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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-1430
REYNOLDS METALS COMPANY
A Delaware Corporation
(I.R.S. Employer Identification No. 54-0355135)
6601 West Broad Street, P. O. Box 27003, Richmond, Virginia 23261-7003
Telephone Number (804) 281-2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
As of July 31, 1998, the Registrant had 72,094,090 shares of
Common Stock, no par value, outstanding and entitled to vote.
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (millions, except per share amounts)
- ---------------------------------------------------------------------------------
Quarters ended Six months ended
June 30 June 30
- -----------------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------
REVENUES $1,579 $1,786 $3,111 $3,410
COSTS AND EXPENSES
Cost of products sold 1,275 1,463 2,526 2,823
Selling, administrative and general expenses 96 107 189 209
Depreciation and amortization 66 92 136 185
Interest 33 37 67 76
Operational restructuring effects 304 7 304 (31)
- ------------------------------------------------------------------------------------
1,774 1,706 3,222 3,262
- ------------------------------------------------------------------------------------
EARNINGS
Income (loss) before income taxes, extraordinary
loss and cumulative effect of accounting change (195) 80 (111) 148
Taxes on income (credit) (72) 25 (46) 50
- ------------------------------------------------------------------------------------
Income (loss) before extraordinary loss and
cumulative effect of accounting change (123) 55 (65) 98
Extraordinary loss (3) - (3) -
Cumulative effect of accounting change - - (23) -
- ------------------------------------------------------------------------------------
NET INCOME (LOSS) ($126) $ 55 ($91) $ 98
====================================================================================
EARNINGS PER SHARE
Basic:
Average shares outstanding 72 73 73 73
Income (loss) before extraordinary loss and
cumulative effect of accounting change ($1.70) $0.76 ($0.89) $1.35
Extraordinary loss (.04) - (.04) -
Cumulative effect of accounting change - - (.32) -
- -----------------------------------------------------------------------------------
Net income (loss) ($1.74) $0.76 ($1.25) $1.35
===================================================================================
Diluted:
Average shares outstanding 72 74 73 74
Income (loss) before extraordinary loss and
cumulative effect of accounting change ($1.70) $0.75 ($0.89) $1.34
Extraordinary loss (.04) - (.04) -
Cumulative effect of accounting change - - (.32) -
- ------------------------------------------------------------------------------------
Net income (loss) ($1.74) $0.75 ($1.25) $1.34
====================================================================================
CASH DIVIDENDS PER COMMON SHARE $0.35 $0.35 $0.70 $0.70
====================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (millions)
- --------------------------------------------------------------------------------
June 30 December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 200 $ 70
Receivables, less allowances of $14 (1997 - $16) 895 1,015
Inventories 551 744
Prepaid expenses and other 167 165
- --------------------------------------------------------------------------------
Total current assets 1,813 1,994
Unincorporated joint ventures and associated companies 1,390 1,381
Property, plant and equipment 5,873 6,533
Less allowances for depreciation and amortization 3,366 3,579
- --------------------------------------------------------------------------------
2,507 2,954
Deferred taxes and other assets 1,023 897
- --------------------------------------------------------------------------------
Total assets $6,733 $7,226
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities $ 897 $1,074
Short-term borrowings 61 67
Long-term debt 223 142
- --------------------------------------------------------------------------------
Total current liabilities 1,181 1,283
Long-term debt 1,465 1,501
Postretirement benefits 1,022 1,043
Environmental, deferred taxes and other liabilities 597 660
Stockholders' equity:
Common stock 1,533 1,521
Retained earnings 1,111 1,253
Treasury stock, at cost (126) -
Accumulated other comprehensive income (50) (35)
- --------------------------------------------------------------------------------
Total stockholders' equity 2,468 2,739
- --------------------------------------------------------------------------------
Contingent liabilities (Note 9)
Total liabilities and stockholders' equity $6,733 $7,226
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (millions)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Six months ended June 30 1998 1997
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(91) $ 98
Adjustments to reconcile to net cash provided by (used in)
operating activities:
Depreciation and amortization 136 185
Operational restructuring effects 304 (31)
Deferred taxes and other (104) 27
Extraordinary item 3 -
Cumulative effect of accounting change 23 -
Changes in operating assets and liabilities net of
effects of dispositions:
Accounts payable, accrued and other liabilities (149) 2
Receivables (15) (234)
Inventories 82 (123)
Other (70) (33)
- ------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 119 (109)
INVESTING ACTIVITIES
Capital investments:
Operational (57) (65)
Strategic (72) (65)
Sales of assets - operational restructuring 273 288
Other (3) (2)
- ------------------------------------------------------------------------------
Net cash provided by investing activities 141 156
FINANCING ACTIVITIES
Decrease in short-term borrowings (4) (51)
Proceeds from long-term debt 100 -
Reduction of long-term debt (60) -
Cash dividends paid (51) (48)
Repurchase of common stock (126) -
Stock options exercised 11 36
- ------------------------------------------------------------------------------
Net cash used in financing activities (130) (63)
CASH AND CASH EQUIVALENTS
Net increase (decrease) 130 (16)
At beginning of period 70 38
- --------------------------------------------------------------------------------
At end of period $ 200 $ 22
==============================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Six months ended June 30 1998 1997
- -------------------------------------------------------------------------
SHARES (thousands):
Common stock
Balance at January 1 73,909 72,719
Issued under employee benefit plans 194 665
- -------------------------------------------------------------------------
Balance at June 30 74,103 73,384
=========================================================================
Treasury stock
Balance at January 1 - -
Purchased and held as Treasury stock (2,009) -
- -------------------------------------------------------------------------
Balance at June 30 (2,009) -
- -------------------------------------------------------------------------
Net common shares outstanding 72,094 73,384
=========================================================================
DOLLARS (millions):
Common stock
Balance at January 1 $1,521 $1,451
Issued under employee benefit plans 12 38
- -------------------------------------------------------------------------
Balance at June 30 $1,533 $1,489
=========================================================================
Retained earnings
Balance at January 1 $1,253 $1,220
Net income (loss) (91) 98
Cash dividends declared for common stock (51) (51)
- -------------------------------------------------------------------------
Balance at June 30 $1,111 $1,267
=========================================================================
Treasury stock
Balance at January 1 $ - $ -
Purchased and held as Treasury stock (126) -
- -------------------------------------------------------------------------
Balance at June 30 $ (126) $ -
=========================================================================
Accumulated other comprehensive income (loss)
Balance at January 1 $ (35) $ (37)
Foreign currency translation adjustments (9) (34)
Income taxes (6) 2
-----------------------
Other comprehensive income (loss) (15) (32)
- ------------------------------------------------------------------------
Balance at June 30 $ (50) $ (69)
========================================================================
Total stockholders' equity $2,468 $2,687
========================================================================
COMPREHENSIVE INCOME (millions):
Net income (loss) $ (91) $ 98
Other comprehensive income (loss) (15) (32)
- ------------------------------------------------------------------------
Comprehensive income (loss) $ (106) $ 66
========================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the interim periods of
1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997. Certain amounts have
been reclassified to conform to the 1998 presentation. In the
tables, dollars are in millions, except share and per share
amounts, and shipments are in thousands of metric tons. A metric
ton is equivalent to 2,205 pounds.
2. ACCOUNTING POLICIES
COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted the Financial
Accounting Standards Board's (FASB) Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 establishes new rules
for the reporting and display of comprehensive income and its
components; however, the adoption of the Statement had no impact
on the Company's net income or stockholders' equity. Statement
No. 130 requires the Company's foreign currency translation
adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified
to conform to the requirements of Statement No. 130. The
presentation of comprehensive income is included in the
Consolidated Statement of Changes in Stockholders' Equity.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
In the second quarter of 1998, the Accounting Standards Executive
Committee (AcSEC) of the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." The SOP requires costs of
start-up activities and organization costs to be expensed as
incurred. It is effective for 1999; however, early application
is encouraged. The Company adopted the SOP in the second quarter
of 1998 and applied it retroactively to January 1, 1998 as
required. The Company recognized a charge for the cumulative
effect of accounting change of $23 million in the restated
financial statements for the first quarter of 1998. The effect
on "income before cumulative effect of accounting change" in the
Consolidated Statement of Income for the 1998 and 1997 interim
periods was not material.
ACCOUNTING FOR THE COSTS OF DEVELOPING OR OBTAINING INTERNAL-USE
SOFTWARE
In the first quarter of 1998, the AcSEC issued SOP 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP requires qualifying computer
software costs incurred in connection with obtaining or
developing software for internal use to be capitalized. The
Company currently capitalizes the costs of purchased software and
expenses the costs of internally developed software. The Company
plans to adopt the SOP in 1999 on a prospective basis when it
becomes effective.
7
2. ACCOUNTING POLICIES -- continued
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the second quarter of 1998, the FASB issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This statement establishes new accounting and reporting standards
for derivative instruments and hedging activities. The Company
must adopt this statement by January 1, 2000. The Company has
not determined the impact this statement will have on its
financial position or results of operations.
3. OPERATIONAL RESTRUCTURING
In the first half of 1998, the Company sold the following:
= U.S. recycling operations
= Canadian extrusion facilities
= European rolling mill operations
= an Illinois sheet and plate plant
The Company has signed an asset purchase agreement for the sale
of its North American aluminum beverage can operations. The sale
includes 14 can plants, two end plants and a headquarters
building. The Company expects to realize proceeds from the
transaction of approximately $746 million and an after-tax gain
of approximately $200 million. The sale will not include the
Company's can machinery operations, its 27.5% interest in United
Arab Can Manufacturing Company, Ltd. or its 34.9% interest in
Latasa de Aluminio S.A. (Latasa), a Latin American beverage can
manufacturer.
The Company has signed a letter of intent to sell its Alabama can
stock complex. The sale will include a rolling mill, two nearby
reclamation plants that provide input metal to the mill, and a
coil coating facility. The Company recorded a pre-tax charge of
$304 million ($196 million after taxes) in the second quarter of
1998 for this transaction.
The Company has also signed a letter of intent to sell its can
machinery operations. The Company expects to realize a small
gain on this transaction.
All of the transactions are subject to one or more of the following:
regulatory approvals, transaction financing by the purchaser,
negotiation and execution of definitive agreements, and/or other
customary closing conditions.
The carrying amount for assets to be sold was approximately $1.1
billion at June 30, 1998. The operating income related to the
assets to be sold was $36 million for the second quarter of 1998
and $57 million for the six-month period of 1998. These amounts
include $14 million in the second quarter and $29 million in the
six-month period relating to the ceasing of depreciation of the
assets held for sale as required by current accounting rules.
The Company is using the proceeds from completed divestitures
for debt repayments and repurchases of common stock (see Notes 4
and 7). The Company plans to use the proceeds from expected
asset sales for the same purpose.
8
3. OPERATIONAL RESTRUCTURING -- continued
In the first quarter of 1997, the Company sold its U.S.
residential construction products operations. In the second
quarter of 1997, the Company sold the following:
= an aluminum reclamation plant in Virginia
= aluminum extrusion plants in Virginia and Texas
= coal properties in Kentucky
The Company recognized pre-tax gains of $38 million in the first
quarter of 1997 and $18 million in the second quarter of 1997
related to these sales. Proceeds from these sales were used to
reduce debt and to temporarily support operating requirements.
Also in the second quarter of 1997, the Company recorded a pre-
tax charge of $25 million for termination benefits applicable to
approximately 500 corporate headquarters employees. Cash
requirements relating to the termination benefits have been paid.
4. EXTRAORDINARY LOSS
In the second quarter of 1998, the Company had an extraordinary
loss of $3 million (net of income tax benefit of $1 million)
resulting from debt extinguishments. The debt consisted of $30
million of medium-term notes with an average interest rate of
8.8% and original maturities ranging from 2002 to 2008. The debt
was extinguished with proceeds from asset sales.
The Company expects to extinguish approximately $470 million of
debt with part of the proceeds from the sale of its North American
aluminum beverage can operations. This debt extinguishment would
be expected to result in an extraordinary loss of approximately
$42 million (net of income tax benefit of $26 million).
5. 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."
Quarters ended June 30
-------------------------
1998 1997
-------------------------
Income (numerator):
Income (loss) before extraordinary loss and cumulative
effect of accounting change (Basic and Diluted) $(123) $55
Average shares (denominator):
Basic 72,056,000 73,122,000
Effect of dilutive securities:
Stock options - 675,000
-------------------------
Diluted 72,056,000 73,797,000
-------------------------
Per share amount for income (loss) before extraordinary
loss and cumulative effect of accounting change:
Basic earnings per share $(1.70) $0.76
Diluted earnings per share $(1.70) $0.75
Antidilutive securities excluded:
Stock options 5,411,000 150,000
9
5. EARNINGS PER SHARE -- continued
Six Months ended June 30
------------------------------
1998 1997
------------------------------
Income (numerator):
Income (loss) before extraordinary loss and
cumulative effect of accounting change
(Basic and Diluted) $(65) $98
Average shares (denominator):
Basic 72,612,000 72,997,000
Effect of dilutive securities:
Stock options - 591,000
--------------------------
Diluted 72,612,000 73,588,000
--------------------------
Per share amount for income (loss) before extraordinary
loss and cumulative effect of accounting change:
Basic earnings per share $(0.89) $1.35
Diluted earnings per share $(0.89) $1.34
Antidilutive securities excluded:
Stock options 5,493,000 506,000
6. FINANCING ARRANGEMENTS
In the first quarter of 1998, the Company borrowed $100 million
under its Canadian bank credit agreement. The borrowing bears interest
at a variable rate (6.0% at June 30, 1998) and requires repayment
in a lump sum in 2001.
In the second quarter of 1998, the Company extinguished $30 million of
medium term notes. See Note 4 for more information concerning
these transactions.
7. STOCKHOLDERS' EQUITY
In the first quarter of 1998, the Company repurchased two million
shares of its common stock at market prices. The cost of the
repurchases was $126 million.
Authority to repurchase up to 18 million shares of common stock
became effective in the second quarter of 1998 with the signing
of the definitive agreement for the sale of the Company's North
American aluminum beverage can operations. This repurchase
authorization includes the five million share repurchase program
announced in the first quarter of 1998 and it extends to December
31, 2000.
8. COMPANY OPERATIONS
In the second quarter of 1998, the Company signed a letter of
intent to sell its Alabama can stock complex (see Note 3).
As a result, the Company has moved this operation from the
"Other" category to the "Restructuring" category in its
segment disclosures. The comparative periods of 1997 have been
restated to reflect this change.
10
8. COMPANY OPERATIONS -- continued
Packaging Construction
Base and and
Second Quarter 1998 Materials Consumer Distribution
- ---------------------------------------------------------------------------
Customer aluminum shipments 168 37 46
Internal aluminum shipments 82 - -
- ---------------------------------------------------------------------------
Total aluminum shipments 250 37 46
Customer revenues:
Aluminum $269 $205 $170
Nonaluminum 114 144 81
Intersegment revenues - aluminum 126 - -
- ---------------------------------------------------------------------------
Total revenues $509 $349 $251
===========================================================================
Operating income (loss) $ 95 $ 40 $ 8
Interest expense
- ---------------------------------------------------------------------------
Income before income taxes
===========================================================================
Second Quarter 1997
- ---------------------------------------------------------------------------
Customer aluminum shipments 121 36 42
Internal aluminum shipments 194 - -
- ----------------------------------------------------------------------------
Total aluminum shipments 315 36 42
Customer revenues:
Aluminum $220 $201 $155
Nonaluminum 87 145 85
Intersegment revenues - aluminum 342 - -
- ----------------------------------------------------------------------------
Total revenues $649 $346 $240
============================================================================
Operating income (loss) $ 76 $ 34 $ 14
Interest expense
- ---------------------------------------------------------------------------
Income before income taxes
============================================================================
11
Recon-
Transpor- Restruc- ciling Consoli-
Second Quarter 1998 tation turing Other Items dated
- ------------------------------------------------------------------------------
Customer aluminum shipments 15 103 9 - 378
nternal aluminum shipments - 2 - (84) -
- ------------------------------------------------------------------------------
Total aluminum shipments 15 105 9 (84) 378
Customer revenues:
Aluminum $81 $460 $ 32 $ - $1,217
Nonaluminum - - 23 - 362
Intersegment revenues - aluminum - 5 - (131) -
- ------------------------------------------------------------------------------
Total revenues $81 $465 $ 55 $(131) $1,579
==============================================================================
Operating income (loss) $(7) $ 38 $(33) $(303) $ (162)
Interest expense (33)
- ------------------------------------------------------------------------------
Income before income taxes $ (195)
==============================================================================
Second Quarter 1997
- --------------------------------------------------------------------------------
Customer aluminum shipments 17 205 11 - 432
Internal aluminum shipments - 3 - (197) -
- ------------------------------------------------------------------------------
Total aluminum shipments 17 208 11 (197) 432
Customer revenues:
Aluminum $95 $728 $ 37 $ - $1,436
Nonaluminum - 17 16 - 350
Intersegment revenues - aluminum - 9 - (351) -
- ------------------------------------------------------------------------------
Total revenues $95 $754 $ 53 $(351) $1,786
==============================================================================
Operating income (loss) $ 7 $ 46 $(40) $ (20) $ 117
Interest expense (37)
- ------------------------------------------------------------------------------
Income before income taxes $ 80
==============================================================================
12
8. COMPANY OPERATIONS -- continued
Packaging Construction
Base and and
Six Months of 1998 Materials Consumer Distribution
- -----------------------------------------------------------------------
Customer aluminum shipments 313 67 92
Internal aluminum shipments 181 - -
- -----------------------------------------------------------------------
Total aluminum shipments 494 67 92
Customer revenues:
Aluminum $ 516 $380 $335
Nonaluminum 229 280 163
Intersegment revenues - aluminum 289 - -
- -----------------------------------------------------------------------
Total revenues $1,034 $660 $498
=======================================================================
Operating income (loss) $ 174 $ 62 $ 16
Interest expense
- -----------------------------------------------------------------------
Income before income taxes
=======================================================================
Six Months of 1997
- -----------------------------------------------------------------------
Customer aluminum shipments 223 67 82
Internal aluminum shipments 379 - -
- -----------------------------------------------------------------------
Total aluminum shipments 602 67 82
Customer revenues:
Aluminum $ 399 $371 $299
Nonaluminum 199 279 168
Intersegment revenues - aluminum 653 - -
- -----------------------------------------------------------------------
Total revenues $1,251 $650 $467
=======================================================================
Operating income (loss) $ 142 $ 55 $ 22
Interest expense
- -----------------------------------------------------------------------
Income before income taxes
=======================================================================
13
Recon-
Transpor- Restruc- ciling Consoli-
Six Months of 1998 tation turing Other Items dated
- ------------------------------------------------------------------------------
Customer aluminum shipments 31 219 18 - 740
Internal aluminum shipments - 4 - (185) -
- ------------------------------------------------------------------------------
Total aluminum shipments 31 223 18 (185) 740
Customer revenues:
Aluminum $168 $ 937 $ 61 $ 0 $2,397
Nonaluminum - 5 37 0 714
Intersegment revenues - aluminum - 12 - (301) -
- ------------------------------------------------------------------------------
Total revenues $168 $ 954 $ 98 $(301) $3,111
==============================================================================
Operating income (loss) $ (7) $ 79 $(68) $(300) $ (44)
Interest expense (67)
- ------------------------------------------------------------------------------
Income before income taxes $ (111)
==============================================================================
Six Months of 1997
- ------------------------------------------------------------------------------
Customer aluminum shipments 34 398 18 - 822
Internal aluminum shipments - 5 - (384) -
- ------------------------------------------------------------------------------
Total aluminum shipments 34 403 18 (384) 822
Customer revenues:
Aluminum $184 $1,378 $ 64 $ - $2,695
Nonaluminum - 41 28 - 715
Intersegment revenues - aluminum - 17 - (670) -
- ------------------------------------------------------------------------------
Total revenues $184 $1,436 $ 92 $(670) $3,410
==============================================================================
Operating income (loss) $ 11 $ 54 $(72) $ 12 $ 224
Interest expense (76)
- ------------------------------------------------------------------------------
Income before income taxes $ 148
==============================================================================
RECONCILING ITEMS
Reconciling items consist of the following:
Quarters ended June 30
------------------------
1998 1997
------------------------
Operating income (loss):
Inventory accounting adjustments $ 1 $(13)
Operational restructuring effects - net (304) (7)
------------------------
$(303) $(20)
========================
Six Months ended June 30
--------------------------
1998 1997
--------------------------
Operating income (loss):
Inventory accounting adjustments $ 4 $(19)
Operational restructuring effects - net (304) 31
--------------------------
$(300) $ 12
==========================
Inventory accounting adjustments are the elimination of
unrealized profits and losses on sales between global business
units. Operational restructuring effects are explained in Note
3.
14
9. CONTINGENT LIABILITIES
As previously disclosed in the Company's 1997 Form 10-K, the
Company is involved in various worldwide environmental
improvement activities resulting from past operations, including
designation as a potentially responsible party (PRP), with
others, at various Environmental Protection Agency-designated
Superfund sites. The Company has recorded amounts (on an
undiscounted basis) which, in management's best estimate, will be
sufficient to satisfy anticipated costs of known remediation
requirements.
Estimated costs for future environmental compliance and
remediation are necessarily imprecise because of factors such as:
= continuing evolution of environmental laws and regulatory
requirements
= availability and application of technology
= identification of presently unknown remediation requirements
= cost allocations among PRPs
Further, it is not possible to predict the amount or timing of
future costs of environmental remediation that may subsequently
be determined. Based on information presently available, such
future costs are not expected to have a material adverse effect
on the Company's competitive or financial position or its ongoing
results of operations. However, such costs could be material to
results of operations in a future interim or annual reporting
period.
10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM
COMPANY OF CANADA, LTD.
Financial statements and financial statement schedules for
Canadian Reynolds Metals Company, Ltd. and Reynolds Aluminum
Company of Canada, Ltd. have been omitted because certain
securities registered under the Securities Act of 1933, of which
these entities are obligors (thus subjecting them to reporting
requirements under Section 13 or 15(d) of the Securities Exchange
Act of 1934), are fully and unconditionally guaranteed by
Reynolds Metals Company. Financial information relating to these
companies is presented herein in accordance with Staff Accounting
Bulletin 53 as an addition to the footnotes to the financial
statements of Reynolds Metals Company. Summarized financial
information is as follows:
15
10. CANADIAN REYNOLDS METALS COMPANY, LTD. AND REYNOLDS ALUMINUM
COMPANY OF CANADA, LTD. - continued
Canadian Reynolds Metals Company, Ltd.
Quarters Ended June 30 Six Months Ended June 30
---------------------- ------------------------
1998 1997 1998 1997
---------------------- ------------------------
Net Sales:
Customers $ 90 $ 55 $183 $ 99
Parent and related companies 118 170 249 360
---------------------- ------------------------
$208 $225 $432 $459
Cost of products sold 176 174 361 362
Net income $ 21 $ 26 $ 49 $ 55
June 30 December 31
1998 1997
--------------------------
Current assets $ 321 $ 179
Noncurrent assets 1,184 1,206
Current liabilities (107) (148)
Noncurrent liabilities (514) (415)
Reynolds Aluminum Company of Canada, Ltd.
Quarters Ended June 30 Six Months Ended June 30
---------------------- ------------------------
1998 1997 1998 1997
--------------------- ------------------------
Net Sales:
Customers $112 $139 $231 $258
Parent and related companies 114 159 239 335
------------------ -----------------------
$226 $298 $470 $593
Cost of products sold 194 237 395 481
Net income $ 18 $ 30 $ 47 $ 57
June 30 December 31
1998 1997
-----------------------------
Current assets $ 298 $ 208
Noncurrent assets 1,256 1,276
Current liabilities (112) (111)
Noncurrent liabilities (544) (445)
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and related footnotes included
in the Company's 1997 Form 10-K along with the consolidated
financial statements and related footnotes included in and
referred to in this report. In the tables, dollars are in
millions, except per share amounts, and shipments are in
thousands of metric tons. A metric ton is equivalent to
2,205 pounds.
Management's Discussion and Analysis contains forecasts,
projections, estimates, statements of management's plans and
objectives for the Company and other forward-looking statements.
Please refer to the "Risk Factors" section beginning on page 22,
where we have summarized factors that could cause actual results
to differ materially from those projected in a forward-looking
statement or affect the extent to which a particular projection
is realized.
RESULTS OF OPERATIONS
We more than offset the negative impact of lower primary aluminum
prices with improved sales volume in several of our ongoing
businesses; significant cost reduction in our base materials
operations; lower selling, administrative and general expenses;
and lower interest expense. For information concerning the
special items in the following table, see the notes to the
consolidated financial statements.
Second Quarter Six Months
--------------- ------------
1998 1997 1998 1997
--------------- ------------
Results
Income before special items $ 73 $ 59 $ 131 $ 79
Operational restructuring effects (see Note 3) (196) (4) (196) 19
Extraordinary loss (see Note 4) (3) - (3) -
Cumulative effect of accounting change (see Note 2) - - (23) -
----------------------------
Net income (loss) $ (126) $ 55 $ (91) $ 98
============================
Earnings per share - basic
Income before special items $ 1.02 $0.81 $ 1.81 $1.08
Operational restructuring effects - net (2.72) (0.05) (2.70) 0.27
Extraordinary loss (.04) - (.04) -
Cumulative effect of accounting change - - (.32) -
-----------------------------
Net income (loss) $(1.74) $0.76 $(1.25) $1.35
=============================
17
RESULTS OF OPERATIONS - continued
GLOBAL BUSINESS UNITS
Base Materials
Second Quarter Six Months
--------------- ----------------
1998 1997 1998 1997
--------------- ----------------
Aluminum shipments:
Customer 168 121 313 223
Internal 82 194 181 379
--------------- ----------------
Total 250 315 494 602
=============== ================
Revenues:
Customer - aluminum $269 $220 $ 516 $ 399
- nonaluminum 114 87 229 199
Internal - aluminu 126 342 289 653
--------------- -----------------
Total $509 $649 $1,034 $1,251
=============== =================
Operating income $ 95 $ 76 $ 174 $ 142
=============== =================
The increase in customer aluminum shipments in the 1998 periods
reflected continuing strong demand for our rod, foundry and
billet products. Our available supply to meet customer needs
increased because we no longer need to supply downstream
fabricating operations that have been sold. Our available supply
also increased because of restarting idle capacity (as discussed
below). The sale of certain of our operations resulted in lower
internal requirements for primary aluminum, which caused our
internal shipments to decline.
In addition to reflecting the changes in shipping volume,
aluminum revenues were adversely affected in the 1998 periods by
lower prices for primary aluminum. Average realized prices for
customer shipments were $0.73 in the second quarter of 1998
compared to $0.83 in the second quarter of 1997. Average
realized prices for customer shipments were $0.75 in the six-
month period of 1998 compared to $0.82 in the six month period of
1997. We believe prices were lower mainly because of the
continuing economic uncertainty in Asia.
Higher sales of alumina led to the increase in nonaluminum
revenues in both 1998 periods. The additional supply was made
possible by significant improvements in production and capacity
utilization at our Sherwin, Texas alumina plant.
Operating income improved in the second quarter and six months of
1998 because of:
= higher customer shipments
= significant cost reductions
= improved capacity utilization in alumina operations
= lower costs for certain raw materials
These benefits were partially offset by:
= lower internal shipments
= lower prices for primary aluminum
= restart costs at our primary aluminum plants
= lower technical services income
18
RESULTS OF OPERATIONS - continued
GLOBAL BUSINESS UNITS - continued
Base Materials - continued
Results in both years were negatively impacted by temporarily
curtailed capacity at our U.S. primary aluminum plants. In the
first quarter of 1998, we began the process of restarting some of
this idle capacity. The restart of 47,000 metric tons of
capacity at our Longview, Washington plant was essentially
completed in July 1998. The announced restarts of 41,000 metric
tons of capacity at our Massena, New York plant and 74,000 metric
tons at our Troutdale, Oregon plant should be completed by the
end of September 1998. We plan to monitor market conditions
before finalizing the schedule to restart the remaining 47,000
metric tons at the Troutdale plant.
We decided to restart our idled primary aluminum capacity because
of our outlook for continued strong demand in the aluminum
market. Volume outlook for our primary metals business is strong
for billet, rod and sheet ingot. We are projecting aluminum
consumption growth of 1.0%-1.5% in 1998 and 2.5%-3.0% in 1999.
Packaging and Consumer
Second Quarter Six Months
--------------- ---------------
1998 1997 1998 1997
--------------- ---------------
Customer aluminum shipments 37 36 67 67
Revenues:
Customer - aluminum $205 $201 $380 $371
- nonaluminum 144 145 280 279
--------------- ---------------
Total $349 $346 $660 $650
=============== ===============
Operating income $ 40 $ 34 $ 62 $ 55
=============== ===============
Total shipments and revenues for packaging and consumer products
were essentially flat in the 1998 periods as compared to the same
periods in 1997. Shipments of packaging products were slightly
lower because of strong competition. Shipments of consumer
products were higher due to strong demand for Reynolds Wrap
aluminum foil and the recently introduced product, Hot Bags
aluminum foil pouches.
Operating income benefited from higher shipments of consumer
products and lower costs. Higher development and
marketing costs for new consumer products introduced in 1998
partially offset these benefits. The new consumer products
include Hot Bags aluminum foil pouches and Wrappers aluminum
foil sheets. Shipments of both products began in the second
quarter of 1998.
19
RESULTS OF OPERATIONS - continued
GLOBAL BUSINESS UNITS - continued
Construction and Distribution
Second Quarter Six Months
--------------- ---------------
1998 1997 1998 1997
--------------- ---------------
Customer aluminum shipments 46 42 92 82
Revenues:
Customer - aluminum $170 $155 $335 $299
- nonaluminum 81 85 163 168
--------------- ---------------
Total $251 $240 $498 $467
=============== ===============
Operating income $ 8 $ 14 $ 16 $ 22
=============== ===============
Shipments and revenues increased in both 1998 periods. These
improvements were due principally to higher shipments for all of
our major aluminum distribution products (plate, sheet and
extrusions) resulting from strong demand and market share growth
in our major domestic markets. Shipments of aluminum
construction products were slightly higher, reflecting steady
demand for these high value products. Growth in construction
products shipments in Europe and North America was somewhat
offset by a decline in shipments to all Asian markets except
China.
Nonaluminum revenues decreased slightly despite significant
increases in stainless steel shipments. Demand was strong for all
of our major product groups (plate, sheet and shapes). The effect
of the higher shipping volume was offset by lower prices for
stainless steel products. Prices for these products continue to
be under pressure due to high imports and strong competition.
The decline in operating income in both 1998 periods primarily
resulted from lower capacity utilization at one of our construction
products plants following the scheduled expiration of a steel
composite tolling contract in 1997. That tolling customer now
has its own production facility and pays us design and
production royalties. We also incurred higher marketing costs as
we introduced new products into the European construction markets
and expanded into new European markets. These effects were
somewhat offset by the higher shipping volume. The effect of
lower prices for stainless steel products was mostly offset by
lower costs for purchases of stainless steel.
Transportation
Second Quarter Six Months
--------------- ---------------
1998 1997 1998 1997
--------------- ---------------
Customer aluminum shipments 15 17 31 34
Customer revenues $81 $95 $168 $184
Operating income (7) 7 (7) 11
=============== ===============
Lower shipments and revenues in both 1998 periods resulted from
volume declines in wheels and bumpers. Wheel shipments were
lower because of decreased demand and a strike at a
customer. The decline in bumper shipments resulted from the
completion of a contract in 1997 that we expect to replace in
1999.
20
RESULTS OF OPERATIONS - continued
GLOBAL BUSINESS UNITS - continued
Transportation - continued
Operating income declined in both 1998 periods because of the
lower shipping volume and its adverse effect on capacity
utilization. Start-up costs in our wheel operations also
contributed to the declines.
We are implementing sales and cost reduction programs in an
effort to improve performance of our Transportation operations.
Restructuring
The decline in shipments, revenues and operating income in both
1998 periods was due to sold operations. Operating income
includes $17 million in the second quarter of 1998 and $37
million in the six-month period of 1998 relating to the ceasing
of depreciation of assets held for sale as required by current
accounting rules.
For additional information concerning the global business units,
see Note 8 to the consolidated financial statements.
INTEREST EXPENSE
Interest expense decreased in both 1998 periods because of lower
amounts of debt outstanding.
TAXES ON INCOME
The effective tax rates reflected in the income statement differ
from the U.S. federal statutory rate principally because of the
effects of foreign taxes in 1997 and 1998 and percentage depletion
allowances in 1997.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
June 30 December 31
1998 1997
--------- -------------
Working capital $632 $711
Ratio of current assets to current liabilities 1.5/1 1.6/1
OPERATING ACTIVITIES
We used the net cash provided by operating activities in the
first half of 1998 to fund capital investments.
21
LIQUIDITY AND CAPITAL RESOURCES - continued
INVESTING ACTIVITIES
Capital investments totaled $129 million in the first half of
1998. This amount includes $57 million for operating
requirements (replacement equipment, environmental control
projects, etc.). The remainder was for strategic projects
(performance improvements, investments, etc.) principally carried
forward from 1997, including:
= the expansion of the Worsley Alumina Refinery in Australia
= the modernization of our U.S. foil plants
= the modification of our Indiana automotive components plant to
produce engine cradles
In addition, we are expanding our forged wheel plant in Virginia.
The expansion will cost approximately $32 million, and we expect
it to be substantially completed in late 1998.
We expect capital investments in 1998 to total $350 million.
Approximately 43% of this amount will be used for operating
requirements. We plan to use the remainder for those strategic
projects already underway. We expect to fund our capital
investments in 1998 with cash generated from operations.
We used part of the cash from asset sales to repurchase common
stock and to repay debt. We are temporarily investing the
remainder pending additional debt repayments.
FINANCING ACTIVITIES
The significant financing activities in the first half of 1998
were:
= borrowing of $100 million under our Canadian bank credit agreement
(see Note 6)
= the repurchase of common stock (see Note 7)
= the extinguishment of $30 million of medium-term notes (see Note
4)
PORTFOLIO REVIEW
We have completed a number of divestitures and have reached an
agreement for the sale of our North American can operations. We
have also signed letters of intent to sell our can machinery
operations and our Alabama can stock complex. For additional
information concerning these transactions, see Note 3 to the
consolidated financial statements.
We have received $640 million in proceeds from divestitures. We
have reduced debt by $350 million and repurchased 2 million
shares of common stock. The remainder of our proceeds is in
cash.
We also plan to sell the following:
= our 27.5% interest in United Arab Manufacturing Company, Ltd.,
a Saudi Arabian aluminum beverage can manufacturer
= our aluminum extrusion operation in Spain
= our aluminum recycling plant in Italy
We are working with the other stockholders of Latasa, a Latin
American aluminum beverage can manufacturer, to agree upon and
implement a process that will permit the sale of our 34.9%
interest in Latasa in the near future.
22
RISK FACTORS
This section should be read in conjunction with Part I, Items 1
(Business), 3 (Legal Proceedings) and 7 (Management's Discussion
and Analysis of Financial Condition and Results of Operations) of
the Company's 1997 Form 10-K; Part II, Item 1 (Legal Proceedings)
of this report; and the preceding portions of this Item.
This report contains (and oral communications made by or on
behalf of the Company may contain) forecasts, projections,
estimates, statements of management's plans and objectives for
the Company and other forward-looking statements<FN1>. The
Company's expectations for the future and related forward-looking
statements are based on a number of assumptions and forecasts as
to world economic growth and other economic indicators (including
rates of inflation, industrial production, housing starts and
light vehicle sales), trends in the Company's key markets, global
aluminum supply and demand conditions, and aluminum ingot prices,
among other items. By their nature, forward-looking statements
involve risk and uncertainty, and various factors could cause the
Company's actual results to differ materially from those
projected in a forward-looking statement or affect the extent to
which a particular projection is realized.
The Company expects favorable conditions in aluminum industry
supply/demand fundamentals to continue for the next several years.
Consensus expectations for 1998 indicate global economic growth
of 2.5-3%. The Company is forecasting an increase in global
aluminum consumption for 1998 of approximately 1-1.5% and for
1999 of 2.5-3%. The Company's long-term outlook for growth in
aluminum consumption is between 2.5 and 4% per year.
Economic and/or market conditions other than those forecasted
by the Company in the preceding paragraph, particularly in the
U.S., Asia and Western Europe, could cause the Company's actual
results to differ materially from those projected in a
forward-looking statement or affect the extent to which a
particular projection is realized. The Company's outlook for
1998 and beyond could be jeopardized by repercussions stemming
from recent economic problems in Asia, particularly Japan.
The following factors also could affect the Company's results:
= Primary aluminum is an internationally traded commodity. The
price of primary aluminum is subject to worldwide market
forces of supply and demand and other influences. Prices can
be volatile. The Company's use of contractual arrangements,
including fixed-price sales contracts, fixed-price supply
contracts, and forward, futures and option contracts, reduces
its exposure to this volatility but does not eliminate it.
= The markets for most aluminum products are highly
competitive. Certain of the Company's competitors are larger
than the Company in terms of total assets and operations and
have greater financial resources. Certain foreign
governments are involved in the operation and/or ownership of
certain competitors and may be motivated by political as well
as economic considerations. In addition, aluminum competes
with other materials, such as steel, vinyl, plastics and
glass, among others, for various applications in the
Company's key markets. Plastic products compete with
products made of glass, aluminum, steel, paper, wood and
ceramics, among others. Unanticipated actions or developments
by or affecting the Company's competitors and/or the
willingness of customers to accept substitutions for the
products sold by the Company could affect results.
[FN]
- ---------------
<FN1>
Forward-looking statements can be identified generally as those
containing words such as "should," "hope," "forecast," "outlook,"
"project," "estimate," "expect," "anticipate," or "plan" and words of
similar effect.
</FN>
23
RISK FACTORS -- continued
= The Company spends substantial capital and operating amounts
relating to ongoing compliance with environmental laws. In
addition, the Company is involved in remedial investigations
and actions in connection with past disposal of wastes.
Estimating future environmental compliance and remediation
costs is imprecise due to the continuing evolution of
environmental laws and regulatory requirements and
uncertainties about their application to the Company's
operations, the availability and application of technology,
the identification of currently unknown remediation sites,
and the allocation of costs among potentially responsible
parties.
= Unanticipated material legal proceedings or investigations,
or the disposition of those currently pending against the
Company other than as anticipated by management and counsel,
could affect the Company's results.
= Changes in the costs of power, resins, caustic soda, green
coke and other raw materials can affect results. The
Company's contract with the Bonneville Power Administration
for the period October 1996 to September 2001 provides fixed
rates for electrical power provided to the Company's
Washington and Oregon primary aluminum plants. These rates
have been approved by federal regulatory authorities but have
been appealed in court by a third party. If the appeal is
successful, it is possible that higher electricity costs
might result.
= A number of the Company's businesses are cyclical and can be
influenced by economic conditions.
= A strike at a customer facility or a significant downturn in
the business of a key customer supplied by the Company could
affect the Company's results.
= Since late 1996, the Company has been conducting a Portfolio
Review of all its operations. The Company has announced the
signing of letters of intent for the sale of its can machinery
business and its can stock complex in North Alabama, which
consists of a rolling mill, two reclamation plants and a coil
coating facility. It has also reached an agreement to
sell substantially all the assets of its North American can
operations. These transactions are subject to certain
conditions, including obtaining regulatory approvals,
completion of purchaser financing, completion of definitive
agreements and/or other customary closing conditions. As a
result, these transactions may or may not be completed as
contemplated. The Company is also planning to sell its
interest in United Arab Manufacturing Company, Ltd., its
aluminum extrusion operation in Spain and its aluminum recycling
plant in Italy and is working with the other stockholders of
Latasa to agree upon and implement a process that will permit
the sale of the Company's interest in Latasa in the near future.
However, at this time, the Company has not entered into any
letter of intent or agreement for the sale of these assets.
In addition to the factors referred to above, the Company
is exposed to general financial, political, economic and business
risks in connection with its worldwide operations. The Company
continues to evaluate and manage its operations in a manner to
mitigate the effects from exposure to such risks. In general,
the Company's expectations for the future are based on the
assumption that conditions relating to costs, currency values,
competition and the legal, regulatory, financial, political and
business environments in the worldwide economies and markets in
which the Company operates will not change significantly overall.
24
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Forward, futures, option and swap contracts are designated to
manage market risks resulting from fluctuations in the aluminum,
natural gas, foreign currency and debt markets. Contracts used
to manage risks in these markets are not material.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously reported in the Registrant's 1997 Form 10-K, a
private antitrust lawsuit styled Hammons v. Alcan Aluminum
Corp. et al., was filed in the Superior Court of California for
the County of Los Angeles on March 5, 1996 against the Registrant
and other aluminum producers. The lawsuit alleged a conspiracy
to reduce worldwide and U.S. aluminum production. Estimated
damages of approximately $26 billion were sought in the lawsuit,
which claimed class action status. Defendants removed the case
to the U.S. District Court for the Central District of California
(the "District Court"). The District Court granted summary
judgment for defendants. On December 11, 1997, the U.S. Court of
Appeals for the Ninth Circuit sustained the District Court's
dismissal of the case. The plaintiff filed a motion seeking
review of the decision by all the judges of the Ninth Circuit.
The motion was denied on May 14, 1998. Plantiff's counsel has
stated he will petition the U.S. Supreme Court to review the
case.
Item 2. CHANGES IN SECURITIES
(a) Recent Sales of Unregistered Securities
Under the Registrant's Stock Plan for Outside Directors (the
"Plan"), 87 phantom shares, in the aggregate, were granted
to the Registrant's nine outside Directors on April 1, 1998,
based on an average price of $61.0625 per share. These
phantom shares represent dividend equivalents paid on
phantom shares previously granted under the Plan. 506
phantom shares, in the aggregate, were granted to the nine
outside Directors on June 30, 1998, based on an average
price of $55.6563 share. These phantom shares represent a
quarterly installment of each outside Director's annual
grant under the Plan.
To the extent that these grants constitute sales of equity
securities, the Registrant issued these phantom shares in
reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, taking into account the
nature of the Plan, the number of outside Directors
participating in the Plan, the sophistication of the outside
Directors and their access to the kind of information that a
registration statement would provide.
A description of the Plan is contained in the Registrant's
Form 10-K for the year ended December 31, 1997 in Part II,
Item 5 under the caption "Sale of Unregistered Securities".
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Registrant was held on
May 14, 1998. The stockholders (i) elected the eleven nominees
named in the Registrant's proxy statement to serve as Directors,
(ii) ratified the selection of Ernst & Young LLP as independent
auditors of the Registrant for 1998, and (iii) defeated a
stockholder proposal requesting endorsement of the CERES
Principles, which provide standards for environmental performance
and reporting. The number of votes cast for, against or
withheld, and the number of abstentions, and the number of
broker no-votes, as applicable, with respect to each matter
were as set forth below. No other matters were voted upon at
the meeting.
25
(i) Election of Directors
Name Number Of Votes Number Of Votes
Cast "For" Withheld
Patricia C. Barron 65,261,986 1,262,368
John R. Hall 65,253,649 1,270,705
Robert L. Hintz 65,259,711 1,264,643
William H. Joyce 65,269,240 1,255,114
Mylle Bell Mangum 65,252,009 1,272,345
D. Larry Moore 65,257,030 1,267,234
Randolph N. Reynolds 65,222,712 1,301,642
James M. Ringler 65,260,700 1,263,654
Samuel C. Scott, III 65,266,736 1,257,618
Jeremiah J. Sheehan 65,139,410 1,384,953
Joe B. Wyatt 65,264,158 1,260,196
(ii) Ratification of Selection of Ernst & Young LLP as
Independent Auditors
Number of Votes Cast "For" 66,232,893
Number of Votes Cast "Against" 146,222
Number of Abstentions 145,239
(iii) Stockholder Proposal Requesting Ratification of CERES
Principles
Number of Votes Cast "Against" 49,804,810
Number of Votes Cast "For" 6,001,605
Number of Abstentions 6,167,128
Number of Broker Non-Votes 4,550,812
Item 5. Other Information
Stockholder Proposals for 1999 Annual Meeting of Stockholders
The 1999 Annual Meeting of Stockholders of the Registrant is
scheduled to be held on May 20, 1999. In order for stockholder
proposals to be included in the Registrant's proxy statement and
form of proxy for the 1999 Annual Meeting, such proposals must be
received by the Registrant no later than November 18, 1998,
addressed to: Reynolds Metals Company, 6601 West Broad Street,
P. O. Box 27003, Richmond, Virginia 23261-7003, Attention:
Secretary.
In addition, under the advance notice provisions of the
Registrant's By-Laws, any stockholder desiring to introduce any
business at the 1999 Annual Meeting which is not included in the
Registrant's proxy materials or is not brought before the 1999
Annual Meeting by or at the direction of the Board of Directors
or the officer presiding over the meeting must provide the
Registrant with written notice of such business no later than
February 19, 1999, addressed to the Registrant at the address
specified above. Should any matters requiring the vote of
stockholders arise at the 1999 Annual Meeting of which the
Registrant has not received timely notice, the Registrant intends
that shares represented by proxies will be voted in accordance
with the discretion of the person or persons holding the proxy.
Additional information regarding these requirements is set forth
in the Registrant's Proxy Statement dated March 18, 1998 under
the heading "Stockholders' Proposals and Nominations".
26
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index to Exhibits.
(b) Reports on Form 8-K
During the second quarter of 1998, the Registrant filed
two Current Reports on Form 8-K with the Commission. The
Registrant reported on a Form 8-K dated April 23, 1998
that it had reached a definitive agreement on the sale of
substantially all of its global can operations to Ball
Corporation. The Registrant reported on a Form 8-K dated
June 23, 1998 that it had signed a letter of intent to sell
its Alabama can stock complex, consisting of a rolling mill,
two reclamation plants and a coil coating facility, to
Avalon-Borden Companies, Inc.
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 /s/ Allen M. Earehart
---------------------------------
Allen M. Earehart
Senior Vice President, Controller
(Chief Accounting Officer)
DATE: August 6, 1998
INDEX TO EXHIBITS
EXHIBIT 2 - Asset Purchase Agreement by and among
Ball Corporation, Ball Metal Beverage
Container Corp. and Reynolds Metals
Company dated as of April 22, 1998.
The Registrant agrees to furnish to
the Commission upon request a copy of
the disclosure schedules supplemental
to the Asset Purchase Agreement.
<F1> EXHIBIT 3.1 - Restated Certificate of Incorporation,
as amended. (File No. 1-1430, 1997 Form
10-K Report, EXHIBIT 3.1)
EXHIBIT 3.2 - By-laws, as amended.
EXHIBIT 4.1 - Restated Certificate of Incorporation.
See EXHIBIT 3.1.
EXHIBIT 4.2 - By-Laws. See EXHIBIT 3.2.
<F1> EXHIBIT 4.3 - Indenture dated as of April 1, 1989 (the
"Indenture") between Reynolds Metals
Company and The Bank of New York, as
Trustee, relating to Debt Securities.
(File No. 1-1430, Form 10-Q Report for
the Quarter Ended March 31, 1989,
EXHIBIT 4(c))
<F1> EXHIBIT 4.4 - Amendment No. 1 dated as of November 1,
1991 to the Indenture. (File No. 1-
1430, 1991 Form 10-K Report, EXHIBIT
4.4)
<F1> EXHIBIT 4.5 - Rights Agreement dated as of December 1,
1997 (the "Rights Agreement") between
Reynolds Metals Company and The Chase
Manhattan Bank, N.A. (File No. 1-1430,
Registration Statement on Form 8-A dated
December 1, 1997, pertaining to
Preferred Stock Purchase Rights, EXHIBIT 1)
<F1> EXHIBIT 4.6 - Form of 9-3/8% Debenture due June 15, 1999.
(File No. 1-1430, Form 8-K Report dated
June 6, 1989, EXHIBIT 4)
<F1> EXHIBIT 4.7 - Form of Fixed Rate Medium-Term Note.
(Registration Statement No. 33-30882 on
Form S-3, dated August 31, 1989, EXHIBIT
4.3)
<F1> EXHIBIT 4.8 - Form of Floating Rate Medium-Term Note.
(Registration Statement No. 33-30882 on
Form S-3, dated August 31, 1989, EXHIBIT
4.4)
<F1> EXHIBIT 4.9 - Form of Book-Entry Fixed Rate Medium-Term
Note. (File No. 1-1430, 1991 Form 10-K
Report, EXHIBIT 4.15)
<F1> EXHIBIT 4.10 - Form of Book-Entry Floating Rate Medium-Term
Note. (File No. 1-1430, 1991 Form 10-K
Report, EXHIBIT 4.16)
<F1> EXHIBIT 4.11 - Form of 9% Debenture due August 15, 2003.
(File No. 1-1430, Form 8-K Report dated
August 16, 1991, Exhibit 4(a))
<F1> EXHIBIT 4.12 - Articles of Continuance of Societe
d'Aluminium Reynolds du Canada,
Ltee/Reynolds Aluminum Company of
Canada, Ltd. (formerly known as Canadian
Reynolds Metals Company, Limited --
Societe Canadienne de Metaux Reynolds,
Limitee) ("RACC"), as amended. (File
No. 1-1430, 1995 Form 10-K Report,
EXHIBIT 4.13)
[FN]
______________________
<F1> Incorporated by reference.
</FN>
<F1> EXHIBIT 4.13 - By-Laws of RACC, as amended. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended March 31, 1997, EXHIBIT 4.14)
<F1> EXHIBIT 4.14 - Articles of Incorporation of Societe
Canadienne de Metaux Reynolds,
Ltee/Canadian Reynolds Metals Company,
Ltd. ("CRM"), as amended. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended September 30, 1997, EXHIBIT 4.15)
<F1> EXHIBIT 4.15 - By-Laws of CRM, as amended. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended September 30, 1997, EXHIBIT 4.16)
<F1> EXHIBIT 4.16 - Indenture dated as of April 1, 1993
among RACC, Reynolds Metals Company and
The Bank of New York, as Trustee. (File
No. 1-1430, Form 8-K Report dated July
14, 1993, EXHIBIT 4(a))
<F1> EXHIBIT 4.17 - First Supplemental Indenture, dated as of
December 18, 1995 among RACC, Reynolds
Metals Company, CRM and The Bank of New
York, as Trustee. (File No. 1-1430,
1995 Form 10-K Report, EXHIBIT 4.18)
<F1> EXHIBIT 4.18 - Form of 6-5/8% Guaranteed Amortizing Note due
July 15, 2002. (File No. 1-1430, Form 8-
K Report dated July 14, 1993, EXHIBIT
4(d))
<F1><F2> EXHIBIT 10.1 - Reynolds Metals Company 1987
Nonqualified Stock Option Plan.
(Registration Statement No. 33-13822 on
Form S-8, dated April 28, 1987, EXHIBIT
28.1)
<F1><F2> EXHIBIT 10.2 - Reynolds Metals Company 1992
Nonqualified Stock Option Plan.
(Registration Statement No. 33-44400 on
Form S-8, dated December 9, 1991,
EXHIBIT 28.1)
<F1><F2> EXHIBIT 10.3 - Reynolds Metals Company Performance
Incentive Plan, as amended and restated
effective January 1, 1996. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended March 31, 1995, EXHIBIT 10.4)
<F1><F2> EXHIBIT 10.4 - Agreement dated December 9, 1987 between
Reynolds Metals Company and Jeremiah J.
Sheehan. (File No. 1-1430, 1987 Form 10-
K Report, EXHIBIT 10.9)
<F1><F2> EXHIBIT 10.5 - Supplemental Death Benefit Plan for
Officers. (File No. 1-1430, 1986 Form
10-K Report, EXHIBIT 10.8)
<F1><F2> EXHIBIT 10.6 - Financial Counseling Assistance Plan for
Officers. (File No. 1-1430, 1987 Form
10-K Report, EXHIBIT 10.11)
<F1><F2> EXHIBIT 10.7 - Management Incentive Deferral Plan.
(File No. 1-1430, 1987 Form 10-K Report,
EXHIBIT 10.12)
[FN]
_______________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 601 of
Regulation S-K.
</FN>
<F1><F2> EXHIBIT 10.8 - Deferred Compensation Plan for Outside
Directors as Amended and Restated
Effective December 1, 1993. (File No. 1-
1430, 1993 Form 10-K Report, EXHIBIT
10.12)
<F1><F2> EXHIBIT 10.9 - Form of Indemnification Agreement for
Directors and Officers. (File No. 1-
1430, Form 8-K Report dated April 29,
1987, EXHIBIT 28.3)
<F1><F2> EXHIBIT 10.10 - Form of Executive Severance Agreement as
amended between Reynolds Metals Company
and key executive personnel, including
each of the individuals listed in Item
4A of the 1997 Form 10-K Report. (File
No. 1-1430, 1997 Form 10-K Report,
EXHIBIT 10.10)
<F1><F2> EXHIBIT 10.11 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective May 20, 1988. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended June 30, 1988, EXHIBIT 19(a))
<F1><F2> EXHIBIT 10.12 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective October 21, 1988. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended September 30, 1988, EXHIBIT 19(a))
<F1><F2> EXHIBIT 10.13 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective January 1, 1987. (File No. 1-
1430, 1988 Form 10-K Report, EXHIBIT
10.22)
<F1><F2> EXHIBIT 10.14 - Form of Stock Option and Stock Appreciation
Right Agreement, as approved February
16, 1990 by the Compensation Committee
of the Company's Board of Directors.
(File No. 1-1430, 1989 Form 10-K Report,
EXHIBIT 10.24)
<F1><F2> EXHIBIT 10.15 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective January 18, 1991. (File No. 1-
1430, 1990 Form 10-K Report, EXHIBIT
10.26)
<F1><F2> EXHIBIT 10.16 - Form of Stock Option Agreement, as approved
April 22, 1992 by the Compensation
Committee of the Company's Board of
Directors. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended March 31,
1992, EXHIBIT 28(a))
<F1><F2> EXHIBIT 10.17 - Reynolds Metals Company Restricted Stock
Plan for Outside Directors.
(Registration Statement No. 33-53851 on
Form S-8, dated May 27, 1994, EXHIBIT
4.6)
<F1><F2> EXHIBIT 10.18 - Reynolds Metals Company New Management
Incentive Deferral Plan. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended June 30, 1994, EXHIBIT 10.30)
[FN]
_______________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 601 of
Regulation S-K.
</FN>
<F1><F2> EXHIBIT 10.19 - Reynolds Metals Company Salary Deferral
Plan for Executives. (File No. 1-1430,
Form 10-Q Report for the Quarter Ended
June 30, 1994, EXHIBIT 10.31)
<F1><F2> EXHIBIT 10.20 - Reynolds Metals Company Supplemental
Long Term Disability Plan for
Executives. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended June 30,
1994, EXHIBIT 10.32)
<F1><F2> EXHIBIT 10.21 - Amendment to Reynolds Metals Company
1987 Nonqualified Stock Option Plan
effective August 19, 1994. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended September 30, 1994, EXHIBIT 10.34)
<F1><F2> EXHIBIT 10.22 - Amendment to Reynolds Metals Company
1992 Nonqualified Stock Option Plan
effective August 19, 1994. (File No. 1-
1430, Form 10-Q Report for the Quarter
Ended September 30, 1994, EXHIBIT 10.35)
<F1><F2> EXHIBIT 10.23 - Amendment to Reynolds Metals Company New
Management Incentive Deferral Plan
effective January 1, 1995. (File No. 1-
1430, 1994 Form 10-K Report, EXHIBIT
10.36)
<F1><F2> EXHIBIT 10.24 - Form of Split Dollar Life Insurance Agreement
(Trustee Owner, Trustee Pays Premiums).
(File No. 1-1430, Form 10-Q Report for
the Quarter Ended June 30, 1995, EXHIBIT
10.34)
<F1><F2> EXHIBIT 10.25 - Form of Split Dollar Life Insurance Agreement
(Trustee Owner, Employee Pays Premium).
(File No. 1-1430, Form 10-Q Report for
the Quarter Ended June 30, 1995, EXHIBIT
10.35)
<F1><F2> EXHIBIT 10.26 - Form of Split Dollar Life Insurance Agreement
(Employee Owner, Employee Pays Premium).
(File No. 1-1430, Form 10-Q Report for
the Quarter Ended June 30, 1995, EXHIBIT
10.36)
<F1><F2> EXHIBIT 10.27 - Form of Split Dollar Life Insurance Agreement
(Third Party Owner, Third Party Pays
Premiums). (File No. 1-1430, Form 10-Q
Report for the Quarter Ended June 30,
1995, EXHIBIT 10.37)
<F1><F2> EXHIBIT 10.28 - Form of Split Dollar Life Insurance Agreement
(Third Party Owner, Employee Pays
Premiums). (File No. 1-1430, Form 10-Q
Report for the Quarter Ended June 30,
1995, EXHIBIT 10.38)
<F1><F2> EXHIBIT 10.29 - Reynolds Metals Company 1996
Nonqualified Stock Option Plan.
(Registration Statement No. 333-03947 on
Form S-8, dated May 17, 1996, EXHIBIT
4.6)
<F1><F2> EXHIBIT 10.30 - Amendment to Reynolds Metals Company
1992 Nonqualified Stock Option Plan
effective January 1, 1993.
(Registration Statement No. 333-03947 on
Form S-8, dated May 17, 1996, EXHIBIT
99)
[FN]
____________________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<F1><F2> EXHIBIT 10.31 - Form of Stock Option Agreement, as approved
May 17, 1996 by the Compensation
Committee of the Company's Board of
Directors. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended June 30,
1996, EXHIBIT 10.41)
<F1><F2> EXHIBIT 10.32 - Form of Three Party Stock Option Agreement,
as approved May 17, 1996 by the
Compensation Committee of the Company's
Board of Directors. (File No. 1-1430,
Form 10-Q Report for the Quarter Ended
June 30, 1996, EXHIBIT 10.42)
<F1><F2> EXHIBIT 10.33 - Stock Option Agreement dated August 30, 1996
between Reynolds Metals Company and
Jeremiah J. Sheehan. (File No. 1-1430,
Form 10-Q Report for the Quarter Ended
September 30, 1996, EXHIBIT 10.43)
<F1><F2> EXHIBIT 10.34 - Amendment to Deferred Compensation Plan
for Outside Directors effective August
15, 1996. (File No. 1-1430, Form 10-Q
Report for the Quarter Ended September
30, 1996, EXHIBIT 10.44)
<F1><F2> EXHIBIT 10.35 - Amendment to Reynolds Metals Company New
Management Incentive Deferral Plan
effective January 1, 1996. (File No. 1-
1430, 1996 Form 10-K Report, EXHIBIT
10.38)
<F1><F2> EXHIBIT 10.36 - Amendment to Reynolds Metals Company
Performance Incentive Plan effective
January 1, 1996. (File No. 1-1430, 1996
Form 10-K Report, EXHIBIT 10.39)
<F1><F2> EXHIBIT 10.37 - Reynolds Metals Company Supplemental
Incentive Plan. (File No. 1-1430, 1996
Form 10-K Report, EXHIBIT 10.40)
<F1><F2> EXHIBIT 10.38 - Reynolds Metals Company Stock Plan for
Outside Directors. (File No. 1-1430,
1996 Form 10-K Report, EXHIBIT 10.41)
<F1><F2> EXHIBIT 10.39 - Special Executive Severance Package for
Certain Employees who Terminate
Employment between January 1, 1997 and
June 30, 1999 (or, if earlier, the date
of completion of employment related
actions related to the Company's portfolio
review process, as designated by the Company's
Chief Executive Officer), approved
by the Compensation Committee of the Company's
Board of Directors on January 17, 1997 and
extended on May 15, 1998. (File No. 1-1430,
1996 Form 10-K Report, EXHIBIT 10.42)
<F1><F2> EXHIBIT 10.40 - Special Award Program for Certain
Executives or Key Employees, as approved
by the Compensation Committee of the
Company's Board of Directors on January
17, 1997. (File No. 1-1430, 1996 Form
10-K Report, EXHIBIT 10.43)
<F1><F2> EXHIBIT 10.41 - Amendment to Reynolds Metals Company
1996 Nonqualified Stock Option Plan
effective December 1, 1997. (File No. 1-
1430, 1997 Form 10-K Report, EXHIBIT
10.41)
[FN]
____________________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
</FN>
<F1><F2> EXHIBIT 10.42 - Amendment to Reynolds Metals Company
Restricted Stock Plan for Outside
Directors effective December 1, 1997.
(File No. 1-1430, 1997 Form 10-K Report,
EXHIBIT 10.42)
<F2> EXHIBIT 10.43 - Reynolds Metals Company Long-Term
Performance Share Plan
EXHIBIT 10.44 - Asset Purchase Agreement by and among Ball
Corporation, Ball Metal Beverage
Container Corp. and Reynolds Metals
Company dated as of April 22, 1998.
See EXHIBIT 2.
EXHIBIT 11 - Omitted; see Part I, Item 1 for
computation of earnings per share.
EXHIBIT 15 - None
EXHIBIT 18 - None
EXHIBIT 19 - None
EXHIBIT 22 - None
EXHIBIT 23 - None
EXHIBIT 24 - None
EXHIBIT 27.1 - Financial Data Schedule as of June 30, 1998
EXHIBIT 27.2 - Restated Financial Data Schedule as of
March 31, 1998
<F1> EXHIBIT 99 - Description of Reynolds Metals Company
Capital Stock. (File No. 1-1430, Form
10-Q Report for the Quarter Ended March
31, 1998, EXHIBIT 99)
Pursuant to Item 601 of Regulation S-K, certain instruments
with respect to long-term debt of Reynolds Metals Company (the
"Registrant") and its consolidated subsidiaries are omitted
because such debt does not exceed 10 percent of the total assets
of the Registrant and its subsidiaries on a consolidated basis.
The Registrant agrees to furnish a copy of any such instrument to
the Commission upon request.
[FN]
_______________________
<F1> Incorporated by reference.
<F2> Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 601 of
Regulation S-K.
</FN>