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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
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OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File No. 1-873-2
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ARMCO INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-0200500
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Oxford Centre, 301 Grant St., Pittsburgh, PA 15219-1415
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(Address of principal executive offices, Zip Code)
(412) 255-9800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
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
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock outstanding at October 31, 1994: 104,926,628
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ARMCO INC.
INDEX
Page
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Part I. Financial Information
Condensed Statement of Consolidated Financial Position -
September 30, 1994 and December 31, 1993 2
Condensed Statement of Consolidated Operations and
Retained Deficit -
Three and Nine Months Ended September 30, 1994 and 1993 3
Condensed Statement of Consolidated Cash Flows -
Nine Months Ended September 30, 1994 and 1993 4
Notes to Condensed Consolidated Financial Statements 5-10
Management's Discussion and Analysis of the Condensed
Consolidated Financial Statements 11-17
Segment Report 18
Part II. Other Information
Item 1 Legal Proceedings 19
Item 6 Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibit 11 Computation of Income (Loss) Per Share
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<TABLE> <PAGE>3
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Unaudited)
(Dollars in millions) September 30, December 31,
1994 1993
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 202.3 $ 183.5
Receivables, less allowance for doubtful accts 199.1 185.1
Inventories (Note 2) 151.2 205.5
Net assets held for sale 41.0 30.9
Other (Note 4) 48.2 20.4
- --------------------------------------------------------------------------
Total current assets 641.8 625.4
Investments
Investment in National-Oilwell (Note 5) 91.7 83.9
Investment in AFSG (Note 6) 97.1 97.1
Other, less allowance for impairment 37.3 88.1
Property, plant and equipment 1,027.5 983.0
Accumulated depreciation (488.4) (455.2)
- --------------------------------------------------------------------------
Property, plant and equipment - net 539.1 527.8
Deferred tax asset 339.1 295.6
Goodwill and other intangible assets 158.0 162.6
Other assets 9.0 24.2
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Total assets $1,913.1 $1,904.7
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts and notes payable $ 85.9 $ 119.6
Employee benefit obligations 145.9 98.3
Accrued salaries and wages 30.9 28.7
Other accrued liabilities 106.5 98.1
Current portion of long-term debt
and lease obligations 15.9 8.3
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Total current liabilities 385.1 353.0
Long-term debt and lease obligations,
less current portion 364.2 379.7
Long-term employee benefit obligations 1,243.2 1,270.9
Other liabilities 144.1 204.5
Commitments and contingencies (Notes 6 and 9)
Class B common stock of subsidiary - 9.7
Shareholders' deficit (Note 8)
Preferred stock - Class A 137.6 137.6
Preferred stock - Class B 48.3 48.3
Common stock 1.0 1.0
Additional paid-in capital 955.0 951.1
Retained deficit (1,395.6) (1,450.3)
Unrealized gain on equity securities (Note 4) 33.3 -
Other (3.1) (0.8)
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Total shareholders' deficit (223.5) (313.1)
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Total liabilities and shareholders' deficit $1,913.1 $1,904.7
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<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE> <PAGE>4
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
AND RETAINED DEFICIT
(Unaudited)
(Dollars and shares in millions
except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
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1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Net sales $368.0 $ 419.8 $1,102.5 $1,300.5
Cost of products sold (316.5) (385.0) (979.5) (1,177.8)
Selling and administrative expenses (22.8) (30.0) (71.2) (93.0)
Special charges (Note 3) (15.0) (165.5) (35.0) (165.5)
- -----------------------------------------------------------------------------
Operating profit (loss) 13.7 (160.7) 16.8 (135.8)
Interest income 3.4 0.7 7.2 3.6
Interest expense (8.2) (11.0) (25.5) (32.4)
Sundry other - net (12.8) (12.8) (33.9) (29.6)
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Loss before income taxes (3.9) (183.8) (35.4) (194.2)
Credit (provision) for income
taxes (Notes 4 and 10) (0.4) (1.6) 29.2 7.5
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Income from Armco and
consolidated subsidiaries (4.3) (185.4) (6.2) (186.7)
Equity in losses of Armco Steel
Company, L.P. (Note 4) - - - (17.9)
Gain on investment in
Armco Steel Company, L.P. (Note 4) - - 36.5 -
Gain on sale of investment in
North American Stainless (Note 5) 26.1 - 26.1 -
Equity in income (loss) of other
equity companies (Note 5) 3.6 (2.6) 11.7 (5.9)
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Income (loss) from continuing
operations 25.4 (188.0) 68.1 (210.5)
Discontinued operations
-Worldwide Grinding Systems
Income from operations - 5.0 - 14.2
Loss on disposal of business - (40.0) - (40.0)
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Income (loss) before cumulative
effect of accounting changes 25.4 (223.0) 68.1 (236.3)
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits and
income taxes (Note 11) - - - (307.5)
- -----------------------------------------------------------------------------
Net income (loss) 25.4 (223.0) 68.1 (543.8)
Retained deficit,
beginning of period (1,416.5) (1,120.4) (1,450.3) (790.7)
Preferred stock dividends (4.5) (4.5) (13.4) (13.4)
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Retained deficit, end of period $(1,395.6) $(1,347.9) $(1,395.6) $(1,347.9)
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Weighted average number of
common and common equivalent
shares outstanding-primary 104.9 103.9 104.6 103.8
Net income (loss) applicable
to common stock $ 20.9 $(227.5) $ 54.7 $(557.2)
Per share of common stock-primary
Income (loss) from continuing
operations $ 0.20 $ (1.85) $ 0.52 $ (2.16)
Income from discontinued
operations - (0.34) - (0.25)
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Income (loss) before cumulative
effect of accounting changes 0.20 (2.19) 0.52 (2.41)
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits and
income taxes - - - (2.97)
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Net income (loss) per share
- primary $ 0.20 $ (2.19) $ 0.52 $ (5.38)
Net income (loss) per share
- fully dilutive * * * *
Cash dividends per share
$2.10 Class A $ 0.525 $ 0.525 $ 1.575 $ 1.575
$3.625 Class A 0.906 0.906 2.719 2.719
$4.50 Class B 1.125 1.125 3.375 3.375
<FN>
* Antidilutive or dilution less than 3%
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE> <PAGE>5
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in millions) Nine Months Ended
September 30,
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1994 1993
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 68.1 $ (543.8)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and lease-right amortization 36.9 41.8
Loss from discontinued operations - 25.8
Gain on sales of investments and facilities (92.8) (1.0)
Equity in undistributed (earnings) losses
of associated companies (7.8) 24.5
Special charges 35.0 165.5
Cumulative effect of accounting changes - 307.5
Other 9.4 28.4
Change in assets and liabilities, net of
effects of dispositions:
Accounts receivable (31.6) (47.9)
Inventory 30.6 (24.6)
Payables and accrued expenses (21.7) (17.5)
Other assets and liabilities - net (12.0) 6.9
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Net cash provided by (used in) operating
activities 14.1 (34.4)
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Cash flows from investing activities:
Net proceeds from the sale of businesses
and assets 3.7 64.2
Proceeds from the sale and maturity of
marketable securities - 2.0
Proceeds from the sale of investments 88.9 14.3
Purchase of marketable securities - (0.1)
Purchase of investments (8.7) (0.6)
Contributions to equity investees (6.1) (4.8)
Capital expenditures (58.8) (25.9)
Proceeds from the sale of discontinued
operation - 33.0
Net cash used in discontinued operations/
businesses held for sale (4.0) (22.1)
Other 2.8 0.2
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Net cash provided by investing activities 17.8 60.2
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Cash flows from financing activities:
Proceeds from drawdown of construction debt 15.0 -
Principal payments on debt (14.5) (21.0)
Change in notes payable (0.8) (3.7)
Dividends paid (13.4) (13.7)
Other 0.2 0.6
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Net cash used in financing activities (13.5) (37.8)
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Effect of exchange rate changes on cash and
cash equivalents 0.4 (5.4)
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Net change in cash and cash equivalents 18.8 (17.4)
Cash and cash equivalents:
Beginning of year 183.5 171.3
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End of period $202.3 $153.9
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of capitalization) $ 19.2 $ 28.4
Income taxes 0.5 2.3
Supplemental schedule of noncash investing and
financing activities:
Issuance of restricted stock 2.5 -
Debt incurred directly for property 5.4 -
Note receivable in partial payment
for asset sales 0.8 -
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions,
except per share amounts)
1. The condensed consolidated financial statements of Armco Inc.
(Armco) should be read in conjunction with the financial statements in
Armco's Annual Report to Shareholders for the year ended December 31,
1993.
In the opinion of Armco's management, the accompanying condensed
consolidated financial statements contain all adjustments, which were of
a normal recurring nature, necessary to present fairly, in all material
respects, the financial position as of September 30, 1994, the results
of operations for the three and nine months ended September 30, 1994 and
1993 and cash flows for the nine months ended September 30, 1994 and
1993. The results of operations for the three and nine months ended
September 30, 1994 are not necessarily indicative of the results to be
expected for the year 1994.
2. Armco's inventories are valued at the lower of cost or market. Cost
of inventories at most of Armco's domestic operations is measured on the
LIFO - Last In, First Out - method. Other inventories are valued
principally at average cost.
<TABLE>
September 30, December 31,
1994 1993
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<S> <C> <C>
Inventories on LIFO:
Finished and semi-finished $ 139.0 $ 190.8
Raw materials and supplies 27.3 21.5
Less - Adjustment to state inventories
at LIFO value (36.3) (38.5)
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Total 130.0 173.8
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Inventories on average cost:
Finished and semi-finished 11.9 14.1
Raw materials and supplies 9.3 17.6
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Total 21.2 31.7
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Total inventories $ 151.2 $ 205.5
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</TABLE>
Liquidation of LIFO inventory layers caused by certain inventory
reductions increased Income before cumulative effect of accounting
changes and Net income for the three and nine months ended September
30, 1994 by $2.5 or $.02 per share.
3. In the three and nine months ended September 30, 1994, Armco
recognized a charge of $15.0 related to a decision by Eastern
Stainless Corporation (ESC) to sell all of its assets to Avesta
Sheffield Holding Company (Avesta Sheffield), a stainless steel plate
manufacturer, for cash and the assumption of certain liabilities.
The charge is to cover increases in pension and other employee
benefit obligations, asset writedowns, estimated losses through the
date of disposal, and fees and expenses. Armco will assume those net
liabilities of ESC that are not assumed by Avesta Sheffield or
satisfied by the sale proceeds. Upon completion of the proposed
transaction, Armco anticipates that ESC would have no assets
remaining as a corporate legal entity and that it will be dissolved
without any shareholder distribution. The proposed transaction is
subject to a number of conditions, including completion of a
definitive purchase agreement, and approvals by regulatory
authorities, the boards of directors of ESC and Avesta Sheffield and
by ESC's shareholders. Armco owns 84% of ESC's voting stock. The
ESC assets and liabilities to be sold to Avesta Sheffield are
recorded in Net assets held for sale in the September 30, 1994
Condensed Statement of Consolidated Financial Position. The
liabilities related to the charge are recorded primarily in the
Current portion of employee benefit obligations and Other accrued
liabilities.
In the nine months ended September 30, 1994, Armco recorded a special
charge of $20.0 for expenses associated with the temporary idling and
restructuring of its Empire-Detroit steelmaking facilities in
Mansfield and Dover, Ohio. These facilities have been idled until
construction of a new thin-slab continuous caster at the Mansfield
facility is completed. Completion is scheduled for the second
quarter of 1995. Approximately two-thirds of the charge is
associated with group insurance and other benefits for employees
while the plant is
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idled. The remainder of the charge relates to asset writedowns and
permanent work force reductions. The liabilities related to this
charge are recorded primarily in the current portion of employee
benefit obligations in the Condensed Statement of Consolidated
Financial Position and largely represent cash outflows expected
during the period the plant is idled.
In the three and nine months ended September 30, 1993, Armco recorded
special charges totaling $165.5 as a result of its decision to exit a
number of businesses. During the same periods, Armco recorded a
$40.0 charge associated with its decision to sell the Worldwide
Grinding Systems businesses, which then became a discontinued
operation.
4. On April 7, 1994, Armco Steel Company, L.P. (ASC), a fifty
percent owned joint venture limited partnership between subsidiaries
of Armco and Kawasaki Steel Corporation, completed an initial public
offering and recapitalization. As part of this transaction, the
business and assets of ASC were transferred to AK Steel Corporation
(AK Steel), a newly formed, publicly traded company. In exchange for
its interest in ASC, Armco received 1,023,987 shares of AK Steel
common stock with a September 30, 1994 market value of $33.3,
recorded in Other current assets with a corresponding credit in
Unrealized gain on equity securities. The stock represents about
four percent of the outstanding AK Steel common shares. In addition,
Armco was released from certain obligations to make future cash
payments to the former joint venture. The number of shares received
and other terms of the restructuring and recapitalization were
determined by arm's-length negotiations.
As a result of the transaction, in the nine months ended September
30, 1994, Armco recognized a nonrecurring gain totaling $66.5, or
$.64 per share, primarily as a result of its release from certain
obligations, as discussed above, recognition of deferred pension
curtailment gains established at ASC's formation and a tax benefit
related to the effect of this transaction on Armco's deferred tax
asset position. Of the $66.5, a $30.0 tax benefit is recorded in
Credit for income taxes and $36.5 is recognized as a Gain on
investment in Armco Steel Company, L.P. In addition, should Armco
decide to sell its shares in AK Steel, which it has agreed not to do
until after December 3, 1994, it would recognize a gain equal to the
net proceeds received upon such sale.
Losses incurred by ASC during the first quarter of 1993 reduced
Armco's investment in ASC to zero, after which Armco stopped
recording its equity in profits or losses of the joint venture.
5. Armco and Acerinox S.A. of Spain each owned a 50% partnership
interest in North American Stainless (NAS) through their respective
subsidiaries, First Stainless, Inc. and Stainless Steel Invest, Inc.
In the third quarter of 1994, First Stainless, Inc. sold 90% of its
50% equity interest in NAS to its partner for $73.0 in cash. In the
three and nine months ended September 30, 1994, Armco recorded a gain
of $26.1 on this sale. The remaining investment, as a limited
partner in NAS, is recorded in Other investments in the Condensed
Statement of Consolidated Financial Position.
In the nine months ended September 30, 1994, National-Oilwell,
Armco's oil field equipment joint venture with USX, sold certain
productive assets and lines of business. As a result, Armco
recognized $4.4 in equity income related to the net gain on these
sales.
6. Armco Financial Services Group (AFSG) consists primarily of
insurance companies which Armco intends to sell and which continue
underwriting activities (AFSG companies to be sold) and insurance
companies that have stopped writing new business for retention and
are being liquidated (runoff companies).
Armco signed a definitive agreement, dated August 2, 1994, to sell
the AFSG companies to be sold. The agreement is subject to a number
of conditions, including approvals by regulatory authorities. The
proceeds from the sale of these businesses have been pledged as
security for certain note obligations due to the runoff companies and
will be retained in the investment portfolio of the runoff companies.
Armco's investment in the AFSG companies to be sold is recorded at
net realizable value, or $73.9 at September 30, 1994. These
businesses are accounted for as discontinued operations
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and, as such, Armco does not recognize, in its financial statements,
AFSG's results of operations. The following presents the summarized
results of operations and financial condition of the AFSG companies
to be sold:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------
Results of Operations 1994 1993 1994 1993
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums earned $55.1 $56.8 $163.3 $172.4
Losses and loss adjustment
expenses (42.3) (46.6) (127.9) (133.8)
Underwriting expenses (19.8) (19.9) (61.6) (63.3)
------ ---- ------- -------
Underwriting loss (7.0) (9.7) (26.2) (24.7)
Investment income 7.2 13.0 21.8 33.7
Other expense - - (0.1) (0.2)
----- ------ ----- -----
Income (loss) before
effect of accounting change 0.2 3.3 (4.5) 8.8
Cumulative effect of accounting
change for postretirement
benefits - - - (14.0)
------ ------ ------- ------
Net income (loss) $ 0.2 $ 3.3 $ (4.5) $ (5.2)
======== ======= ======= =======
</TABLE>
<TABLE>
September 30, December 31,
Financial Condition 1994 1993
- ------------------- ------------- -------------
<S> <C> <C>
Assets:
Invested assets $405.5 $440.7
Receivables 100.3 87.7
Other assets 42.9 43.0
----- -----
Total assets 548.7 571.4
----- ------
Liabilities:
Property and casualty reserves 411.5 398.3
Payables and other liabilities 33.7 37.2
----- -----
Total liabilities 445.2 435.5
----- -----
Net assets 103.5 135.9
Net income not recognized (5.9) (10.4)
Unrealized investment (gain) loss
not recognized 14.6 (13.3)
Loss on disposal of business (45.0) (45.0)
Net liabilities to be retained 6.7 6.7
----- -----
Armco's investment $ 73.9 $ 73.9
====== ======
</TABLE>
The runoff companies are accounted for by Armco as discontinued
operations under the liquidation basis of accounting whereby all future
cash inflows and outflows are considered. Armco believes, based on
current facts and circumstances, including the opinion of outside
actuaries, that future changes in estimates of net losses relating to
the ultimate liquidation of the runoff companies will not be material to
Armco's financial position or liquidity. As of September 30, 1994 and
December 31, 1993, Armco's investment in the net assets of the runoff
companies was $23.2.
There are various matters pending which involve AFSG, relating to
litigation, arbitration and regulatory affairs, including matters
related to Northwestern National Insurance Company, a runoff company
currently involved in, among other matters, arbitration and litigation
with
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<PAGE>9
respect to certain reinsurance programs. The ultimate liability from
such matters at September 30, 1994 cannot be determined; but in Armco's
opinion, based on current facts and circumstances and the views of
outside counsel and advisors, any liability resulting will not
materially affect Armco's financial condition or liquidity. However, it
is possible that due to fluctuations in Armco's results, future
developments with respect to changes in the ultimate liability could
have a material effect on future interim or annual results of
operations.
7. Armco has in place an agreement with a group of banks to provide a
credit facility for borrowings up to $170.0 on a revolving credit basis
until December 31, 1995, secured by certain of Armco's receivables and
inventories. At September 30, 1994, Armco had no borrowings outstanding
under the agreement, but had utilized $82.0 of the credit facility as
support for letters of credit.
As amended in the second quarter of 1994, the credit agreement requires
Armco to maintain minimum working capital of $130.0 through December 31,
1994. At September 30, 1994, Armco's working capital, as defined, was
$255.9. In addition, beginning January 1, 1994, Armco must maintain
cumulative net income greater than zero for the year 1994. The minimum
cumulative net income increases to $10.0 in the first quarter of 1995,
and thereafter, increases an additional $10.0 per quarter throughout
1995. Armco must also meet certain ratio requirements. Noncompliance
with any of these covenants or the occurrence of any other event of
default could result in the lending banks terminating their commitments
under the amended credit agreement and/or accelerating the payment of
amounts due thereunder.
8. Under the terms of the credit agreement (Note 7), Armco is not
permitted to pay cash dividends on its common stock. The payment of
dividends on preferred stock is prohibited if Armco is in default under
the credit agreement.
Under the terms of the indentures for Armco's 11.375% Senior Notes Due
1999 and 9.375% Senior Notes Due 2000, Armco cannot pay a dividend on
its common stock or repurchase its capital stock, unless it meets
certain financial tests described in the indentures. Armco does not
expect to be able to meet these tests in the near term.
Armco is incorporated in the State of Ohio and is permitted to pay
dividends on its common and preferred stock only to the extent that it
has surplus as defined in the corporate statute of Ohio. At September
30, 1994, the amount from which Armco is permitted to pay dividends was
$146.5.
At its October 1994 meeting, the Board of Directors declared the regular
quarterly dividends payable on Armco's $2.10 Cumulative Convertible
Class A, $3.625 Cumulative Convertible Class A and $4.50 Cumulative
Convertible Class B preferred stock issues.
9. A subsidiary of LTV Steel Company and First Taconite Company, a
subsidiary of Armco, each owned a 50% interest in the properties and
assets of Reserve Mining Company (Reserve Mining), a Minnesota
partnership that produced taconite iron ore pellets and which filed for
reorganization under Chapter 11 in 1986. On August 17, 1989, Cyprus
Northshore Mining Corporation (Cyprus), a wholly owned subsidiary of
Cyprus Minerals Company, purchased the assets of Reserve Mining. On
that date, Armco and First Taconite Company entered into an agreement
with the State of Minnesota, the Reserve Mining Company bankruptcy
trustee and Cyprus, whereby Cyprus agreed to operate the Reserve Mining
facility and, upon the purchase by AK Steel (formerly ASC) of certain
quantities of iron ore pellets produced by the facility, or upon an
approved modification to a tailings disposal site closure plan by the
state as provided in the agreement, Cyprus agreed to assume closure and
perpetual maintenance obligations of the tailings disposal site. Cyprus
continues to operate the facility.
In the second quarter of 1994, the Pension Benefit Guaranty Corporation
(PBGC) filed suit seeking a judgment against Armco for the liability of
Reserve Mining for the alleged underfunded amount of guaranteed benefits
to be paid by the PBGC. On June 30, 1994, Armco
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<PAGE>10
settled this litigation. Under the agreement, Armco paid the PBGC $10.0
in connection with the Reserve Mining pension liability and contributed
$17.5 to the Armco Inc. Pension Agreements Plan. These amounts had been
previously accrued for in Armco's financial statements.
In connection with the formation of ASC, ASC assumed and agreed to
satisfy and indemnify Armco against certain obligations and liabilities
related to the business and assets transferred to ASC including, among
other things, environmental-related costs and obligations, employee
benefit obligations, and liabilities under certain long-term supply
contracts. As part of the recapitalization which resulted in the
formation of AK Steel (Note 4), AK Steel assumed such obligations and
indemnification of Armco.
Armco has entered into certain contracts, which mature over the next two
years, related to nickel, a commodity used in the production of
stainless steel. These contracts involve the cash settlement of the
difference between the market price of nickel at maturity and the
contract price. Gains and losses related to outstanding contracts are
recognized in income currently. Based on market values at September 30,
1994, contracts with a nominal amount of $3.8 would require Armco to pay
a total of $0.8 during 1994 and 1995. Such amount has been accrued in
the financial statements.
There are various claims pending involving Armco and its subsidiaries
regarding product liability, antitrust, patent, employee benefits,
environmental and hazardous waste matters, reinsurance and insurance
arrangements (Note 6), and other matters arising out of the conduct of
Armco's business. Armco believes, based on current facts and
circumstances, that the ultimate liability from pending claims and
contingent liabilities will not materially affect the consolidated
financial condition or liquidity of Armco; however, it is possible that
due to fluctuations in Armco's results, future developments with respect
to such matters could have a material effect on the results of
operations in future interim or annual periods.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, certain analogous state laws, and the federal Resource
Conservation and Recovery Act, past disposal of wastes, whether on-site
or at other locations, may result in the imposition of cleanup
obligations by federal or state regulatory authorities or other
potentially responsible parties, even when the wastes were disposed of
in accordance with applicable laws and requirements in existence at the
time of disposal. The federal government has asserted that joint and
several liability applies in hazardous waste litigation and courts have
held that, absent proof that damages are allocable or subject to
allocation, joint and several liability will be applied. Armco has been
named as a defendant, or identified as a potentially responsible party,
in various proceedings wherein the federal government seeks
reimbursement for, or compulsory clean-up of, hazardous waste sites.
Armco has been required to perform or fund such cleanup or participate
in cleanup with others at a number of sites at which its facilities
disposed of wastes in the past and may, from time to time, be required
to remediate or join with others in the remediation of other locations
as these sites are identified by federal or state authorities. Armco is
also a party to various private lawsuits with respect to alleged
property damages and personal injury from waste disposal sites. In
addition, environmental exit costs with respect to Armco's ongoing
businesses, which costs it is Armco's policy not to accrue until a
decision is made to dispose of a property, may be incurred if Armco
makes a decision to dispose of additional properties. These costs
include remediation and closure costs such as for cleanup of soil
contamination, closure of waste treatment facilities and monitoring
commitments. While Armco believes that the ultimate liability for the
environmental remediation matters identified to date, including the
cleanup, closure, and monitoring of waste sites, will not materially
affect its consolidated financial condition or liquidity, the
identification of additional sites, increases in remediation costs with
respect to identified sites, the failure of other potentially
responsible parties to contribute their share of remediation costs,
decisions to dispose of additional properties and other changed
circumstances may result in increased costs to Armco, which could have a
material effect on its consolidated financial condition, liquidity and
results of operations.
-9-
<PAGE>11
During the three and nine months ended September 30, 1994, Armco
recorded a $4.5 charge to Cost of products sold in the Condensed
Statement of Consolidated Operations and Retained Deficit to increase
its legal and environmental reserves. At September 30, 1994, Armco had
recorded on its Condensed Statement of Consolidated Financial Position,
legal and environmental reserves of $83.0, of which $25.8 was classified
as current.
10. In the nine months ended September 30, 1993, Armco recorded income
from tax benefits of $4.9, in Credit (provision) for income taxes; and
income of $5.7, related to interest, in Sundry other - net, for
settlements of state income tax issues. In addition, Armco reversed a
federal tax reserve of $4.3 as a result of the resolution of certain tax
issues. This amount was recorded in Credit (provision) for income
taxes.
11. Effective January 1, 1993, Armco adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106), which required accrual of the
estimated cost of these benefits during the years an employee is
actively employed, rather than the previous practice of expensing these
benefits on a pay-as-you-go basis after the participant is retired.
Armco elected to recognize immediately the cumulative effect of this
obligation and as a result recognized a net of tax charge of $440.0, or
$4.25 per share, as of January 1, 1993.
Armco adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109) effective January 1, 1993. The
cumulative effect of adopting SFAS 109, excluding a tax benefit of
$170.3 for the cumulative effect of adoption of SFAS 106, was a benefit
of $135.6, or $1.31 per share, as of January 1, 1993.
Effective January 1, 1993, Armco adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" and recorded $3.1, or $.03 per share, of expense for the
cumulative effect of establishing additional liabilities for certain
short-term and long-term disability benefit plans.
12. Information relating to Armco's industry segments can be found on
page 18.
- ------------------------
-10-
<PAGE>12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
-------------------------------------------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
(Dollars in millions, except per share data)
GENERAL
- -------
Armco Inc.'s (Armco) results in the third quarter and first nine months
of 1994 and 1993 were as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 368.0 $ 419.8 $ 1,102.5 $ 1,300.5
Special charges (15.0) (165.5) (35.0) (165.5)
Operating profit (loss) 13.7 (160.7) 16.8 (135.8)
Income (loss) from continuing
operations 25.4 (188.0) 68.1 (210.5)
Discontinued operations --
Income from operations - 5.0 - 14.2
Loss on disposal of business - (40.0) - (40.0)
Income (loss) before cumulative
effect of accounting changes 25.4 (223.0) 68.1 (236.3)
Cumulative effect of accounting
changes - - - (307.5)
Net income (loss) 25.4 (223.0) 68.1 (543.8)
</TABLE>
Sales in the three and nine months ended September 30, 1994 decreased
12% and 15%, respectively, from the same periods in 1993, primarily
because of the absence in 1994 of businesses that were sold or are no
longer consolidated and the idling of operations at the Empire-Detroit
Steel Division (Empire-Detroit) in the second quarter of this year. The
businesses which have been sold or are no longer consolidated in Armco's
financial statements represented $56.8 and $189.4 of sales in the third
quarter and first nine months, respectively, of 1993. Excluding the no
longer consolidated businesses from 1993 and adjusting for the idling of
Empire-Detroit, sales would have increased 19% and 8% in the third
quarter and first nine months, respectively, of 1994 versus 1993,
primarily as a result of a strong specialty steel market and higher
sales of snowplows at Douglas Dynamics, Inc.
The year-to-year improvement in third quarter operating profit was
primarily attributable to strong performances in the Specialty Flat-
Rolled Steel segment, except for the results of Eastern Stainless
Corporation (Eastern Stainless), and Douglas Dynamics, Inc., partially
offset by losses at Empire-Detroit and Sawhill Tubular (see Business
Segment Results). In the three and nine months ended September 30,
1994, operating profit included a $15.0 charge related to a decision by
Eastern Stainless to sell all of its assets and a $4.5 charge to
increase Armco's legal and environmental reserves. The operating loss
for the three and nine months ended September 30, 1993 included special
charges totaling $165.5 associated with the decision to exit certain
businesses in the Other Steel and Fabricated Products segment. The
operating loss also includes a $0.3 loss and $12.7 of income for the
three and nine months ended September 30, 1993, respectively, from those
businesses which Armco has sold or no longer consolidates.
Net income in the third quarter and first nine months of 1994 included a
$26.1 gain on the sale of 90% of Armco's investment in North American
Stainless (NAS), the $15.0 charge related to Eastern Stainless and the
$4.5 charge to increase legal and environmental reserves. Net income
for the first nine months of 1994 also included a $66.5 gain recognized
as a result of the completion of an initial public offering by Armco's
former joint venture, Armco Steel Company, L.P. (ASC), a $20.0 special
charge for expenses related to the temporary idling and restructuring of
Empire-Detroit's steelmaking facilities, and $4.4 in equity income
representing Armco's proportionate share of a net gain realized by
National-Oilwell on the sale of certain production equipment and lines
of business held by that
-11-
<PAGE>12
joint venture. In the third quarter of 1993, Armco reported a net loss
of $223.0, which included special charges totaling $165.5 for a loss on
Armco's decision to exit a number of businesses and a $40.0 charge
related to the decision to sell Worldwide Grinding Systems businesses.
The grinding businesses had third quarter net income of $5.0. The net
loss in the nine months ended September 30, 1993 included a cumulative
effect charge of $307.5 for adopting new accounting standards for
postretirement and postemployment benefits and income taxes, $14.2 of
income from Worldwide Grinding Systems, federal and state tax-related
credits of $14.9, an equity loss of $17.9 from ASC and the third quarter
unusual charges totaling $205.5.
BUSINESS SEGMENT RESULTS
- ------------------------
Specialty Flat-Rolled Steel
- ---------------------------
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 279.1 $ 240.3 $ 811.5 $ 776.0
Special charge (15.0) - (15.0) -
Operating profit 27.5 18.7 92.3 63.3
Shipments (000s of net tons) 182 156 533 503
Production (000s of net tons) 225 203 663 694
Capability utilization 105% 91% 102% 91%
</TABLE>
Customer sales and tons shipped increased by 16% and 17%, respectively,
in the third quarter of 1994 versus 1993, primarily for increases driven
by demand for automotive chrome stainless, electrical steel and
stainless strip, partially offset by declines in chrome nickel stainless
and Eastern Stainless' plate.
For the first nine months of 1994 compared to 1993, customer sales and
tons shipped increased 5% and 6%, respectively. A decrease in shipments
of stainless flat plate and slabs, due to the July 1993 closing of the
melt shop at Eastern Stainless partially offset increased sales of
stainless sheet and strip and electrical steel. Average sales dollars
per ton was lower in 1994 than 1993 due to a change in product mix as
automotive chrome sales displaced sales of higher priced chrome nickel
products.
Operating profit increased 47% and 46%, respectively, for the third
quarter and first nine months of 1994 versus 1993. Included in
operating profit for the 1994 periods is a $15.0 special charge related
to a decision by Eastern Stainless to sell all of its assets to Avesta
Sheffield Holding Company (Avesta Sheffield), a stainless steel plate
manufacturer, for cash and the assumption of certain liabilities. Any
cash received would be used by Eastern Stainless to satisfy normal
operating and employee benefit obligations not assumed by Avesta
Sheffield. The liabilities not assumed by Avesta Sheffield or satisfied
by the sale proceeds will be assumed by Armco. Upon completion of the
proposed transaction, Armco anticipates that Eastern Stainless would
have no assets remaining as a corporate legal entity and that it will be
dissolved without any shareholder distribution. The proposed
transaction is subject to a number of conditions, including completion
of a definitive purchase agreement, and approvals by regulatory
authorities, the boards of directors of Eastern Stainless Corporation
and Avesta Sheffield and by the Eastern Stainless' shareholders.
Eastern Stainless had sales of $15.2 and $52.8 during the three and nine
months ended September 30, 1994.
The Butler, Pennsylvania melt facility continues to run at full capacity
during 1994, as raw steel production of 225,000 tons in the third
quarter increased 11% compared to the same period of 1993. Butler's
cast steel production capacity is estimated to be 860,000 tons in 1994,
versus 850,000 tons in 1993. Production in 1993 included the Eastern
Stainless melt shop for the first half of the year.
Outlook: Operating results are expected to continue to improve relative
to 1993 as a result of continued strong market conditions, scheduled
price increases and improved production efficiencies. Order rates for
stainless sheet and strip, particularly for the automotive industry, are
expected to remain strong into next year. While demand for oriented
electrical steel for distribution transformers
-12-
<PAGE>14
and cold rolled non-oriented electrical steel for motors and generators
is also expected to remain strong, the market may soften somewhat in the
fourth quarter of 1994 reflecting normal seasonal activity. A 5%-7%
price increase on non-oriented electrical steels effective at the
beginning of 1995 was announced in August. Shipments and operating
profit for the fourth quarter of 1994 are expected to be below third
quarter results, as fourth quarter production will be reduced by annual
maintenance outages at the Butler, Pennsylvania and Coshocton, Ohio
facilities. Due to heavy demand throughout the year, these units have
been unable to build inventories in preparation for the outages.
However, shipments and operating profit in the fourth quarter of this
year are expected to exceed the results for the same period last year.
On October 17, 1994, Armco announced an expanded capital improvement
program under which it will spend up to $95.0 over the next two years to
upgrade and expand its specialty steel finishing facilities. The
program is intended to reduce existing production constraints by
increasing specialty steel finishing capacity by approximately 180,000
tons per year, particularly in electrical steels, specialty sheet and
strip products, and nonautomotive chrome stainless. About $60.0 of this
total will be spent to upgrade existing equipment at the Coshocton,
Mansfield and Zanesville, Ohio and Butler, Pennsylvania plants. The
Mansfield operations of Empire-Detroit, while currently in the Other
Steel and Fabricated Products segment, will be involved in melting and
finishing specialty steels once the thin-slab caster is in operation.
Mansfield's production is expected to relieve some of Armco's melt
constraints (See Other Steel and Fabricated Products). The remaining
$35.0 of investment is targeted for a proposed new pickle line and box
annealing facilities. In addition to increasing revenues as a result of
expanded finishing capacity, the capital improvements are expected to
provide significant annual cost savings.
Other Steel and Fabricated Products
- -----------------------------------
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 88.9 $ 179.5 $ 291.0 $ 524.5
Special charges - (165.5) (20.0) (165.5)
Operating loss (4.6) (172.0) (51.8) (171.7)
</TABLE>
Net sales decreased by 50% and 45% in the third quarter and first nine
months, respectively, of 1994 compared to the same periods in 1993. The
shortfall was primarily due to the absence, in 1994, of businesses that
were sold or are no longer consolidated and the idling of operations at
Empire-Detroit. Those businesses no longer consolidated represented
$56.8 and $189.4 in sales in the third quarter and first nine months,
respectively, of 1993. In addition as a result of the temporary idling
and restructuring of its steelmaking facilities in Mansfield and Dover,
Ohio, Empire-Detroit's 1994 third quarter and year-to-date sales were
down $53.6 and $89.0, respectively, from the same periods last year.
Excluding the no longer consolidated businesses from 1993 and adjusting
for the reduced sales at Empire-Detroit, segment sales would have
increased 29% and 18% in the third quarter and first nine months,
respectively, of 1994 versus 1993. Record setting sales of snowplows at
Douglas Dynamics, Inc. accounted for the favorable sales variance.
The operating losses for the three and nine month periods ended
September 30, 1993 included $165.5 of special charges to cover estimated
losses and reserve requirements for the ultimate disposal of a number of
businesses. Excluding the special charges, the 1994 third quarter
operating loss was less than the loss in the same period in 1993 as a
result of a significant increase in operating profit at Douglas
Dynamics, Inc., partially offset by increased third quarter losses at
Empire-Detroit. Empire-Detroit's third quarter 1994 loss of $13.3,
however, was down compared to its second quarter operating loss of $17.9
as further benefits of the plant idling were realized. Operating income
associated with the units which are no longer consolidated was $0.3 in
the third quarter 1993.
The 1994 year-to-date operating loss includes a special charge of $20.0
in connection with the idling and restructuring of Empire-Detroit's
steelmaking facilities. These facilities will be idled until completion
of the new thin-slab continuous caster at the Mansfield facility,
currently scheduled for the second quarter of 1995. Absent the special
charges from the nine months ended September 30,
-13-
<PAGE>15
1994 and 1993, the increase in operating losses for 1994 was primarily
attributable to higher losses at Empire-Detroit, partially offset by a
significant increase in operating profit at Douglas Dynamics, Inc.
Douglas Dynamics had a significant increase in operating profit due to
higher sales of snowplows as a result of near record snowfalls last
winter, low customer inventory and continued strong demand for four-
wheel drive vehicles.
Outlook: Empire-Detroit is expected to incur operating losses until
after the start-up of the thin-slab caster in the second quarter of
1995. During early 1995, losses at Empire-Detroit are expected to
increase from the level experienced in the third quarter, largely as a
result of expenses related to the preparation for startup of the thin-
slab caster, including expenses to train employees on the new capital
equipment. As discussed above, a portion of the recently announced
$95.0 capital expenditure program will be directed at upgrading
equipment at Mansfield to improve its rolling, pickling and annealing
operations. Though the new caster and the new capital expenditures
program are intended to benefit Mansfield's specialty steelmaking
capabilities, improvements in the carbon steel operations are also
expected.
Armco recently signed a letter of intent to sell the assets of Bowman
Metal Deck Products to Wheeling-Pittsburgh Steel Corporation. Bowman,
with annual sales of approximately $30.0, is a producer of carbon steel
roof, floor and bridge deck.
Douglas Dynamics, Inc.'s sales and earnings are expected to grow further
in 1994 and 1995, driven by strong demand for four-wheel drive vehicles,
distributors' need to replace inventory and sales of new products.
DISCONTINUED OPERATIONS
- -----------------------
Armco Financial Services Group
- ------------------------------
The Armco Financial Services Group consists primarily of insurance
companies which Armco intends to sell and which continue underwriting
activities (AFSG companies to be sold) and insurance companies that have
stopped writing new business for retention and are being liquidated
(runoff companies).
Armco signed a definitive agreement, dated August 2, 1994, to sell the
AFSG companies to be sold. The agreement is subject to a number of
conditions, including approvals by regulatory authorities. Armco
accounts for these businesses as discontinued operations and, as such,
does not recognize, in its consolidated financial statements, AFSG's
results of operations. Armco has an investment in the AFSG companies to
be sold of $73.9 at September 30, 1994, reflecting its estimated net
realizable value. Proceeds from the sale will remain committed to the
support of Armco's runoff companies.
AFSG companies to be sold
Direct written premiums in the third quarter and first nine months of
1994 were $65.7 and $171.9, which was 3% and 4% lower than the third
quarter and first nine months, respectively, of 1993. Soft markets in
commercial lines plus the decision to exit the Southwest Region (Texas)
in 1993 reduced commercial lines writings.
The loss from underwriting was $7.0 in the third quarter of 1994
compared to a $9.7 loss in the third quarter of 1993. Losses incurred
were down as a result of both a decline in the earned premium base and
focused attention to improve personal auto profitability. The
underwriting loss for the first nine months of 1994 was $26.2 or $1.5
more than the same period in 1993. Lower underwriting losses, incurred
in the second and third quarters of 1994, were offset by a $5.0 increase
in the first quarter 1994 underwriting loss primarily due to the winter
storms in the Northeast and Midwest.
Net investment income, including realized gains, in the third quarter of
1994 was $7.2, a decrease of $5.8 or 45% from the third quarter of 1993.
The decline in investment income was primarily a result of zero realized
gains in 1994 compared to $4.9 in 1993 and a decline in investment yield
of the base portfolio, due to the erosion of market interest rates over
the last two years.
-14-
<PAGE>16
The net loss in the first nine months of 1994 was $4.5, which was $0.7
less than the $5.2 loss recorded in the first nine months of 1993. The
net loss in 1993 included a one-time charge of $14.0 for the full
postretirement benefit transition obligation, recognized upon adoption
of Statement of Financial Accounting Standards No. 106.
Liquidity and Financial Position: At September 30, 1994 and December
31, 1993, the companies to be sold had total assets of $548.7 and
$571.4, respectively, including cash and invested assets of $405.5 and
$440.7. Net assets at September 30, 1994 were $103.5, which was $32.4
below the December 31, 1993 balance of $135.9. The lower net assets
were primarily due to 1994 unrealized losses totaling $27.9 as a result
of an increase in market interest rates which reduced the market value
of the bond portfolio.
Insurance premiums and interest are the primary sources of cash for the
AFSG companies to be sold. Total cash used by operating activities
during the first nine months of 1994 was $3.7, compared to $1.8 provided
in the first nine months of 1993. The increase in cash used in 1994 is
primarily due to a drop in premiums collected and interest received. In
the first nine months of 1993, investing activities provided $18.3 and
financing activities used $2.8 for payment on a note.
Outlook: Earnings for the property and casualty insurance industry are
expected to remain flat in 1994. Pricing for normal commercial lines
remains soft. Operating income for the AFSG companies to be sold is
expected to approximate prior year results, despite significant
catastrophe losses incurred in the first quarter. However, the increase
in long-term market interest rates during 1994 is expected to limit
capital gain opportunities. As a result, net income for the AFSG
companies to be sold is expected to decline compared to 1993.
Runoff companies
No charges have been recorded with respect to the runoff companies since
the second quarter of 1990. Armco management continues to believe that
future charges, if any, resulting from the runoff companies will not be
material to Armco's financial position or liquidity. However, it is
possible that due to fluctuations in Armco's results, future
developments could have a material effect on the results of operations
in one or more future interim or annual periods.
EQUITY AND OTHER INVESTMENTS
- ----------------------------
Armco Steel Company, L.P. (ASC)
- ---------------------------
ASC was an equally owned limited partnership, formed in 1989, between
subsidiaries of Armco and Kawasaki Steel Corporation. Losses incurred
by ASC in subsequent years through 1993 reduced Armco's investment to
zero, after which Armco stopped recording its equity in profits or
losses related to the operations of ASC.
On April 7, 1994, ASC completed an initial public offering and
recapitalization. As part of this transaction, the business and assets
of ASC were transferred to AK Steel Corporation (AK Steel), a newly
formed, publicly traded company. In exchange for its interest in ASC,
Armco received 1,023,987 shares of AK Steel common stock, representing
approximately four percent of the outstanding shares. In addition,
Armco was released from certain obligations to make future cash payments
to the former joint venture. The number of shares received and other
terms of the restructuring and recapitalization were determined by
arm's-length negotiations.
As a result of the transaction, Armco recognized a nonrecurring gain in
the second quarter of 1994 totaling $66.5, or $0.64 per share, primarily
as a result of release from certain obligations discussed above,
recognition of deferred pension curtailment gains established at ASC's
formation and a $30.0 tax benefit related to the effect of this
transaction on Armco's deferred tax asset position. In addition, should
Armco decide to sell its shares in AK Steel, which it has agreed not to
do until after December 3, 1994, it would recognize a gain equal to the
net proceeds received upon such sale. At September 30, 1994, the stock
held by Armco had a market value of $33.3.
-15-
<PAGE>17
AK Steel currently hot rolls stainless steel for Armco under a toll
rolling agreement, which is in effect through the year 2002.
National-Oilwell
- ----------------
Armco's equity in the income of National-Oilwell was $2.1 and $6.2 in
the third quarter and first nine months of 1994, respectively, compared
to equity losses of $2.4 and $3.9 in the comparable 1993 periods.
Included in the nine month equity income in 1994 was a $4.4 net gain on
the disposal of assets associated with businesses which National-Oilwell
is exiting. In the first quarter of 1994, National-Oilwell completed
the divestiture of its unprofitable wellhead business, for which Armco
recognized a $5.0 charge against its equity income in the fourth quarter
of 1993. Improved demand for National-Oilwell core products is
anticipated over the next twelve months as oil and gas prices begin to
strengthen.
National-Oilwell maintains its own cash and credit lines and funds its
own operations, liabilities and capital expenditures. National-Oilwell
has a $96.0 credit facility which matures on March 31, 1995.
Armco does not consider National-Oilwell part of its core business and,
therefore, it continues to evaluate its options with respect to its
investment in this joint venture.
North American Stainless (NAS)
- ------------------------------
Armco and Acerinox S.A. of Spain each owned a 50% partnership interest
in NAS through their respective subsidiaries, First Stainless, Inc. and
Stainless Steel Invest, Inc. In the third quarter of 1994, First
Stainless, Inc. sold 90% of its 50% equity interest in NAS to its
partner for $73.0 in cash and Armco recorded a $26.1 gain on the sale.
Through its subsidiary, First Stainless, Inc., Armco maintains a 5%
limited partnership interest in NAS. In connection with the
transaction, Armco entered into an annual supply contract with NAS to
provide the former joint venture with semi-finished stainless steel.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1994, Armco had $202.3 of cash and cash equivalents
compared to $183.5 at December 31, 1993. Total cash and cash
equivalents increased $18.8 during the first nine months of 1994,
primarily due to the $73.0 in proceeds from the sale of NAS, partially
offset by capital expenditures for the thin-slab caster at Empire-
Detroit's Mansfield, Ohio facility. Net cash provided by investing
activities, including proceeds on the sale of assets and $58.8 in
capital expenditures, was $17.8. Cash generated by operating activities
was $14.1, while financing activities used $13.5, primarily for
preferred stock dividends.
In addition to the cash on hand, Armco has a $170.0 revolving credit
facility that matures on December 31, 1995. At September 30, 1994,
$82.0 of the credit facility was used as support for letters of credit
and $88.0 was available. As amended in the second quarter of 1994, the
credit agreement requires Armco to maintain a minimum working capital of
$130.0 through December 31, 1994. At September 30, 1994, Armco's
working capital, as defined, was $255.9. In addition, beginning January
1, 1994, Armco must maintain cumulative net income greater than zero for
the year 1994. The minimum cumulative net income increases to $10.0 in
the first quarter of 1995, and thereafter, increases an additional $10.0
per quarter throughout 1995. Armco must also meet certain ratio
requirements. Noncompliance with any of these covenants or the
occurrence of any other event of default could result in the lending
banks terminating their commitments under the amended credit agreement
and/or accelerating the payment of amounts due thereunder.
On June 30, 1994, Armco settled a lawsuit with the Pension Benefit
Guaranty Corporation (PBGC) related to the alleged underfunding of
guaranteed benefits under Reserve Mining Company's pension plan (see
Note 9 of the Notes to Condensed Consolidated Financial Statements).
Under the settlement, on June 30, 1994, Armco paid $10.0 to the PBGC in
connection with the Reserve Mining pension liability and, on July 15,
1994, made a $17.5 contribution to the Armco Inc. Pension Agreements
Plan. Both amounts had been accrued for in Armco's financial
statements.
-16-
<PAGE>18
Armco anticipates that its capital expenditures for 1994 will be
approximately $90.0, including $30.0 for normal replacement,
environmental and expansion capital as well as about $60.0 of
expenditures on the $100.0 thin-slab caster project at the Mansfield,
Ohio plant, which was discussed in the Other Steel and Fabricated
Products section. Financing for a significant portion of this project
has been obtained, and installation of the caster is expected to be
completed in the second quarter of 1995.
Except for capital projects and normal operating expenditures, Armco has
no significant amounts of debt or other cash commitments due through the
remainder of the year. However, Armco has notified the trustee of its
8.7% Sinking Fund Debentures due 1995 that it will redeem the remaining
$7.9 of these debentures at 100% of their face value effective November
16, 1994. As described above, Armco has announced a capital
improvements program, which, over the next two years and at management's
discretion, could use between $60.0 and $95.0 of cash beginning in 1995.
In addition, Armco expects to contribute from $15.0 to $55.0 to its
major pension funds in 1995. The debt repurchase, capital expenditures
and pension funding will be paid out of existing cash balances, cash
generated from operations and proceeds from the disposal of businesses
and assets which, in 1993, were identified for sale.
On October 28, 1994, Armco's Board of Directors declared the regular
quarterly dividends of $.525 per share on the $2.10 Cumulative
Convertible Preferred Stock, Class A, and $.90625 per share on the
$3.625 Cumulative Convertible Preferred Stock, Class A, each payable
January 3, 1995 to shareholders of record on December 2, 1994. The
Board of Directors also declared the regular quarterly dividend of
$1.125 per share on the $4.50 Cumulative Convertible Preferred Stock,
Class B, payable January 3, 1995, to shareholders of record on December
2, 1994. Payment of dividends on Armco's common stock is currently
prohibited under the terms of certain of Armco's debt instruments and
under the terms of the amended bank credit agreement.
-17-
<PAGE>19 <TABLE>
ARMCO INC.
SEGMENT REPORT
(Unaudited)
(Dollars in millions)
1994 1993
-------------------- -----------------------------
3rd 2nd 1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Specialty Flat-Rolled Steel:
Customer sales $279.1 $269.2 $263.2 $225.5 $240.3 $274.8 $260.9
Special charge (15.0) - - - - - -
Operating profit 27.5 34.7 30.1 12.2 18.7 24.7 19.9
Other Steel and Fabricated Products:
Customer sales 88.9 85.7 116.4 138.0 179.5 179.3 165.7
Special charges - - (20.0) - (165.5) - -
Operating profit (loss) (4.6) (13.1) (34.1) (11.8) (172.0) 2.4 (2.1)
Corporate General (9.2) (7.6) (6.9) (10.6) (7.4) (10.1) (9.9)
- ------------------------------------------------------------------------------------
Total operating profit (loss) 13.7 14.0 (10.9) (10.2) (160.7) 17.0 7.9
- ------------------------------------------------------------------------------------
Interest income 3.4 1.9 1.9 1.4 0.7 1.3 1.6
Interest expense (8.2) (8.4) (8.9) (10.3) (11.0) (10.6) (10.8)
Sundry other - net (12.8) (10.4) (10.7) (6.5) (12.8) (11.1) (5.7)
Credit (provision) for
income taxes (0.4) 29.8 (0.2) (0.2) (1.6) 2.2 6.9
- ------------------------------------------------------------------------------------
Income (loss) of Armco and
consolidated subsidiaries (4.3) 26.9 (28.8) (25.8) (185.4) (1.2) (0.1)
Equity in losses of Armco Steel
Company, L.P. - - - (10.0) - - (17.9)
Gain on investment in Armco
Steel Company, L.P. - 36.5 - - - - -
Gain on investment in North
American Stainless 26.1 - - - - - -
Equity in income (loss) of
other equity companies 3.6 6.5 1.6 (9.9) (2.6) (0.2) (3.1)
- ------------------------------------------------------------------------------------
Income (loss) from continuing
operations 25.4 69.9 (27.2) (45.7) (188.0) (1.4) (21.1)
Discontinued operations
- Worldwide Grinding Systems
Income (loss) from
operations - - - - 5.0 10.1 (0.9)
Loss on disposal of
business - - - - (40.0) - -
- AFSG companies to be sold
Loss on disposal of
business - - - (45.0) - - -
- ------------------------------------------------------------------------------------
Income (loss) before extraordinary
items and cumulative effect of
accounting changes 25.4 69.9 (27.2) (90.7) (223.0) 8.7 (22.0)
Extraordinary items - - - (7.3) - - -
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits
and income taxes - - - - - - (307.5)
- ------------------------------------------------------------------------------------
Net income (loss) $25.4 $ 69.9 $(27.2) $(98.0) $(223.0) $ 8.7 $(329.5)
====================================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-18-
<PAGE>20
Part II. Other Information
Item 1. Legal Proceedings
-----------------
There are various claims pending against Armco and its subsidiaries
involving product liability, antitrust, patent, insurance arrangements,
environmental and hazardous waste matters, employee benefits and other
matters arising out of the conduct of the business of Armco as previously
described in Armco's Annual Report on Form 10-K for the year ended December
31, 1993 (the Form 10-K) and Armco's Quarterly Reports on Form 10-Q
subsequently filed (Forms 10-Q).
Reserve Mining Litigation. As previously discussed in the Forms 10-Q, an
- --------------------------
action entitled Larry B. Ricke, Trustee v. Armco was filed on April 25,
--------------------------------
1994, in the United States District Court for the District of Minnesota by
the Trustee appointed by the Pension Benefit Guaranty Corporation (PBGC)
for the purpose of recovering from Reserve Mining assets to satisfy Reserve
Mining's liability for pension benefit entitlements which are in addition
to those guaranteed by the PBGC. As previously discussed in the Forms 10-
Q, the complaint alleges that Armco is liable for the unfunded
nonguaranteed benefits under the Pension Plan of Reserve Mining in the
amount of $9.2 million plus interest. The pension benefits which are the
subject of this action were part of the class settlement of United
------
Steelworkers of America v. Armco. Approximately 1,500 members of the class
- --------------------------------
signed individual releases (the 19 members who did not are plaintiffs in
the Warner, Donovan, et al. v. Armco litigation) releasing Armco from all
--------------------------------
claims, liabilities, etc. based upon or which arise out of any Reserve
Mining Employee Pension Benefit Plan. Armco believes these releases bar
the claims of the Trustee and has filed a Motion to Dismiss which remains
pending before the district court.
Cornerstones Litigation. As previously reported in the Form 10-K, an
- ------------------------
action was filed by Cornerstones Municipal Utility District (Cornerstones)
and William St. John, as representative of a class of owners of real
property situated within Cornerstones, in the District Court of Harris
County, Texas, in July 1989, alleging that Armco Construction Products
supplied defective pipe for a sanitary sewer system in three residential
subdivisions. The complaint sought in excess of $30 million in damages.
On May 29, 1991, plaintiffs filed a Third Amended Petition adding
Kingsbridge Municipal Utility District (Kingsbridge) and John Keplinger, as
representative of a class of owners of real property situated within
Kingsbridge, as additional plaintiffs. The residents of Kingsbridge made
similar allegations, sought certification of the class of Kingsbridge
homeowners and seek to recover damages for an allegedly faulty sewer system
in four residential subdivisions. The amended petition seeks in excess of
$40 million in damages, on behalf of the Kingsbridge and the Cornerstones
plaintiffs, which is in excess of the court's jurisdictional limits. The
Kingsbridge action remains pending and is in discovery. On January 13,
1992, the Court granted Armco's Motion for Summary Judgment and dismissed
all of the Cornerstones plaintiffs' claims against the defendants on the
basis of the statute of limitations. In January, 1993, the Texas Appellate
Court reversed the dismissal of the Cornerstones action and remanded it to
the trial court. In May 1993, the Texas Supreme Court granted Armco's
application for leave to appeal the appellate court's decision and heard
argument on the matter on September 14, 1993. On November 24, 1993, the
Texas Supreme Court reversed the appellate court in favor of Armco,
awarding Armco its costs and remanding the case to the appellate court for
disposition of unaddressed issues. On September 14, 1994, a three member
panel of the Court of Appeals heard oral argument on the remaining issues.
In an opinion filed on November 10, 1994, the Court of Appeals affirmed the
trial court's grant of summary judgment in favor of Armco on the basis that
the Cornerstones claims are barred by the statute of limitations.
On or about April 3, 1992, an action was filed in the District Court of
Harris County, Texas by approximately 87 residents, including lead
plaintiffs Vincent and Linda Adducci, of the Cornerstones subdivision
against the same defendants as in the Cornerstones case. The suit is based
------------
on the same theories as Cornerstones and seeks an unspecified amount of
------------
damages.
-19-
<PAGE>21
On or about September 11, 1992, Harris W. Arthur and other plaintiffs,
owners of real property situated within Cornerstones, filed suit in the
District Court of Harris County Texas, against multiple defendants,
including Armco. The suit, similar to the action filed by Cornerstones and
William St. John and the action filed by Vincent and Linda Adducci and
other plaintiffs, alleges damages were sustained as a result of improper
design and installation of the sanitary sewer system servicing the
subdivision, as well as certain manufacturing and/or design defects of the
pipe utilized to construct the sanitary system. The complaint also asserts
legal malpractice theories against various counsel for the Municipal
Utility District. The complaint seeks an unspecified amount of damages.
On March 22, 1993, an action captioned William C. Irons, et al. v. Turner,
-----------------------------------
Collie & Braden, et al. was filed in the District Court of Harris County,
- -----------------------
Texas. This action, which involves approximately 100 additional owners of
real property situated within Cornerstones, names multiple defendants,
including Armco, and alleges theories of damages similar to those in the
Arthur and Adducci matters. The complaint seeks an unspecified amount of
- ------ -------
damages. There have been no new developments in the Arthur, Adducci and
------- -------
Irons litigation pending resolution of the issues on appeal in
Cornerstones.
- ------------
Armco Chile Prodein, S.A. Litigation. As previously discussed in the Form
- -------------------------------------
10-K, on or about November 15, 1991, Armco and Armco Chile Prodein, S.A.
were sued for damages in the United States District Court for the Southern
District of Alabama by a maritime cargo carrier. Plaintiff's claims were
based upon allegations of fraud, negligent misrepresentation, negligent
interference with contractual relations and wrongful arrest. Plaintiff's
allegations arose out of a series of transactions in which it was engaged
by Armco Chile Prodein to transport fiberglass reinforced pipe from
Jacksonville, Florida to Talcahuano, Chile. Plaintiff made three such
shipments of pipe. After discovering damage to the first and second
shipments of pipe, which defendants contended was due to negligence by
plaintiff, Armco Chile Prodein arrested, pursuant to Chilean law, the
vessel which plaintiff utilized to carry the third shipment of pipe.
Plaintiff alleged, among other things, that this arrest was wrongful and
that the alleged wrongful arrest resulted in such severe damage to
plaintiff's business interests and reputation that plaintiff went out of
business. Plaintiff's experts claimed that the damages suffered by
plaintiff range from $38 million to $47 million. Both Armco and Armco
Chile Prodein filed motions for summary judgment. On January 25, 1993, the
court granted summary judgment discharging Armco and subsequently denied
plaintiff's motions for reconsideration of the summary judgment granted to
Armco. On April 30, 1993, a jury verdict on plaintiff's wrongful arrest
and lost profits claims was rendered in favor of the plaintiff and against
Armco Chile Prodein in the amount of $10.5 million. Judgment on the
verdict was entered by the Court on May 7, 1993. Thereafter, Armco Chile
Prodein filed a motion seeking judgment as a matter of law or,
alternatively, for a new trial. On October 12, 1993, finding that the
jury's verdict on liability and damages was against the weight of the
evidence, the trial court granted the defendant's post-trial motion,
entering judgment in favor of Armco Chile Prodein against plaintiff. The
court also granted Armco's motion for a conditional new trial in the event
the judgment is overturned on appeal. The plaintiff appealed this ruling
to the Federal Circuit Court. On September 12, 1994, the Eleventh Circuit
Court of Appeals affirmed per curiam the ruling of the district court in
----------
favor of Armco Chile Prodein. Plaintiff has filed a petition for rehearing
en banc.
- -------
CRS Litigation. As previously discussed in the Form 10-K, on October 31,
- ---------------
1990, a third-party complaint was served on Armco in the Circuit Court of
Montgomery County, Maryland by the owner of a 6.3 mile potable water tunnel
designed by defendant, CRS Sirrine (CRS) and its predecessor companies, and
constructed by Armco and Clevecon Inc. Armco built 3.4 miles of the
tunnel; Clevecon built the remaining 2.9 miles. No portion of the tunnel,
which was completed in early 1984, has ever been functional. Washington
Suburban Sanitary Commission filed suit against CRS seeking damages in the
amount of $200 million. CRS filed third-party complaints against Armco and
Clevecon seeking damages to the extent of any liability of CRS attributable
to Armco's or Clevecon's negligence or negligent misrepresentation in
connection with the installation of the potable water tunnel and the third-
party defendants' alleged defective workmanship in connection with the
same. CRS
-20-
<PAGE>22
subsequently settled the claims against it by Washington Suburban Sanitary
Commission and continued to prosecute its third-party claims against Armco
and Clevecon. Oral argument on Armco's re-filed summary judgment motion
was held on January 3, 1994. The circuit court denied Armco's summary
judgment motion and the case proceeded to trial. On January 28, 1994, a
directed verdict was entered by the court in favor of Armco. CRS has
appealed the judgment entered in favor of Armco.
Environmental Proceedings. As previously discussed in the Form 10-K and
- --------------------------
June Form 10-Q, Armco has been one of four remaining defendants in three
class actions filed in the 157th Judicial District, District Court of
Harris County, Texas on behalf of about 750 residents near the French
Limited Superfund site (The French Limited Site). These cases were Avalos
------
v. Atlantic Richfield Company, (ARCO) et al., Curette v. ARCO and Adolph v.
- ------------------------------------------------------------- --------
ARCO. In December 1992, the Avalos, Curette, and Adolph plaintiffs
- ---- --------------- ------
accepted a $1.1 million settlement offer made by Armco and two other
defendants, of which Armco's share was $549,270.56. The settlement funds
were paid out in 1993 and the court dismissed the action with prejudice.
As a condition to settlement, about 300 individuals were severed from the
Avalos action and transferred to a separate action styled Rosa Ann Barrett,
- ------ -----------------
et al. v. ARCO, et al., in the United States District Court for the
- ----------------------
Southern District of Texas, Houston Division. In June 1994, the court
granted summary judgment against all but two of the Barrett plaintiffs on
the basis that they had not established a factual basis for their claims.
On September 20, 1994, the Court overruled plaintiffs' motion for rehearing
or new trial and entered a file order dismissing all claims. Summary
judgment was granted against the remaining two plaintiffs. They
subsequently appealed.
On December 13, 1993, Rhonda Sills, on behalf of herself and two of her
children, sued the same defendants as in the Avalos case. On October 17,
------
1994, defendants' motion for summary judgment was granted, in respect to
all claims in this case.
In February, a suit on behalf of Rod Luke Chambers and about 30 other
plaintiffs was filed against the ARCO defendants. On September 13, 1994,
the Court granted Armco's motion for summary judgment in the Chambers
litigation. --------
On May 30, 1994, John D. Bertling, et al. v. ARCO, et al. was consolidated
---------------------------------------
with the Avalos case. At a hearing on August 24, 1994, plaintiff's counsel
------
tentatively agreed to dismiss Armco and two other defendants because Mr.
Bertling, who operated a sand business prior to the commencement of
remediation activities at the Sikes site, another superfund site located
near the French Limited Site, has asserted business-related claims
concerning only the Sikes site. Armco and two other defendants only had
involvement at the French Limited Site. Subsequently, plaintiff's attorney
refused to dismiss Armco and those two other defendants claiming that some
of the health-related claims may have arisen from exposure to the French
Limited Site. This case has not yet been set for trial.
As previously reported in the Form 10-K, on or about June 29, 1992, Armco
was served with a complaint, styled as a class action, filed in the
Superior Court of California, County of Los Angeles, by Scott Liuzza and
approximately 80 named plaintiffs against Armco and a number of other
companies, relating to, among other things, a land reclamation site owned
by Armco and recently closed under the supervision and with the approval of
the appropriate environmental agencies. The plaintiffs sought a recovery
in an unstated amount for alleged personal and property damages plus
injunctive relief. The court sustained Armco's demurrer to the class
action counts of the complaint and in March 1994 dismissed plaintiffs'
claims for the diminution of property values and personal injury; remaining
claims are for property damages and injunctive relief. All plaintiffs have
agreed to a settlement totaling $355,000.
As previously reported in the Form 10-K, on January 18, 1994, Armco
received a 104(e) request for information under Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) from United States
Environmental Protection Agency (USEPA) regarding shipments from the former
E. G. Smith Division of Cyclops to the Granville
-21-
<PAGE>23
Solvents site in Ohio. Armco has responded to the request. In August
1994, USEPA entered into an Administrative Order on Consent (AOC) with a
number of potentially responsible parties. Armco did not sign the AOC
because the terms were deemed unacceptable. Four of the signatories to the
AOC have initiated a contribution action in the U.S. District Court for the
Southern District of Ohio against all the potentially responsible parties,
including Armco, who have not signed the AOC.
As previously reported in the Form 10-K, on February 16, 1994, the Missouri
Department of Natural Resources and the USEPA jointly issued a Part B
permit to the Kansas City facility under the Resource Conservation and
Recovery Act. Armco petitioned for review of many of the permit provisions
to the Environmental Appeals Board. That appeal has been resolved and
Armco expects issuance of a revised permit which deletes most of the
provisions to which Armco objected. The revised permit will continue to
require "interim measures" including investigation and potentially,
remediation at several areas of the facility.
As previously reported in the Form 10-K, Armco received a unilateral order
from USEPA to complete remediation of contaminated soil on certain property
in New Boston, Ohio sold by Cyclops to New Boston Industrial Corp. several
years ago. Prior to the sale, the salvage contractor hired by the current
owner (which was then occupying the property as a tenant of Cyclops)
engaged in intentional conduct which directly resulted in contamination.
As a part of the sentence imposed upon the contractor in response to his
guilty plea to the resulting criminal charges, the contractor agreed to
remediate the contaminated condition. Armco and the current owner have
collected $825,000 on a $1 million performance bond which had been obtained
to secure the contractor's performance. These funds are being used for
remediation and oversight of the cleanup. Armco will be responsible for
the remaining cleanup costs which are estimated to be between $4.5 million
to $5.0 million. Armco will be seeking contribution from other potentially
responsible parties, but no estimate as to the amount of such contribution
can be made at this time.
The total liability on the foregoing claims and those other claims
described under ITEM 3. LEGAL PROCEEDINGS in the Form 10-K or under Item 1.
Legal Proceedings. in the Forms 10-Q is not determinable; but in the
opinion of management, the ultimate liability resulting will not materially
affect the consolidated financial condition or liquidity of Armco and its
subsidiaries; however, it is possible that due to fluctuations in the
Company's results, future developments with respect to changes in the
ultimate liability could have a material effect on future interim or annual
results of operations.
-22-
<PAGE>24
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. The following is an index of the exhibits included in the Form 10-Q:
Exhibit 11 Computation of Income (Loss) Per Share
B. The following reports on Form 8-K were filed by Armco since June 30,
1994:
<TABLE>
Report Date Description
----------- -----------
<S> <S>
June 30, 1994 Reporting that Armco settled the Reserve
Mining litigation with the PBGC. Under
the terms of the agreement, Armco paid the
PBGC $10.0 million in connection with the
Reserve Mining pension liability and
contributed $17.5 million in cash to the
Armco Inc. Pension Agreements Plan on July
15, 1994.
July 15, 1994 Reporting that Armco signed a letter of
intent to sell most of its interest in
NAS, a 50-percent joint venture with
Acerinox. Under the terms of the letter
of intent, Armco will sell 90% of its
equity interest to Acerinox and will
retain a five percent ownership interest
in the venture and would continue to
supply NAS with chrome nickel stainless
steel coils for a period after the sale.
September 15, 1994 Reporting that Armco sold most of its
interest in NAS for $73 million to
Acerinox. Armco, through its subsidiary,
First Stainless, Inc. maintains a five
percent limited partnership interest in
NAS and Armco will supply NAS with chrome
nickel stainless steel coils on an annual
contract basis. As a result of the sale,
Armco recorded a gain of approximately $26
million in the third quarter of 1994.
October 3, 1994 Reporting that Armco, Eastern Stainless
Corporation, an 84%-owned subsidiary of
Armco, and Avesta Sheffield reached an
agreement in principle for the sale of all
of the assets of Eastern to Avesta
Sheffield for cash and the assumption of
certain liabilities.
</TABLE>
-23-
<PAGE>25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on behalf of the registrant by the following
duly authorized persons.
Armco Inc.
--------------------------------
(Registrant)
Date November 14, 1994 /s/ D. G. Harmer
- ---------------------- -------------------------------
D. G. Harmer
Vice President and Chief
Financial Officer
Date November 14, 1994 /s/ P. G. Leemputte
- ---------------------- -------------------------------
P. G. Leemputte
Controller
-24-
<PAGE>
<TABLE>
EXHIBIT 11
ARMCO INC.
COMPUTATION OF INCOME (LOSS) PER SHARE
(Dollars and shares in millions, except per share amounts)
Three Months Ended Nine Months Ended
PRIMARY September 30, September 30,
- ------- --------------- ----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common
stock (After preferred dividends of
$4.5 for the three months ended
September 30, 1994 and 1993; and $13.4
for the nine months ended September 30,
1994 and 1993):
Income (loss) from continuing operations $20.9 $(192.5) $ 54.7 $(223.9)
Loss from discontinued operations - (35.0) - (25.8)
- ------------------------------------------------------------------------------
Income (loss) before cumulative effect
of accounting changes 20.9 (227.5) 54.7 (249.7)
Cumulative effect of changes in
accounting for certain postretirement and
postemployment benefits and income taxes - - - (307.5)
- ------------------------------------------------------------------------------
Net income (loss) $ 20.9 $(227.5) $ 54.7 $(557.2)
- ------------------------------------------------------------------------------
Weighted average number of common shares 104.8 103.9 104.5 103.8
Weighted average number of common
equivalent shares 0.1 - 0.1 -
- ------------------------------------------------------------------------------
Average common shares outstanding as
adjusted 104.9 103.9 104.6 103.8
- ------------------------------------------------------------------------------
Income (loss) per share:
Income (loss) from continuing operations $ 0.20 $(1.85) $ 0.52 $(2.16)
Loss from discontinued operations - (0.34) - (0.25)
- ------------------------------------------------------------------------------
Income (loss) before cumulative effect
of accounting changes 0.20 (2.19) 0.52 (2.41)
Cumulative effect of changes in
accounting for certain postretirement and
postemployment benefits and income taxes - - - (2.97)
- ------------------------------------------------------------------------------
Net income (loss) per share $ 0.20 $(2.19) $ 0.52 $(5.38)
- ------------------------------------------------------------------------------
FULLY DILUTED*
Net income (loss) applicable to common
stock (After preferred dividends of $13.4
for the nine months ended September 30, 1994
and $4.5 and $13.4 for the three and nine
months ended September 30, 1993):
Income (loss) from continuing operations $25.4 $(192.5) $ 54.7 $(223.9)
Loss from discontinued operations - (35.0) - (25.8)
- ------------------------------------------------------------------------------
Income (loss) before cumulative effect
of accounting changes 25.4 (227.5) 54.7 (249.7)
Cumulative effect of changes in
accounting for certain postretirement
and postemployment benefits and
income taxes - - - (307.5)
- ------------------------------------------------------------------------------
Net income (loss) $ 25.4 $(227.5) $ 54.7 $(557.2)
- ------------------------------------------------------------------------------
Weighted average number of common shares 104.8 103.9 104.5 103.8
Weighted average number of common
equivalent shares 0.1 ** 0.1 **
Weighted average number of preferred
shares on an "if converted" basis 22.7 ** ** **
- ------------------------------------------------------------------------------
Average common shares outstanding
as adjusted 127.6 103.9 104.6 103.8
- ------------------------------------------------------------------------------
Income (loss) per share:
Income (loss) from continuing
operations $ 0.20 $ (1.85) $ 0.52 $ (2.16)
Loss from discontinued operations - (0.34) - (0.25)
- ------------------------------------------------------------------------------
Income (loss) before cumulative
effect of accounting changes $ 0.20 (2.19) 0.52 (2.41)
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits and
income taxes - - - (2.97)
- ------------------------------------------------------------------------------
Net income (loss) per share $ 0.20 $ (2.19) $ 0.52 $ (5.38)
- ------------------------------------------------------------------------------
Shares of stock outstanding at
September 30
Common 104.9 103.9
Preferred - $2.10 Class A 1.7 1.7
Preferred - $3.625 Class A 2.7 2.7
Preferred - $4.50 Class B 1.0 1.0
<FN>
* Calculation of fully diluted loss per share is submitted in accordance with
Securities Exchange Act of 1934 Release No. 9083, although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produces an antidilutive result,
or is not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because
it results in dilution of less than 3%.
** Antidilutive
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE ARMCO INC. CONDENSED STATEMENT OF
CONSOLIDATED FINANCIAL POSITION AND CONDENSED STATEMENT
OF CONSOLIDATED OPERATIONS AND RETAINED DEFICIT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 202,300
<SECURITIES> 0
<RECEIVABLES> 199,100
<ALLOWANCES> 0
<INVENTORY> 151,200
<CURRENT-ASSETS> 641,800
<PP&E> 1,027,500
<DEPRECIATION> (488,400)
<TOTAL-ASSETS> 1,913,100
<CURRENT-LIABILITIES> 385,100
<BONDS> 364,200
<COMMON> 956,000
0
185,900
<OTHER-SE> (1,395,600)
<TOTAL-LIABILITY-AND-EQUITY> 1,913,100
<SALES> 1,102,500
<TOTAL-REVENUES> 1,102,500
<CGS> (979,500)
<TOTAL-COSTS> (979,500)
<OTHER-EXPENSES> (35,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (25,500)
<INCOME-PRETAX> (35,400)
<INCOME-TAX> (29,200)
<INCOME-CONTINUING> 68,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,100
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0
</TABLE>
