SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 30, 1999
REYNOLDS METALS COMPANY
-----------------------
(Exact name of Registrant as specified in its charter)
Delaware 001-01430 54-0355135
-------- --------- ----------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
6601 West Broad Street, P.O. Box 27003, Richmond, Virginia 23261-7003
- ---------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(804) 281-2000
--------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 5. OTHER EVENTS
- ----------------------
The Registrant hereby incorporates by reference in this
report the information under the heading "Unaudited Pro Forma
Condensed Consolidated Financial Statements" set forth in Exhibit
99 filed herewith. This information also appears at pages 50-58
of the proxy statement and prospectus dated December 30, 1999
included in the Registration Statement on Form S-4 (No. 333-
93849) filed by Alcoa Inc. ("Alcoa") with the Securities and
Exchange Commission in connection with the pending stock-for-
stock merger transaction with the Registrant.
With respect to the potential benefit from synergies to be
achieved by Alcoa following completion of the merger with the
Registrant, the following statements were included in a Current
Report on Form 8-K filed by Alcoa on January 10, 2000: "Alcoa
reiterated that it is targeting, and plans to achieve, cost and
efficiency savings of approximately $200 million (pre-tax) by the
end of the second year after the closing of the stock-for-stock
merger transaction with Reynolds Metals Company. The projected
cost synergies, approximately half of which are anticipated for
the first year after closing, will be in addition to Alcoa's
ongoing $1.1 billion (pre-tax) cost-reduction program."
* * * * *
Statements included or incorporated by reference in this
report concerning future expectations, including regarding the
future results of Alcoa and the Registrant, constitute forward-
looking statements. Such statements involve a number of risks
and uncertainties. For each of these statements, the Registrant
claims the protection of the safe harbor for forward looking
statements contained in the Private Securities Litigation Reform
Act of 1995. The following important factors, along with those
discussed in the Registrant's Form 10-Q Report for the quarter
ended September 30, 1999 under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", could
cause actual results to differ materially from those projected:
. materially adverse changes in economic or industry conditions
generally or in the markets served by the Registrant and Alcoa;
. political and economic risk associated with foreign activities,
including political instability in relevant areas of
the world and fluctuations in foreign currencies;
. changes in the supply and demand for and the price of
aluminum, aluminum products, and other products;
. material changes in available technology;
. operating factors such as supply disruptions, the failure of
equipment or processes to meet specifications, changes in
operating conditions, substantial increases in power costs, and
weather;
. failure to complete capital projects as scheduled and within
budget or failure to successfully launch new growth or strategic
business programs;
. labor relations;
. environmental risks and liability under federal, state and
foreign environmental laws and regulations;
. changes in laws and regulations, both U.S. and foreign, or
their interpretation and application, including changes in tax
laws and interpretation and application of tax laws;
. unanticipated legal proceedings or investigations or the
disposition of current proceedings other than as anticipated by
the Registrant's and Alcoa's managements;
. relationships with and financial and operating conditions of
customers or suppliers;
. the actions of competitors;
. the timing, process of, and conditions imposed in connection
with the receipt of governmental permits and approvals relating
to the merger;
2
<PAGE> 3
. the ability to integrate the businesses of Alcoa and the
Registrant and to realize expected synergies and strategic
benefits successfully after the merger;
. the challenges inherent in diverting management's focus and
resources from other strategic opportunities and from operational
matters during the integration process; and
. opportunities that may be presented to and pursued by the
combined company after the merger.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
c) Exhibits.
99 Unaudited Pro Forma Condensed Consolidated
Financial Statements relating to the
proposed merger of the Registrant with Alcoa Inc.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
REYNOLDS METALS COMPANY
By: ALLEN M. EAREHART
-----------------------
Allen M. Earehart
Senior Vice President and Controller
Dated: January 18, 2000
4
<PAGE> 5
EXHIBIT LIST
No.
---
99 Unaudited Pro Forma Condensed Consolidated Financial Statements
relating to the proposed merger of the Registrant with Alcoa Inc.
5
EXHIBIT 99
<PAGE> 50
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated
Financial Statements are based on and should be read in
conjunction with the historical consolidated financial statements
of Alcoa and Reynolds, including the notes thereto, which are
incorporated by reference in this proxy statement and prospectus.
These financial statements have been adjusted to give effect to
(1) Alcoa's merger with Alumax Inc., which was completed in July
1998, (2) Reynolds' sale of its North American aluminum beverage
can operations in August 1998 and (3) the proposed merger with
Reynolds. The Unaudited Pro Forma Condensed Consolidated
Earnings Statement does not (a) purport to represent what the
results of operations actually would have been if the above
transactions had occurred as of the date indicated or what such
results will be for any future periods or (b) give effect to
certain nonrecurring charges expected to result from the Reynolds
acquisition.
The Unaudited Pro Forma Condensed Consolidated Earnings
Statements for the nine month period ended September 30, 1999 and
for the year ended December 31, 1998 give effect to the Reynolds
merger and related transactions as if such transactions had
occurred on January 1, 1998. The Unaudited Pro Forma Condensed
Consolidated Earnings Statement for Alcoa for the year ended
December 31, 1998 also gives effect to the Alumax merger as if
such merger had occurred on January 1, 1998. The Unaudited Pro
Forma Earnings Statement for Reynolds for the year ended December
31, 1998, presents the consolidated results of operations of the
company assuming that the disposition of the company's North
American Can Operations had occurred as of January 1, 1998. The
operations consisted of 14 can plants, two end plants and a
headquarters building. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of September 30, 1999 gives effect
to the Reynolds merger and related transactions as if such
transactions had occurred on that date.
The pro forma adjustments are based upon available
information and include certain assumptions and adjustments that
the managements of Alcoa and Reynolds believe to be reasonable.
These adjustments are directly attributable to the transactions
referenced above and are expected to have a continuing impact on
Alcoa's business, results of operations and financial position.
Alcoa and Reynolds are currently awaiting approval for the merger
transaction from various government authorities. Therefore, at
the present time, the amount of information that the two
companies can share is limited. Reynolds has certain severance
plans, agreements and policies applicable to its executive
management and salaried employees. It is probable that some
covered persons will become entitled to severance benefits under
these arrangements following the completion of the merger. The
maximum amount payable under such arrangements is in the range of
$200 to $225 million. The actual amount to be paid cannot be
determined at present because Alcoa has not yet identified the
employees who might be affected. In addition, Alcoa has
initiated an assessment of restructuring costs and potential
benefits from synergies; however, for the reasons noted above,
these studies cannot be completed. Based on these facts, an
estimate of the potential benefit from synergies or the amount of
restructuring costs is not yet available. However, it is
possible that the amounts involved related to the effects of
restructuring could have a material impact on the purchase price
allocation.
The purchase of Reynolds will be accounted for using the
purchase method of accounting, so the total purchase costs of the
acquisition will be allocated to the tangible and intangible
assets and liabilities acquired based upon their estimated fair
values. The purchase price allocation is preliminary, based on
facts currently known to the companies. Alcoa and Reynolds are
not aware of any significant unrecorded obligations or
contingencies, other than the severance arrangements referred to
above, and, except as noted above, do not believe that the final
purchase price allocation will materially differ from that
included in the pro forma financial information contained herein.
The final allocation of the purchase price will be made based
upon valuations and other studies that have not been completed.
50
<PAGE> 51
ALCOA INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL REYNOLDS PRO FORMA
ALCOA (B) ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash, cash equivalents and
short-term investments....... $ 297 $ 62 $ (35)(E) $ 324
Receivables from customers,
less allowances.............. 2,406 666 -- 3,072
Inventories................... 1,584 530 259 (E) 2,373
Prepaid expenses and other
current assets............... 468 110 -- 578
-------- ------- ------- --------
Total current assets........ 4,755 1,368 224 6,347
Properties, plant and equipment
at cost........................ 18,136 4,305 2,319 (E) 24,760
Less: accumulated depreciation,
depletion and amortization..... (9,158) (2,293) -- (11,451)
-------- ------- ------- --------
Net properties, plant and
equipment...................... 8,978 2,012 2,319 13,309
Goodwill........................ 1,333 -- 858 (E) 2,191
Other assets.................... 1,799 2,588 -- 4,387
-------- ------- ------- --------
Total Assets................ $ 16,865 $ 5,968 $ 3,401 $ 26,234
======== ======= ======= ========
LIABILITIES
Short-term borrowings........... $ 612 $ 311 $ (286)(D) $ 637
Accounts payable and accrued
liabilities.................... 2,515 809 (25)(D) 3,299
Long-term debt due within one
year........................... 48 138 -- 186
-------- ------- ------- --------
Total current liabilities... 3,175 1,258 (311) 4,122
Long-term debt.................. 2,669 1,009 -- 3,678
Accrued postretirement
benefits....................... 1,750 1,014 -- 2,764
Other noncurrent liabilities and
deferred credits............... 1,906 593 127 (E)
-- -- 858 (E) 3,484
-------- ------- --------
Total liabilities........... 9,500 3,874 674 14,048
Minority interests.......... 1,409 -- -- 1,409
Shareholders' Equity
Preferred Stock............... 56 -- -- 56
Common Stock.................. 395 1,560 (1,560)(E)
72 (F) 467
Additional Capital............ 1,712 -- 4,749 (F) 6,461
Retained earnings............. 5,728 1,216 286 (D)
25 (D)
(1,527)(E) 5,728
Treasury stock, at cost......... (1,310) (626) 626 (E) (1,310)
Accumulated other comprehensive
income......................... (625) (56) 56 (E) (625)
-------- ------- ------- --------
Total shareholders' equity.. 5,956 2,094 2,727 10,777
-------- ------- ------- --------
Total Liabilities and
Equity..................... $ 16,865 $ 5,968 $ 3,401 $ 26,234
======== ======= ======= ========
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
</TABLE>
51
<PAGE> 52
ALCOA INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT
FOR THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO
ALCOA REYNOLDS (B) ADJUSTMENTS FORMA
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Revenues
Sales......................... $12,070 $3,434 $ (101) (G) $15,403
Other income.................. 78 4 -- 82
------- ------ ------ -------
12,148 3,438 (101) 15,485
Cost and Expenses
Cost of goods sold............ 9,388 2,856 (101) (G) 12,143
Selling, general
administrative and other
expenses..................... 597 236 (10) (H) 823
Research and development
expenses..................... 91 18 -- 109
Provision for depreciation,
depletion and amortization... 663 179 86 (I) 928
Interest expense.............. 153 57 (13) (J) 197
Merger-related expenses....... -- 12 (12) (K) --
------- ------ ------ -------
10,892 3,358 (50) 14,200
Earnings
Income before taxes on
income....................... 1,256 80 (51) 1,285
Provision for taxes on
income....................... 402 19 (12) (L) 409
------- ------ ------ -------
Income from operations...... 854 61 (39) 876
Minority Interests............ (134) -- -- (134)
------- ------ ------ -------
Net income...................... $ 720 $ 61 $ (39) $ 742
======= ====== ====== =======
Earnings per share
Basic......................... $ 1.96 $ 0.95 -- $ 1.69
Diluted....................... $ 1.91 $ 0.95 -- $ 1.65
Weighted average shares
outstanding:
(in millions)
Basic......................... 367 64 (64) (M)
72 (M) 439
Diluted....................... 376 64 (64) (M)
72 (M) 448
The accompanying notes are in an integral part of the pro forma condensed
consolidated financial statements.
</TABLE>
52
<PAGE> 53
ALCOA INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ALCOA REYNOLDS PRO FORMA
PRO FORMA (A) PRO FORMA (C) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Sales.................... $ 16,766 $ 5,067 $ (173)(G) $ 21,660
Other income............. 152 20 -- 172
-------- ------- ------ --------
16,918 5,087 (173) 21,832
Costs and Expenses
Cost of goods sold....... 12,977 4,097 (173)(G) 16,901
Selling, general
administrative and other
expenses................ 917 336 (14)(H) 1,239
Research and development
expenses................ 131 31 -- 162
Provision for
depreciation, depletion
and amortization........ 940 252 114 (I) 1,306
Interest expense......... 262 72 (17)(J) 317
Special items............ -- 480 -- 480
-------- ------- ------ --------
15,227 5,268 (90) 20,405
Earnings
Income before taxes on
income, extraordinary
loss and the cumulative
effect of accounting
change.................. 1,691 (181) (83) 1,427
Provision for taxes on
income.................. 577 (99) (22)(L) 456
-------- ------- ------ --------
Income from operations... 1,114 (82) (61) 971
Minority Interests....... (238) -- -- (238)
-------- ------- ------ --------
Income before
extraordinary loss and
the cumulative effect of
accounting change........ $ 876 $ (82) $ (61) $ 733
======== ======= ====== ========
Earnings per share--before
extraordinary loss and
the cumulative effect of
accounting change
Basic.................... $ 2.36 $ (1.24) -- $ 1.65
Diluted.................. $ 2.35 $ (1.24) -- $ 1.65
Weighted average shares
outstanding:
(in millions)
Basic.................... 370 66 (66)(M)
72 (M) 442
Diluted.................. 372 66 (66)(M)
72 (M) 444
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
</TABLE>
53
<PAGE> 54
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per-share amounts)
(A)In July 1998, Alcoa acquired Alumax Inc. for approximately $2.8
billion consisting of cash of approximately $1.5 billion and stock of
approximately $1.3 billion. The transaction was accounted for using the
purchase method. The following Unaudited Pro Forma Condensed Consolidated
Earnings Statement for the year ended December 31, 1998 gives effect to
this transaction as if such transaction had occurred on January 1, 1998.
Accordingly, the results of Alumax for the first six months of 1998 have
been included with the historical 1998 results of Alcoa. Pro forma
adjustments have been included as appropriate.
ALCOA INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL ALCOA PRO
ALCOA ALUMAX FORMA
DECEMBER 31, JUNE 30, PRO FORMA DECEMBER 31,
1998 1998 ADJUSTMENTS 1998
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Sales....................... $15,340 $1,555 $(129)(1) $16,766
Other income................ 150 2 -- 152
------- ------ ----- -------
15,490 1,557 (129) 16,918
Costs and Expenses
Cost of goods sold.......... 11,934 1,172 (129)(1) 12,977
Selling, general
administrative and other
expenses................... 783 170 (36)(2) 917
Research and development
expenses................... 128 3 -- 131
Provision for depreciation,
depletion and
amortization............... 842 79 22 (3)
(3)(4) 940
Interest expense............ 198 35 34 (5)
(5)(6) 262
------- ------ ----- -------
13,885 1,459 (117) 15,227
Earnings
Income before taxes on
income..................... 1,605 98 (12) 1,691
Provision for taxes on
income..................... 514 51 12 (7) 577
------- ------ ----- -------
Income from operations...... 1,091 47 (24) 1,114
Minority Interests.......... (238) -- -- (238)
------- ------ ----- -------
Net Income................... $ 853 $ 47 $ (24) $ 876
======= ====== ===== =======
Earnings per share
Basic....................... $ 2.44 $ 0.87 -- $ 2.36
Diluted..................... $ 2.42 $ 0.85 -- $ 2.35
Weighted average shares
outstanding:
(in millions)
Basic....................... 333 55 (55)(8)
37 (8) 370
Diluted..................... 335 56 (56)(8)
37 (8) 372
</TABLE>
54
<PAGE> 55
- -------------
(1) Represents the elimination of inter-company sales and purchases
between Alcoa and Alumax.
(2) Represents an adjustment to stock option costs expensed by Alumax
but included as part of the purchase price by Alcoa.
(3) Pro forma adjustments have been included to adjust depreciation
expense based on property, plant and equipment fair values and the
amortization of goodwill. An average useful life of 25 years was
assumed for fixed assets and a 40-year amortization period was
assumed for goodwill.
(4) Represents an adjustment to eliminate the amortization of Alumax
pre-operating costs.
(5) Represents interest expense related to long-term debt issued to
finance the acquisition.
(6) Represents an adjustment to record interest expense based on the
fair value of the Alumax financial instruments.
(7) Represents income taxes related to pro forma adjustments at the
statutory rate, and the impact of certain non-deductible costs.
(8) Represents the conversion of Alumax common stock and the issuance
of 37 million shares of Alcoa common stock in connection with the
Alumax merger.
(B)Certain reclassifications have been made to the Reynolds historical
financial statements to conform to the presentation to be used by Alcoa
upon completion of the merger.
(C)On August 10, 1998, Reynolds completed the sale of its North American
aluminum beverage can operations to Ball Corporation for $746 million
in cash. The Unaudited Pro Forma Condensed Consolidated Earnings
Statement for the year ended December 31, 1998, presents the consolidated
results of operations of Reynolds assuming that the disposition of the
North American Can Operations had occurred as of January 1, 1998.
Notes (1) through (5) to the following Reynolds Unaudited Pro Forma
Condensed Consolidated Earnings Statement for the year ended December
31, 1998 describe the adjustments made for that presentation.
55
<PAGE> 56
REYNOLDS METALS COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED EARNINGS STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LESS:
HISTORICAL NORTH AMERICAN PRO FORMA REYNOLDS
REYNOLDS CAN OPERATIONS(1) ADJUSTMENTS PRO FORMA
---------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Sales..................... $5,839 $ 772 $ -- $5,067
Other income.............. 20 -- -- 20
------ ----- ----- ------
5,859 772 -- 5,087
Costs and Expenses
Cost of products sold..... 4,774 (677) -- 4,097
Selling, general
administrative and other
expenses................. 347 (11) -- 336
Research and development
expenses................. 31 -- -- 31
Provision for
depreciation, depletion
and amortization......... 252 -- -- 252
Interest expense.......... 114 -- (42)(2) 72
Special items............. 144 -- 336 (3) 480
------ ----- ----- ------
5,662 (688) 294 5,268
Earnings
Income before taxes on
income, extraordinary
loss and cumulative
effect of accounting
change................... 197 (84) (294) (181)
Provision for taxes on
income (credit).......... 45 (32) (112)(4) (99)
------ ----- ----- ------
Income Before Extraordinary
Loss and Cumulative Effect
of Accounting Change...... $ 152 $ (52) $(182) $ (82)
====== ===== ===== ======
Earnings per share before
extraordinary loss and
cumulative effect of
accounting change
Basic:.................... $ 2.18 -- -- $(1.24)
Diluted:.................. $ 2.18 -- -- $(1.24)
Weighted average shares
outstanding
(in millions)
Basic:.................... 70 -- (4)(5) 66
Diluted:.................. 70 -- (4)(5) 66
The accompanying notes to unaudited pro forma financial information are an
integral part of these statements.
</TABLE>
56
<PAGE> 57
- --------------
(1) The amounts included in the North American Can Operations column on
the income statement reflects the direct activity of the operations from
January 1, 1998 through August 10, 1998, the date of their disposition.
Depreciation expense was not included in the operations' expenses
for the year 1998. In 1998, the operations were accounted for as an
asset held for sale and, as required by current accounting rules,
depreciation was stopped. Pretax income has been tax effected at
Reynolds' statutory rate (38%).
(2) This pro forma adjustment represents the estimated reduction in
interest expense as a result of long-term debt being reduced by $470
million. Interest expense was calculated using the weighted average
interest rate (approximately 9%) on the long-term debt expected to
be extinguished.
(3) This pro forma adjustment eliminates the gain realized on the
disposition.
(4) Pretax income has been tax effected at Reynolds' statutory rate
(38%).
(5) The shares used for pro forma earnings per share reflect $208
million of proceeds being used to repurchase approximately
3,690,000 shares of Reynolds common stock.
(D)It has been assumed that all Reynolds employee stock options were
exercised for Reynolds shares before the merger. The cash received
from the exercise was assumed to be utilized to reduce short-term
debt. In addition, the appropriate tax benefit has been recorded
as a credit to equity. The following details the exercise of the
Reynolds employee stock options:
September 30, 1999
------------------
Stock options outstanding............................... 5,067,925
Weighted average exercise price per share............... $56.49
Cash received upon exercise of stock options at the
weighted average exercise price........................ 286 million
Tax benefit related to stock option exercise............ 25 million
Total Reynolds shares outstanding after the exercise of stock options is as
follows:
September 30, 1999
------------------
Number of Reynolds shares issued and outstanding (including
deferred awards).......................................... 63,224,978
Number of Reynolds shares issued upon exercise of
outstanding Reynolds stock options........................ 5,067,925
----------
68,292,903
==========
(E)The Reynolds acquisition is to be accounted for as a purchase business
combination. The Unaudited Pro Forma Condensed Consolidated Financial
Statements do not include any adjustments related to Reynolds severance
arrangements, restructuring costs or recurring benefits from synergies.
Alcoa and Reynolds are currently awaiting approval for the merger
transaction from various government authorities. Therefore, at the present
time, the amount of information that the two companies can share is
limited. Reynolds has certain severance plans, agreements and policies
applicable to its executive management and salaried employees. It is
probable that some covered persons will become entitled to severance
benefits under these arrangements following the completion of the merger.
The maximum amount payable under such arrangements is in the range of $200
to $225 million. The actual amount to be paid cannot be determined at
present because Alcoa has not yet identified the employees who might be
affected. In addition, Alcoa has initiated an assessment of restructuring
costs and potential benefits from synergies; however, for the reasons noted
above, these studies cannot be completed. Based on these facts, an
estimate of the potential benefit from synergies or the amount of
restructuring costs is not yet available. However, it is possible that the
amounts involved related to the effects of restructuring could have a
material impact on the purchase price allocation. The purchase price
includes an adjustment for deferred income taxes representing the
difference between the assigned values and the tax basis of the assets
and liabilities acquired. The purchase price, including acquisition costs,
has been allocated as follows:
57
<PAGE> 58
<TABLE>
<CAPTION>
September 30, 1999
--------------------
<S> <C> <C>
Purchase price:
Acquisition of outstanding shares of common stock (see
note E)................................................ $ 4,821
Acquisition expenses incurred by Alcoa.................. 35
Less: Cash received from the exercise of outstanding
Reynolds stock options................................. $ (286)
Tax benefit from the exercise of outstanding Reynolds
stock options.................................. (25)
Book value of net assets acquired.................... (2,094) (2,405)
--------- ---------
Increase in basis....................................... $ 2,451
=========
Allocation of increase in basis:
Increase in inventory value to convert LIFO to fair
value.................................................. $ 259
Increase in the fair value of property, plant and
equipment.............................................. 2,319
Adjust pension and postretirement accruals.............. (127)
Increase in goodwill.................................... 858
Increase in deferred tax liabilities--long-term......... (858)
---------
$ 2,451
=========
</TABLE>
The purchase price allocation is preliminary and further refinements may be
made based on the completion of final valuation studies.
(F)Represents the issuance of Alcoa common stock for all of the common stock
of Reynolds at an exchange ratio of 1.06 shares of Alcoa common stock per
share of Reynolds common stock. In accordance with generally accepted
accounting principles, the value of Alcoa stock to be issued was determined
based on the market price of such Alcoa common stock over a reasonable
period of time before and after August 18, 1999, the date the merger
agreement was executed. This resulted in a value of $66.60 per share of
Alcoa stock. Based on these facts, a value of $70.60 was ascribed to each
share of Reynolds common stock. Therefore, the acquisition of 68,292,903
shares of Reynolds common stock at a value of $70.60 totaled $4.821
billion.
The following details the issuance of common stock in connection with the
merger agreement.
September 30, 1999
------------------
Total stock acquisition price paid in shares of
Alcoa common stock................................. $4,821
Par value of Alcoa common stock issued at $66.60.... (72)
------
Additional capital.................................. $4,749
======
(G)Represents the elimination of inter-company sales and purchases between
Alcoa and Reynolds.
(H)Represents lower pension and OPEB expenses as a result of recording a pro
forma adjustment to record unrecognized actuarial losses and unrecognized
prior service costs. See note D.
(I)Pro forma adjustments have been included to adjust depreciation expense
based on property, plant and equipment fair values and the amortization of
goodwill. An average useful life of 25 years was assumed for fixed assets
and a 40-year amortization period was assumed for goodwill.
(J)Cash received from the exercise of Reynolds employee stock options was
assumed to be used to reduce short-term debt. This adjustment reflects the
lower interest expense that would be recognized as a result of this
reduction in debt.
(K)Represents the elimination of merger-related costs from the pro forma
statement of income.
(L)Represents income taxes related to pro forma adjustments at the statutory
rate and the impact of certain non-deductible costs.
(M)Represents the conversion of Reynolds common stock and the issuance of 72
million shares of Alcoa common stock in connection with the merger.
58
