corporate
activities.
</TABLE>
10
<PAGE> 11
8. COMPANY OPERATIONS - continued
<TABLE>
<CAPTION>
Packaging Construction
Base and and
Materials Consumer Distribution
===========================================================================
<S> <C> <C> <C>
Nine Months ended September 30, 1999
Customer aluminum shipments 653 107 151
Intersegment aluminum shipments 156 - -
- --------------------------------------------------------------------------
Total aluminum shipments 809 107 151
===========================================================================
Revenues:
Aluminum $ 973 $ 583 $505
Nonaluminum 257 438 237
Intersegment revenues - aluminum 225 - -
- --------------------------------------------------------------------------
Total revenues $1,455 $1,021 $742
===========================================================================
Segment operating income (loss) $ 147 $ 103 $ 32
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
Merger-related expenses
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
Nine Months ended September 30, 1998
Customer aluminum shipments 485 101 140
Intersegment aluminum shipments 275 - -
- --------------------------------------------------------------------------
Total aluminum shipments 760 101 140
===========================================================================
Revenues:
Aluminum $ 778 $ 571 $511
Nonaluminum 314 430 242
Intersegment revenues - aluminum 445 - -
- --------------------------------------------------------------------------
Total revenues $1,537 $1,001 $753
===========================================================================
Segment operating income (loss) $ 239 $ 96 $ 29
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
The reconciling amounts for nonaluminum revenues relate to corporate
activities.
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Transportation Restructuring Other
===========================================================================
<S> <C> <C> <C>
Nine Months ended September 30, 1999
Customer aluminum shipments 54 - 44
Intersegment aluminum shipments - - -
- --------------------------------------------------------------------------
Total aluminum shipments 54 - 44
===========================================================================
Revenues:
Aluminum $289 $ - $ 99
Nonaluminum - - 23
Intersegment revenues - aluminum - - -
- --------------------------------------------------------------------------
Total revenues $289 $ - $122
===========================================================================
Segment operating income (loss) $(23) $ - $ 7
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
Merger-related expenses
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
Nine Months ended September 30, 1998
Customer aluminum shipments 46 307 27
Intersegment aluminum shipments - 4 -
- --------------------------------------------------------------------------
Total aluminum shipments 46 311 27
===========================================================================
Revenues:
Aluminum $242 $1,236 $ 81
Nonaluminum - 10 22
Intersegment revenues - aluminum - 12 -
- --------------------------------------------------------------------------
Total revenues $242 $1,258 $103
===========================================================================
Segment operating income (loss) $(14) $ 111 $ 1
Inventory accounting adjustments
Corporate amounts
Operational restructuring effects - net
- --------------------------------------------------------------------------
Corporate operating income
Interest expense
Taxes on income
Extraordinary loss
Cumulative effect of accounting change
- --------------------------------------------------------------------------
Net income
===========================================================================
The reconciling amounts for nonaluminum revenues relate to corporate
activities.
</TABLE>
<TABLE>
<CAPTION>
Total Reconciling
Segments Items Consolidated
===========================================================================
<S> <C> <C> <C>
Nine Months ended September 30, 1999
Customer aluminum shipments 1,009 - 1,009
Intersegment aluminum shipments 156 (156) -
- --------------------------------------------------------------------------
Total aluminum shipments 1,165 (156) 1,009
===========================================================================
Revenues:
Aluminum $2,449 - $2,449
Nonaluminum 955 34 989
Intersegment revenues - aluminum 225 (225) -
- --------------------------------------------------------------------------
Total revenues $3,629 $ (191) $3,438
===========================================================================
Segment operating income (loss) $ 266 $ - $ 266
Inventory accounting adjustments (2)
Corporate amounts (115)
Operational restructuring effects - net -
Merger-related expenses (12)
- --------------------------------------------------------------------------
Corporate operating income 137
Interest expense (57)
Taxes on income (19)
Extraordinary loss -
Cumulative effect of accounting change -
- --------------------------------------------------------------------------
Net income $ 61
===========================================================================
Nine Months ended September 30, 1998
Customer aluminum shipments 1,106 - 1,106
Intersegment aluminum shipments 279 (279) -
- --------------------------------------------------------------------------
Total aluminum shipments 1,385 (279) 1,106
===========================================================================
Revenues:
Aluminum $3,419 $ - $3,419
Nonaluminum 1,018 42 1,060
Intersegment revenues - aluminum 457 (457) -
- --------------------------------------------------------------------------
Total revenues $4,894 $(415) $4,479
===========================================================================
Segment operating income (loss) $ 462 $ - $ 462
Inventory accounting adjustments 5
Corporate amounts (98)
Operational restructuring effects - net 11
- --------------------------------------------------------------------------
Corporate operating income 380
Interest expense (94)
Taxes on income (89)
Extraordinary loss (63)
Cumulative effect of accounting change (23)
- --------------------------------------------------------------------------
Net income $ 111
===========================================================================
The reconciling amounts for nonaluminum revenues relate to corporate
activities.
</TABLE>
12
<PAGE> 13
9. CONTINGENT LIABILITIES
As previously disclosed in the Company's 1998 Form 10-K, as
amended, the Company is involved in various worldwide
environmental improvement activities resulting from past
operations, including designation as a potentially
responsible party (PRP), with others, at various
Environmental Protection Agency-designated Superfund sites.
The Company has recorded amounts (on an undiscounted basis)
which, in management's best estimate, will be sufficient to
satisfy anticipated costs of known remediation requirements.
Estimated costs for future environmental compliance and
remediation are necessarily imprecise because of factors
such as:
. continuing evolution of environmental laws and
regulatory requirements
. availability and application of technology
. identification of presently unknown remediation
requirements
. cost allocations among PRPs
Further, it is not possible to predict the amount or timing
of future costs of environmental remediation that may
subsequently be determined. Based on information presently
available, such future costs are not expected to have a
material adverse effect on the Company's competitive or
financial position. However, such costs could be material
to results of operations in a future interim or annual
reporting period.
10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS
ALUMINUM COMPANY OF CANADA, LTD.
Financial statements and financial statement schedules for
Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum
Company of Canada, Ltd. have been omitted because certain
securities registered under the Securities Act of 1933, of
which these wholly owned subsidiaries of Reynolds Metals
Company (Reynolds) are obligors (thus subjecting them to
reporting requirements under Section 13 or 15(d) of the
Securities Exchange Act of 1934), are fully and
unconditionally guaranteed by Reynolds. Financial
information relating to these companies is presented herein
in accordance with Staff Accounting Bulletin 53 as an
addition to the footnotes to the financial statements of
Reynolds. Summarized financial information is as follows:
<TABLE>
<CAPTION>
Canadian Reynolds Metals Company, Ltd.
Quarters Ended Nine Months Ended
September 30 September 30
---------------- -------------------
1999 1998 1999 1998
---------------- -------------------
<S> <C> <C> <C> <C>
Net Sales:
Customers $143 $ 78 $385 $261
Parent and related companies 89 119 273 368
---------------- -------------------
$232 $197 $658 $629
Cost of products sold 193 178 578 539
Net income $ 27 $ 12 $ 42 $ 61
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------------------------------
<S> <C> <C>
Current assets $ 322 $ 155
Noncurrent assets 1,183 1,206
Current liabilities (115) (100)
Noncurrent liabilities (472) (379)
</TABLE>
13
<PAGE> 14
10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM COMPANY
OF CANADA, LTD. - continued
<TABLE>
<CAPTION>
Reynolds Aluminum Company of Canada, Ltd.
Quarters Ended Nine Months Ended
September 30 September 30
---------------- -------------------
1999 1998 1999 1998
---------------- -------------------
<S> <C> <C> <C> <C>
Net Sales:
Customers $143 $ 98 $385 $329
Parent and related companies 89 121 273 360
---------------- -------------------
$232 $219 $658 $689
Cost of products sold 193 199 578 594
Net income $ 28 $ 12 $ 43 $ 59
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------------------------------
<S> <C> <C>
Current assets $ 304 $ 186
Noncurrent assets 1,198 1,228
Current liabilities (106) (103)
Noncurrent liabilities (481) (389)
</TABLE>
14
<PAGE> 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and related footnotes included
in the Company's 1998 Form 10-K, as amended, along with the
consolidated financial statements and related footnotes included
in and referred to in this report. In the tables, dollars are in
millions, except per share and per pound amounts, and shipments
are in thousands of metric tons. A metric ton is equivalent to
2,205 pounds.
Management's Discussion and Analysis contains forecasts,
projections, estimates, statements of management's plans,
objectives and strategies for the Company and other forward-
looking statements. Please refer to the "Risk Factors" section
beginning on page 23, where we have summarized factors that could
cause actual results to differ materially from those projected in
a forward-looking statement or affect the extent to which a
particular projection is realized.
MERGER
- ------
On August 18, 1999, the Company, Alcoa Inc. (Alcoa) and RLM
Acquisition Corp., a wholly owned subsidiary of Alcoa, entered
into an agreement and plan of merger. Under the merger
agreement, each outstanding share of common stock, no par value,
of the Company will be converted into 1.06 shares of common
stock, par value $1.00 per share, of Alcoa. In connection with
the merger agreement, the Company amended its shareholder rights
plan to render the plan inapplicable to this transaction. In the
third quarter of 1999, the Company recognized $12 million of
merger-related expenses. Merger-related expenses are principally
for investment banking and legal services and an increase in the
expense accrual for a long-term compensation plan, which varies
based principally on appreciation of the Company's stock price as
compared to the S&P Basic Materials Index. The Company expects
total merger-related expenses to be at least $25 million.
The Boards of Directors of both Alcoa and Reynolds have approved
the proposed merger, which is subject to customary conditions,
including approval by the Company's stockholders and antitrust
clearances. On September 29, 1999, the Antitrust Division of the
Department of Justice issued a request for additional information
and documentary material (a "second request"). Under the
applicable provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, the merger may not be consummated until
the expiration of a statutory waiting period, which expires 20
days after both the Company and Alcoa substantially comply with
the second request. The Company and Alcoa will also make filings
under the competition laws of Canada and the European Union and
other countries where the companies have significant operations.
The Company hopes to complete the merger in the first quarter of
next year. However, no assurances can be made that the merger
will be completed by then.
The merger agreement contains certain restrictions on the conduct
of the Company's business before completion of the merger. For
example, the Company has agreed to operate its business only in
the ordinary course, to refrain from taking certain corporate
actions without the consent of Alcoa, and not to solicit
alternative acquisition proposals.
Reference is made to the copy of the merger agreement
incorporated by reference herein as Exhibit 2.
RESULTS OF OPERATIONS
- ---------------------
Net income was $36 million for the third quarter of 1999 and $61
million for the nine months of 1999 compared with net income of
$202 million for the third quarter of 1998 and $111 million for
the nine months of 1998. Net income for the third quarter and
nine months of 1999 included after-tax merger-related expenses of
$9 million. In addition to the extraordinary loss and cumulative
effect of accounting change shown in the table below, the third
quarter and nine months of 1998 included non-recurring, after-tax
income of $201 million and $5 million, respectively, for
operational restructuring. For additional information concerning
the operational restructuring charges, see Note 4 to the
consolidated financial statements.
15
<PAGE> 16
RESULTS OF OPERATIONS - continued
- ---------------------
<TABLE>
<CAPTION>
Third Quarter Nine Months
--------------- --------------
1999 1998 1999 1998
--------------- --------------
<S> <C> <C> <C> <C>
RESULTS
Income before extraordinary
loss and cumulative effect
of accounting change $ 36 $ 262 $ 61 $ 197
Extraordinary loss (see Note 5) - (60) - (63)
Cumulative effect of accounting
change (see Note 2) - - - (23)
--------------- --------------
Net income $ 36 $ 202 $ 61 $ 111
=============== ==============
EARNINGS PER SHARE - BASIC
Income before extraordinary
loss and cumulative effect
of accounting change $0.56 $3.80 $0.95 $2.76
Extraordinary loss - (.88) - (.89)
Cumulative effect of
accounting change - - - (.32)
-------------------------------
Net income $0.56 $2.92 $0.95 $1.55
===============================
AVERAGE REALIZED PRICE PER POUND
Primary aluminum $0.71 $0.70 $0.68 $0.73
</TABLE>
Our profit before tax from operations for the third quarter of
1999 was down $22 million compared to the third quarter of 1998.
This decrease was attributable principally to the following
factors:
. lower aluminum pricing in fabricated aluminum products of
$14 million
. loss of income on sold operations of $31 million
. weaker results in our Transportation unit
. a $7 million non-cash charge for foreign currency
translation of a Canadian deferred tax liability
On the positive side, gains in sales volumes across all global
business units, particularly Base Materials and Packaging and
Consumer, improved profit before taxes. Quarter-over-quarter
improvement in interest expense was $8 million, and SG&A expenses
from our ongoing operations were $4 million lower.
For the nine-month period, our profit before tax from operations
of $92 million was $183 million lower than we experienced for the
same period in 1998. Included in the results are three items
that had a negative impact:
. $143 million of lower aluminum pricing
. $111 million from the loss of income on sold operations
. $40 million of non-cash charges for foreign currency
translation relating to a Canadian deferred tax liability and
our investment in can operations in Brazil
Contributing $57 million to the favorable ongoing operating
results were higher sales volumes and lower conversion costs
primarily in our Base Materials unit, and lower SG&A expenses.
Year-over-year improvement for the nine-month period in interest
expense was $37 million.
GLOBAL BUSINESS UNITS
The Company is organized into four market-based, global business
units. The four global business units and their principal
products are as follows:
. Base Materials - alumina, carbon products, primary aluminum
ingot and billet, and electrical rod
. Packaging and Consumer - aluminum and plastic packaging and
consumer products; printing products
. Construction and Distribution - architectural construction
products and the distribution of a wide variety of aluminum and
stainless steel products
. Transportation - aluminum wheels, heat exchangers and
automotive structures
16
<PAGE> 17
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
<TABLE>
<CAPTION>
Base Materials
Third Quarter Nine Months
----------------- -----------------
1999 1998 1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Aluminum shipments:
Customer 226 172 653 485
Internal 52 94 156 275
----------------- -----------------
Total 278 266 809 760
================= =================
Revenues:
Customer - aluminum $357 $263 $ 973 $ 778
- nonaluminum 97 85 257 314
Internal - aluminum 78 156 225 445
----------------- -----------------
Total $532 $504 $1,455 $1,537
================= =================
Operating income $ 78 $ 65 $ 147 $ 239
================= =================
</TABLE>
The increase in customer aluminum shipments in the third quarter
and nine months of 1999 reflects strong demand for our value-
added products (foundry and sheet ingot, billet and rod), which
made up approximately 73% of the primary aluminum shipments in
these periods. Our available supply to meet customer demand has
increased because we no longer need to supply downstream
fabricating operations that have been sold, and we restarted
idled capacity in 1998.
In addition to reflecting the changes in shipping volume,
aluminum revenues in the nine-month period of 1999 were
significantly affected by lower prices for primary aluminum.
Nonaluminum revenues were higher in the third quarter of 1999
because of higher prices for alumina. For the nine-month period
of 1999, nonaluminum revenues were lower because prices for
alumina were lower than those realized in the nine-month period
of 1998. Customer shipments of alumina were also lower due to
greater internal use resulting from our restart of idled primary
aluminum capacity in 1998.
Operating income improved in the third quarter of 1999 because of
higher prices for aluminum and alumina, higher shipments of
primary aluminum products, improved capacity utilization and
lower conversion costs. Operating income for the nine-month
period of 1999 was significantly impacted by lower prices for
most products. We were able to offset some of this decline with
higher shipments of primary aluminum, improved capacity
utilization and lower material and conversion costs.
Bonneville Power Administration ("BPA") supplies electricity to
our smelters at Longview, Washington and Troutdale, Oregon. The
current contract with BPA expires in October 2001. BPA has
proposed reducing the amount of power supplied to the smelters by
one-third and pricing the power on a formula under which charges
would vary with world aluminum prices. Assuming "average" world
aluminum prices (with the basis for determining what is "average"
yet to be settled), the rate charged to Reynolds for the period
2001-2006 would increase by 13% over what we currently pay. We
would also have to find other sources for the balance of our
power needs. The BPA proposal is subject to full consideration
in a rate case, in which we can present arguments to improve the
offered rate, and other parties can challenge both the quantity
of power being provided to the Reynolds smelters and the rates at
which it is to be provided. We expect to participate actively in
the resolution of this issue and to continue assessing alternate
power sources for the two smelters.
We have a 10% equity interest in the Aluminum Smelter Company of
Nigeria. The smelter has closed indefinitely due to a lack of
working capital. The closing has no material effect on our
operations or financial position.
17
<PAGE> 18
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
<TABLE>
<CAPTION>
PACKAGING AND CONSUMER
Third Quarter Nine Months
--------------- ---------------
1999 1998 1999 1998
--------------- ---------------
<S> <C> <C> <C> <C>
Customer aluminum shipments 36 34 107 101
Revenues:
Customer - aluminum $199 $191 $ 583 $ 571
- nonaluminum 156 150 438 430
--------------- ---------------
Total $355 $341 $1,021 $1,001
=============== ===============
Operating income $ 35 $ 34 $ 103 $ 96
=============== ===============
</TABLE>
Shipments and revenues were higher in the third quarter and nine
months of 1999 because of strong demand for most products,
despite declining demand in the tobacco market. The volume
impact on revenues was partly offset by lower selling prices.
The increases in operating income in both periods reflect the
higher shipping volumes, lower conversion costs and lower costs
for aluminum raw materials. These benefits were somewhat offset
by the effects of lower selling prices. Raw material costs for
plastic products were higher in the third quarter of 1999 but
were lower in the nine-month period of 1999.
<TABLE>
<CAPTION>
CONSTRUCTION AND DISTRIBUTION
Third Quarter Nine Months
--------------- ---------------
1999 1998 1999 1998
--------------- ---------------
<S> <C> <C> <C> <C>
Customer aluminum shipments 53 48 151 140
Revenues:
Customer - aluminum $176 $176 $505 $511
- nonaluminum 80 79 237 242
--------------- ---------------
Total $256 $255 $742 $753
=============== ===============
Operating income $ 11 $ 13 $ 32 $ 29
=============== ===============
</TABLE>
Shipments increased in the third quarter and nine months of 1999
because of strong demand for most distribution products.
Shipments of construction products reflected weak conditions in
several markets outside the U.S., such as Asia and Latin America.
Revenues were adversely affected in both periods because of lower
prices for most products. The decline in prices for aluminum
products reflects lower material costs. Prices for stainless
steel products were lower due to global supply/demand imbalances
and lower material costs.
Operating income was negatively affected in both periods by lower
selling prices and margins. These effects were more than offset
in the nine-month period of 1999 by lower conversion costs and
expenses.
18
<PAGE> 19
RESULTS OF OPERATIONS - continued
- ---------------------
GLOBAL BUSINESS UNITS - continued
<TABLE>
<CAPTION>
TRANSPORTATION
Third Quarter Nine Months
--------------- ---------------
1999 1998 1999 1998
--------------- ---------------
<S> <C> <C> <C> <C>
Customer aluminum shipments 17 15 54 46
Customer revenues $89 $75 $289 $242
Operating loss (15) (7) (23) (14)
</TABLE>
Shipments and revenues were higher in the third quarter and nine
months of 1999 because of strong demand for cast and forged
aluminum wheels. Our available supply increased due to improved
capacity utilization and the completion of the expansion of our
Virginia forged aluminum wheel plant in February 1999. Shipments
and revenues in the third quarter of 1998 were adversely affected
by a strike at a major customer.
Operating losses were greater because of start-up costs relating
to an engine cradle program at our Indiana automotive structures
plant (see below) and higher conversion costs in wheel
operations. These effects were partially offset by lower
material costs, improved shipping volume and capacity utilization
in wheel and heat exchanger operations, and operating
improvements at our Beloit, Wisconsin wheel plant.
The Company and an automobile manufacturer are pioneering the
first, mass-produced, high-volume, all-aluminum engine cradle.
The engine cradle offers significant weight savings, reduces
noise and vibration, and provides important safety features. We
have incurred high start-up costs because of the complexity of
the production process and our acceleration of the timetable to
begin production. No other manufacturer has yet produced this
particular component.
RESTRUCTURING
The final closing of the sale of the Alabama can stock complex
occurred at the end of the first quarter of 1999. The Company
had signed a definitive sales agreement in December 1998 covering
the disposition of the complex and agreed to operate it on behalf
of the buyer for a management fee until all administrative
aspects of the transaction could be completed. As a result, no
revenues or operating results are included in the Restructuring
category in 1999.
OTHER
The Other category consists principally of operations in emerging
markets, European extrusion operations and investments in Canada,
Latin America and Saudi Arabia. Early in the fourth quarter of
1999, the Company announced that it had agreed in principle to
sell its investment in a Canadian aluminum foil and sheet
operation included in this category. The transaction is subject
to regulatory and Board approvals, third party consents,
negotiation and execution of definitive agreements and other
customary closing conditions. No gain or loss will be recognized
for this transaction which is expected to close in the first
quarter of 2000.
RECONCILING ITEMS
The increases in corporate expenses in both 1999 periods were due
to foreign currency related losses and charges, principally in
Brazil and Canada.
For additional information concerning the global business units,
see Note 8 to the consolidated financial statements.
INTEREST EXPENSE
Interest expense decreased in both 1999 periods because of:
. lower amounts of debt outstanding
. lower average interest rates due to extinguishing higher
cost debt
. higher amounts for capitalized interest
19
<PAGE> 20
RESULTS OF OPERATIONS - continued
- ---------------------
TAXES ON INCOME
The effective tax rates reflected in the income statement differ
from the U.S. federal statutory rate principally because of the
following:
. foreign taxes at different rates
. the effects of percentage depletion allowances
. credits and other tax benefits
YEAR 2000 READINESS DISCLOSURE
ISSUE
The year 2000 issue results from computer programs and systems
that rely on two digits rather than four to define the applicable
year. Such systems may treat a date using "00" as the year 1900
rather than the year 2000. As a result, computer systems could
fail to operate or make miscalculations, causing disruption of
business operations.
Left unrepaired, many of the Company's systems, including
information and computer systems and automated equipment, could
be affected by the year 2000 issue. Failure to adequately
address the issue could result in, among other things, the
temporary inability to manufacture products, process
transactions, send invoices, and/or engage in normal business
activities. We do not believe the products we sell require
remediation to address the year 2000 issue since they do not
depend on the calendar function in the electronic components.
GOAL
The Company has a formal program to address and resolve potential
exposure associated with information and non-information
technology systems arising from the year 2000 issue. Our goal is
that none of the Company's critical business operations or
computer processes we share with our suppliers and customers will
be substantially impaired by the advent of the year 2000.
Our program is led by our Year 2000 Program Management Office,
which recommends processes and tools for year 2000 remediation to
the Company's business units and monitors progress. The Program
Management Office consolidates progress information into monthly
status reports for review by management, the Company's internal
auditors and the Board of Directors. The Audit Committee of the
Board of Directors is also given periodic briefings on progress
and plans from the Program Management Office.
YEAR 2000 REMEDIATION PROJECT
We have completed preparation of our critical, date-sensitive
computer systems, processes and interfacing software which
include both our information systems and our non-information
systems (e.g., manufacturing and mechanical systems) for the year
2000. Our preparation included five phases: (1) inventory, (2)
planning, (3) conversion, (4) pre-installation testing and (5)
installation. We continue to monitor our computer and software
vendors' readiness statements to assure that readiness changes in
their products do not negatively affect our systems.
QUALITY ASSURANCE
We have substantially completed validation of our remediation
efforts with additional post-installation testing of certain
critical computer systems. We have also tested the exchange of
data with certain suppliers, customers and government agencies.
Some additional quality assurance review and testing will
continue through year end based upon ongoing monitoring of status
information from customers and suppliers. Most computer software
package providers continue to monitor test results from their
customers as part of their quality assurance programs. We
anticipate that software package providers will continue to send
us updates in the fourth quarter and into 2000 if needed. We
will perform quality assurance testing on these updates.
20
<PAGE> 21
RESULTS OF OPERATIONS - continued
- ---------------------
YEAR 2000 READINESS DISCLOSURE - continued
CONTINGENCY PLANNING
A key aspect of the Company's contingency planning for the year
2000 focuses on assessment of the business impact on the Company
resulting from the possible failure of our suppliers to provide
needed products and services. We have surveyed those suppliers
who are deemed to be critical to each of our operating locations,
even though the products or services they provide may not be
material to the Company's business as a whole, to assess their
year 2000 readiness. We are currently monitoring over 1,500
suppliers and have completed the process of rating them low,
medium or high risk in their progress toward being ready for the
year 2000. Critical suppliers rated as high risk received
primary attention for contingency planning or other measures such
as identifying additional sources of supply for critical
materials. In addition, we have nearly completed our plan to have
identified additional sources of supply or to develop other
contingency plans with respect to those critical suppliers who
are not ranked as low risk. We will continue monitoring these
suppliers into the year 2000.
As of September 30, 1999, we were on schedule with our third
party evaluations, having completed approximately 98% of the
projected total effort that we currently estimate will be needed.
We have completed year 2000 readiness evaluations of our largest
customers, none of which are material to our operations as a
whole. In addition, we will continue to respond to customer
inquiries regarding our year 2000 program and our progress in
addressing the issue.
The Company currently has in place operating procedures and
business continuity plans at its operating locations for
responding to unusual, disruptive situations such as power
shortages, failures by major suppliers and natural disasters.
These existing procedures and plans provide a solid foundation
for addressing many year 2000 issues. As unique risks are
identified and deemed sufficiently likely to occur, we are making
necessary adaptations or additions to our existing procedures and
plans.
Contingency planning and monitoring to determine realistic year
2000 issues beyond those already addressed will continue for the
remainder of the year and into the first quarter of 2000.
Several reasonably likely worst case scenarios involve shortages
or unanticipated outages of energy requirements. Our operations,
particularly in the Base Materials business, require significant
quantities of energy. Curtailments or disruptions of energy
supplies would result in full or partial shutdowns of these
operations until energy availability could be restored. In
addition, an unanticipated loss of energy supply could result in
damage to production equipment. We continue to assess these and
other business disruption risks.
COSTS
The total cost of our year 2000 remediation project is currently
expected to be approximately $22 million. As of September 30,
1999, we had incurred approximately $21 million, which includes
labor, equipment and license costs. We have not determined the
potential costs of business disruptions from supplier or customer
non-performance.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
<TABLE>
<CAPTION>
WORKING CAPITAL
September 30 December 31
1999 1998
-------------- -------------
<S> <C> <C>
Working capital $110 $361
Ratio of current assets to current liabilities 1.1/1 1.3/1
</TABLE>
The decline in working capital was due in part to the sale of
$125 million of accounts receivable under a non-recourse
facility. After completing substantially all of our Portfolio
Review process, we are able to operate with lower levels of
working capital.
OPERATING ACTIVITIES
Net cash provided by operating activities in the nine-month
period of 1999 was used to fund investing activities. It
includes the proceeds from the sale of accounts receivable.
21
<PAGE> 22
INVESTING ACTIVITIES
Capital investments totaled $376 million in the nine-month period
of 1999. This amount includes $85 million for operating
requirements (replacement equipment, environmental control
projects, etc.). The remainder was for strategic projects
(performance improvements, investments, etc.) principally carried
forward from 1998, including:
. expanding the Worsley Alumina Refinery in Australia
. modernizing U.S. foil plants
. acquiring two producers of flexographic separations and
plates for the packaging industry in the U.S. and one in Canada
and a U.S. manufacturer of microwaveable containers for the food
service industry
. establishing a foodservice packaging and consumer products
subsidiary in Brazil
. expanding a plant in Europe that will produce composite
architectural products
. acquiring and opening new metals distribution centers
. expanding a forged wheel plant in Virginia (completed in the
first quarter of 1999)
. expanding and modifying an automotive structures plant in
Indiana (completed in the second quarter of 1999)
Total capital investments planned for 1999 (approximately $440
million) are primarily for those strategic projects now under way
and continuing operating requirements. We expect to fund the
capital investments remaining in 1999 primarily with cash
provided by operating activities supplemented with funds from
financing activities.
Part of the proceeds from operational restructuring was used to
repurchase common stock.
FINANCING ACTIVITIES
In the nine months of 1999, the Company:
. increased short-term borrowings by $197 million
. borrowed $150 million under our revolving credit facilities
and increased available revolving credit facilities by $185
million (see Note 7)
. issued $100 million of medium-term notes (see Note 7),
reducing to $13 million the amount of debt securities available
for issuance under our shelf registration
. increased the authorization to issue commercial paper from
$350 million to $500 million
. repurchased common stock with part of the proceeds from
sales of assets (see the Consolidated Statement of Changes in
Stockholders' Equity)
We used the proceeds from the borrowings to repay at maturity
$100 million of 9 3/8% debentures, to reduce borrowings under our
revolving credit facilities and to make other scheduled debt
payments.
22
<PAGE> 23
RISK FACTORS
- ------------
This section should be read in conjunction with Part I, Item 1
(Business), Item 3 (Legal Proceedings) and Item 7 (Management's
Discussion and Analysis of Financial Condition and Results of
Operations) of the Company's 1998 Form 10-K, as amended, and the
preceding portions of this Item.
This report contains (and oral communications made by or on
behalf of the Company may contain) forecasts, projections,
estimates, statements of management's plans, objectives and
strategies for the Company and other forward-looking statements<F1>.
The Company's expectations for the future and related forward-
looking statements are based on a number of assumptions and
forecasts, including:
. world economic growth and other economic indicators
(including rates of inflation, industrial production, housing
starts and light vehicle sales)
. trends in the Company's key markets
. global aluminum supply and demand conditions
. primary aluminum prices
By their nature, forward-looking statements involve risk and
uncertainty, and various factors could cause the Company's actual
results to differ materially from those projected in a forward-
looking statement or affect the extent to which a particular
projection is realized.
The Company remains optimistic about the demand for aluminum for
the remainder of 1999 and 2000. A strong recovery in Asia
(excluding Japan) and most of Western Europe coupled with
continued strong demand in North America should result in global
aluminum consumption growing by at least 3% in 1999. These
economic recoveries set the stage for aluminum consumption to
resume the forecast long-term trend growth rate of 4% to 5% per
year in 2000 and 2001.
Economic and/or market conditions other than those forecasted by
the Company in the preceding paragraph could cause the Company's
actual results to differ materially from those projected in a
forward-looking statement or affect the extent to which a
particular projection is realized.
The following factors also could affect the Company's results:
. Primary aluminum is an internationally traded commodity.
The price of primary aluminum is subject to worldwide market
forces of supply and demand and other influences. Prices can be
volatile. Because primary aluminum makes up a significant
portion of the Company's shipments, changes in aluminum pricing
have a rapid effect on the Company's operating results. The
Company's use of contractual arrangements, including fixed-price
sales contracts, fixed-price supply contracts, and forward,
futures and option contracts, reduces its exposure to price
volatility but does not eliminate it.
. The markets for most aluminum products are highly
competitive. Certain of the Company's competitors are larger
than the Company in terms of total assets and operations and have
greater financial resources. Certain foreign governments are
involved in the operation and/or ownership of certain competitors
and may be motivated by political as well as economic
considerations. In addition, aluminum competes with other
materials, such as steel, plastics and glass, among others, for
various applications in the Company's key markets. Plastic
products compete with similar products made by the Company's
competitors, as well as with products made of glass, aluminum,
steel, paper, wood and ceramics, among others. Unanticipated
actions or developments by or affecting the Company's competitors
and/or the willingness of customers to accept substitutions for
the products sold by the Company could affect results.
[FN]
________________________
<F1>Forward-looking statements can be identified generally as those
containing words such as "should," "will," "will likely result,"
"hope," "forecast," "outlook," "project," "estimate," "expect,"
"anticipate," "scheduled," or "plan" and words of similar effect.
</FN>
23
<PAGE> 24
RISK FACTORS - continued
- ------------
. The Company spends substantial capital and operating amounts
relating to ongoing compliance with environmental laws. In
addition, the Company is involved in remedial investigations and
actions in connection with past disposal of wastes. The
identification of additional material remediation sites in the
future (that are presently unknown) at which the Company may be
named as a potentially responsible party could have a material
adverse effect on the Company's results of operations in a future
interim or annual reporting period. Moreover, estimating future
environmental compliance and remediation costs is imprecise due
to:
- continuing evolution of environmental laws and
regulatory requirements and uncertainties about
their application to the Company's operations
- availability and application of technology
- allocation of costs among potentially responsible
parties
. The Company has investments and activities in various
emerging markets, including Russia, China, India and Brazil.
While emerging markets offer strong growth potential, they also
present a higher degree of risk than more developed markets. In
addition to the business risks inherent in developing and
servicing new markets, economic conditions may be more volatile,
legal systems less developed and predictable, and the possibility
of various types of adverse government action more pronounced.
. Unanticipated material legal proceedings or investigations,
or the disposition of those currently pending against the Company
other than as anticipated by management and counsel, could have a
material adverse effect on the Company's results of operations
for a particular reporting period.
. Changes in the costs or availability of supply of power,
resins, caustic soda, green coke and other raw materials can
materially affect results. Substantial increases in power costs,
particularly in the Pacific Northwest, may adversely affect the
Company's primary aluminum production plants which require
reliable, low-cost power.
. A number of the Company's operations are cyclical and can be
influenced by economic conditions.
. A failure to complete the Company's major capital projects,
such as expansion of the Worsley Alumina Refinery (by reason of
construction delays or disputes, labor unrest or otherwise), as
scheduled and within budget or a failure to successfully launch
new growth or strategic business programs, such as the engine
cradle program where we are still experiencing excess start-up
costs, could affect the Company's results.
. The Company's results may be adversely affected if it fails
to address successfully the year 2000 issue. While the Company
believes it has prepared its information and non-information
systems for the advent of the year 2000, a failure to locate and
correct all relevant computer codes could result in disruptions
of Company operations, some of which may be significant. Also,
there can be no guarantee that other entities with which the
Company does business will convert their computer applications on
a timely basis and no assurance given that their failure to be
year 2000 compliant will not have an adverse effect on the
Company.
. A strike at a customer facility or a significant downturn in
the business of a key customer supplied by the Company could
affect the Company's results.
. The Company's proposed merger with Alcoa Inc. is subject to
certain conditions, including approval by the Company's
stockholders and antitrust clearance. As discussed under
"Merger" in this Item 2, the Antitrust Division of the
Department of Justice has issued a second request, and under
the applicable provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, the merger with Alcoa may not be
consummated until expiration of a statutory waiting period
which expires 20 days after both the Company and Alcoa
substantially comply with the second request. The Company and
Alcoa will also make filings under the competition laws of
Canada and the European Union and other countries where the
companies have significant operations. It is possible that
regulatory authorities may impose conditions on the combined
operations or require divestitures as a condition to approving
the merger. While the Company is working promptly toward
completion of the merger, no assurances can be given as to
whether regulatory delays will be encountered or regulatory
conditions to the merger imposed, or the possible effects of
such delays or conditions.
24
<PAGE> 25
RISK FACTORS - continued
- ------------
In addition to the factors referred to above, the Company is
exposed to general financial, political, economic and business
risks in connection with its worldwide operations. The Company
continues to evaluate and manage its operations in a manner to
mitigate the effects from exposure to such risks. In general,
the Company's expectations for the future are based on the
assumption that conditions relating to costs, currency values,
competition and the legal, regulatory, financial, political and
business environments in the worldwide economies and markets in
which the Company operates will not change significantly overall.
25
<PAGE> 26
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Forward, futures, option and swap contracts are designated to
manage market risks resulting from fluctuations in the aluminum,
natural gas, foreign currency and debt markets. Contracts used
to manage risks in these markets are not material.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) Recent Sales of Unregistered Securities
Under the Registrant's Stock Plan for Outside Directors (the
"Plan"), 106 phantom shares, in the aggregate, were granted
to the Registrant's nine outside Directors on July 1, 1999,
based on an average price of $59.6250 per share. These
phantom shares represent dividend equivalents paid on
phantom shares previously granted under the Plan. 756
phantom shares, in the aggregate, were granted to the nine
outside Directors on September 30, 1999, based on an average
price of $60.00 per share. These phantom shares represent a
quarterly installment of each outside Director's annual
grant under the Plan.
To the extent that these grants constitute sales of equity
securities, the Registrant issued these phantom shares in
reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, taking into account the
nature of the Plan, the number of outside Directors
participating in the Plan, the sophistication of the outside
Directors and their access to the kind of information that a
registration statement would provide.
A description of the Plan is contained in the Registrant's
Form 10-K for the year ended December 31, 1998 in Part II,
Item 5 under the caption "Sale of Unregistered Securities".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index to Exhibits.
(b) Reports on Form 8-K
During the third quarter of 1999, the Registrant filed two
Current Reports on Form 8-K with the Commission, each of
which reported matters under Item 5:
(1) A Form 8-K filed July 20, 1999, reporting that the
Registrant had improved its segment reporting by
removing corporate amounts from the Other category
and presenting them as separate reconciling items.
Filed with the report were reclassified segment
disclosures related to the Registrant's financial
reports for the quarters ended March 31, 1999 and
1998, other interim periods of 1998, and the
fiscal years ended December 31, 1998, 1997 and
1996.
(2) A Form 8-K filed August 19, 1999, reporting
that the Registrant, Alcoa Inc. and RLM
Acquisition Corp. had entered into an agreement
and plan of merger.
In addition, on October 20, 1999, the Registrant
filed a Current Report on Form 8-K reporting under
Item 5 that it was filing with the report an
unaudited pro forma statement of income for the year
ended December 31, 1998 relating to the
Registrant's sale of its North American aluminum
beverage can operations.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
REYNOLDS METALS COMPANY
By ALLEN M. EAREHART
------------------------
Allen M. Earehart
Senior Vice President and Controller
(Chief Accounting Officer)
DATE: November 12, 1999
27
<PAGE> i
INDEX TO EXHIBITS
(Attached herewith are Exhibits 10.9 and 27)
* EXHIBIT 2 - Agreement and Plan of Merger among Alcoa
Inc., RLM Acquisition Corp. and Reynolds
Metals Company dated as of August 18,
1999. (File No. 001-01430, Form 8-K
Report dated August 19, 1999, EXHIBIT
99.1)
* EXHIBIT 3.1 - Restated Certificate of Incorporation,
as amended. (File No. 001-01430, 1998
Form 10-K Report, EXHIBIT 3.1)
* EXHIBIT 3.2 - By-laws, as amended. (File No. 001-01430,
1998 Form 10-K Report, EXHIBIT 3.2)
EXHIBIT 4.1 - Restated Certificate of Incorporation.
See EXHIBIT 3.1.
EXHIBIT 4.2 - By-Laws. See EXHIBIT 3.2.
* EXHIBIT 4.3 - Form of Common Stock Certificate.
(Registration Statement No. 333-79203 on
Form S-8, dated May 24, 1999, EXHIBIT
4.2)
* EXHIBIT 4.4 - Indenture dated as of April 1, 1989 (the
"Indenture") between Reynolds Metals
Company and The Bank of New York, as
Trustee, relating to Debt Securities.
(File No. 001-01430, Form 10-Q Report
for the Quarter Ended March 31, 1989,
EXHIBIT 4(c))
* EXHIBIT 4.5 - Amendment No. 1 dated as of November 1,
1991 to the Indenture. (File No. 001-
01430, 1991 Form 10-K Report, EXHIBIT
4.4)
* EXHIBIT 4.6 - Amended and Restated Rights Agreement
dated as of March 8, 1999 (the "Rights
Agreement") between Reynolds Metals
Company and ChaseMellon Shareholder
Services, L.L.C. (File No. 001-01430,
Form 8-K Report dated March 8, 1999,
EXHIBIT 4.1)
* EXHIBIT 4.7 - First Amendment dated August 20, 1999 to the
Rights Agreement. (File No. 001-01430,
Form 8-A/A (Amendment No. 2 to
Registration Statement on Form 8-A,
pertaining to Preferred Stock Purchase
Rights) dated August 19, 1999, EXHIBIT
1)
* EXHIBIT 4.8 - Form of Fixed Rate Medium-Term Note.
(Registration Statement No. 33-30882 on
Form S-3, dated August 31, 1989, EXHIBIT
4.3)
* EXHIBIT 4.9 - Form of Floating Rate Medium-Term Note.
(Registration Statement No. 33-30882 on
Form S-3, dated August 31, 1989, EXHIBIT
4.4)
* EXHIBIT 4.10 - Form of Book-Entry Fixed Rate Medium-Term
Note. (File No. 001-01430, 1991 Form 10-
K Report, EXHIBIT 4.15)
______________________
* Incorporated by reference.
i
<PAGE> ii
* EXHIBIT 4.11 - Form of Book-Entry Floating Rate Medium-Term
Note. (File No. 001-01430, 1991 Form 10-
K Report, EXHIBIT 4.16)
* EXHIBIT 4.12 - Form of 9% Debenture due August 15, 2003.
(File No. 001-01430, Form 8-K Report
dated August 16, 1991, Exhibit 4(a))
* EXHIBIT 4.13 - Articles of Continuance of Societe
d'Aluminium Reynolds du Canada,
Ltee/Reynolds Aluminum Company of
Canada, Ltd. (formerly known as Canadian
Reynolds Metals Company, Limited --
Societe Canadienne de Metaux Reynolds,
Limitee) ("RACC"), as amended. (File
No. 001-01430, 1995 Form 10-K Report,
EXHIBIT 4.13)
* EXHIBIT 4.14 - By-Laws of RACC, as amended. (File No. 001-
01430, Form 10-Q Report for the Quarter
Ended March 31, 1997, EXHIBIT 4.14)
* EXHIBIT 4.15 - Articles of Incorporation of Societe
Canadienne de Metaux Reynolds,
Ltee/Canadian Reynolds Metals Company,
Ltd. ("CRM"), as amended. (File No. 001-
01430, Form 10-Q Report for the Quarter
Ended September 30, 1997, EXHIBIT 4.15)
* EXHIBIT 4.16 - By-Laws of CRM, as amended. (File No. 001-
01430, Form 10-Q Report for the Quarter
Ended September 30, 1997, EXHIBIT 4.16)
* EXHIBIT 4.17 - Indenture dated as of April 1, 1993
among RACC, Reynolds Metals Company and
The Bank of New York, as Trustee. (File
No. 001-01430, Form 8-K Report dated
July 14, 1993, EXHIBIT 4(a))
* EXHIBIT 4.18 - First Supplemental Indenture, dated as of
December 18, 1995 among RACC, Reynolds
Metals Company, CRM and The Bank of New
York, as Trustee. (File No. 001-01430,
1995 Form 10-K Report, EXHIBIT 4.18)
* EXHIBIT 4.19 - Form of 6-5/8% Guaranteed Amortizing Note due
July 15, 2002. (File No. 001-01430,
Form 8-K Report dated July 14, 1993,
EXHIBIT 4(d))
=* EXHIBIT 10.1 - Reynolds Metals Company 1987
Nonqualified Stock Option Plan.
(Registration Statement No. 33-13822 on
Form S-8, dated April 28, 1987, EXHIBIT
28.1)
=* EXHIBIT 10.2 - Reynolds Metals Company 1992
Nonqualified Stock Option Plan.
(Registration Statement No. 33-44400 on
Form S-8, dated December 9, 1991,
EXHIBIT 28.1)
=* EXHIBIT 10.3 - Amendment and Restatement of Reynolds
Metals Company Performance Incentive
Plan, as adopted and executed May 21,
1999. (File No. 001-01430, Form 10-Q
Report for the Quarter ended June 30,
1999, EXHIBIT 10.3)
_______________________
* Incorporated by reference.
= Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 601 of
Regulation S-K.
ii
<PAGE> iii
=* EXHIBIT 10.4 - Amendment and Restatement of
Supplemental Death Benefit Plan for
Officers, as adopted and executed April
26, 1999. (File No. 001-01430, Form 10-
Q Report for the Quarter ended June 30,
1999, EXHIBIT 10.5)
=* EXHIBIT 10.5 - Financial Counseling Assistance Plan for
Officers. (File No. 001-01430, 1987
Form 10-K Report, EXHIBIT 10.11)
=* EXHIBIT 10.6 - Management Incentive Deferral Plan.
(File No. 001-01430, 1987 Form 10-K
Report, EXHIBIT 10.12)
=* EXHIBIT 10.7 - Amendment and Restatement of Deferred
Compensation Plan for Outside Directors,
as adopted and executed April 28, 1999.
(File No. 001-01430, Form 10-Q Report
for the Quarter ended June 30, 1999,
EXHIBIT 10.8)
=* EXHIBIT 10.8 - Form of Indemnification Agreement for
Directors and Officers. (File No. 001-
01430, 1998 Form 10-K Report, EXHIBIT
10.9)
= EXHIBIT 10.9 - Form of Executive Severance Agreement, as
amended, between Reynolds Metals Company
and key executive personnel, including
each of the individuals listed in Item
4A of the 1998 Form 10-K Report.
=* EXHIBIT 10.10 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective May 20, 1988. (File No. 001-
01430, Form 10-Q Report for the Quarter
Ended June 30, 1988, EXHIBIT 19(a))
=* EXHIBIT 10.11 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective October 21, 1988. (File No.
001-01430, Form 10-Q Report for the
Quarter Ended September 30, 1988,
EXHIBIT 19(a))
=* EXHIBIT 10.12 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective January 1, 1987. (File No.
001-01430, 1988 Form 10-K Report,
EXHIBIT 10.22)
=* EXHIBIT 10.13 - Form of Stock Option and Stock Appreciation
Right Agreement, as approved February
16, 1990 by the Compensation Committee
of the Company's Board of Directors.
(File No. 001-01430, 1989 Form 10-K
Report, EXHIBIT 10.24)
=* EXHIBIT 10.14 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective January 18, 1991. (File No.
001-01430, 1990 Form 10-K Report,
EXHIBIT 10.26)
_______________________
* Incorporated by reference.
= Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 601 of
Regulation S-K.
iii
<PAGE> iv
=* EXHIBIT 10.15 - Form of Stock Option Agreement, as approved
April 22, 1992 by the Compensation
Committee of the Company's Board of
Directors. (File No. 001-01430, Form 10-
Q Report for the Quarter Ended March 31,
1992, EXHIBIT 28(a))
=* EXHIBIT 10.16 - Amendment and Restatement of Reynolds
Metals Company Restricted Stock Plan for
Outside Directors, as adopted and
executed April 28, 1999. (File No. 001-
01430, Form 10-Q report for the Quarter
ended June 30, 1999, EXHIBIT 10.17)
=* EXHIBIT 10.17 - Amendment and Restatement of Reynolds
Metals Company New Management Incentive
Deferral Plan, as adopted and executed
April 28, 1999. (File No. 001-01430,
Form 10-Q Report for the Quarter ended
June 30, 1999, EXHBIT 10.18)
=* EXHIBIT 10.18 - Amendment and Restatement of Reynolds
Metals Company Salary Deferral Plan for
Executives, as adopted and executed
April 28, 1999. (File N0. 001-01430,
Form 10-Q Report for the Quarter ended
June 30, 1999, Exhibit 10.19)
=* EXHIBIT 10.19 - Amendment and Restatement of Reynolds
Metals Company Supplemental Long-Term
Disability Plan for Executives, as
adopted and executed April 26, 1999.
(File No. 001-1430, Form 10-Q Report for
the Quarter Ended June 30, 1999, EXHIBIT
10.20)
=* EXHIBIT 10.20 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective August 19, 1994. (File No.
001-01430, Form 10-Q Report for the
Quarter Ended September 30, 1994,
EXHIBIT 10.34)
=* EXHIBIT 10.21 - Amendment to Reynolds Metals Company
1992 Nonqualified Stock Option Plan
effective August 19, 1994. (File No.
001-01430, Form 10-Q Report for the
Quarter Ended September 30, 1994,
EXHIBIT 10.35)
=* EXHIBIT 10.22 - Form of Split Dollar Life Insurance Agreement
(Trustee Owner, Trustee Pays Premiums).
(File No. 001-01430, Form 10-Q Report
for the Quarter Ended June 30, 1995,
EXHIBIT 10.34)
=* EXHIBIT 10.23 - Form of Split Dollar Life Insurance Agreement
(Trustee Owner, Employee Pays Premium).
(File No. 001-01430, Form 10-Q Report
for the Quarter Ended June 30, 1995,
EXHIBIT 10.35)
=* EXHIBIT 10.24 - Form of Split Dollar Life Insurance Agreement
(Employee Owner, Employee Pays Premium).
(File No. 001-01430, Form 10-Q Report
for the Quarter Ended June 30, 1995,
EXHIBIT 10.36)
____________________________
* Incorporated by reference.
= Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 601 of Regulation S-K.
iv
<PAGE> v
=* EXHIBIT 10.25 - Form of Split Dollar Life Insurance Agreement
(Third Party Owner, Third Party Pays
Premiums). (File No. 001-01430, Form 10-
Q Report for the Quarter Ended June 30,
1995, EXHIBIT 10.37)
=* EXHIBIT 10.26 - Form of Split Dollar Life Insurance Agreement
(Third Party Owner, Employee Pays
Premiums). (File No. 001-01430, Form 10-
Q Report for the Quarter Ended June 30,
1995, EXHIBIT 10.38)
=* EXHIBIT 10.27 - Amendment and Restatement of Reynolds
Metals Company 1996 Nonqualified Stock
Option Plan, as adopted and executed
April 15, 1999. (File No. 001-01430,
Form 10-Q Report for the Quarter ended
June 30, 1999, EXHIBIT 10.28)
=* EXHIBIT 10.28 - Amendment to Reynolds Metals Company
1992 Nonqualified Stock Option Plan
effective January 1, 1993.
(Registration Statement No. 333-03947 on
Form S-8, dated May 17, 1996, EXHIBIT
99)
=* EXHIBIT 10.29 - Form of Stock Option Agreement, as approved
May 17, 1996 by the Compensation
Committee of the Company's Board of
Directors. (File No. 001-01430, Form 10-
Q Report for the Quarter Ended June 30,
1996, EXHIBIT 10.41)
=* EXHIBIT 10.30 - Form of Three Party Stock Option Agreement,
as approved May 17, 1996 by the
Compensation Committee of the Company's
Board of Directors. (File No. 001-
01430, Form 10-Q Report for the Quarter
Ended June 30, 1996, EXHIBIT 10.42)
=* EXHIBIT 10.31 - Reynolds Metals Company Supplemental
Incentive Plan. (File No. 001-01430,
1996 Form 10-K Report, EXHIBIT 10.40)
=* EXHIBIT 10.32 - Amendment and Restatement of Reynolds
Metals Company Stock Plan for Outside
Directors, as adopted and executed April
28, 1999. (File No. 001-01430, Form 10-
Q Report for the Quarter ended June 30,
1999, EXHIBIT 10.34)
=* EXHIBIT 10.33 - Amendment and Restatement of Reynolds
Metals Company Long-Term Performance
Share Plan, as adopted and executed
April 26, 1999. (File No. 001-01430,
Form 10-Q Report for the Quarter Ended
June 30, 1999, EXHIBIT 10.37)
* EXHIBIT 10.34 - Asset Purchase Agreement by and among Ball
Corporation, Ball Metal Beverage
Container Corp. and Reynolds Metals
Company dated as of April 22, 1998.
(File No. 001-01430, Form 10-Q Report
for the Quarter Ended June 30, 1998,
EXHIBIT 2)
____________________________
* Incorporated by reference.
= Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
v
<PAGE> vi
=* EXHIBIT 10.35 - Reynolds Metals Company 1999
Nonqualified Stock Option Plan.
(Registration Statement No. 333-79203 on
Form S-8, dated May 24, 1999, EXHIBIT
4.5)
=* EXHIBIT 10.36 - Form of Stock Option Agreement, as approved
May 21, 1999 by the Compensation
Committee of the Company's Board of
Directors. (File No. 001-01430, Form 10-
Q Report for the Quarter Ended June 30,
1999, EXHIBIT 10.40)
=* EXHIBIT 10.37 - Form of Three Party Stock Option Agreement,
as approved May 21, 1999 by the
Compensation Committee of the Company's
Board of Directors. (File No. 001-
01430, Form 10-Q Report for the Quarter
Ended June 30, 1999, Exhibit 10.41)
EXHIBIT 11 - Omitted; see Part I, Item 1 for
computation of earnings per share.
EXHIBIT 15 - None
EXHIBIT 18 - None
EXHIBIT 19 - None
EXHIBIT 22 - None
EXHIBIT 23 - None
EXHIBIT 24 - None
EXHIBIT 27 - Financial Data Schedule
* EXHIBIT 99 - Description of Reynolds Metals Company
Capital Stock. (File No. 001-01430,
Form 10-Q Report for the Quarter Ended
March 31, 1999, EXHIBIT 99)
Pursuant to Item 601 of Regulation S-K, certain instruments
with respect to long-term debt of Reynolds Metals Company (the
"Registrant") and its consolidated subsidiaries are omitted
because such debt does not exceed ten percent of the total assets
of the Registrant and its subsidiaries on a consolidated basis.
The Registrant agrees to furnish a copy of any such instrument to
the Commission upon request.
____________________________
* Incorporated by reference.
= Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
vi
EXHIBIT 10.9
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into on
_____________, 1999 between REYNOLDS METALS COMPANY, a Delaware
corporation ("Reynolds"), and _______________ ("Executive").
WHEREAS, the maintenance of a strong and experienced
management is essential in protecting and enhancing the best
interests of Reynolds and its stockholders, and in this
connection Reynolds recognizes that, as is the case with many
publicly held corporations, the possibility of a change in
control may arise and may result in the departure or distraction
of management personnel to the detriment of Reynolds and its
stockholders; and
WHEREAS, the Compensation Committee and the Board of
Directors of Reynolds have each determined that appropriate steps
should be taken to reinforce and encourage the continued
attention and dedication of members of management to their
regular duties without distraction arising from a possible change
in control or a proposed or threatened change in control of
Reynolds; and
WHEREAS, should Reynolds become subject to any proposed
or threatened change in control, it is imperative that the Board
be able to call upon management to advise the Board as to whether
such change in control would be in the best interests of Reynolds
and its stockholders, and to take such other actions as the Board
might determine to be appropriate, without concern that
management would be distracted by the personal uncertainties and
risks created by such a proposed or threatened change in control;
and
WHEREAS, the Compensation Committee and the Board have
received from independent consultants information concerning the
adoption of executive severance agreements by other corporations
and from management the estimated cost to Reynolds of adoption of
each of the material provisions of the form of executive
severance agreement presented at the meeting; and
WHEREAS, the Compensation Committee and the Board have
each carefully reviewed the information presented to them and
have determined that the anticipated benefits to Reynolds from
entering into such agreements with key executives designated by
the Compensation Committee, thereby encouraging their continued
attention and dedication to their duties, exceed the anticipated
costs to Reynolds of entering into such agreements; and
WHEREAS, the Compensation Committee and the Board have
each concluded that such agreements are in the best interests of
Reynolds and its stockholders; and
- 1 -
<PAGE>
WHEREAS, Executive is a key executive of Reynolds and
has been selected by the Compensation Committee to enter into
such an agreement with Reynolds;
NOW, THEREFORE, to assure Reynolds that it will have
the continued dedication of Executive and the availability of
Executive's advice and counsel notwithstanding the possibility,
threat or occurrence of a change in control of Reynolds, and to
induce Executive to remain in the employ of Reynolds, and for
other good and valuable consideration, Reynolds and Executive
agree as follows:
1. Services During Certain Events. If a third person
begins a tender or exchange offer, circulates a proxy to
stockholders, or takes other steps to effect a Change in Control
(as defined in Section 2), Executive agrees that Executive shall
not voluntarily leave the employ of Reynolds and shall render the
services contemplated in the recitals to this Agreement, until
the third person has abandoned or terminated such person's
efforts to effect a Change in Control or until a Change in
Control has occurred.
2. Termination Following Change in Control. Except
as provided in Section 4, Reynolds shall provide or cause to be
provided to Executive the rights and benefits described in
Section 3 if Executive's employment by Reynolds is terminated at
any time within three years following a Change in Control:
(a) Termination by Reynolds. By Reynolds for reasons
other than
(i) for Cause (as defined in Section 4); or
(ii) as a result of Executive's death,
permanent disability (as defined in Section 2(f)), or
retirement at or after age 65;
or
(b) Termination by Executive. By Executive following
the occurrence of any of the following events without
Executive's written consent:
(i) the assignment of Executive to any
duties or responsibilities that are adversely
inconsistent with Executive's position, duties,
responsibilities or status immediately preceding such
Change in Control, or a change in Executive's reporting
responsibilities or titles in effect at such time
resulting in a reduction of Executive's
responsibilities or position at Reynolds;
- 2 -
<PAGE> 3
(ii) the reduction of Executive's annual base
salary (including any deferred portions thereof), or
the failure to increase Executive's annual base salary
at least once in each 15 month period, any such
increase to be at least at substantially the same level
as the increases received by other executives with
similar titles and duties;
(iii) the failure to continue in effect
the incentive plans, employee benefit plans, and other
compensation policies, practices and arrangements in
which Executive or Executive's eligible family members
were eligible to participate or participated
immediately before the Change in Control (including
without limitation, failure to provide Executive with a
number of paid vacation days to which Executive is
entitled on the basis of years of service with Reynolds
in accordance with Reynolds' vacation policy in effect
on the date of the Change in Control), or the failure
to continue Executive's participation on substantially
the same basis, both in terms of the amount of benefit
provided and the level of participation relative to
other participants;
(iv) the failure to pay to Executive any
portion of current compensation within 7 days of the
date such compensation is due, or to pay to Executive
any portion of an installment of deferred compensation
under any deferred compensation program within 30 days
of the date such compensation is due, but in any event,
if such compensation is due within a reasonable period
after the end of a calendar year, by the end of
February following such year end;
(v) the transfer of Executive to a location
more than 50 miles from Executive's location at the
time of the Change in Control, or a material increase
in the amount of travel normally required of Executive
in connection with Executive's employment by Reynolds;
(vi) the good faith determination by
Executive that due to the Change in Control (including
any changes in circumstances at Reynolds that directly
or indirectly affect Executive's position, duties,
responsibilities or status as in effect immediately
preceding such Change in Control) Executive is no
longer able effectively to discharge Executive's duties
and responsibilities; (For purposes of this Section
3(b), any such good faith determination by Executive
shall be conclusive and binding.);
(vii) any material breach by Reynolds of
any provision of this Agreement;
- 3 -
<PAGE> 4
(viii) any purported termination of
Executive's employment that is not effected pursuant to
a Notice of Termination satisfying the requirements of
Section 2(d) hereof (and, if applicable, the
requirements of Section 2(e) hereof), which purported
termination shall not be effective for purposes of this
Agreement; [or]or
(ix) any failure by Reynolds to obtain the
assumption of this Agreement by any successor to
Reynolds; [or]Reynolds.
anything in this Agreement to the contrary
notwithstanding, a termination of employment by
Executive for any reason during the 30-day period
immediately following the first anniversary of the
Change in Control.Any good faith determination by
Executive of the occurrence of any of the events
specified in paragraphs (i) through (ix) of this
Section 2(b) shall be conclusive and binding.
(c) Change in Control. For purposes of this
Agreement, a "Change in Control" shall mean the occurrence
of any of the following:
(i) Any Person (as defined below) becomes
the Beneficial Owner (as defined below), directly or
indirectly, of 15% or more of Reynolds' common stock,
unless such Person (A) is not deemed an "Acquiring
Person" in accordance with Section 1(a) of the Rights
Agreement (as defined below), or (B) became a
Beneficial Owner of 15% or more of Reynolds common
stock in a transaction that did not constitute a Change
in Control under Section 2(c)(iii) hereof;
(ii) During any period of two consecutive
years, individuals who at the beginning of such period
constitute the Board (as defined below), and any new
directors (other than a director designated by a person
who has entered into an agreement with Reynolds to
effect a transaction described in Sections 2(c)(i),
(iii) or (iv)) whose election by the Board or
nomination for election by Reynolds' shareholders was
approved by a vote of at least two-thirds of the
directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute at least a
majority of the members of the Board;
(iii) The effective date of a merger or
consolidation of Reynolds or any of its subsidiaries
with any other entity, other than a merger or
consolidation which would result in the voting
securities of Reynolds outstanding immediately before
such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted
into voting securities of theparent or surviving entity
or of any other corporation or entity that as a result
of such transaction owns entity)Reynolds or all or
substantially all of the assets of Reynolds, either
directly or through one or more
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<PAGE> 5
subsidiaries (a "parent entity")) more than 51%
of the combined voting power of the voting securities
of the parent or surviving entity outstanding
immediately after such merger or
consolidation and with the power to elect at least a
majority of the board of directors or other governing
body of such parent or surviving entity;
(iv) The approval by the shareholders of
Reynolds of a complete liquidation of Reynolds or an
agreement for the sale or disposition by Reynolds of
all or substantially all of Reynolds' assets; andor
(v) There occurs any other event of a nature
that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or
form) under the 1934 Act (as defined below), whether or
not Reynolds is then subject to such reporting
requirement.
(vi) Certain Definitions. For purposes of
this Section 2(c), the following terms shall have the
following meanings:
(A) "Person" shall have the
meaning as set forth in Sections 13(d) and 14(d)
of the 1934 Act (as defined below); provided
however, that Person shall exclude (i) Reynolds,
(ii) any trustee or other fiduciary holding
securities under an employee benefit plan of
Reynolds, and (iii) any corporation owned,
directly or indirectly, by the shareholders of
Reynolds in substantially the same proportions as
their ownership of stock of Reynolds.
(B) "Beneficial Owner" shall have
the meaning given to such term in Rule 13d-3 under
the 1934 Act; provided however, that Beneficial
Owner shall exclude any Person otherwise becoming
a Beneficial Owner by reason of the shareholders
of Reynolds approving a merger of Reynolds with
another entity.
(C) "Rights Agreement" shall mean
the Amended and Restated Rights Agreement dated as
of March 8, 1999 between Reynolds and ChaseMellon
Shareholder Services, L.L.C., as initially in
effect.
(D) "1934 Act" shall mean the
Securities Exchange Act of 1934, as amended.
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<PAGE> 6
(E) "Board" shall mean the board
of directors of Reynolds.
(d) Notice of Termination. Any purported termination
of Executive's employment under Section 2(a) (other than
termination due to death or retirement at or after age 65
which shall terminate Executive's employment automatically)
shall be communicated by written Notice of Termination to
Executive given in accordance with Section 9(l). Any
termination of Executive's employment under Section 2(b)
shall be communicated by written Notice of Termination to
Reynolds in accordance with Section 9(l). "Notice of
Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(e) Date of Termination. "Date of Termination" shall
mean
(i) if Executive's employment is terminated
due to Executive's death, the date of Executive's
death;
(ii) if Executive's employment is terminated
due to retirement at or after age 65, the date of
Executive's retirement;
(iii) if Executive's employment is
terminated for permanent disability, 30 days after
Notice of Termination is given (provided that Executive
shall not have returned to full-time performance of
Executive's duties during such 30 day period);
(iv) if Executive's employment is terminated
by Executive pursuant to Section 2(b), the date
specified in the Notice of Termination, which shall be
at least 30 days from the date such Notice of
Termination is given; and
(v) if Executive's employment is terminated
for Cause, the date specified in the Notice of
Termination, which shall be at least 30 days from the
date such Notice of Termination is given.
Notwithstanding anything to the contrary contained
herein, if within 15 days after any Notice of Termination is
given, Executive notifies Reynolds that a dispute exists
concerning termination for Cause or permanent disability,
then the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written
agreement of Executive and Reynolds, or otherwise; provided
however, the Date of Termination shall be extended by a
notice of dispute only if
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<PAGE> 7
such notice is given in good faith and Executive pursues
the resolution of such dispute with reasonable diligence.
(f) Definition of "permanent disability". For
purposes of this Agreement, "permanent disability" shall
mean a physical or mental infirmity which impairs
Executive's ability to substantially perform Executive's
duties under this Agreement and which continues for a period
of at least 12 consecutive months.
3. Rights and Benefits upon Termination. If
Executive's employment is terminated under any of the
circumstances set forth in Section 2 ("Termination"), Reynolds
agrees to provide or cause to be provided to Executive the
following rights and benefits:
(a) Salary and Incentive. Executive shall receive
within five business days of the Date of Termination a lump
sum payment in cash in an amount equal to three times
Executive's Earnings (as defined in this Section 3(a));
provided however, that if there are fewer than 36 months
remaining from the Date of Termination to the date when
Executive reaches age 65, the amount calculated pursuant to
this Section 3(a) shall be reduced by multiplying such
amount by a fraction, the numerator of which is the number
of months (including any fraction of a month) remaining to
age 65 and the denominator of which is 36.
For purposes of this Section 3(a), "Earnings" shall
mean the sum of (i) Executive's annual base salary (at the
rate in effect at the Date of Termination, or, if greater,
at the rate in effect immediately preceding the Change in
Control), plus (ii) an amount equal to the highest cash
target incentive opportunity established for Executive for
1998 or any future calendar year (without regard to any
possible deferred portions thereof). Earnings shall not
include any income attributable to options granted and
dividends on shares acquired pursuant to any stock option
plan maintained by Reynolds for its employees.
For purposes of Section 3(a) and Section 3(c), "highest
cash target incentive opportunity" means the largest "target
incentive opportunity" (as opposed to the "maximum incentive
opportunity") established for Executive's salary grade for
any year under the Reynolds Metals Company Performance
Incentive Plan and, if applicable, the Reynolds Metals
Company Supplemental Incentive Plan or under any successor
or replacement annual variable compensation plan(s).
(b) Stock Options. If Executive has any outstanding
options that will remain exercisable after Termination to
the extent the Compensation
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<PAGE> 8
Committee approves, then approval shall be deemed
to be granted as of Executive's Termination;
(c) Retirement Benefits. Executive shall receive
within five business days of the Date of Termination a lump
sum payment in cash in an amount equal to the actuarial
present value of the excess of (i) what would be Executive's
accrued age 65 benefit calculated pursuant to the applicable
formula in Reynolds' New Retirement Program for Salaried
Employees ("New Retirement Program") (as in effect at the
Date of Termination or, if more favorable to Executive, as
in effect immediately preceding the Change in Control), if
Executive were given additional credited service and age for
a period of 36 months following Termination (or such lesser
period as shall remain until Executive reaches age 65), with
annual earnings during the additional period determined as
if (A) Executive's annual base salary at the rate in effect
at the Date of Termination, or, if greater, immediately
preceding the Change in Control, were continued as base
salary for the additional period and (B) an amount equal to
the highest cash target incentive opportunity established
for Executive for 1998 or any subsequent calendar year
(without regard to any possible deferred portions thereof)
were paid to Executive on the third Friday of each February
of the additional period, such annual earnings to be
computed without regard to statutory restrictions on
benefits accrued or payable under qualified plans, over (ii)
Executive's accrued age 65 benefit, if any, payable under
the New Retirement Program, including any benefit payable
under Reynolds' Benefit Restoration Plan for New Retirement
Program. For purposes of this Section 3(c), actuarial
equivalents shall be computed as of the end of the 36 month
period and shall be determined using the same methods and
assumptions used under the New Retirement Program at the
Date of Termination or the date of a Change in Control,
whichever results in the greater amount.
(d) Welfare Benefit Plans. To the extent Executive is
eligible thereunder, Executive (and Executive's eligible
family members, to the extent applicable) shall continue to
be covered by (i) any group term, supplemental and/or split
dollar life insurance plan in effect for Executive on the
Date of Termination and (ii) the health care, accident and
disability benefit plans of Reynolds in effect on the Date
of Termination for employees in the same class or category
as Executive, subject in each case to the terms of such
plans and to Executive's making any required contributions
thereto, to the extent contributions are required of active
employees. If Executive is, or Executive's previously
eligible family members are, not eligible to continue to be
so covered under the terms of any such benefit plan or
program, or if Executive is, or Executive's eligible family
members are, eligible but the benefits applicable to
Executive or Executive's family members are not
substantially equivalent to the benefits
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<PAGE> 9
applicable to Executive or Executive's family members
immediately prior to the Date of Termination, then, for
a period of 36 months following the Date of
Termination (or until Executive reaches age 65,
if sooner), Reynolds shall either (x) provide
such substantially equivalent benefits, or such
additional benefits as may be necessary to make the benefits
applicable to Executive and Executive's family members
substantially equivalent to those in effect before the Date
of Termination, through other sources, or (y) provide
Executive with a lump sum payment in such amount that, after
all taxes on that amount are paid, shall be equal to the
cost to Executive of providing such benefit coverage for
Executive and Executive's eligible family members; provided
however, that if during such period Executive should enter
into the employ of another company or firm which provides
substantially similar benefit coverage for Executive and
Executive's eligible family members, Executive's
participation in the comparable benefit provided by Reynolds
either directly or through other sources shall cease.
Unless Executive and Executive's eligible family members are
covered through the plan of another employer, at the
termination of the health care benefits coverage described
in this Section 3(d), Executive and Executive's eligible
family members shall be entitled to convert such coverage to
an individual policy to the extent this conversion privilege
is available; if such an individual policy is not then
available, Executive and Executive's eligible family members
shall be entitled to continuation coverage pursuant to
Section 4980B of the Internal Revenue Code of 1986, as
amended (the "Code"), and under any other applicable law, to
the extent required by such laws, as if Executive had
terminated employment with Reynolds on the date such health
care benefits coverage terminates. The lump sum shall be
determined on a present value basis using the interest rate
provided in Section 1274(b)(2)(B) of the Code on the Date of
Termination. In addition, the "Rule of 90" age and service-
based premium requirement under the Reynolds Retiree Health
Care Plan shall be waived to the extent it would otherwise
apply to Executive. Nothing contained in this Section 3(d)
shall be deemed to require or permit termination or
restriction of Executive's coverage under any plan or
program of Reynolds or any successor plan or program thereto
to which Executive is entitled under the terms of such plan
or program, whether at the end of the aforementioned
36-month period or at any other time.
(e) Vehicle. Within five business days of
Termination, Reynolds shall transfer to Executive, free and
clear of any liens or encumbrances, the ownership of the
vehicle, if any, provided by Reynolds to Executive at the
Date of Termination. After transfer of ownership, Executive
shall be solely responsible for maintaining the vehicle.
(f) Other Benefit Plans and Perquisites. The specific
arrangements referred to in this Section 3 are not intended
to exclude
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<PAGE> 10
Executive's participation in other benefit plans
or enjoyment of other perquisites which are available to
executive personnel generally in the class or category of
Executive or to preclude such other compensation or benefits
as may be authorized from time to time by the Board of
Directors of Reynolds or by its Compensation Committee;
provided however, that any payments hereunder shall be in
lieu of, and not in addition to, any amounts that would
otherwise be payable to Executive upon termination of
employment pursuant to Reynolds' Termination Allowance
Policy or any successor severance pay plan.
(g) Excise Taxes. If Executive becomes entitled to
payments ("CIC Payments") from Reynolds or any Successor (as
defined below) that are subject to the tax ("Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), Executive shall receive at
the time specified below an additional amount ("Gross-Up
Payment") such that the net amount retained by Executive,
after deduction of any Excise Tax on the CIC Payments and
any federal, state and local income tax and Excise Tax upon
the payment provided for by this Section 3(g), shall be
equal to the CIC Payments (net of any required payroll
withholding taxes on the CIC Payments themselves). For
purposes of determining whether any payments will be subject
to the Excise Tax and the amount of such Excise Tax, (i) any
payments or benefits received or to be received by Executive
in connection with a Change in Control or Executive's
Termination (whether pursuant to the terms of this Agreement
or under any other plan, arrangement or agreement with
Reynolds, with any person whose actions result in a Change
in Control, or with any person affiliated with Reynolds or
such person (all such persons other than Reynolds,
"Successors")) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise
Tax, unless in the opinion of tax counsel selected by
Reynolds' independent auditors and acceptable to Executive
such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax, (ii)
the amount of the payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of (A) the
total amount of the payments or (B) the amount of excess
parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (i) above), and (iii) the value of
any non-cash benefits or any deferred payment or benefit
shall be determined by Reynolds' independent auditors in
accordance with the principles of Sections 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of
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<PAGE> 11
the Gross-Up Payment, Executive shall be deemed to pay
federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at
the highest marginal rate of taxation in the state and
locality of Executive's residence on the Date of
Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state
and local taxes.
If the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the Date of
Termination, Executive shall repay to Reynolds at the time
that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable
to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and federal and state and
local income tax imposed on the Gross-Up Payment being
repaid by Executive if such repayment results in a reduction
in Excise Tax and/or a federal and state and local income
tax reduction) plus interest received by Executive
attributable to any Excise Tax refund. If the Excise Tax is
determined to exceed the amount taken into account hereunder
at the Date of Termination (including by reason of any
payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), Reynolds
shall make an additional gross-up payment in respect of such
excess (plus any interest payable with respect to such
excess) at the time that the amount of such excess is
finally determined.
The Gross-Up Payment shall be made not later than the
fifth business day following the Date of Termination;
provided however, that if the amount of such payment cannot
be finally determined on or before such day, Reynolds shall
pay Executive on such day an estimate as determined in good
faith by Reynolds of the minimum amount of such payment and
shall pay the remainder of such payment (together with
interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth day after the Date
of Termination. If the amount of the estimated payments
exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by Reynolds to Executive
payable on the fifth business day after demand by Reynolds
(together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
Anything herein to the contrary notwithstanding, any
Gross-Up Payment otherwise due to Executive hereunder shall
be reduced by the amount of any similar type of gross-up
payments already received by Executive from Reynolds or any
Successor outside this Agreement.
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<PAGE> 12
(h) No Duty to Mitigate. Executive's entitlement to
benefits hereunder shall not be governed by any duty to
mitigate Executive's damages by seeking further employment
nor offset by any compensation which Executive may receive
from future employment.
(i) Payment Obligations Absolute. Reynolds'
obligation to pay or cause to be paid to Executive the
benefits and to make the arrangements provided in this
Section 3 shall be absolute and unconditional and shall not
be affected by any circumstances, including without
limitation any breach or alleged breach of Section 5, any
setoff, counterclaim, recoupment, defense or any other right
which Reynolds may have against Executive or anyone else.
All amounts payable by or on behalf of Reynolds hereunder
shall be paid without notice or demand. Each and every
payment made hereunder by or on behalf of Reynolds shall be
final and Reynolds and its subsidiaries shall not, for any
reason whatsoever, seek to recover all or any part of such
payment from Executive or from whoever shall be entitled
thereto.
4. Conditions to the Obligations of Reynolds.
Reynolds shall have no obligation to provide or cause to be
provided to Executive the rights and benefits described in
Section 3 hereof if either of the following events shall occur:
(a) Termination for Cause. Reynolds shall terminate
Executive's employment for Cause. For purposes of this
Agreement, termination of employment for "Cause" shall mean
termination solely for conviction of a felony or willful
engagement in illegal conduct which is materially and
demonstrably injurious to Reynolds; provided however,
Executive may not be deemed terminated for Cause unless and
until Reynolds has delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of not less
than three-quarters of the entire membership of the Board
finding that, in the Board's good faith opinion, Executive
is guilty of conduct defined as justifying termination for
Cause and specifying the particulars thereof in reasonable
detail.
(b) Resignation as Director and/or Officer.
Executive shall not, promptly after the Date of Termination
and upon receiving a written request to do so, resign as a
director and/or officer of Reynolds and of each subsidiary
and affiliate of Reynolds for which Executive is then
serving as a director and/or officer.
5. Confidentiality; Non-Solicitation; Cooperation;
Consultancy.
(a) Confidentiality. Executive agrees that at all
times following Termination, Executive shall not, without the
prior written consent of Reynolds, disclose to any person, firm
or corporation any confidential information of
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<PAGE> 13
Reynolds or its subsidiaries which is now known to Executive or
which hereafter may become known to Executive as a result
of Executive's employment or association with Reynolds and which
is helpful to a competitor in any material respect; provided
however, that the foregoing shall not apply to confidential
information which becomes publicly disseminated by means other
than a breach of this Agreement.
(b) Non-Solicitation. Executive agrees that for a
period of three years following the Date of Termination (or until
Executive reaches age 65, whichever is sooner) Executive shall
not induce or attempt to induce, either directly or indirectly,
any management or executive employee of Reynolds or of any of its
subsidiaries to terminate such employee's employment.
(c) Cooperation. Executive agrees that, at all times
following Termination, Executive shall furnish such information
and render such assistance and cooperation as may reasonably be
requested in connection with any litigation or legal proceedings
concerning Reynolds or any of its subsidiaries (other than any
legal proceedings concerning Executive's employment). In
connection with such cooperation, Reynolds shall pay or reimburse
Executive for reasonable expenses actually incurred.
(d) Consultation. Executive agrees that for a period
of 36 months following the Date of Termination (or until
Executive reaches age 65, if sooner), Executive shall be
available to Reynolds and its subsidiaries for consultation with
senior officers of Reynolds and of its subsidiaries; provided
however, that Executive shall not be required to perform such
consulting services (i) for more than five days in any month and
(ii) for more than 30 hours in any month. It is expressly agreed
that Executive's consulting services will be required at such
time and such places as will result in the least inconvenience to
Executive, taking into consideration Executive's other business
commitments during such period which may obligate Executive to
honor such other commitments prior to Executive's rendering
services hereunder. It is further agreed that Executive's
consulting services shall be rendered by personal consultation at
Executive's principal residence or office, wherever maintained,
or by correspondence through mail, telephone, facsimile,
electronic mail or other similar modes of communication at times,
including weekends and evenings, most convenient to Executive.
Reynolds and Executive agree that if during such period Executive
should engage in full-time employment, Executive shall not be
required to consult at times that will conflict with Executive's
responsibilities with respect to such employment or if
Executive's employer denies Executive permission to act as a
consultant. In connection with such consulting services,
Reynolds shall pay or reimburse Executive for reasonable expenses
actually incurred.
(e) Remedies for Breach. It is recognized that
damages in the event of breach of paragraphs (a) and (b) of this
Section 5 by Executive would be
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<PAGE> 14
difficult, if not impossible, to ascertain, and it
is therefore agreed that Reynolds, in addition to and
without limiting any other remedy or right it may have,
shall have the right to an injunction or other equitable relief
in any court of competent jurisdiction, enjoining any such
breach. The existence of this right shall not preclude Reynolds
from pursuing any other rights and remedies at law or in equity
which Reynolds may have.
6. Term of Agreement. The term of this Agreement
shall become effective upon the execution hereof by Reynolds and
shall continue unless terminated by written agreement between
Executive and Reynolds. No benefits shall be payable hereunder
unless there has been a Change ofin Control before termination of
Executive's employment.
7. Suits, Actions, Proceedings and Expenses.
(a) Executive's compensation during any disagreement,
dispute, controversy, claim, suit, action or proceeding
(collectively, a "Dispute"), arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as
follows. If there is a Termination followed by a Dispute as to
whether Executive is entitled to the payments and other benefits
provided under this Agreement, then, during the period of that
Dispute:
(i) Reynolds shall pay Executive fifty
percent (50%) of the amounts specified in Sections
3(a), 3(b) and 3(c) that are in Dispute;
(ii) Reynolds shall provide Executive with
the other benefits provided in Sections 3(d), 3(e),
3(f) and 3(g) of this Agreement; and
(iii) Reynolds shall pay Executive one
hundred percent (100%) of the amounts specified in
Sections 3(a), 3(b) and 3(c) that are not in Dispute;
provided however, if the Dispute is resolved against Executive,
Executive shall promptly refund to Reynolds all payments
Executive receives under Section 7(a)(i) of this Agreement, plus
interest at the rate provided in Section 1274(d)(b)(2)(B) of the
Code, compounded quarterly. If the Dispute is resolved in
Executive's favor, promptly after resolution of the Dispute,
Reynolds shall pay to Executive the sum that was withheld during
the period of the Dispute plus interest at the rate provided in
Section 1274(d)(b)(2)(B) of the Code, compounded quarterly.
(b) Reynolds shall pay to Executive all legal fees and
expenses incurred by Executive in connection with any Dispute
arising out of or relating to
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<PAGE> 15
this Agreement or the interpretation thereof (including,
without limitation, all such fees and expenses, if any, (A)
arising out of, or challenging the validity or enforceability
of, this Agreement or any provision hereof, (B) incurred in
contesting or disputing any termination of Executive's
employment, (C) seeking to obtain or enforce any right or
benefit provided by this Agreement, or (D) in connection
with any tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Code to any payment or
benefit provided hereunder).
(c) If a Dispute arises out of or relates to this
Agreement or the interpretation of this Agreement, Executive
shall be entitled to an adjudication of the Dispute in the courts
of the United States of America located in the City of Richmond,
Virginia, and/or of the courts of the Commonwealth of Virginia in
the City of Richmond, Virginia or, at Executive's option, in
Chesterfield, Goochland, Hanover or Henrico Counties, and
Reynolds irrevocably and unconditionally consents to submit to
the exclusive jurisdiction of such courts for any Dispute.
Reynolds further agrees not to commence any action, suit or
proceeding relating thereto except in such courts. Reynolds and
Executive hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or
proceeding arising out of this Agreement or the transactions
contemplated hereby in the courts of the United States of America
located in the City of Richmond, Virginia, and in the courts of
the Commonwealth of Virginia, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such
court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
(d) Alternatively, Executive, at Executive's option,
may seek an award in arbitration, in which event, Reynolds shall
appoint as the sole and exclusive arbiter of such Dispute a
committee of three members of the Board immediately before the
Change in Control, who are not directors of Reynolds or its
affiliates at the time of such Dispute. The decision of such
committee and the award of any monetary judgment or other relief
by such committee shall be final and binding upon Executive and
Reynolds and shall not be subject to appeal. Judgment may be
entered upon the decision and award of such committee by
Executive or Reynolds in any court of competent jurisdiction.
Reynolds shall pay the persons selected pursuant to this Section
7(c) a reasonable fee for their services, and shall reimburse
such persons for their expenses in this capacity. In addition,
Reynolds shall, to the maximum extent permitted by law, indemnify
and hold harmless such persons of and from any and all claims,
damages or expenses of any nature whatsoever relating to or
arising from their activities in this capacity. If Reynolds is
unable to appoint the committee referred to above after good
faith efforts to do so, or if such committee cannot reach
agreement, any remaining Dispute shall be settled, at Executive's
option, either by adjudication on the terms set forth above, or
by arbitration in the City of
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<PAGE> 16
Richmond in accordance with the commercial arbitration
rules then in effect of the American Arbitration
Association, before a panel of three arbitrators, two
of whom shall be selected by Reynolds and Executive,
respectively, and the third of whom shall be selected by the
other two arbitrators. Any award entered by the arbitrators
shall be final, binding and nonappealable and judgment may be
entered thereon by any party in accordance with applicable law in
any court of competent jurisdiction.
8. Successors; Binding Agreement.
(a) This Agreement shall inure to the benefit of and
be binding upon Reynolds and its successors and assigns.
Reynolds shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Reynolds to
expressly assume and agree to perform this Agreement. Failure of
Reynolds to obtain such assumption and agreement prior to a
Change in Control shall be a breach of this Agreement and shall
entitle Executive to terminate Executive's employment pursuant to
Section 2(b)(vii).
(b) This Agreement shall inure to the benefit of and
be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amount
would still be payable hereunder if Executive had continued to
live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee or other designee or, if there is no
such designee, Executive's estate.
9. Miscellaneous.
(a) Assignment. No right, benefit or interest
hereunder shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
charge, except by will or the laws of descent and distribution,
and any attempt thereat shall be void; and no right, benefit or
interest hereunder shall, prior to receipt of payment, be in any
manner liable for or subject to the recipient's debts, contracts,
liabilities, engagements or torts; provided however, that
Executive may assign any right, benefit or interest hereunder if
such assignment is permitted under the terms of any plan or
policy of insurance or annuity contract governing such right,
benefit or interest.
(b) Construction of Agreement. This Agreement is not,
and nothing herein shall be deemed to create, a commitment of
continued employment of Executive by Reynolds or by any of its
subsidiaries.
(c) Statutory References. Any reference in this
Agreement to a specific statutory provision shall include that
provision and any comparable
- 16 -
<PAGE> 17
provision or provisions of future legislation amending, modifying,
supplementing or superseding the referenced provision.
(d) Amendment. This Agreement may not be amended,
modified or terminated except by written agreement of both
parties. Anything in this Agreement to the contrary
notwithstanding, at any time before a Change in Control occurs,
Executive shall, at Reynolds' written request enter into an
amendment to this Agreement to change the percentage referred to
in Section 2(c)(i) to a percentage that is not more than 25%, so
long as such change is consistent with a contemporaneous change
of a similar nature in the Rights Agreement.
(e) Waiver. No provision of this Agreement may be
waived except by a writing signed by the party to be bound
thereby. Executive may at any time or from time to time waive any
or all of the rights and benefits provided for herein which have
not been received by Executive at the time of such waiver. In
addition, prior to the last day of the calendar year in which
Executive's Termination occurs, Executive may waive any or all
rights and benefits provided for herein which have been received
by Executive; provided that Executive repays to Reynolds (or, if
the benefit was received from an employee benefit plan, to such
plan) the amount of the benefit received (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code). Any
waiver of benefits pursuant to this section shall be irrevocable.
(f) Severability. If any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for
any reason, the remaining provisions of this Agreement shall
remain in full force and effect to the fullest extent permitted
by law.
(g) Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be considered an
original and all of which together shall constitute one
agreement.
(h) Number and Gender. All words used in this
Agreement shall be construed to be of such number or gender as
the circumstances require.
(i) Taxes. Any payment or delivery required under
this Agreement shall be subject to all requirements of the law
with regard to withholding of taxes, filing, making of reports
and the like, and Reynolds shall use its best efforts to satisfy
promptly all such requirements.
(j) Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Delaware.
- 17 -
<PAGE> 18
(k) Entire Agreement. This Agreement sets forth the
entire agreement of the parties hereto in respect of the subject
matter contained herein and supersedes all other prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any
prior agreement of the parties hereto in respect of the subject
matter contained herein, including, without limitation, any prior
severance agreement, is hereby terminated and canceled; provided
however, except as specifically provided in Section 3(f)
regarding Reynolds' Termination Allowance Policy, any of
Executive's rights hereunder shall be in addition to any rights
Executive may otherwise have under benefit plans or agreements of
Reynolds to which Executive is a party or in which Executive is a
participant, including, but not limited to, any Reynolds'
sponsored employee benefit plans, long term share performance or
other long term incentive plans and stock option plans.
Provisions of this Agreement shall not in any way abrogate
Executive's rights under such other plans or agreements.
(l) Notice. All notices required or permitted to be
given under this Agreement shall be given in writing or other
permanently recorded form to the parties at the addresses set
forth below, or to such other address(es) as may be provided by
notice given in accordance with this Section 9(l):
If to Reynolds, to:
Reynolds Metals Company
Attention: Corporate Secretary
6601 West Broad Street
Richmond, Virginia 23230
Facsimile Number: 804-281-3740
If to Executive, to the address set forth below
Executive's signature line, or if no address appears at the
signature line, at the last known home address of Executive in
Reynolds' records.
A notice shall be deemed to have been duly given
(1) if delivered by hand or courier, on the date of
delivery;
(2) if sent by United States mail, 7 days after
posting;
(3) if sent by facsimile, on production of a
transmission report by the machine from which the facsimile
was sent which indicates that the facsimile was sent in its
entirety to the facsimile number of its recipient.
Facsimile notices shall be confirmed by sending the
original document by hand, courier or United States mail.
- 18 -
<PAGE> 19
Each of the parties has therefore caused this Agreement to
be duly executed as of the _____ day of ____________, 1999.
REYNOLDS METALS COMPANY
By____________________________
Title: Chairman of the Board and
Chief Executive Officer
EXECUTIVE
______________________________
Address:______________________
______________________________
______________________________
- 19 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Reynolds Metals
Company Condensed Balance Sheet (Unaudited) for September 30, 1999 and
Consolidated Statement of Income (Unaudited) for the nine months ended September
30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 675
<ALLOWANCES> 9
<INVENTORY> 530
<CURRENT-ASSETS> 1368
<PP&E> 4305
<DEPRECIATION> 2293
<TOTAL-ASSETS> 5968
<CURRENT-LIABILITIES> 1258
<BONDS> 1009
0
0
<COMMON> 1560
<OTHER-SE> 534
<TOTAL-LIABILITY-AND-EQUITY> 5968
<SALES> 3438
<TOTAL-REVENUES> 3438
<CGS> 2856
<TOTAL-COSTS> 2856
<OTHER-EXPENSES> 179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 80
<INCOME-TAX> 19
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61
<EPS-BASIC> .95
<EPS-DILUTED> .95
</TABLE>
