SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of the Securities Exchange Act of 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 001-01430 A. Full title of the plan: REYNOLDS METALS COMPANY SAVINGS AND INVESTMENT PLAN FOR SALARIED EMPLOYEES B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: REYNOLDS METALS COMPANY 6601 West Broad Street P. O. Box 27003 Richmond, Virginia 23261-7003 2 REQUIRED INFORMATION FINANCIAL STATEMENTS, SUPPLEMENTAL SCHEDULE AND EXHIBITS FINANCIAL STATEMENTS Page No. -------- Report of Ernst & Young LLP, Independent Auditors......... F-1 Audited Financial Statements Statements of Net Assets Available for Plan Benefits, with Fund Information................... F-2 Statement of Changes in Net Assets Available for Plan Benefits, with Fund Information............... F-4 Notes to Financial Statements............................ F-5 Supplemental Schedule..................................... F-13 Line 27b-Schedule of Loans or Fixed Income Obligations... F-14 EXHIBITS Exhibit A Consent of Ernst & Young LLP, Independent Auditors - 2 - 3 SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, Reynolds Metals Company, which administers the Plan, has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. REYNOLDS METALS COMPANY SAVINGS AND INVESTMENT PLAN FOR SALARIED EMPLOYEES By: /s/ F. Robert Newman ----------------------------- F. Robert Newman Vice President, Human Resources Reynolds Metals Company and Member, Savings and Investment Plan Committee DATE: June 23, 1999 - 3 - F-1 Report of Ernst & Young LLP, Independent Auditors Board of Directors Reynolds Metals Company We have audited the accompanying statements of net assets available for plan benefits of the Reynolds Metals Company Savings and Investment Plan for Salaried Employees as of December 31, 1998 and 1997, and the related statement of changes in net assets available for plan benefits for the year ended December 31, 1998. These financial statements are the responsibility of the management of Reynolds Metals Company, the Plan's sponsor. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan at December 31, 1998 and 1997, and the changes in its net assets available for plan benefits for the year ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of loans as of December 31, 1998, is presented for the purpose of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The Fund Information in the statements of net assets available for plan benefits and the statement of changes in net assets available for plan benefits is presented for purposes of additional analysis rather than to present the net assets available for plan benefits and changes in net assets available for plan benefits of each fund. The supplemental schedule and Fund Information have been subjected to auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. Richmond, Virginia June 18, 1999 F-1 F-2 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Statement of Net Assets Available for Plan Benefits, with Fund Information December 31, 1998 (Dollars in Thousands) Fund Information ----------------------------------------------------------------- Non- Parti- cipant Participant Directed Directed ----------------------------------------------------------------- Small Capi- Inter- tali- Diver- Bal- nation- za- Rey- sified anced Inter- al tion Rey- nolds Equi- Invest- est Equi- Equi- nolds Stock ties ment Income ties ties Loan Stock Fund Fund Fund Fund Fund Fund Fund Fund Total ----------------------------------------------------------------------- ASSETS Invest- ment in Master Trust $60,668 $117,683 $35,250 $91,397 $8,564 $17,133 $8,176 $86,684 $425,555 Accrued income 236 - - - - - - 568 804 Contri- butions receiv- able 492 286 70 - 12 67 - 473 1,400 ----------------------------------------------------------------------- Total assets 61,396 117,969 35,320 91,397 8,576 17,200 8,176 87,725 427,759 LIABILITIES Accrued expenses - - - 130 - - - - 130 ----------------------------------------------------------------------- Net assets avail- able for plan bene- fits $61,396 $117,969 $35,320 $91,267 $8,576 $17,200 $8,176 $87,725 $427,629 ======================================================================= See accompanying notes. F-2 F-3 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Statement of Net Assets Available for Plan Benefits, with Fund Information December 31, 1997 (Dollars in Thousands) Fund Information ----------------------------------------------------------------- Non- Parti- cipant Participant Directed Directed ----------------------------------------------------------------- Small Capi- Inter- tali- Diver- Bal- nation- za- Rey- sified anced Inter- al tion Rey- nolds Equi- Invest- est Equi- Equi- nolds Stock ties ment Income ties ties Loan Stock Fund Fund Fund Fund Fund Fund Fund Fund Total ----------------------------------------------------------------------- ASSETS Invest- ment in Master Trust $76,209 $95,078 $33,492 $92,267 $8,097 $23,919 $10,405 $106,153 $445,620 Accrued income 431 - - - - - - 601 1,032 Contri- butions receiv- able 208 62 126 260 54 11 - 355 1,076 ------------------------------------------------------------------------- Net assets avail- able for plan bene- fits $76,848 $95,140 $33,618 $92,527 $8,151 $23,930 $10,405 $107,109 $447,728 ========================================================================= See accompanying notes. F-3 F-4 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Statement of Changes in Net Assets Available for Plan Benefits, with Fund Information Year Ended December 31, 1998 (Dollars in Thousands) Fund Information ------------------------------------------------------------- Non- Parti- cipant Participant Directed Directed ------------------------------------------------------------- Small Capi- Inter- tali- Diver- Bal- nation- za- Rey- sified anced Inter- al tion Rey- nolds Equi- Invest- est Equi- Equi- nolds Stock ties ment Income ties ties Loan Stock Fund Fund Fund Fund Fund Fund Fund Fund Total ------------------------------------------------------------------------- Additions to net assets: Net invest- ment gain (loss) from Master Trust $(5,897) $26,267 $3,957 $5,550 $1,185 $(2,793) $ 813 $(10,324) $18,758 Contri- butions: Employ- er - - - - - - - 6,164 6,164 Employ- ee 2,994 7,096 2,940 3,503 951 2,503 - - 19,987 ------------------------------------------------------------------------- 2,994 7,096 2,940 3,503 951 2,503 - 6,164 26,151 Assets re- ceived from other plans - 354 116 565 26 115 123 - 1,299 ------------------------------------------------------------------------- Total Addi- tions (2,903) 33,717 7,013 9,618 2,162 (175) 936 (4,160) 46,208 Deductions from net assets: With- drawals by par- tici- pants 8,032 14,790 4,671 18,413 926 2,181 1,552 15,724 66,289 Assets trans- ferred to other plans 5 - - - - - - 13 18 ------------------------------------------------------------------------- Total Deduc- tions 8,037 14,790 4,671 18,413 926 2,181 1,552 15,737 66,307 Inter- fund trans- fers (4,512) 3,902 (640) 7,535 (811) (4,374) (1,613) 513 - ------------------------------------------------------------------------- Net in- crease (de- crease)(15,452) 22,829 1,702 (1,260) 425 (6,730) (2,229) (19,384) (20,099) Net assets available for plan benefits: Beginn- ing of year 76,848 95,140 33,618 92,527 8,151 23,930 10,405 107,109 447,728 ------------------------------------------------------------------------- End of year $61,396 $117,969 $35,320 $91,267 $8,576 $17,200 $8,176 $ 87,725 $427,629 ========================================================================= See accompanying notes. F-4 F-5 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (Dollars in Thousands) 1. Significant Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The accounting records of the Reynolds Metals Company Savings and Investment Plan for Salaried Employees ("Plan") are maintained on the accrual basis. All securities transactions are recorded as of the trade date. Investments in Reynolds Metals Company Common Stock (stated at fair value) are valued at the last reported sales price on the last business day of the year. Investments in mutual funds are measured by quoted market prices and are reported at aggregate fair value at year-end. Guaranteed investment contracts with insurance companies are reported at "contract value," which equals cost plus accrued income. Structured investment contracts are reported at fair value, which in the case of such contracts equals contract value. 2. Summary of Significant Plan Provisions Reynolds Metals Company (the "Company") established the Plan effective July 1, 1978, covering salaried employees of the Company and certain of its subsidiaries and affiliates. The Plan is a defined contribution plan under the Employee Retirement Income Security Act of 1974 ("ERISA") and qualifies as a "cash or deferred" arrangement under Section 401(k) of the Internal Revenue Code. A complete description of the Plan is contained in the Summary Plan Description and in the Plan document, copies of which are available from the Company. Plan participation is available to eligible employees who have completed 30 days of service and is voluntary. A participant is entitled to make payroll contributions to the Plan in specified amounts ranging from 1% to 16% of compensation in 1% increments. F-5 F-6 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (continued) 2. Summary of Significant Plan Provisions (continued) The Company contributes an amount equal to 50% of each participating employee's payroll contributions up to 6% of compensation. The Company may also contribute up to an additional 50% of each participating employee's payroll contributions up to 6% of compensation. The Company did not elect to make an additional matching contribution for 1998 or 1997. Participants may contribute 1% to 16% (in 1% increments) of any profit sharing award or gainsharing payment received. Such contributions are not matched by the Company. Participants may elect to make their contributions on a before or after tax basis or a combination thereof. Company matching contributions are made on a "pretax" basis. Highly compensated participants may be required to reduce the amount of "pretax" contributions made to or held by the Plan on their behalf to permit the Plan to satisfy the nondiscrimination requirements of Section 401(k) of the Internal Revenue Code. Participants in the Plan are fully vested in their account balances. Withdrawals and distributions are handled in accordance with the Plan provisions and are subject to certain regulatory restrictions. The trustee holds all of the Plan's investment assets and executes transactions therein. Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. The Company is the Plan administrator and bears the related costs, except for investment related and trustee fees, which are paid by the Plan. 3. Commingled Master Trust Investments All of the investments of the Plan as of December 31, 1998 and 1997 were held in a Master Trust under a Master Trust Agreement between Reynolds Metals Company and The Northern Trust Company, as trustee, and are commingled with the assets of three other savings plans of the Company and one of its subsidiaries. Net assets and net investment gains (losses) from the Master Trust are allocated to participating plans based on the aggregate account balances of individual participants in each plan. F-6 F-7 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (continued) 3. Commingled Master Trust Investments (continued) Substantially all of the assets held in the Diversified Equities Fund and the Balanced Investment Fund are invested in the Vanguard Institutional Index Fund and the Vanguard STAR Fund, respectively. These are no-load mutual funds held and managed by The Vanguard Group of Investment Companies. Substantially all of the assets held in the International Equities Fund and the Small Capitalization Equities Fund are invested in the T. Rowe Price Foreign Equity Fund and the T. Rowe Price Small-Cap Value Fund, respectively. These are no-load mutual funds held and managed by T. Rowe Price Associates, Inc. The assets held in the Interest Income Fund generally are invested in guaranteed investment contracts ("GICs") at a fixed rate of return and structured investment contracts ("SICs") with various insurance companies and banks. SICs represent a diversified portfolio of high grade investments held in the name of the Plan in conjunction with a corresponding contract with the issuer of the SIC to provide a fixed or variable rate of return (based on the investment experience and reset quarterly) on the cost of the investment. GICs and SICs generally provide for the full repayment of principal and interest. Upon the occurrence of certain events (including layoffs by the Company or its applicable affiliates), however, market value of the GIC or SIC, if lower than its book value, may be repaid (a "Market Value Adjustment"). Currently, in the opinion of the Company, the likelihood of a material loss to the Plan as a result of such a Market Value Adjustment is remote. Interest is credited to participants' accounts on the dollar-weighted average (blended rate) basis. The annual rate of return on these contracts during 1998 and 1997 was approximately 6.3% and 6.3%, respectively. The current yield on December 31, 1998 was 6.3% (6.4% on December 31, 1997). The fair value of the Plan's GICs approximates contract value. No individual SIC or GIC exceeded 5% of the Master Trust's assets, except for a SIC with Transamerica Life with a balance of approximately $41,000 at December 31, 1998 ($39,000 at December 31, 1997). Cash and cash equivalents of the Master Trust are invested in a short-term investment fund managed by The Northern Trust Company. F-7 F-8 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (continued) 3. Commingled Master Trust Investments (continued) In April 1991, Executive Life Insurance Company ("Executive Life"), the issuer of one of the guaranteed investment contracts then held by the Plan, was placed into conservatorship. The Company and the Plan entered into an agreement on August 1, 1991, whereby the Company was obligated to provide interest-free loans to the Plan for any amounts due under the guaranteed investment contract which Executive Life failed to pay. As of December 31, 1998, the Company had advanced to the Plan all amounts due under this contract. The Plan is obligated to repay the loans to the extent amounts are subsequently recovered from, or on behalf of, Executive Life, and any remaining balance will be forgiven by the Company. As of December 31, 1998, no additional recoveries from Executive Life are expected. During 1998 and 1997, certain assets of the Plan were transferred into other plans and from other plans of the Company as a result of employee transfers. There was no effect on any participant's accounts as a result of the transfers. F-8 F-9 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (continued) 3. Commingled Master Trust Investments (continued) Summarized financial fund information of the commingled accounts within the Master Trust is presented below: Small Capi- Inter- tali- Diver- Bal- nation- za- Rey- sified anced Inter- al tion nolds Equi- Invest- est Equi- Equi- Stock ties ment Income ties ties Loan Fund Fund Fund Fund Fund Fund Fund Total -------------------------------------------------------------------- MASTER TRUST NET ASSETS- 1998 ASSETS Accrued income $ 854 $ 854 Cash and cash equiva- lents 2,398 $59,906 62,304 Contri- butions receiv- able 1,021 $ 527 $ 135 292 $ 25 $ 124 2,124 Invest- ments: Common stock 152,493 - - - - - 152,493 Invest- ments contracts - - - 168,462 - - 168,462 Mutual funds - 166,851 49,190 - 10,833 24,101 250,975 Loans to par- tici- pants - - - - - - $16,812 16,812 -------------------------------------------------------------------- Total assets 156,766 167,378 49,325 228,660 10,858 24,225 16,812 654,024 LIABILITIES Accrued expenses - - - 326 - - - 326 -------------------------------------------------------------------- Master Trust net assets $156,766 $167,378 $49,325 $228,334 $10,858 $24,225 $16,812 $653,698 ==================================================================== Portion of Master Trust al- locable to the Plan $149,121 $117,969 $35,320 $ 91,267 $ 8,576 $17,200 $ 8,176 $427,629 Percent 95% 70% 71% 40% 79% 71% 49% 65% F-9 F-10 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (continued) 3. Commingled Master Trust Investments (continued) Small Capi- Inter- tali- Diver- Bal- nation- za- Rey- sified anced Inter- al tion nolds Equi- Invest- est Equi- Equi- Stock ties ment Income ties ties Loan Fund Fund Fund Fund Fund Fund Fund Total -------------------------------------------------------------------- MASTER TRUST NET ASSETS -1997 ASSETS Accrued income $ 1,082 $ 1,082 Cash and cash equiva- lents 2,247 $ 47 $ 11 $40,726 $ 6 $ 25 43,062 Contribu- tions re- ceivable 598 195 215 671 79 56 $ 13 1,827 Investments: Common stock 189,068 - - - - - - 189,068 Invest- ments contracts - - - 195,952 - - - 195,952 Mutual funds - 131,723 46,727 - 10,219 34,639 - 223,308 Loans to partici- pants - - - - - - 19,962 19,962 Master Trust net assets $192,995 $131,965 $46,953 $237,349 $10,304 $34,720 19,975 674,261 ====================================================================== Portion of Master Trust allocable to the Plan $183,957 $ 95,140 $33,618 $ 92,527 $ 8,151 $23,930 $10,405 $447,728 Percent 95% 72% 72% 39% 79% 69% 52% 66% F-10 F-11 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (continued) 3. Commingled Master Trust Investments (continued) Small Capi- Inter- tali- Diver- Bal- nation- za- Rey- sified anced Inter- al tion nolds Equi- Invest- est Equi- Equi- Stock ties ment Income ties ties Loan Fund Fund Fund Fund Fund Fund Fund Total -------------------------------------------------------------------- CHANGES IN MASTER TRUST NET ASSETS- 1998 Additions: Contribu- tions from plans $ 10,304 $ 14,637 $ 5,513 $22,443 $ 1,635 $ 4,890 $59,422 Net rea- lized and unrealized apprecia- tion (depre- ciation) of invest- ments (21,074) 34,080 3,896 - 1,237 (4,655) 13,484 Interest and divi- dends 4,201 2,129 1,533 14,282 228 403 $1,577 24,353 -------------------------------------------------------------------- (6,569) 50,846 10,942 36,725 3,100 638 1,577 97,259 -------------------------------------------------------------------- Deductions: Distribu- tions to plans 25,115 22,837 7,644 53,358 1,297 3,760 3,811 117,822 Admini- strative expenses - - - - - - - - -------------------------------------------------------------------- 25,115 22,837 7,644 53,358 1,297 3,760 3,811 117,822 Inter- fund transfers -net (4,545) 7,404 (926) 7,618 (1,249) (7,373) (929) - -------------------------------------------------------------------- Net addi- tions (de- ductions) (36,229) 35,413 2,372 (9,015) 554 (10,495) (3,163) (20,563) Master Trust net assets at beginn- ing of period 192,995 131,965 46,953 237,349 10,304 34,720 19,975 674,261 Master Trust net assets at end of period $156,766 $167,378 $49,325 $228,334 $10,858 $24,225 $16,812 $653,698 =================================================================== F-11 F-12 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Notes to Financial Statements (continued) 4. Differences Between Financial Statements and Form 5500 The following is a reconciliation of net assets available for plan benefits per the financial statements to the Form 5500: December 31, 1998 1997 -------------------- Net assets available for plan benefits per the financial statements $427,629 $447,728 Amounts allocated to withdrawn participants - (870) -------------------- Net assets available for plan benefits per the Form 5500 $427,629 $446,858 ==================== The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500: Year ended December 31, 1998 ------------ Benefits paid to participants per the financial statements $66,289 Add: Amounts allocated on Form 5500 to withdrawn participants in the current year - Less: Amounts allocated on Form 5500 to withdrawn participants in the prior year (870) ------------ Benefits paid to participants per the Form 5500 $65,419 ============ 5. Income Tax Status The Plan has received a determination letter from the Internal Revenue Service dated February 20, 1996, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "Code") and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Company has indicated that it will take the necessary steps, if any, to maintain the Plan's qualified status. F-12 F-13 Supplemental Schedule F-13 F-14 Reynolds Metals Company Savings and Investment Plan for Salaried Employees Line 27b - Schedule of Loans or Fixed Income Obligations As of December 31, 1998 Detailed descrip- tion of loan including dates of making and maturity, Amount received interest rate, the during type and value of Amount reporting year collateral, any re- overdue --------------- negotiation of the --------------- Original Unpaid loan and the terms Identity Amount Balance of the renegotia- of of Prin- Inter- at end tion, and other Prin- Obligor Loan cipal est of year material items cipal Interest - ------------------------------------------------------------------------------- * Steele, $12,000 $ 631 $244 $ 8,689 Date of making $1,554 $ 490 George 8/1/96, 9.25%, matures 8/31/01, collateralized by participant's account, no terms renegotiated * Searcy, 25,000 2,597 548 10,124 Date of making 2,710 418 Charles 3/23/95, 9.50%, matures 3/31/00, collateralized by participant 's account, no terms renegotiated * Burks, 16,000 1,313 522 11,585 Date of making 1,520 504 Lawrence 9/19/96, 9.25%, matures 10/31/01, collateralized by participant's account, no terms renegotiated * Hsu, 50,000 - - 29,891 Date of making 4,644 2,077 George 4/30/92, 7.50%, matures 5/29/03, collateralized by participant's account, no terms renegotiated * A party-in-interest as defined by ERISA. F-14 INDEX TO EXHIBITS Exhibit A Consent of Ernst & Young LLP, Independent Auditors EXHIBIT A CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-20498) pertaining to the Reynolds Metals Company Savings and Investment Plan for Salaried Employees and in the related Prospectus of our report dated June 18, 1999, with respect to the financial statements and schedule of the Reynolds Metals Company Savings and Investment Plan for Salaried Employees included in this Annual Report (Form 11-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP Richmond, Virginia June 18, 1999