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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 March 31, 1994
-------------------------------
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 Street, Pittsburgh, Pennsylvania 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 ----
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 April 30, 1994: 104,103,174
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ARMCO INC.
INDEX
Page
----
Part I. Financial Information
Condensed Statement of Consolidated Financial Position -
March 31, 1994 and December 31, 1993 2
Condensed Statement of Consolidated Operations and
Retained Deficit -
Three Months Ended March 31, 1994 and 1993 3
Condensed Statement of Consolidated Cash Flows -
Three Months Ended March 31, 1994 and 1993 4
Notes to Condensed Consolidated Financial Statements 5-9
Management's Discussion and Analysis of the Condensed
Consolidated Financial Statements 10-15
Segment Report 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18-19
Signatures 20
Exhibits
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<TABLE> <PAGE>3
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Unaudited)
(Dollars in millions) March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 175.9 $ 183.5
Receivables, less allowance for doubtful accounts 192.3 185.1
Inventories (Note 2) 190.2 205.5
Net assets held for sale 27.7 30.9
Other 18.3 20.4
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Total current assets 604.4 625.4
Investments
Investment in National-Oilwell 83.5 83.9
Investment in North American Stainless 43.7 43.8
Investment in AFSG (Note 5) 97.1 97.1
Other, less allowance for impairment 43.1 44.3
Property, plant and equipment 997.8 983.0
Accumulated depreciation (466.9) (455.2)
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Property, plant and equipment - net 530.9 527.8
Deferred tax asset 295.6 295.6
Goodwill and other intangible assets 160.9 162.6
Other assets 23.1 24.2
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Total assets $ 1,882.3 $ 1,904.7
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts and notes payable $ 106.8 $ 119.6
Employee benefit obligations 133.8 98.3
Accrued salaries and wages 30.5 28.7
Other accrued liabilities 101.9 98.1
Current portion of long-term debt and lease obligations 2.8 8.3
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Total current liabilities 375.8 353.0
Long-term debt and lease obligations 387.2 379.7
Long-term employee benefit obligations 1,274.5 1,270.9
Other liabilities 180.6 204.5
Commitments and contingencies (Notes 5 and 8)
Class B common stock of subsidiary,
redemption values $13.5 and $13.2 9.8 9.7
Shareholders' deficit (Note 7)
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 950.8 951.1
Retained deficit (1,482.0) (1,450.3)
Net foreign currency translation adjustments (1.3) (0.8)
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Total shareholders' deficit (345.6) (313.1)
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Total liabilities and shareholders' deficit $ 1,882.3 $ 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, Three Months Ended
except per share amounts) March 31,
----------------------
1994 1993
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<S> <C> <C>
Net sales $ 379.6 $ 426.6
Cost of products sold (346.7) (387.2)
Selling and administrative expenses (23.8) (31.5)
Special charges (Note 3) (20.0) -
- - -----------------------------------------------------------------------------------------------------
Operating profit (loss) (10.9) 7.9
Interest income 1.9 1.6
Interest expense (8.9) (10.8)
Sundry other - net (10.7) (5.7)
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Loss before income taxes (28.6) (7.0)
Credit (provision) for income taxes (Note 9) (0.2) 6.9
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Loss from Armco and consolidated subsidiaries (28.8) (0.1)
Equity in income (losses) of equity companies 1.6 (21.0)
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Loss from continuing operations (27.2) (21.1)
Discontinued operations - Worldwide Grinding Systems
Loss from operations - (0.9)
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Loss before extraordinary items and
cumulative effect of accounting changes (27.2) (22.0)
Cumulative effect of changes in accounting for postretirement
and postemployment benefits and income taxes (Note 10) - (307.5)
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Net loss (27.2) (329.5)
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Retained deficit, beginning of period (1,450.3) (790.7)
Preferred stock dividends (4.5) (4.5)
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Retained deficit, end of period $(1,482.0) $(1,124.7)
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Weighted average number of common and common
equivalent shares outstanding - primary 104.1 103.6
Net loss applicable to common stock $ (31.7) $ (334.0)
Per share of common stock - primary
Loss from continuing operations $ (0.30) $ (0.25)
Loss from discontinued operations - -
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Loss before cumulative effect of accounting changes (0.30) (0.25)
Cumulative effect of changes in accounting for certain postretirement
and postemployment benefits and income taxes - (2.97)
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Net loss per share - primary (0.30) (3.22)
Net loss per share - fully dilutive * *
Cash dividends per share
$2.10 Class A $ 0.525 $ 0.525
$3.625 Class A 0.906 0.906
$4.50 Class B 1.125 1.125
<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)
Three Months Ended
March 31,
---------------------
1994 1993
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (27.2) $ (329.5)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and lease-right amortization 12.2 14.0
Loss from discontinued operations - 0.9
Gain on sales of investments and facilities - (0.9)
Equity in losses and undistributed earnings of associated companies (0.6) 21.0
Special charges 20.0 -
Cumulative effect of accounting changes - 307.5
Other 3.1 (2.4)
Change in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable (10.4) (25.0)
Inventory 15.0 (6.7)
Payables and accrued expenses 8.0 10.2
Other assets and liabilities - net (9.5) (2.6)
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Net cash provided by (used in) operating activities 10.6 (13.5)
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Cash flows from investing activities:
Net proceeds from the sale of businesses and assets 0.8 11.4
Proceeds from the sale and maturity of marketable securities - 1.0
Proceeds from the sale of investments 4.9 2.6
Purchase of investments (7.0) (1.6)
Contributions to equity investees - (3.9)
Capital expenditures (15.4) (9.0)
Net cash used in discontinued operations (0.7) (33.1)
Other 2.8 (2.3)
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Net cash used in investing activities (14.6) (34.9)
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Cash flows from financing activities:
Proceeds from drawdown of construction debt 7.5 -
Principal payments on debt (5.6) (0.1)
Change in notes payable - (0.7)
Dividends paid (4.5) (4.5)
Other (1.0) 1.2
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Net cash used in financing activities (3.6) (4.1)
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Effect of exchange rate changes on cash - (1.9)
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Net change in cash and cash equivalents (7.6) (54.4)
Cash and cash equivalents:
Beginning of year 183.5 171.3
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End of period $ 175.9 $ 116.9
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4.8 $ 6.5
Income taxes 0.1 0.3
<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 March 31, 1994, and the results of operations and cash flows
for the three months ended March 31, 1994 and 1993. The results of operations
for the three months ended March 31, 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>
March 31, December 31,
Inventories on LIFO: 1994 1993
------------------- --------- ------------
<S> <C> <C>
Finished and semi-finished $ 169.0 $ 190.8
Raw materials and supplies 24.2 21.5
Less - Adjustment to state
inventories at LIFO value (36.3) (38.5)
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Total 156.9 173.8
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Inventories on average cost:
Finished and semi-finished 12.5 14.1
Raw materials and supplies 20.8 17.6
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Total 33.3 31.7
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Total inventories $ 190.2 $ 205.5
======= =======
</TABLE>
3. In the three months ended March 31, 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, and
a small Indiana processing facility. Current plans call for these facilities
to be idled in the second quarter of 1994 and until completion of construction
of a new thin-slab continuous caster at the Mansfield facility, scheduled for
mid-1995. Approximately two-thirds of the charge is associated with group
insurance, workers' compensation and other benefits for employees while the
plant is idled. The remaining third of the charge relates to inventory
writedowns and work force reductions. The liabilities related to this charge
are primarily in the current portion of employee benefit obligations in the
Condensed Statement of Consolidated Financial Position.
4. On April 7, 1994, Armco Steel Company, L.P. (ASC), a 50%-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 stock in
AK Steel with a market value, based on the initial public offering price, of
approximately $24.0. The stock represents about four percent of the
outstanding AK Steel shares immediately after the initial public offering. 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 expects to recognize nonrecurring gains
in the second quarter of 1994 totaling approximately $67.0, or $.64 per share,
primarily as a result of its release from certain obligations, as discussed
above, the recognition of deferred pension
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<PAGE>7
curtailment gains established at ASC's formation and the recording of a tax
benefit related to the effect of this transaction. In addition, should Armco
decide to sell its shares in AK Steel, following the 180-day waiting period
included in the transaction agreement, it would recognize a gain equal to the
net proceeds received upon such sale.
The following is summarized financial information for ASC for the three months
ended March 31, 1994 and 1993:
<TABLE>
Three Months Ended
March 31,
------------------
1994 1993
---- ----
<S> <C> <C>
Customer sales $ 445.9 $ 368.5
Operating profit (loss) 22.9 (20.3)
Net income (loss) 10.3 (33.8)
Armco's equity in ASC results - (17.9)
</TABLE>
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
losses of the joint venture.
5. 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).
In January 1994, Armco signed a letter of intent to sell the AFSG companies to
be sold. The final agreement is subject to a number of conditions, including
a definitive purchase agreement and approvals by regulatory authorities and
the boards of directors of both companies. The proceeds from a sale of these
businesses have been pledged as security for certain note obligations due to
the runoff insurance companies and will be retained in the investment
portfolio of the AFSG runoff companies.
Armco's investment in the AFSG companies to be sold is recorded at its
estimate of net realizable value, $73.9 at March 31, 1994. These businesses
are accounted for as discontinued operations 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
March 31,
------------------
Results of Operations 1994 1993
--------------------- ---- ----
<S> <C> <C>
Premiums earned $ 53.9 $ 58.5
Losses and loss adjustment expenses (44.7) (42.7)
Underwriting expenses (21.1) (22.2)
------ ------
Underwriting loss (11.9) (6.4)
Investment income 7.3 10.4
------ ------
Income (loss) before
effect of accounting change (4.6) 4.0
Cumulative effect of accounting
change for postretirement benefits - (14.0)
------ ------
Net loss $ (4.6) $(10.0)
====== ======
</TABLE>
The net loss experienced during the first quarter of 1994 related primarily to
winter storm losses during the period.
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<PAGE>8
<TABLE>
March 31, December 31,
Financial Condition 1994 1993
------------------- --------- --------
<S> <C> <C>
Assets:
Invested assets $ 423.9 $ 440.7
Receivables 92.6 87.7
Other assets 41.9 43.0
------ ------
Total assets 558.4 571.4
Liabilities:
Property and casualty reserves 407.2 398.3
Payables and other liabilities 34.6 37.2
------ ------
Total liabilities 441.8 435.5
------ ------
Net assets 116.6 135.9
Net income not recognized (5.8) (10.4)
Unrealized investment gain/loss
not recognized 1.4 (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 March 31, 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 respect to certain reinsurance
programs. The ultimate liability from such matters at March 31, 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.
6. In the fourth quarter of 1993, Armco entered into an amended credit
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 March 31, 1994, Armco had
no borrowings outstanding under the agreement, but had utilized $89.5 of the
credit facility for letters of credit.
The amended credit agreement requires Armco to maintain a minimum working
capital of $225.0 during 1994. At March 31, 1994, Armco's working capital, as
defined, was $227.7. In addition, Armco must maintain cumulative net income
greater than zero for the year 1994, increasing by $10.0 per quarter in 1995,
and 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 credit agreement and/or
accelerating the payments of amounts due thereunder. Based on internal
estimates, Armco believes that its working capital may fall below the minimum
requirement during the second quarter of 1994. Armco is currently negotiating
amendments to these covenants, including the minimum working
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<PAGE>9
capital requirement, to provide additional flexibility; however, no assurance
can be given that these amendments will be obtained.
7. Under terms of the credit agreement (Note 6), 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 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 future.
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 March 31, 1994, the amount from
which Armco is permitted to pay dividends was $36.5.
At its April 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.
8. First Taconite Company, a subsidiary of Armco, and a subsidiary of LTV
Corporation, 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 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 obligation and indemnification of Armco.
In 1990, Armco, through a subsidiary, formed North American Stainless (NAS), a
50%-owned joint venture established to build and operate a new chrome nickel
stainless steel finishing facility in Carrollton, Kentucky. At March 31,
1994, Armco had trade receivables from NAS of $24.4. Armco provides a $7.4
letter of credit to secure 50% of NAS debt service payments.
NAS had long-term debt outstanding totaling $129.0 at March 31, 1994 as well
as a revolving bank credit facility totaling $40.0, which was fully utilized
as of March 31, 1994. At December 31, 1993 and March 31, 1994, NAS was not in
compliance with certain covenants contained in these loan agreements. Lenders
have agreed to waive compliance with those covenants as of December 31, 1993
and March 31, 1994 and discussions are underway with lenders regarding
appropriate amendments to the financial tests.
Early in the second quarter of 1994, Armco and its partner in the joint
venture, Acerinox S.A. of Spain, together invested an additional $12.1 in NAS.
Armco is currently limited, under its debt agreements, as to the amount of
contributions it can make to its joint venture partnerships.
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<PAGE>10
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 at maturity and the contract price. Gains and losses related
to outstanding contracts are recognized in income currently. Based on market
values at March 31, 1994, contracts with a nominal amount of $11.9 would
require Armco to pay a total of $3.6 during 1994 and 1995. The liability for
such amount has been recognized 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 5), and other matters arising out of the conduct of Armco's
business. In addition, Armco is involved with various claims brought against
Reserve Mining. If the claimants are successful in such claims, Armco could
become liable for these non debt obligations in an amount that could be
substantial. Armco believes 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. At March 31, 1994, Armco had recorded on its
Condensed Statement of Consolidated Financial Position, legal and
environmental reserves of $90.8, of which $21.7 was classified as current.
9. In the three months ended March 31, 1993, Armco recognized income of $6.0
as the result of a settlement of state income taxes related to a former Armco
subsidiary. Of the total amount, $2.4 was recorded in Credit (provision) for
income taxes and $3.6, representing interest on the settlement, was recorded
in Sundry other - net. 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. For the quarter ended March
31, 1994, there was no change in the deferred tax asset valuation allowance
affecting the net loss for the period.
10. 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.
11. Information relating to Armco's industry segments can be found on page
16.
- - -------------------------------
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<PAGE>11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
-------------------------------------------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
(Dollars in millions, except per share data)
GENERAL
- - -------
Armco's results in the first quarter of 1994 and 1993 were as follows:
<TABLE>
Three Months Ended
March 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $ 379.6 $ 426.6
Operating profit (loss) (10.9) 7.9
Loss before cumulative effect of
accounting changes (27.2) (22.0)
Net loss (27.2) (329.5)
</TABLE>
Sales in the first quarter of 1994 decreased 11% from the first quarter of
1993, primarily because of the absence in 1994 of businesses that were sold or
are no longer consolidated. Such businesses represented $64.4 of sales in the
first quarter of 1993. Excluding those businesses from 1993, sales would have
increased 5% in the first quarter of 1994 versus 1993.
The first quarter operating loss was primarily attributable to losses at the
Empire-Detroit Steel Division, offset by strong performances at Armco Advanced
Materials Company, Coshocton Stainless and Douglas Dynamics, Inc. (Douglas
Dynamics) (see Business Segment Results).
The net loss in the first quarter of 1994 included a $20.0 special charge for
expenses related to the temporary idling and restructuring of Empire-Detroit's
steelmaking facilities in Mansfield and Dover, Ohio and a small Indiana
processing facility. The net loss in the first quarter of 1993 included a
cumulative effect charge of $307.5 for adopting new accounting standards for
postretirement and postemployment benefits and income taxes. Also included in
the first quarter of 1993 are federal and state tax-related credits of $10.3,
as well as an equity loss of $17.9 from Armco Steel Company, L.P. (ASC).
BUSINESS SEGMENT RESULTS
- - ------------------------
Specialty Flat-Rolled Steel
- - ---------------------------
<TABLE>
Three Months Ended
March 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $ 263.2 $ 260.9
Operating profit 30.1 19.9
Shipments (000s of net tons) 174 169
Production (000s of net tons) 212 244
Capability utilization 99% 98%
</TABLE>
Customer sales increased by 1% and tons shipped increased by 3% in the first
quarter of 1994 versus 1993, driven mainly by demand for automotive chrome
stainless, electrical steel and stainless specialty strip. These gains were
partially offset by declines in shipments in stainless flat plate and chrome
nickel stainless sheet, the latter of which is now being finished by North
American Stainless (NAS).
- 10 -
<PAGE>12
Average sales per ton declined due to the higher demand for relatively low
priced automotive chrome and by the transfer of higher priced chrome nickel
sheet and coil plate products to NAS.
Operating profit was 11% of sales in the first quarter of 1994 compared to 8%
of sales in the first quarter of 1993. The improvement in operating margin
reflects improved electrical steel selling prices, higher plant utilization
resulting in lower costs for all products produced at the Butler, Pennsylvania
plant, as well as improved cost performance from higher operating levels at
the Coshocton, Ohio plant.
Raw steel production of 212,000 tons in the first quarter of 1994 was down 13%
compared to the same period of 1993, due to the closing of the Eastern
Stainless Corporation melt shop in July 1993. Butler's production in the
first quarter was equal to production in the first quarter of 1993. Butler's
cast steel production capacity is estimated to be 860,000 tons in 1994, versus
850,000 tons in 1993.
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 through the second quarter and into the third quarter of 1994.
Demand for oriented electrical steel for distribution transformers and cold
rolled non-oriented electrical steel for motors and generators is also
expected to remain strong. Demand for stainless flat plate is expected to
remain relatively soft, due to weak capital spending in the chemical process
industry.
Nearly all of the steel plants of Allegheny Ludlum, a specialty steel
competitor of Armco, were idled effective April 1, 1994 due to a strike by the
United Steelworkers of America. Only Allegheny Ludlum's Jessop Specialty
Products facility, which makes cut-plate and tool steels, has continued
working under a separate labor agreement. The duration of this strike is not
known at this time. However, this situation has placed additional demand on
Armco's plants for oriented electrical steels and sheet and strip stainless
products. Since Armco is operating close to current capacity, it has been
unable to meet much of this increased demand.
In January 1994, imports of all specialty flat-rolled steel products increased
sharply compared with a year ago. Imports of stainless sheet and strip
increased 59% between January 1993 and January 1994, while domestic shipments
rose only 7% in the same period. The sharper increase in imports vis-a-vis
shipments caused import penetration to jump from 19.3% to 26.1%. Imports of
stainless plate were 70% higher in January 1994 than in January 1993, while
domestic shipments were only 5% higher. As a result, import penetration of
plate increased from 13.8% to 20.6%. Electrical steel imports surged 91%
between January 1993 and January 1994, while domestic shipments increased only
2%. As a result, import penetration jumped from 19.6% to 31.4%.
With respect to grain-oriented electrical steel, in 1993 Armco and a domestic
competitor, as well as several labor unions representing work forces at
specialty steelmaking plants, filed countervailing and anti-dumping petitions
against Italy. There was also an anti-dumping duty petition filed against
Japan, in which Armco was not a party. In October 1993, the International
Trade Commission (ITC) issued a preliminary finding of injury. On January 25,
1994, the U.S. Department of Commerce announced a preliminary countervailing
duty margin of 23.14% on imports of grain-oriented electrical steel from
Italy. On February 3, the Department of Commerce announced preliminary anti-
dumping duties of 5.62% against Italy and 31.08% against Japan. Final injury
determination by the ITC is now scheduled for May regarding the countervailing
duty of imports from Italy and for June regarding the anti-dumping
investigation of imports from Japan and Italy.
Other Steel and Fabricated Products
- - -----------------------------------
<TABLE>
Three Months Ended
March 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $ 116.4 $ 165.7
Special charge (20.0) -
Operating loss (34.1) (2.1)
</TABLE>
- 11 -
<PAGE>13
Net sales decreased by 30% in the first quarter of 1994 as compared to the
same period in 1993, due to the absence in 1994 of businesses that were sold
or no longer consolidated. Those businesses represented $64.4 in sales in the
first quarter of 1993. Excluding those sales from the comparison, net sales
in the first quarter of 1994 would have increased 15% over the first quarter
of 1993, as sales increased largely as a result of higher snowplow shipments
at Douglas Dynamics.
The increased operating loss for this segment in the first quarter of 1994 was
due to an operating loss of $41.6 at Empire-Detroit, compared to an operating
loss of $8.2 in the same period in 1993. The loss at Empire-Detroit included
a special charge of $20.0 in connection with expenses related to the temporary
idling and restructuring of Empire-Detroit's steelmaking facilities in
Mansfield and Dover, Ohio and a small processing facility in Indiana. These
facilities will be idled until the installation of a new thin-slab continuous
caster at the Mansfield facility, scheduled for completion by mid-1995.
In addition to the special charge, losses at Empire-Detroit increased in the
first quarter of 1994 relative to 1993 due to the loss of the main drive motor
in the blooming mill at Mansfield in early March, increases in scrap prices of
nearly $50 per ton in the past year without a corresponding increase in
selling prices and operational inefficiencies due to the extreme cold weather.
The other businesses in the segment were profitable. Douglas Dynamics had a
significant increase in operating profit due to strong sales of snowplows as a
result of record snowfalls and four-wheel drive vehicle sales. Sawhill
Tubular was marginally profitable, reflecting the continued ramp-up, and less
than full utilization, of the new stretch reduction mill at the Sharon,
Pennsylvania plant, as well as higher hot band costs.
Outlook: Empire-Detroit is expected to incur lower, but still substantial,
operating losses until the start-up of the thin-slab caster in 1995. All
efforts are being made to mitigate losses as well as to determine the most
economical utilization of all facilities in Mansfield, within the context of
Armco's overall facilities, after the new caster starts up. The blooming mill
motor is expected to be repaired by the end of May, 1994. If demand for
electrical and automotive chrome products continues to be strong, Armco may
re-start some or potentially all of the Mansfield, Ohio plant of Empire-
Detroit to help meet customers' production schedules.
Demand for standard pipe, the main product at Sawhill Tubular, is expected to
continue to improve gradually in line with the general economy and
construction activity. Higher sales, together with fuller utilization of the
stretch reduction mill, are expected to enhance Sawhill Tubular's sales and
profits for the rest of 1994.
Douglas Dynamics' sales and earnings are expected to grow further in 1994,
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).
In January 1994, Armco signed a letter of intent to sell the AFSG companies to
be sold. The final agreement is subject to a number of conditions, including
a definitive purchase agreement and approvals by regulatory authorities and
the boards of directors of both companies. Armco's investment in the AFSG
companies to be sold totaled $73.9. Those businesses are accounted for as
discontinued operations. Proceeds from the sale will remain committed to the
support of Armco's runoff insurance subsidiaries.
- 12 -
<PAGE>14
AFSG companies to be sold
Direct written premiums in the first quarter of 1994 were $53.7, which was 3%
lower than the first quarter of 1993. The shutdown of the Southwest Region
(Texas) in early 1993 reduced commercial lines writings by $1.6.
The loss from underwriting was $11.9 in the first quarter of 1994 compared to
a $6.4 loss in the first quarter of 1993. The $5.5 increase in underwriting
loss was primarily due to losses associated with the 1994 winter storms in the
Northeast and Midwest. Earned premiums in the first quarter of 1994 were $4.6
less than in the first quarter of 1993. The unfavorable variance in earned
premium in the first quarter of 1994 was accompanied by unfavorable variances
of $1.9 in losses incurred and $0.1 in loss adjustment expenses. Partly
offsetting these unfavorable variances, deferred acquisition costs expensed in
the first quarter of 1994 were $0.7 lower than in the first quarter of 1993.
Net investment income, including realized gains, in the first quarter of 1994
was $7.3, 30% lower than the $10.4 in the first quarter of 1993. The decline
in investment income was a result of a $0.3 decline due to lower interest
rates in the last year and a $2.8 reduction in realized gains. Realized gains
occurred in the first quarter of 1993 as a result of several trades to improve
the overall yield and credit quality of the portfolio.
The net loss in the first quarter of 1994 was $4.6, which was $5.4 less than
the $10.0 loss recorded in the first quarter of 1993. The net loss for the
first quarter of 1993 included a one-time charge of $14.0 for the full
postretirement benefit transition obligation.
Liquidity and Financial Position
At March 31, 1994 and 1993, the companies to be sold had total assets of
$558.4 and $517.8, respectively, including cash and invested assets of $423.9
and $417.4. Net assets at March 31, 1994 were $116.6, which was $0.4 higher
than the March 31, 1993 balance of $116.2.
Insurance premiums and interest are the companies' primary sources of cash.
Total cash used by operating activities during the first three months of 1994
was $1.0, compared to $1.5 in the first quarter of 1993. The improvement in
1994 was primarily due to a reduction in loss payments of $6.1 and decreased
commissions and general underwriting expenses paid of $0.5, offset by reduced
premium collections of $3.7 and reduced investment interest received of $2.5.
In the first three months of 1994, investing activities provided $4.4,
compared with $8.3 in the first three months of 1993. In the first three
months of 1994, financing activities used $0.7 for payment on a note payable.
Outlook: Earnings for the property and casualty industry are expected to
remain flat in 1994. Commercial lines pricing for normal commercial risks
remains soft. There is some expectation that firming of prices will occur in
1994 as interest rates stabilize and capital gains opportunities lessen.
Operating income for the AFSG companies to be sold is expected to improve
modestly in 1994, despite significant catastrophe losses incurred in the first
quarter. However, the increase in long-term market interest rates during the
first quarter of 1994 is expected to limit capital gain opportunities. As a
result, net income for 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 one or more future interim or annual periods.
- 13 -
<PAGE>15
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 its 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 stock in AK Steel with a market value, based on the initial offering
price, of approximately $24.0. The stock represents approximately four
percent of the outstanding shares of AK Steel immediately after the initial
public offering. 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 expects to recognize nonrecurring gains
in the second quarter of 1994 totaling approximately $67.0, or $0.64 per
share, primarily as a result of reversing the obligations, as discussed above,
the recognition of deferred pension curtailment gains established at ASC's
formation and the recording of a tax benefit related to the effect of this
transaction. In addition, should Armco decide to sell its shares in AK Steel,
following the 180-day waiting period included in the transaction agreement, it
would recognize a gain equal to the net proceeds received upon such sale.
AK Steel currently hot rolls stainless steel for Armco under a ten-year arm's-
length toll rolling agreement, entered into with ASC, which remains in effect.
Other Equity Companies
- - ----------------------
National-Oilwell
Armco's equity loss was $0.3 in the first quarter of 1994 compared to an
equity loss of $1.3 in the comparable 1993 period. In the first quarter of
1994, National-Oilwell completed the divestiture of its unprofitable wellhead
business. However, National-Oilwell continues to be faced with a weak market
for oil field equipment and supplies as a result of low world oil prices that
are having a negative impact on exploration and production expenditures.
National-Oilwell maintains its own cash and credit lines and funds its own
operations, liabilities and capital expenditures. During the first quarter of
1993, National-Oilwell established a $96.0 credit facility which matures on
March 31, 1995.
North American Stainless (NAS)
Armco's equity loss from its 50% interest in NAS was $0.4 for the first
quarter of 1994 compared to a $1.8 loss in the comparable 1993 period. NAS
shipped in excess of 21,000 prime tons of product in the first quarter of
1994. Orders for chrome nickel stainless products continue to grow, in
particular, in advance of the 5% price increase effective May 1, 1994 and as a
result of the recent Allegheny Ludlum strike. Increased import competition
remains keen and has weakened pricing from prior periods. NAS continues to
gain market share and is expected to reach profitability by year end.
NAS had long-term debt outstanding totaling $129.0 at March 31, 1994 as well
as a revolving bank credit facility totaling $40.0, which was fully utilized
as of March 31, 1994. At December 31, 1993 and March 31, 1994, NAS was not in
compliance with certain covenants contained in these loan agreements. Lenders
have agreed to waive compliance with these covenants as of December 31, 1993
and March 31, 1994 and discussions are underway with lenders regarding
appropriate amendments to the financial tests.
- 14 -
<PAGE>16
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
<TABLE>
March 31, December 31,
1994 1993
--------- -----------
<S> <C> <C>
Cash and cash equivalents $ 175.9 $ 183.5
</TABLE>
Total cash and cash equivalents decreased $7.6 during the first quarter of
1994, primarily due to capital expenditures for the thin-slab caster at
Empire-Detroit's Mansfield, Ohio facility. Net cash used in investing
activities, including capital expenditures, was $14.6. Cash provided by
operations was $10.6, principally due to working capital reductions.
Financing activities used $3.6, primarily for preferred stock dividends.
Outlook: At March 31, 1994, Armco had $175.9 of cash and cash equivalents.
In addition, Armco has a $170.0 revolving credit facility that matures on
December 31, 1995. At March 31, 1994, $89.5 of the credit facility was used
for letters of credit and $80.5 was available. Borrowings under the credit
facility are secured by certain of Armco's inventory and receivables. The
credit facility contains a minimum working capital requirement, as defined, of
$225.0 at any time during 1994, increasing to $250.0 at any time during 1995.
At March 31, 1994, such working capital was $227.7. Beginning January 1,
1994, a cumulative net income test, as defined, became effective, which
requires Armco to have a minimum cumulative net income greater than zero for
the year 1994, which will increase by $10.0 per quarter in 1995. In addition,
Armco must 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 credit agreement and/or
accelerating the payments of amounts due thereunder. Based on internal
estimates, Armco believes that its working capital may fall below the minimum
requirement during the second quarter of 1994. Armco is currently negotiating
amendments to these covenants, including the minimum working capital
requirement, to provide additional flexibility; however, no assurance can be
given that these amendments will be obtained.
Armco anticipates that its capital expenditures for 1994 will be approximately
$100.0, including $40.0 for normal ongoing maintenance capital as well as
$50.0 - $60.0 of expenditures on the two-year, $100.0 thin-slab caster project
at the Mansfield, Ohio plant, which was discussed in the Other Steel and
Fabricated Products section. Financing for this project has been obtained,
and installation of the caster is expected to be completed by mid-1995.
On April 22, 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 June 30, 1994 to shareholders of record
on May 27, 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 July 1, 1994, to shareholders of record on May 27,
1994. Payment of dividends on Armco's common stock is currently prohibited
under the terms of certain of Armco's debt instruments. Under the terms of
the amended credit agreement, Armco is not permitted to pay dividends on its
common stock.
- 15 -
<PAGE>17
<TABLE>
ARMCO INC.
SEGMENT REPORT
(Unaudited)
(Dollars in millions)
1994 1993
------ -------------------------------------------
1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr.
------ -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Specialty Flat-Rolled Steel:
Customer sales $263.2 $225.5 $240.3 $274.8 $260.9
Operating profit 30.1 12.2 18.7 24.7 19.9
Other Steel and Fabricated Products:
Customer sales 116.4 138.0 179.5 179.3 165.7
Special charges (20.0) - (165.5) - -
Operating profit (loss) (34.1) (11.8) (172.0) 2.4 (2.1)
Corporate General (6.9) (10.6) (7.4) (10.1) (9.9)
- - ------------------------------------------------------------------------------------------------------------
Total operating profit (loss) (10.9) (10.2) (160.7) 17.0 7.9
Interest income 1.9 1.4 0.7 1.3 1.6
Interest expense (8.9) (10.3) (11.0) (10.6) (10.8)
Sundry other - net (10.7) (6.5) (12.8) (11.1) (5.7)
Credit (provision) for income taxes (0.2) (0.2) (1.6) 2.2 6.9
- - ------------------------------------------------------------------------------------------------------------
Loss of Armco and consolidated subsidiaries (28.8) (25.8) (185.4) (1.2) (0.1)
Equity in losses of Armco Steel Company, L.P. - (10.0) - - (17.9)
Equity in income (losses) of other equity companies 1.6 (9.9) (2.6) (0.2) (3.1)
- - ------------------------------------------------------------------------------------------------------------
Loss from continuing operations (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 (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) $ (27.2) $ (98.0) $(223.0) $ 8.7 $(329.5)
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- 16 -
<PAGE>18
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).
On or about April 7, 1994, an action was filed in the United States District
Court for the District of Minnesota by the Pension Benefit Guaranty
Corporation (PBGC), on its own behalf as statutory trustee of the Pension Plan
for Reserve Mining Company (Reserve Mining). As previously discussed in the
Form 10-K, the PBGC seeks judgment against Armco for the liability of Reserve
Mining, a Minnesota partnership between a subsidiary of Armco and a subsidiary
of LTV Company, for the alleged underfunded amount of guaranteed benefits to
be paid by the PBGC of approximately $21.4 million plus interest.
An action entitled, Larry B. Ricke, Trustee v. Armco Inc. was filed on
-------------------------------------
April 25, 1994 in the United States District Court for the District of
Minnesota by the Trustee appointed by the 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.
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.
As previously discussed in the Form 10-K, in December 1989, Traverse Bay Area
Intermediate School District ("TBA") filed suit in the United States District
Court for the Western District of Michigan alleging that Parsons Corporation,
the predecessor in interest of Hitco, a former subsidiary of Armco, released
hazardous substances which contaminated the plaintiff's property. Armco
assumed the defense of Hitco pursuant to the terms of the sale of Hitco. The
TBA litigation was dismissed with prejudice on January 4, 1993. Armco and TBA
jointly performed a remedial investigation, focused feasibility study and risk
assessment on TBA's property and submitted the reports to the Michigan
Department of Natural Resources ("MDNR"). On March 24, 1993, MDNR sent Armco
and TBA a "Notice of Demand for Payment and Response Action", claiming
reimbursement of approximately $1.3 million in past costs plus statutory
interest and demanding performance of additional investigation and response
activities at the site which are estimated to cost about $600,000. A
Complaint was served on May 6, 1994. A Consent Decree among the State, TBA
and Armco, resolving the case is expected to be filed by May 13, 1994. Under
this Decree, Armco will pay $528,070 for past costs; plus 60% of additional
state oversite costs and will pay for part of the site remediation. Armco's
share of the remediation cost is expected to be about $530,000.
As previously discussed in the Form 10-K, on or about July 31, 1990, the State
of Connecticut filed an action entitled Leslie Carothers, Commissioner of
---------------------------------
Environmental Protection v. Cyclops Corporation, Detroit Strip Division in the
- - -----------------------------------------------------------------------
Connecticut State Superior Court, Judicial District of Hartford/New Britain at
Hartford, seeking certain penalties and a permanent injunction against Cyclops
Corporation to restrain it from discharging wastewater into the waters of the
State of Connecticut without a permit. The claim involves a closed facility
in Hamden, Connecticut. The penalty claim in the litigation was settled for
$60,000, in April 1994.
As previously discussed in the Form 10-K, an action styled Tammy Fisher Whalen
-------------------
v. AES, Inc., et al. was filed on March 17, 1993 in the 10th Judicial
- - --------------------
District, District Court of Galveston County, Texas by Tammy Fisher Whalen on
behalf of herself and several other plaintiffs against AES, Inc. and
approximately 40 other defendants, including Armco and a number of other major
corporations, relating to the McGinnis Waste Disposal Site. A substantially
identical action entitled Bonnie R. Cannon, et al. v. AES, Inc., et al. was
---------------------------------------------
filed seeking $1 billion in alleged actual damages and $4 billion in punitive
damages. Based on absence of evidence linking Armco to the site, the Whalen
------
and Cannon plaintiff's filed a Notice of Non-Suit on April 7, 1994, thus
------
dismissing Armco from the case. The claims against other defendants were not
affected by this action.
- 17 -
<PAGE>19
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on April 22, 1994, and all nine
nominees to the Board of Directors named in Armco's Proxy Statement were
elected. Approximately 84.5% of the outstanding common and preferred shares
were voted. The vote on the election was as follows:
<TABLE>
Name For Withheld
---- --- --------
<S> <C> <C>
John J. Burns, Jr. 90,942,148 714,275
David A. Duke 90,891,978 764,437
John C. Haley 90,886,364 770,052
Paul H. Henson 90,865,678 790,738
John H. Ladish 90,848,150 808,266
Bruce E. Robbins 90,951,336 705,079
Burnell R. Roberts 90,866,399 790,016
John D. Turner 90,950,505 705,911
James F. Will 90,938,979 717,437
</TABLE>
A resolution to consider and adopt the amendment to the Regulations of Armco
to change the range of numbers of directors that may be fixed by the Board of
Directors to a minimum of eight and a maximum of thirteen was submitted and
approved by the shareholders. The vote on the resolution was as follows:
<TABLE>
Broker
Voting Classes For Against Abstain Nonvotes
-------------- --- ------- ------- --------
<S> <C> <C> <C> <C>
Common, $2.10 and
$3.625 Preferred Stocks 78,502,004 2,899,198 441,145 9,814,075
</TABLE>
In addition, a resolution to consider a shareholder proposal for an amendment
to the Regulations of Armco to limit post-retirement benefits for directors
was submitted and defeated by the shareholders. The vote on the resolution
was as follows:
<TABLE>
Broker
Voting Classes For Against Abstain Nonvotes
-------------- --- ------- ------- --------
<S> <C> <C> <C> <C>
Common, $2.10 and
$3.625 Preferred Stocks 35,634,582 42,362,162 2,659,579 11,000,100
</TABLE>
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 3.1 Amendment to the Regulations adopted on April 22, 1994
Exhibit 3.2 Regulations as so amended
Exhibit 11 Computation of Loss Per Share
- 18 -
<PAGE>20
B. The following Reports on Form 8-K were filed by Armco since
December 31, 1993.
<TABLE>
Report Date Description
----------- -----------
<S> <S>
January 26, 1994 Reporting the proposed recapitalization of ASC
and Armco's signing of a letter of intent to
sell its ongoing insurance operations to Vik
Brothers Insurance, Inc.
March 10, 1994 Reporting that Armco would receive an
approximately 4.2% interest in the proposed
recapitalization of ASC, if successfully
implemented, rather than the "less than 1%" to
have been received by Armco as originally
proposed.
April 7, 1994 Reporting that Armco would record nonrecurring
gains in the second quarter as a result of the
initial public offering and recapitalization of
its former joint venture ASC (now publicly
owned and renamed AK Steel Holding Corporation)
which was completed on April 7, 1994.
April 7, 1994 Reporting the pro forma financial information
on the completed initial public offering and
recapitalization of ASC. As part of the
transaction, the business and assets of ASC
were transferred to AK Steel Holding
Corporation, a newly formed and publicly traded
company. In exchange for its interest in ASC,
Armco received 1,023,987 shares of stock in AK
Steel Holding Corporation with a market value,
based on the initial public offering price, of
approximately $24.0 million. In addition,
Armco was released from certain obligations to
make future cash payments to the former joint
venture.
</TABLE>
- 19 -
<PAGE>21
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 May 11, 1994 /s/ D. G. Harmer
------------------------ ------------------------------------------
D. G. Harmer
Vice President and Chief Financial Officer
Date May 11, 1994 /s/ P. G. Leemputte
------------------------ ------------------------------------------
P. G. Leemputte
Controller
- 20 -
<PAGE>
EXHIBIT 3.1
AMENDMENT TO THE REGULATIONS TO CHANGE THE RANGE OF NUMBERS OF DIRECTORS
AS ADOPTED BY ARMCO'S SHAREHOLDERS ON APRIL 22, 1994
Article II
DIRECTORS
Section 1. NUMBER. The number of directors of the company shall be
as fixed from time to time either (i) by a resolution adopted by the
affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the company or (ii) without action by the
shareholders, by a resolution adopted by a vote of a majority of the board of
directors then in office which does not raise the number of directors to more
than thirteen or lower the number of directors to less than eight. The board
of directors or the shareholders may fill any director's office that is
created by an increase in the number of directors. No reduction in the number
of directors shall of itself have the effect of shortening the term of an
incumbent director.
<PAGE>
EXHIBIT 3.2 REGULATIONS AS AMENDED
ON APRIL 22, 1994
REGULATIONS
of
ARMCO INC.
Article I
SHAREHOLDERS
Section 1. ANNUAL MEETING. An annual meeting of shareholders shall
beheld on the fourth Friday in April in each year, if not a legal holiday and
if a legal holiday then on the next succeeding business day (other than
Saturday) at such time as may be fixed in the notice of the meeting, for the
election of directors, the consideration of reports to be laid before such
meeting, and the transaction of such other business as may properly come
before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of shareholders may be
held on any date, other than a legal holiday or a Saturday, when called by the
chairman of the board, the president, a vice president, or by a majority of
the members of the board of directors acting with or without a meeting, and
except as otherwise provided by law or the articles, by the holders of record
of shares entitling them to exercise at least 50% of the voting power in
respect of the purpose for which such meeting is called. Upon the request in
writing delivered to the president or the secretary by any persons entitled to
call such meeting of shareholders, stating the propositions for which such
meeting is to be called, it shall be the duty of the president or secretary to
give notice to shareholders, and if such request be refused then the persons
making such request may call a meeting by giving notice in the manner provided
by law or by the regulations.
Section 3. PLACE OF MEETINGS. Meetings of shareholders may be held at
any location in the United States as may be designated by the board of
directors.
Section 4. NOTICE OF MEETINGS. Notice of all meetings of shareholders,
stating the time, place and purpose thereof, shall be given by mail in writing
by the president or the secretary or an assistant secretary to each
shareholder of record entitled to vote at such meeting or entitled to such
notice, directed to the address of each such shareholder as it appears upon
the records of the company not more than 60 days nor less than 10 days before
such meeting.
Section 5. QUORUM. To constitute a quorum at any meeting of
shareholders for the determination of the number of directors, or the election
of directors, or for consideration and action upon reports required to be laid
before such meeting, there shall be present in person or by proxy holders of
record of shares entitling them to exercise at least one-third of the voting
power in respect of such purposes. Unless otherwise provided by law or the
articles, to constitute a quorum at any meeting of shareholders called for any
other purpose, there shall be present in person or by proxy holders of record
of shares entitling them to exercise the voting power required by the
articles, or in the absence of provision therefor in the articles, the voting
power required by law, to authorize or take the action proposed or stated in
the notice of the meeting. The shareholders present in person or by proxy at
any meeting of shareholders shall constitute a quorum for the purpose of
adjourning a meeting until a quorum competent to act at said meeting shall be
present.
Section 6. RATIFICATION OF ACTS OF DIRECTORS AND OFFICERS. Except as
otherwise provided by law or by the articles, any contract, act or transaction
of the company or of the directors or of the officers may be ratified by the
affirmative vote at a meeting of shareholders, or by the written consent with
or without a meeting, of the holders or shares entitling them to exercise a
majority of the voting power of the company, and such ratification shall be as
valid and as binding as though affirmatively voted for or consented to by
every shareholder of the company.
Article II
DIRECTORS
Section 1. NUMBER. The number of directors of the company shall be as
fixed from time to time either (i) by a resolution adopted by the affirmative
vote of the holders of shares entitling them to exercise a majority of the
voting power of the company or (ii) without action by the shareholders, by a
resolution adopted by a vote of a majority of the board of directors then in
office which does not raise the number of directors to more than thirteen or
lower the number
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of directors to less than eight. The board of directors or the shareholders
may fill any director's office that is created by an increase in the number of
directors. No reduction in the number of directors shall of itself have the
effect of shortening the term of an incumbent director.
Section 2. ELECTION. The directors shall be elected by the
shareholders to hold office until the annual meeting of shareholders held next
after their election and the election and qualification of their successors.
Section 3. NOMINATIONS. Nominations for the election of directors may
be made by the board of directors or a committee appointed by the board of
directors or by any shareholder entitled to vote in the election of directors
generally. Shareholders intending to nominate director candidates for election
must deliver written notice thereof to the secretary of the company not later
than (i) with respect to an election to be held at any annual meeting of
shareholders, 90 days prior to the date one year from the date of the
immediately preceding annual meeting of shareholders, and (ii) with respect to
an election to be held at a special meeting of shareholders for the election
of directors, the close of business on the tenth day following the date on
which notice of such meeting is first given to shareholders. Such a notice
timely given by a shareholder shall set forth certain information concerning
such shareholder and his or her nominee(s), including: the name and address of
the shareholder and each nominee; the age and principal occupation or
employment of each nominee; the number of shares of equity securities
beneficially owned by each nominee; a representation that the shareholder is a
holder of record of stock entitled to vote at the meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; a description of all arrangements or understandings
between the shareholder and each nominee; such other information regarding
each nominee as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated by the board of directors;and the consent of each
nominee to serve as a director of the company if elected. The company may also
require any proposed nominee to furnish other information reasonably required
by the company to determine the proposed nominee's eligibility to serve as a
director. The presiding officer at the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedures
and any person not nominated in accordance with the foregoing procedures shall
not be eligible for election as a director.
Section 4. QUORUM. The number of directors necessary to constitute a
quorum for a meeting of the board of directors shall be such number, not less
than one-third of the authorized number of directors, as may be fixed by the
bylaws.
Section 5. COMMITTEES. The board of directors may create an executive
committee or any other committee or committees of the board consisting of
three or more directors and, to the extent permitted by law, may delegate to
any such committee any of the powers of the board and may define the extent to
which such powers are delegated.
Section 6. FEES, ETC. Each director shall be entitled to reimbursement
of his reasonable expenses incurred in attending meetings or otherwise in
connection with his attention to the affairs of the company. Each director who
is not a salaried officer of the company or of a subsidiary of the company
shall, as such director and as a member of any committee, be entitled to
receive such amounts as may be fixed from time to time by the board of
directors, in the form either of fees for attendance at meetings of the board
and of committees thereof, or of payment at the rate of a fixed sum per month,
or both.
Section 7. BYLAWS. The board of directors may adopt bylaws for their
own government not inconsistent with the articles or the regulations.
Article III
OFFICERS
Section 1. NUMBER AND DESIGNATION. The board of directors, as soon as
maybe practical after the election of directors held in each year, shall elect
a chief executive officer, a president, one or more vice presidents, a
secretary, a treasurer and a controller. From time to time, the board of
directors may elect a chief operating officer and may appoint additional vice-
presidents, assistant secretaries, assistant treasurers and other officers,
agents and employees as it may deem proper. The board of directors may, in its
discretion, elect from its members a chairman of the board, a vice
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chairman of the board and a chairman of the executive committee. Any two or
more offices may be held by the same person but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required by law or by the regulations or bylaws to be executed,
acknowledged or verified by any two or more officers.
Section 2. TERM. Officers elected by the board of directors shall hold
office until the first meeting of the board of directors following the next
annual meeting of shareholders and until their successors are elected and
qualified. Officers appointed by the board of directors shall hold office for
such period as the board of directors may designate or, in the absence of such
designation, at the pleasure of the board.
Section 3. REMOVAL. Any officer may be removed, either for or without
cause, by the affirmative vote of a majority of the directors then in office
at any special meeting of the board called for that purpose or at any regular
meeting of the board.
Section 4. VACANCIES. Vacancies in any office of the company may be
filled for the unexpired term by the board of directors at any special meeting
of the board called for that purpose or at any regular meeting of the board.
Section 5. SALARIES. The salaries of the officers of the company
elected or appointed by the board of directors shall be fixed by, or pursuant
to authority conferred by, the board of directors.
Section 6. POWERS AND DUTIES. (a) Subject to such limitations as the
board of directors may from time to time prescribe, the officers of the
company shall each have such powers and duties as generally pertain to their
respective offices and such further powers and duties as from time to time may
be conferred by the board of directors or the executive committee.
(b) The controller shall be under the duty of keeping and maintaining
the accounts required by the General Corporation Law of Ohio to be maintained,
of preparing and laying before shareholders' meetings the statement of profit
and loss and balance sheet required by the General Corporation Law of Ohio to
be laid before such meetings, and of mailing on request a copy of such
statement and balance sheet as required by the General Corporation Law of
Ohio.
Section 7. BONDS. Any officer may be required by the board of
directors to give bond for the faithful discharge of his duties, in such sum,
with such surety or sureties, and of such character, as the board may from
time to time prescribe.
Section 8. RANK IN EMERGENCY. During an emergency, as that term is
defined in the General Corporation Law of Ohio, the order of rank and the
succession to the duties and authority of officers shall be determined by the
order in which they were listed in the minutes reporting their election at the
first meeting of directors following the last annual meeting of shareholders
or, if elected at a subsequent meeting of directors, in the order of rank
specified at the time of election to office, rather than by any special
statutory rule, but all other special emergency rules provided by statute
shall be applicable.
Article IV
INDEMNIFICATION
Section 1. MANDATORY INDEMNIFICATION. The company shall, to the full
extent permitted by applicable law, indemnify any person (and the heirs,
executors and administrators of such person) who, by reason of the fact that
he is or was a director, officer, employee or agent of the company, or of a
constituent corporation (including the new or surviving corporation) in a
consolidation or merger, or is or was serving at the request of the company,
or of such constituent corporation, as a director, officer, trustee, employee
or agent of another corporation, trust, partnership, joint venture, or other
enterprise, was or is a party or is threatened to be made a party to:
(i) any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the company), against
expenses (including attorneys' fees), judgments, fines and amounts
paid in
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settlement actually and reasonably incurred by such person
in connection with any such action, suit or proceeding, or
(ii) any threatened, pending or completed action or suit by or in the
right of the company to procure a judgment in its favor, against
expenses(including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit.
Any indemnification by the company pursuant hereto shall be only made in
the manner and to the extent authorized by applicable law, and any such
indemnification shall not be deemed exclusive of any other rights to which
those seeking indemnification may otherwise be entitled.
Section 2. PERMISSIVE INDEMNIFICATION. In any case where Section 1 of
this Article IV does not provide for indemnification, the company may
indemnify any person (and the heirs, executors and administrators of such
person) under Section 1701.13(E)(6) of the Ohio Revised Code, or any other
similar provision of the Ohio statutes which is hereafter in effect, against
expenses, including attorneys' fees, amounts paid in settlement, and (except
in the case of an action by or in the right of the company) judgments,
decrees, fines, and penalties in connection with any potential, threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, reasonably incurred by any such person by
reason of the fact that he is or was a director, officer, employee or agent of
the company, or of a constituent corporation (including the new or surviving
corporation) in a consolidation or merger, or is or was serving at the request
of the company, or of such constituent corporation, as a director, trustee,
officer, employee, or agent of another corporation, domestic or foreign,
nonprofit or profit, partnership, joint venture, trust or other enterprise,
where such indemnification, payment or reimbursement by the company is
authorized by the directors upon the determination that such indemnification,
payment or reimbursement is in the best interests of the company.
Section 3. EFFECTIVE DATE OF SECTION 2. The provisions set forth is
Section 2 of this Article IV adopted on April 27, 1978, shall apply to amounts
accruing before or after the adoption of such Section 2.
Article V
CERTIFICATES OF STOCK
Section 1. FORM. Certificates for shares shall bear the signatures of
such officers and shall contain such statements as are required by law and
shall otherwise be in such form as the board of directors may from time to
time determine or approve.
Section 2. TRANSFERS. Shares shall be transferable on the books of the
company by the holders thereof in person or by duly authorized attorney, upon
surrender and cancellation for certificates for a like number of shares of the
same class or series, with duly executed assignment and power of transfer
endorsed thereon or attached thereto, and with such proof of the authenticity
of the signatures as the company or its agents may reasonably require.
Section 3. LOST CERTIFICATES. No certificate for shares shall be
issued in place of any certificate alleged to have been lost, stolen or
destroyed except upon the production of such evidence of the loss, theft or
destruction, and upon indemnification of the company and its agents to such
extent and in such manner, as the board of directors may from time to time
prescribe or require.
Article VI
MISCELLANEOUS
Section 1. NEGOTIABLE INSTRUMENTS. All checks, drafts, bills of
exchange, notes, acceptances, obligations and other instruments for the
payment of money shall be signed in the name of the company by such officer or
officers,
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person or persons, as the board of directors may from time to time authorize.
The signature of any such officer or person may, to the extent authorized by
the board of directors, be facsimile.
Section 2. CONTRACTS. The board of directors may authorize any officer
or officers or agent or agents to enter into or execute and deliver, in the
name of and on behalf of the company, any and all deeds, bonds, mortgages,
contracts and other obligations or instruments and such authority may be
general or confined to specific instances.
Section 3. CORPORATE SEAL. The seal of the company shall be in such
form as the board of directors may designate or approve.
Section 4. FISCAL YEAR. The fiscal year of the company shall be from
the1st day of January to the 31st day of December, inclusive, in each year, or
such other twelve consecutive months as the board of directors may by
resolution designate.
Article VII
AMENDMENTS
These regulations may be altered, amended or repealed and new
regulations may be adopted at any meeting of shareholders, provided notice of
the proposed change is given in the notice of the meeting, by the affirmative
vote of the holders of shares entitling them to exercise a majority of the
voting power on such proposal, or without a meeting by the written consent of
the holders of shares entitling them to exercise a majority of the voting
power on such proposal.
The undersigned, Assistant Secretary of Armco Inc., an Ohio
corporation, hereby certifies that the foregoing is a true and
complete copy of the Regulations of said Corporation as the same
are now in full force and effect.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the seal of said Corporation this day of
, 19 .
By
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ASSISTANT SECRETARY
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<TABLE> EXHIBIT 11
ARMCO INC.
COMPUTATION OF LOSS PER SHARE
(Dollars and shares in millions, except per share amounts)
Three Months Ended
PRIMARY March 31,
- - ------- --------------------
1994 1993
-------- --------
<S> <C> <C>
Net loss applicable to common stock
(After preferred dividends of $4.5 for the three months
ended March 31, 1994 and 1993):
Loss from continuing operations $ (31.7) $ (25.6)
Loss from discontinued operations - (0.9)
- - ------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of accounting changes (31.7) (26.5)
Cumulative effect of changes in accounting for certain postretirement
and postemployment benefits and income taxes - (307.5)
- - ------------------------------------------------------------------------------------------------------------
Net Loss $ (31.7) $ (334.0)
- - ------------------------------------------------------------------------------------------------------------
Weighted average number of common shares 104.1 103.6
Loss per share:
Loss from continuing operations $ (0.30) $ (0.25)
Loss from discontinued operations - -
- - ------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of accounting changes (0.30) (0.25)
Cumulative effect of changes in accounting for certain postretirement
and postemployment benefits and income taxes - (2.97)
- - ------------------------------------------------------------------------------------------------------------
Net Loss per share $ (0.30) $ (3.22)
- - ------------------------------------------------------------------------------------------------------------
FULLY DILUTED*
- - -------------
Net loss applicable to common stock
(After preferred dividends of $4.5 for the three months
ended March 31, 1994 and 1993):
Loss from continuing operations $ (31.7) $ (25.6)
Loss from discontinued operations - (0.9)
- - ------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of accounting changes (31.7) (26.5)
Cumulative effect of changes in accounting for certain postretirement
and postemployment benefits and income taxes - (307.5)
- - ------------------------------------------------------------------------------------------------------------
Net Loss $ (31.7) $ (334.0)
- - ------------------------------------------------------------------------------------------------------------
Weighted average number of common shares 104.1 103.6
Weighted average number of common equivalent shares ** **
Weighted average number of preferred shares on an ""if converted"" basis ** **
- - ------------------------------------------------------------------------------------------------------------
Average common shares outstanding as adjusted 104.1 103.6
- - ------------------------------------------------------------------------------------------------------------
Loss per share:
Loss from continuing operations $ (0.30) $ (0.25)
Loss from discontinued operations - -
- - ------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of accounting changes (0.30) (0.25)
Cumulative effect of changes in accounting for certain postretirement
and postemployment benefits and income taxes - (2.97)
- - ------------------------------------------------------------------------------------------------------------
Net Loss per share $ (0.30) $ (3.22)
- - ------------------------------------------------------------------------------------------------------------
Shares of stock outstanding at March 31
Common 104.1 103.8
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
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