<PAGE>1
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, 1995
--------------------------------------
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
- ------------------------------------ ------------------------------------
(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 X 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 March 31, 1995: 105,918,066
<PAGE>2
ARMCO INC.
INDEX
Page
----
Part I. Financial Information
Condensed Statement of Consolidated Financial Position -
March 31, 1995 and December 31, 1994 2
Condensed Statement of Consolidated Operations and
Retained Deficit -
Three Months Ended March 31, 1995 and 1994 3
Condensed Statement of Consolidated Cash Flows -
Three Months Ended March 31, 1995 and 1994 4
Notes to Condensed Consolidated Financial Statements 5-7
Management's Discussion and Analysis of the Condensed
Consolidated Financial Statements 8-12
Segment Report 13
Part II. Other Information
Item 1 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit 11 Computation of Loss Per Common Share
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<PAGE>3
<TABLE>
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Unaudited)
<CAPTION>
(Dollars in millions) March 31, December 31,
1995 1994
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 211.4 $ 202.8
Short-term liquid investments 1.5 25.8
Receivables, less allowance for
doubtful accounts 196.4 183.3
Inventories (Note 2) 182.9 165.5
Net assets held for sale 2.4 25.6
Other (Note 10) 41.7 46.0
- ---------------------------------------------------------------------------
Total current assets 636.3 649.0
Investments
Investment in National-Oilwell (Note 5) 79.9 79.5
Investment in AFSG (Note 6) 97.1 97.1
Other, less allowance for impairment 38.4 39.9
Property, plant and equipment 1,108.0 1,064.2
Accumulated depreciation (511.6) (499.6)
- ---------------------------------------------------------------------------
Property, plant and equipment - net 596.4 564.6
Deferred tax asset 321.8 321.8
Goodwill and other intangible assets 153.1 156.4
Other assets 16.8 26.6
- ---------------------------------------------------------------------------
Total assets $ 1,939.8 $ 1,934.9
- ---------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts and notes payable $ 126.0 $ 122.6
Employee benefit obligations 121.3 133.8
Accrued salaries and wages 31.4 32.7
Other accrued liabilities 92.0 90.8
Current portion of long-term debt 10.4 10.5
- ---------------------------------------------------------------------------
Total current liabilities 381.1 390.4
Long-term debt, less current portion 375.4 363.8
Long-term employee benefit obligations 1,269.6 1,255.3
Other liabilities 135.5 143.9
Commitments and contingencies (Notes 6 and 8)
Shareholders' deficit (Note 7)
Preferred stock - Class A 137.6 137.6
Preferred stock - Class B 48.3 48.3
Common stock 1.1 1.1
Additional paid-in capital 961.8 956.3
Retained deficit (1,392.5) (1,390.4)
Unrealized gain on equity securities (Note 10) 26.5 31.6
Other (4.6) (3.0)
- ---------------------------------------------------------------------------
Total shareholders' deficit (221.8) (218.5)
- ---------------------------------------------------------------------------
Total liabilities and
shareholders' deficit $ 1,939.8 $ 1,934.9
- ---------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>4
<TABLE>
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
AND RETAINED DEFICIT
(Unaudited)
(Dollars and shares in millions,
except per share amounts)
<CAPTION>
Three Months Ended
March 31,
1995 1994
-------- --------
<S> <C> <C>
Net sales $ 368.4 $ 379.6
Cost of products sold (327.7) (346.7)
Selling and administrative expenses (24.2) (23.8)
Special charge (Note 3) - (20.0)
- ---------------------------------------------------------------------
Operating profit (loss) 16.5 (10.9)
Interest income 3.7 1.9
Interest expense (7.5) (8.9)
Sundry other - net (Note 4) (11.2) (10.7)
- ---------------------------------------------------------------------
Income (loss) before income taxes 1.5 (28.6)
Provision for income taxes (0.2) (0.2)
- ---------------------------------------------------------------------
Income (loss) from Armco and consolidated
subsidiaries 1.3 (28.8)
Equity in income of equity companies (Note 5) 1.1 1.6
- ---------------------------------------------------------------------
Net income (loss) 2.4 (27.2)
Retained deficit, beginning of period (1,390.4) (1,450.3)
Preferred stock dividends (4.5) (4.5)
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Retained deficit, end of period $(1,392.5) $(1,482.0)
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Weighted average number of common and common
equivalent shares outstanding - primary 105.6 104.1
Net loss applicable to common stock $ (2.1) $ (31.7)
Net loss per common share - primary $ (0.02) $ (0.30)
Net loss per common 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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<PAGE>5
<TABLE>
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in millions)
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2.4 $ (27.2)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and lease-right amortization 12.5 12.2
Gain on sales of investments and facilities (1.5) -
Equity in net undistributed earnings of associated companies (0.1) (0.6)
Special charge - 20.0
Other 3.4 3.1
Change in assets and liabilities, net of effects of dispositions:
Accounts receivable (15.0) (10.4)
Inventory (16.8) 15.0
Payables and accrued expenses 9.0 8.0
Other assets and liabilities - net 8.7 (9.3)
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 2.6 10.8
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds from the sale of businesses and assets 15.7 0.8
Proceeds from the sale and maturity of liquid investments 24.7 -
Proceeds from the sale of investments 1.3 4.6
Purchase of investments (1.0) (6.9)
Capital expenditures (33.1) (15.4)
Net cash provided by (used in) businesses held for sale 4.4 (0.7)
Other 0.1 2.8
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Net cash provided by (used in) investing activities 12.1 (14.8)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from drawdown of construction debt - 7.5
Principal payments on debt - (5.6)
Dividends paid (7.5) (4.5)
Other 1.4 (1.0)
- ------------------------------------------------------------------------------------------
Net cash used in financing activities (6.1) (3.6)
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Net change in cash and cash equivalents 8.6 (7.6)
Cash and cash equivalents:
Beginning of period 202.8 183.5
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End of period $ 211.4 $ 175.9
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of capitalization) $ 4.0 $ 4.8
Income taxes 0.1 0.1
Supplemental schedule of noncash investing and financing activities:
Issuance of restricted stock 4.4 -
Debt incurred directly for property 11.6 -
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>6
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, 1994. 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, 1995 and the results of operations and cash flows for the
three months ended March 31, 1995 and 1994. The results of operations for
the three months ended March 31, 1995 are not necessarily indicative of the
results to be expected for the year 1995.
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,
1995 1994
--------- ------------
<S> <C> <C>
Inventories on LIFO:
Finished and semi-finished $ 172.4 $ 158.7
Raw materials and supplies 29.7 24.8
Adjustment to state inventories
at LIFO value (43.5) (41.1)
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Total 158.6 142.4
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Inventories on average cost:
Finished and semi-finished 15.5 14.8
Raw materials and supplies 8.8 8.3
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Total 24.3 23.1
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Total inventories $ 182.9 $ 165.5
======== =======
</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 Mansfield and Dover, Ohio steelmaking and finishing facilities. These
facilities were idled in March of 1994. Approximately two-thirds of the
charge was associated with group insurance and other benefits for employees
while the plant was idled. The remainder of the charge related to asset
writedowns. The Dover plant started limited production in early 1995 and the
Mansfield facility resumed operating in early April 1995, coinciding with the
start-up of its new thin-slab caster.
4. Sundry other - net in Armco's Condensed Statement of Consolidated
Operations and Retained Deficit includes expense of $9.6 and $8.3 for the
three months ended March 31, 1995 and 1994, respectively, for interest on
employees benefit obligations related to facilities which have been
discontinued. The increase is primarily due to the additional obligations
recorded for units closed or sold in 1994.
5. Armco owns a 50% interest in National-Oilwell, an oil field equipment and
supply joint venture with USX Corporation. National-Oilwell's results of
operations for the three months ended March 31, 1995 and 1994 were as
follows:
<TABLE>
March 31, March 31,
1995 1994
----------- ----------
<S> <C> <C>
Net revenues $ 135.9 $ 129.4
Gross profit 17.7 19.5
Net income 3.0 0.5
</TABLE>
6. At March 31, 1995, Armco Financial Services Group (AFSG) consisted
primarily of insurance companies which Armco intended to sell and which
continued underwriting activities (AFSG companies to be sold) and insurance
companies that had stopped writing new business and are being liquidated
(runoff companies).
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<PAGE>7
On April 7, 1995, the sale of the AFSG companies to be sold was completed.
The proceeds from the sale consisted of $64.2 in cash at the closing and
$15.0 to be received in three years. The latter amount is subject to
potential adjustment for adverse experience in certain insurance reserves.
Substantially all of these proceeds have been pledged as security for certain
note obligations due to the runoff companies and will be retained in the
investment portfolio of those companies. At March 31, 1995 and December 31,
1994, Armco's investment in the AFSG companies to be sold was recorded at
estimated net realizable value of $73.9. Upon completion of the sale, this
amount became part of Armco's investment in the runoff companies.
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 management continues to believe, based on
current facts and circumstances and the views of outside counsel and
advisors, that future charges, if any, resulting from the runoff companies
will not be material to Armco's financial condition 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. As of March 31, 1995 and December 31,
1994, 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, 1995 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. Under the terms of Armco's $170.0 amended credit agreement, 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
all of these tests in the near term.
At its April 1995 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. 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 Holding
Corporation (formerly Armco Steel Company, L.P.) 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 and Armco expects that either the purchase of such specified
quantities or the approved modification will occur in 1995.
-6-
<PAGE>8
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.
Like other manufacturers, Armco is subject to various environmental laws.
These laws require expenditures to assure Armco's compliance to remediate
sites where contamination has occurred. Compliance costs are either expensed
as they are incurred or, when appropriate, are recorded as capital
expenditures. Armco has accrued its estimate of remediation costs for sites
where it is probable that a liability has been incurred and the amount can be
reasonably estimated. The recorded amounts are currently believed by
management to be sufficient. However, such estimates could significantly
change in future periods to reflect new laws or regulations, advances in
technologies, additional sites requiring remediation, new remediation
requirements at existing sites, and Armco's share of liability at multi-party
sites. Armco believes, based on current facts and circumstances, that its
ultimate liability for environmental matters identified to date, will not
materially affect its consolidated financial condition or liquidity.
However, it is possible that due to fluctuations in Armco's results, future
developments with respect to environmental matters could have a material
effect on the results of operations of future interim or annual periods.
At March 31, 1995, Armco had recorded on its Condensed Statement of
Consolidated Financial Position, legal and environmental reserves of $86.0,
of which $22.1 was classified as current.
9. In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
--------------------------------
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This
- -------------------------------------------------------------
statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The statement requires that such assets, that
are to be held and used by an entity, be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable; and that such assets, that are to be disposed
of, be reported at the lower of carrying amount or fair value less cost to
sell, unless the assets are considered a discontinued operation as defined by
Accounting Principle Board Opinion No. 30. Armco is required to adopt this
statement no later than 1996. While a study of the effects of this statement
has not been completed, Armco believes that there will be no material impact
on its Condensed Statement of Consolidated Financial Position or Condensed
Statement of Consolidated Operations as a result of adoption of this
statement.
10. On May 4, 1995, Armco announced that it had completed a series of trades
resulting in the sale of 1,023,987 shares of AK Steel Holding Corporation (AK
Steel) common stock. As a result of the sales, Armco realized total net
proceeds of $27.2. Armco had received the stock, which represented
approximately four percent of the outstanding common stock of AK Steel, in
April 1994 as part of the initial public offering and recapitalization of
that company. With the completion of these transactions, Armco no longer
owns any stock in AK Steel.
In connection with the sales, Armco will record a gain of $25.9 or $0.24 per
share in the second quarter of 1995. Armco will use available capital loss
carryforwards to offset federal and state income taxes on this gain.
At March 31, 1995 and December 31, 1994, the investment in AK Steel stock was
recorded in Other current assets with a corresponding credit in Unrealized
gain on equity securities, in the Condensed Statement of Consolidated
Financial Position.
11. Information relating to Armco's industry segments can be found on page
13.
-7-
<PAGE>9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
-------------------------------------------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
(Dollars in millions, except per share data)
GENERAL
- -------
During the first three months of 1995, the previously announced asset sale by
Eastern Stainless Corporation (Eastern Stainless) was completed. Eastern
Stainless, an 84%-owned subsidiary of Armco Inc. (Armco), completed the sale
of substantially all of its assets to Avesta Sheffield Holding Company (Avesta
Sheffield) on March 14, 1995, receiving approximately $10.1 in cash and the
assumption of certain Eastern Stainless liabilities. Cash received on the
sale will be used to satisfy normal operating and employee benefit obligations
not assumed by Avesta Sheffield. Net liabilities not satisfied by the sale
proceeds or assumed by Avesta Sheffield have been retained by Armco. Such
liabilities retained by Armco totaled approximately $50.0. Upon completion of
the transaction, Eastern Stainless had no assets remaining as a corporate
legal entity and was dissolved and its corporate existence terminated without
any shareholder distribution.
On April 7, 1995, the sale of the Armco Financial Services Group ongoing
insurance companies was completed. The sale is more fully described under
DISCONTINUED OPERATIONS, below.
<TABLE>
Armco's results in the first quarter of 1995 and 1994 were as follows:
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
------ ------
<S> <C> <C>
Net sales $368.4 $379.6
Special charge -- (20.0)
Operating profit (loss) 16.5 (10.9)
Net income (loss) 2.4 (27.2)
Net loss per common share (0.02) (0.30)
</TABLE>
Sales in the three months ended March 31, 1995 decreased 3% from the same
period in 1994, primarily because of the idling of operations at the Mansfield
and Dover, Ohio steelmaking and finishing plants in March of last year. This
decrease was largely offset by an 11% increase in sales from the Specialty
Flat-Rolled Steel segment. The increase was achieved despite the divestiture
of Eastern Stainless which had $19.2 of sales in the first quarter of 1994 and
was not consolidated in the three months ended March 31, 1995.
As a result of the decision to idle and restructure Mansfield and Dover, Armco
recognized a $20.0 special charge in the first quarter of 1994. Excluding the
effects of the special charge, operating profit increased 81% in 1995 compared
to first quarter 1994 as a result of improved volume, pricing and productivity
in the Specialty Flat-Rolled Steel segment.
Net loss per common share reflects the deduction of $4.5 per quarter for
preferred stock dividends declared.
BUSINESS SEGMENT RESULTS
- ------------------------
<TABLE>
Specialty Flat-Rolled Steel
- ---------------------------
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
------ ------
<S> <C> <C>
Net sales $293.3 $263.2
Operating profit 47.1 30.1
Shipments (tons 000s) 187 177
Raw steel produced (tons 000s) 239 212
Capability utilization 109 % 99 %
</TABLE>
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<PAGE>10
Customer sales and tons shipped increased by 11% and 6%, respectively, in the
first quarter of 1995 versus 1994, as strong market demand for all product
lines in this business segment continued. While the Butler, Pennsylvania, and
Zanesville and Coshocton, Ohio plants produced at full capability in both
periods, productivity improvements increased output in 1995.
On January 2, 1995, price increases of 5% to 7% went into effect for
electrical steels. Due to the strong market conditions, these increases, as
well as increases in stainless steel prices announced in late 1994 and early
1995, are expected to remain in effect. Prices for products containing
molybdenum, nickel and chrome have also been favorably impacted by raw
material price surcharges placed in effect in the first quarter of 1995.
Operating profit as a percent of sales for the three months ended March 31,
1995 and 1994 was 16% and 11%, respectively, reflecting improved volume,
productivity and a favorable product mix, as well as elimination of the
operating losses of Eastern Stainless. In the third quarter of 1994, Armco
announced that Eastern Stainless was selling its assets to Avesta Sheffield, a
stainless steel plate manufacturer. As of September 30, 1994, Armco stopped
recording Eastern Stainless' results; and the sale was completed on March 14,
1995. During the first quarter of 1994, Armco recognized $19.2 of sales and a
small operating loss from Eastern Stainless. Partially offsetting the
favorable effects on operating profit were higher raw material costs,
including those on scrap steel and alloys.
Outlook: Operating results are expected to continue to improve relative to
1994 as a result of continued strong market conditions, improved production
efficiencies and scheduled price increases. Until Mansfield become fully
operational, demand for electrical steel is expected to exceed Armco's ability
to supply. At March 31, 1995, order backlog for all products was 59% higher
than one year ago and 22% higher than December 31, 1994. However, Armco is
cautious regarding its automotive-related business based on that industry's
disappointing first quarter sales.
The Mansfield Operations, while still part of the Other Steel and Fabricated
Products segment, will use a portion of its capacity to melt and finish
specialty steels following the successful start-up of the thin-slab caster and
hot strip mill. Sales of these specialty steel products will be reported in
the Specialty Flat-Rolled Steel business segment. Mansfield's specialty steel
production is expected to relieve some of Armco's melt constraints. Testing
of the Mansfield equipment for the production of specialty steels is expected
to occur in the latter part of the second quarter of this year.
In 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 approximately 180,000 tons per year, particularly in electrical
steels, specialty sheet and strip products, and nonautomotive chrome
stainless.
<TABLE>
Other Steel and Fabricated Products
- -----------------------------------
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
------ ------
<S> <C> <C>
Net sales $ 75.1 $116.4
Special charge -- (20.0)
Operating loss (23.1) (34.1)
</TABLE>
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<PAGE>11
Net sales decreased by 35% in the first quarter of 1995 compared to the same
period in 1994. The shortfall was primarily due to the continued idling of
the Mansfield Operations. As a result of the temporary idling and
restructuring of the steelmaking facilities in Mansfield and Dover, Ohio,
first quarter sales were down $44.6 from last year.
Excluding the $20.0 special charge recorded in the first quarter of 1994 for
the temporary idling and restructuring of Mansfield and Dover, the operating
loss in this segment increased 64%. Armco's Mansfield Operations' operating
loss increased $2.4 from the first quarter last year. As a result of losses
generated as an idled facility in addition to higher costs incurred as the
plant prepared to start-up with its new and modernized equipment, this
facility's operating loss was $24.0 in the first quarter of 1995.
Douglas Dynamics' operating profit was down substantially from the record-
setting results of last year due to lower sales as a result of the recent mild
winter. The first quarter is traditionally the slowest for the snowplow
manufacturer, but last year's near record snowfall caused much higher than
normal sales in the 1994 first quarter. The first quarter 1995 results are
considered normal for this business. Despite an increase in sales, Sawhill
Tubular had slightly lower operating profit in the first quarter of 1995,
primarily due to higher carbon steel prices.
Outlook: The Mansfield Operations started up at the beginning of April,
successfully casting and hot rolling carbon steel. However, for the second
quarter, losses approximating the levels experienced in the first quarter are
expected. And while anticipating losses at Mansfield into the third quarter,
Armco expects the facility to be fully operational in carbon and automotive
chrome steels, and be able to return to profitability sometime in the fourth
quarter.
Douglas Dynamics' sales and earnings are expected to be lower in 1995 than in
1994, driven by the lack of snow last winter compared to the prior two years.
Sawhill Tubular's sales and profits are expected to remain flat or rise
slightly through the end of the year. Armco continues to review the
operations and prospects of Sawhill Tubular to determine how these operations
fit into Armco's future.
EQUITY AND OTHER INVESTMENTS
- ----------------------------
In the three months ended March 31, 1995 and 1994, Armco recognized $1.1 and
$1.6, respectively, of equity income from its investments in joint ventures
and equity companies. The 1994 first quarter income primarily represented the
results of, and commission income from, North American Stainless (NAS), a
former 50%-owned joint venture with Acerinox S.A. Armco sold 90% of its
investment in NAS in the third quarter of 1994. First quarter 1995 equity
income consisted primarily of the results of National-Oilwell, a 50%-owned
joint venture with USX Corporation. National-Oilwell sells oil field tubular
pipe, and produces and sells drilling and production equipment and process
pumps used in the world's oil and gas services industry. National-Oilwell
recorded sales and net income of $135.9 and $3.0, respectively, compared to
first quarter 1994 sales and net income of $129.4 and $0.5. The higher net
income relative to the 5% increase in revenues reflects the benefits of
rationalization and restructuring efforts undertaken by the joint venture in
the past few years. In the first quarter of 1995, Armco received a $1.0 cash
dividend from National-Oilwell.
National-Oilwell maintains its own cash and credit lines and funds its own
operations, liabilities and capital expenditures. National-Oilwell has a
$60.0 credit facility which expires in the first quarter of 1998.
Armco does not consider National-Oilwell part of its core business and,
therefore, continues to evaluate its options with respect to the investment in
this joint venture.
On May 4, 1995, Armco announced that it had completed a series of trades
resulting in the sale of 1,023,987 shares of AK Steel Holding Corporation (AK
Steel) common stock. As a result of the sales, Armco realized total net
proceeds of $27.2. Armco had received the stock, which represented
approximately four percent of the outstanding common stock of AK Steel, in
April 1994 as part of the initial public offering and recapitalization of that
company. With the completion of these transactions, Armco no longer owns any
stock in AK Steel.
-10-
<PAGE>12
In connection with the sales, Armco will record a gain of $25.9 or $0.24 per
share in the second quarter of 1995. Armco will use available capital loss
carryforwards to offset federal and state income taxes on this gain.
DISCONTINUED OPERATIONS
- -----------------------
Armco Financial Services Group
- ------------------------------
At March 31, 1995, the Armco Financial Services Group consisted primarily of
insurance companies which Armco intended to sell and which continued
underwriting policies (AFSG companies to be sold) and insurance companies that
have stopped writing new business for retention and are being liquidated
(runoff companies).
AFSG companies to be sold
On April 7, 1995, Armco completed the sale of the AFSG companies to be sold to
Vik Brothers Insurance Inc., a privately held, North Carolina-based property
and casualty insurance holding company. The proceeds from the sale, consisted
of $64.2 in cash at the closing and $15.0 to be received in three years. The
latter amount is subject to potential adjustment for adverse experience in
certain insurance reserves. Substantially all of the proceeds have been
pledged as security for certain note obligations due to the runoff companies
and will be retained in the investment portfolio of those companies.
Runoff companies
The addition of the proceeds from the sale of the AFSG companies to be sold to
the investment portfolio of the runoff companies is expected to have a long-
term positive effect on the liquidity and future strength of these companies.
Armco management continues to believe, based on current facts and
circumstances and the views of outside counsel and advisors, that future
charges, if any, resulting from the runoff companies will not be material to
Armco's financial condition 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1995, Armco had $211.4 of cash and cash equivalents compared to
$202.8 at December 31, 1994. In addition, Armco had $1.5 and $25.8 of short-
term liquid investments at March 31, 1995 and December 31, 1994, respectively.
Total cash and cash equivalents increased $8.6 during the first three months
of 1995, including $24.7 from the maturity of liquid investments and $17.0 for
proceeds on the sale of assets and investments. Partially offsetting these
cash inflows were capital expenditures and $7.5 for preferred stock dividends.
Capital expenditures totaling $44.7 are presented in the Condensed Statement
of Consolidated Cash Flows, net of $11.6 of direct project financing related
to the Mansfield thin-slab caster. Operating activities provided $2.6 in
cash.
In addition to the cash on hand, Armco has a $170.0 revolving credit facility
that expires on December 31, 1995. At March 31, 1995, $80.4 of the credit
facility was used as support for letters of credit and $89.6 was available for
borrowing. Borrowings under the credit facility are secured by certain of
Armco's inventories and receivables. As amended in 1994, the credit agreement
requires Armco to be in compliance with several covenants and meet certain
ratio requirements. Based on its current financial condition and internal
forecasts through the end of 1995, Armco believes that it will remain in
compliance with all covenants.
As discussed above Armco completed the divestments of Eastern Stainless and
the AFSG companies to be sold in 1995. The Eastern Stainless sale generated
approximately $10.1 in cash, which will be used to partially fund
approximately $50.0 of liabilities Armco retained as part of the transaction.
Proceeds from the April 7, 1995 sale of the AFSG companies to be sold,
totaling $64.2, have been retained in the investment portfolio of the runoff
companies and will not be available to Armco.
-11-
<PAGE>13
Armco anticipates that its 1995 cash expenditures for capital projects will
total approximately $125.0, including $34.0 for expenditures to complete the
thin-slab caster at Mansfield, $40.0 of the $95.0 expanded capital improvement
program and the remainder for normal replacement, environmental and expansion
programs. In addition, Armco anticipates that for the year, a total of $16.2
of capital expenditures for the thin-slab caster will be paid by direct
project financing.
Armco has no significant debt commitments due through the end of the year.
However, Armco expects to contribute from $15.0 to $65.0 to its major pension
funds during the remainder of 1995. The capital expenditures and pension
funding will be paid out of existing cash balances, cash generated from
operations and the sales of assets, including the sale of Armco's investment
in AK Steel common stock.
On April 28, 1995, 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, 1995 to shareholders of record
on June 2, 1995. 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 3, 1995, to shareholders of record on June 2,
1995. 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.
NEW ACCOUNTING STANDARD
- -----------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The statement requires that such assets, that are to be
held and used by an entity, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable; and that such assets, that are to be disposed of, be
reported at the lower of carrying amount or fair value less cost to sell,
unless the assets are considered a discontinued operation as defined by
Accounting Principle Board Opinion No. 30. Armco is required to adopt this
statement by not later than 1996. While a study of the effects of this
statement has not been completed, Armco believes that there will be no
material impact on its Condensed Statement of Consolidated Financial Position
or Condensed Statement of Consolidated Operations as a result of adoption of
this statement.
-12-
<PAGE>14
<TABLE>
ARMCO INC.
SEGMENT REPORT
(Unaudited)
(Dollars in millions)
<CAPTION>
1995 1994
------- ---------------------------------
1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr.
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Specialty Flat-Rolled Steel:
Customer sales $293.3 $237.0 $279.1 $269.2 $263.2
Special charge - - (15.0) - -
Operating profit 47.1 34.0 27.5 34.7 30.1
Other Steel and Fabricated Products:
Customer sales 75.1 98.1 88.9 85.7 116.4
Special charge - - - - (20.0)
Operating loss (23.1) (3.1) (4.6) (13.1) (34.1)
Corporate General (7.5) (8.5) (9.2) (7.6) (6.9)
- ------------------------------------------------------------------------------
Total operating profit (loss) 16.5 22.4 13.7 14.0 (10.9)
Interest income 3.7 3.3 3.4 1.9 1.9
Interest expense (7.5) (8.3) (8.2) (8.4) (8.9)
Gain on sale of investments in
joint ventures - - 26.1 36.5 -
Sundry other - net (11.2) (10.9) (12.8) (10.4) (10.7)
Credit (provision) for income taxes (0.2) (0.5) (0.4) 29.8 (0.2)
- ------------------------------------------------------------------------------
Income (loss) of Armco and
consolidated subsidiaries 1.3 6.0 21.8 63.4 (28.8)
Equity in income of equity companies 1.1 3.6 3.6 6.5 1.6
- ------------------------------------------------------------------------------
Net income (loss) $ 2.4 $ 9.6 $ 25.4 $ 69.9 $(27.2)
==============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
-13-
<PAGE>15
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, 1994 (the Form 10-
K).
As previously described in the Form 10-K, on April 25, 1994, an action
entitled Larry B. Ricke, Trustee v. Armco was filed 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 Company assets to satisfy Reserve Mining Company's liability
for pension benefit entitlements which are in addition to those guaranteed by
the PBGC. The pension benefits which are the subject of this action were part
of the class settlement of United Steelworkers of America v. Armco.
---------------------------------------
Approximately fifteen hundred members of the class signed individual releases
(the 19 members who did not are plaintiffs in Warner, Donovan, et. al. v.
---------------------------
Armco) releasing Armco from all claims, liabilities, etc. based upon or which
- -----
arise out of any Reserve Employee Pension Benefit Plan. Armco filed a Motion
to Dismiss the complaint on the basis of said releases which the court denied
on March 28, 1995. Armco has filed a motion seeking interlocutory appellate
review of the denial of the Motion to Dismiss.
As previously described in the Form 10-K, in the case Rosa Ann Barrett, et al.
-----------------------
v. Atlantic Richfield Company, et al., on September 20, 1994, the court
- -------------------------------------
entered a final order denying plaintiff's motion for rehearing or new trial
and dismissing all of plaintiffs' claims in this case. The Barrett plaintiffs
-------
filed a notice of appeal on October 19, 1994. On April 26, 1995, the Fifth
Circuit Court of Appeals dismissed the appeal for failure to prosecute.
The total liability on the foregoing claim and those other claims described
under ITEM 3. LEGAL PROCEEDINGS in the Form 10-K 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
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.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on April 28, 1995, and all eight
nominees to the Board of Directors named in Armco's Proxy Statement were
elected. Approximately 86% 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. 93,269,407 1,928,344
David A. Duke 93,226,286 1,971,465
John C. Haley 93,095,333 2,102,417
Paul H. Henson 91,632,786 3,565,405
Bruce E. Robbins 93,184,058 2,013,693
Burnell R. Roberts 93,153,937 2,043,813
John D. Turner 93,263,559 1,934,192
James F. Will 93,264,893 1,932,583
</TABLE>
A resolution to consider and adopt the 1995 Directors Stock Purchase and
Deferred Compensation Plan (Director Plan) to give non-employee directors of
Armco a direct and personal financial stake in Armco by paying them up to 100%
(but not less than 25%) of the annual retainer fee for service on the Board in
shares of Armco common stock in lieu of cash during the term of the Director
Plan was submitted and approved by the shareholders. The vote on the
resolution was as follows:
-14-
<PAGE>16
<TABLE>
Broker
Voting Classes For Against Abstain Nonvotes
-------------- --- ------- ------- --------
<S> <C> <C> <C> <C>
Common, $2.10 and
$3.625 Preferred Stocks 90,175,907 4,232,269 788,473 1,102
</TABLE>
In addition, a resolution to adopt the Annual Incentive Compensation Plan, a
performance based plan intended to enable Armco better to preserve tax
deductibility of compensation expenses under Section 162(m) of the Internal
Revenue Code, 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 86,256,094 8,100,299 827,238 24,120
</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 10 1995 Directors Stock Purchase and Deferred
Compensation Plan
Exhibit 10.1 Annual Incentive Compensation Plan
Exhibit 11 Computation of Loss Per Common Share
B. The following Reports on Form 8-K were filed by Armco since
December 31, 1994.
<TABLE>
Report Date Description
----------- -----------
<S> <S>
March 14, 1995 Reporting that on March 14, 1995,
Armco, Eastern Stainless, an 84%-owned
subsidiary of Armco, and Avesta
Sheffield completed the sale of
substantially all of the assets of
Eastern Stainless to Avesta Sheffield
and providing pro forma financial
information with respect to the sale.
Also reporting that a minority
shareholder of Eastern Stainless filed
a complaint against Armco and Eastern
Stainless seeking various relief based
upon Armco's relationship with Eastern
Stainless.
April 7, 1995 Reporting that on April 7, 1995, Armco
completed the sale of its ongoing
insurance operations, Northwestern
National Holding Company, Inc. and its
subsidiaries, to Vik Brothers
Insurance, Inc.
</TABLE>
-15-
<PAGE>17
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 5, 1995 /s/ D. G. Harmer
----------------------- -----------------------------------------
D. G. Harmer
Vice President and Chief Financial Officer
Date May 5, 1995 /s/ P. G. Leemputte
----------------------- -----------------------------------------
P. G. Leemputte
Vice President and Controller
-16-
<PAGE>
Exhibit 10
ARMCO INC.
1995 DIRECTORS STOCK PURCHASE AND DEFERRED
COMPENSATION PLAN
1. Purpose.
The Armco Inc. 1995 Directors Stock Purchase and Deferred Compensation Plan
(the Plan) is established effective May 1, 1995 for the benefit of directors
of Armco Inc. (the Corporation) who are not employees of the Corporation or
any of its subsidiaries. The Corporation has adopted the Plan in recognition
that its long-term success and achievements are enhanced and the interests of
its shareholders are best served when its outside directors have a direct and
personal stake in the performance of the Corporation's stock.
2. Definitions
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
(a) "Account" shall mean the deferred Fees account established for a
Participant pursuant to Plan Section 5.3.
(b) "Board of Directors" shall mean the board of directors of the
Corporation.
(c) "Common Stock" shall mean shares of the common stock, par value $.01 per
share, of the Corporation.
(d) "Common Stock Unit" shall mean the bookkeeping entry representing the
equivalent of one share of Common Stock.
(e) "Secretary" shall mean the person holding the position of Secretary of
the Corporation.
(f) "Effective Date" shall mean May 1, 1995.
(g) "Fees" shall mean all retainer, meeting and committee fees payable to a
non-employee director for service on the Board of Directors for any calendar
year from and after the Effective Date, before any reduction pursuant to this
Plan.
(h) "Fee Payment Date" shall mean the first calendar day of the third month
of each fiscal quarter or, if such date is not a business day for the
Corporation, the next succeeding business day.
(i) "Participant" shall mean any member of the Board of Directors who is not
also a regular, salaried employee of the Corporation or any of its
subsidiaries.
(j) "Stock Price" shall mean the simple average of the high and low sales
prices of a share of Common Stock as reported in the report of composite
transactions (or other independent published source designated by the Board of
Directors) on the Fee Payment Date (or if there shall be no trading on such
date then on the first previous date on which sales were made on a national
securities exchange). Notwithstanding the foregoing, if Common Stock is
purchased in the market for purposes of the Plan on a Fee Payment Date, Stock
Price means the actual average cost per share of the aggregate purchases of
Common Stock for the Plan on such date.
3. Participation.
All members of the Board of Directors who are not also regular salaried
employees of the Corporation or any of its subsidiaries shall participate in
the Plan.
4. Payment of Fees.
4.1 Automatic Payment of Fees in Common Stock
Twenty-five percent (25%) of that portion of the Fees paid as an annual
retainer to each Participant on and after the Effective Date shall be applied
to the purchase of Common Stock. A Participant may elect to defer receipt of
such Fees by complying with the requirements of Plan Section 5.1,
1
<PAGE>
in which case such Fees shall be credited as Common Stock Units at the Stock
Price on the Fee Payment Date. If not deferred pursuant to Plan Section 5.1,
whole shares of Common Stock purchased in respect of such Fees shall be issued
to the Participant as soon as practicable after their purchase. Cash shall be
paid to a Participant in lieu of a fractional share of Common Stock.
4.2 Election to Receive Fees in Common Stock
Fees paid as an annual retainer which are not automatically paid in Common
Stock pursuant to Plan Section 4.1 or which are not deferred pursuant to Plan
Section 5.1 may be applied at a Participant's election to the purchase of
Common Stock at the Stock Price on the Fee Payment Date. A Participant may
make such an election by filing the appropriate election form with the
Secretary at least six (6) months before the beginning of the period of
service to which the election applies. Whole shares of Common Stock purchased
in respect of such Fees shall be issued to the Participant as soon as
practicable thereafter. Cash shall be paid to a Participant in lieu of a
fractional share of Common Stock.
4.3 Revising An Election
A Participant may amend or terminate an election under this Plan Section 4.2
by written notice to the Secretary. Such amendment or termination shall be
effective with respect to Fees payable for service during calendar periods six
(6) months after the date of delivery of such notice to the Secretary.
4.4 Restrictions on Resale of Stock
To the extent necessary to satisfy the requirements of the exemption afforded
by Rule 16b-3 under the Securities Exchange Act of 1934, no Participant shall
be permitted to sell any shares of Common Stock purchased and issued to such
Participant pursuant to this Paragraph 4 prior to the expiration of a period
of six (6) months from the date of issuance of such shares to such
Participant. Prior to the time the resale restriction described herein
lapses, none of the shares of Common Stock purchased in respect of Fees may be
sold, assigned, bequeathed, transferred, pledged, hypothecated or otherwise
disposed of in any way by the Participant. The Board of Directors may, in its
discretion, take such action as it shall deem necessary or appropriate to
insure compliance with this Plan Section 4.4 and any applicable securities
laws.
5. Deferral of Fees.
5.1 Deferral Election
A Participant may elect to defer receipt of his or her Fees, including all or
any portion of his or her Fees which are subject to Plan Section 4.1 hereof,
by filing the appropriate deferral form with the Secretary on or before
December 15th of the calendar year prior to the calendar year in which such
deferral is to be effective; provided that, to the extent such deferral is to
be credited as Common Stock Units, such election must be made by filing the
appropriate deferral form no later than six (6) months before the beginning of
the period of service to which the deferral applies. Notwithstanding the
foregoing, no deferral shall be permitted to the extent prohibited by
applicable law.
5.2 Period of Deferral
Subject to Plan Section 5.8, a Participant may elect to defer receipt of Fees
until (i) a specified date in the future, (ii) cessation of the Participant's
service as a member of the Board of Directors or (iii) the end of the calendar
year in which cessation of the Participant's service as a member of the Board
of Directors occurs.
5.3 Deferred Fees Account
There shall be established an Account in the Participant's name on the books
of the Corporation for each Participant electing to defer Fees pursuant to
this Paragraph 5.
5.4 Investment of Deferrals
Except as provided in the next sentence, deferrals shall be credited to a
Participant's Account in Common Stock Units. With respect to that portion of
his or her deferrals under the Plan which is not subject to Plan Section 4.1,
the Participant may elect under the procedures set forth in Plan Section 4.2
that such deferrals be credited to his or her Account in dollars or Common
Stock Units.
2
<PAGE>
5.5 Amounts Credited to Accounts
(a) Investment in Common Stock Units. To the extent the deferral of a
- --- --------------------------------
Participant's Fees is deemed to be invested in Common Stock Units, such
amounts shall be credited to his or her Account on the Fee Payment Date to
which the deferral election applies. The amount deferred shall be converted
into a number of Common Stock Units by dividing the amount of Fees payable by
the Stock Price as of such date. The quotient, which shall be expressed in
whole or fractional Common Stock Units to the nearest one/one hundredth
(1/100th), shall be credited to the Participant's Account as of such date.
(b) Cash Dividends. Whenever cash dividends are paid with respect to shares
of
- --- ---------------
Common Stock, each Participant's Account shall be credited on the payment date
of such dividend with additional Common Stock Units (including fractional
units to the nearest one/one hundredth (1/100th)) equal in value to the amount
of the cash dividend paid on a single share of Common Stock multiplied by the
number of Common Stock Units (including fractional units) credited to a
Participant's Account as of the date of record for dividend purposes. For
purposes of crediting dividends, the value of a Common Stock Unit shall be the
Stock Price as of the payment date of the dividend.
(c) Recapitalizations, Splits and Mergers. The number of Common Stock Units
- --- --------------------------------------
credited to each Participant's Account shall be appropriately adjusted and
modified upon the occurrence of any stock split, stock dividend or stock
consolidation affecting the Common Stock. In the event of a merger,
consolidation or an acquisition involving more than 50% of the issued and
outstanding shares of Common Stock, the Board of Directors shall have the
authority to amend the Plan to provide for the conversion of Common Stock
Units credited to Participants' Accounts into units equal to shares of stock
of the resulting or acquiring company (or a related company), as appropriate,
if such stock is publicly traded or, if not, into cash of equal value on the
date of merger, consolidation or acquisition. If pursuant to the preceding
sentence cash is credited to Participants' Accounts, income shall be credited
thereon from the date such cash is received to the date of distribution at the
rate determined pursuant to Plan Section 5.5(d). If units representing
publicly traded stock of the resulting or acquired company (or a related
company) are credited to Participants' Accounts, dividends shall be credited
thereto in the same manner as dividends are credited on Common Stock Units
credited to such Accounts.
(d) Deferrals in Cash. To the extent not deemed invested in Common Stock
Units
- --- ------------------
pursuant to Plan Section 5.5(a), the Account of a Participant will be credited
with the dollar amount of the Participant's deferrals as of the Fee Payment
Date. Interest shall be credited thereon from the date such cash is received
to the date of distribution quarterly, at the end of each calendar quarter, at
a rate per annum (computed on the basis of a 360 day year and a 91 day
quarter) equal to the prime rate announced publicly by PNC Bank, N.A. at the
end of such calendar quarter.
5.6 Distribution of Deferral Account
Subject to Plan Section 5.8, distributions of a Participant's Account under
the Plan shall be made as follows:
(a) if a Participant has elected to defer his or her Fees to a specified date
in the future, payment shall be as of such date and shall be made or shall
commence, as the case may be, within thirty (30) days after the date
specified;
(b) if a Participant has elected to defer his or her Fees until cessation of
his or her service as a member of the Board of Directors, payment shall be as
of the date of such cessation of service and shall be made or shall commence,
as the case may be, within thirty (30) days after the cessation of the
Participant's service as a director; and
(c) if a Participant has elected to defer his or her Fees until the end of
the calendar year in which the cessation of his or her service as a member of
the Board of Directors occurs, payment shall be made or commence, as the case
may be, on or within thirty (30) days after December 31st of such year.
5.7 Payment Upon Death
Notwithstanding any elections pursuant to Plan Sections 5.2 and/or 5.9 hereof,
in the event of the death of the Participant prior to the distribution of his
or her Account hereunder, the balance credited to such Participant's Account
as of the date of his or her death shall be paid, as soon as reasonably
practicable thereafter, in a single distribution to the Participant's
beneficiary or beneficiaries designated on such Participant's deferral
election form. If no such election or designation has been made, such amounts
shall be payable to the Participant's estate.
3
<PAGE>
5.8 Timing of Distribution to Satisfy Section 16(b)
Notwithstanding Plan Sections 5.6 and 5.7, the Board of Directors may delay
any distribution of amounts deferred hereunder which are deemed invested in
Common Stock Units until six (6) months have elapsed from the date Common
Stock Units are credited to a Participant's account, or such earlier date that
such distribution can be made without violating the provisions of Section
16(b) of the Securities Exchange Act of 1934.
5.9 Form of Payment
A Participant may elect to have his or her Account under the Plan paid in a
single distribution or equal annual installments, not to exceed ten (10)
annual installments. To the extent a Participant's Account is deemed to be
invested in Common Stock Units, such Common Stock Units shall be converted to
Common Stock on the distribution date as provided in the next paragraph. To
the extent deemed invested in units of any other stock such units shall
similarly be converted and distributed in the form of stock. To the extent
invested in a medium other than Common Stock Units or other units, each such
distribution hereunder shall be in the medium credited to the Participant's
Account.
To the extent a Participant's Account is deemed invested in Common Stock
Units, a single distribution shall consist of the number of whole shares of
Common Stock equal to the number of Common Stock Units credited to the
Participant's Account on the date as of which the distribution occurs. Cash
shall be paid to a Participant in lieu of a fractional share, determined by
reference to the Stock Price on the date as of which the distribution occurs.
In the event a Participant has elected to receive annual installment payments,
each such payment shall be determined as follows:
(a) To the extent his or her Account is deemed to be invested in Common Stock
Units, each such payment shall consist of the number of whole shares of Common
Stock equal to the number of Common Stock Units (including fractional units)
credited to the Participant's Account on the date as of which the distribution
occurs, divided by the number of annual installments remaining as of such
distribution date. Cash shall be paid to Participants in lieu of fractional
shares, determined by reference to the Stock Price on the date as of which the
distribution occurs.
(b) To the extent his or her Account has been credited in cash, each such
payment shall be calculated by dividing the value on the date the distribution
occurs of that portion of the Participant's Account which is in cash by the
number of annual installments remaining as of such distribution date.
Each Participant or beneficiary agrees that prior to any distribution under
the Plan, he or she will make such representations and execute such documents
as are deemed by the Board of Directors to be necessary to comply with
applicable laws.
6. Administration of the Plan.
The Board of Directors shall administer the Plan. The Board of Directors
shall have plenary authority in its discretion to interpret the Plan; to
prescribe, amend and rescind rules and regulations relating to it; to
determine the terms of Fees deferral agreements executed and delivered under
the Plan, including such terms and provisions as shall be requisite in the
judgment of the Board of Directors to conform to any change in any law or
regulation applicable thereto; and to make all other determinations deemed
necessary or advisable for the administration of the Plan; provided, however,
that the Board shall have no discretion with respect to the eligibility or
selection of directors to receive shares of Common Stock under Section 4.1 of
the Plan, the number of shares of Common Stock to be granted or purchased
under the Plan or the timing of the grant or purchase of such shares, or the
purchase price for such shares. The Board of Directors' determination on the
foregoing matters shall be conclusive.
7. Termination and Amendment of the Plan.
The Board of Directors may at any time terminate the Plan or make such
modification or amendment of the Plan as it shall deem advisable; provided,
however, that no amendment may be made, without the approval of the
Corporation's shareholders, which would (i) materially increase the benefits
accruing to Participants under the Plan, (ii) materially increase the maximum
number of shares reserved for issuance under the Plan (except pursuant to the
last paragraph of "Stock Reserved for the Plan" below) or (iii) materially
amend the requirements as to the class of persons eligible to participate in
the Plan and, provided further, that no modification or amendment of the Plan
shall reduce any amount already credited to a Participant's Account as of the
effective date of such modification or amendment. This Plan may be amended
without shareholder approval in order to ensure that this Plan, in form and
4
<PAGE>
operation, complies with regulations issued under Section 16 of the Securities
Exchange Act of 1934. In no event may the Plan's Participation, Payment of
Fees or Deferral of Fees provisions be amended more than once every six (6)
months other than to comport with changes in the Internal Revenue Code of
1986, as amended (the "Code"), or the Employee Retirement Income Security Act
of 1974, as amended.
8. Stock Reserved for the Plan.
One hundred thousand (100,000) shares of authorized but unissued Common Stock
are reserved for issuance and may be issued pursuant to the terms of the Plan.
In lieu of such unissued shares, the Corporation may, in its discretion,
transfer to Participants under the terms of the Plan treasury shares,
reacquired shares or shares bought in the market for the purposes of the Plan,
provided that (subject to the provisions of the next paragraph), the total
number of shares which may be granted or sold pursuant to awards granted under
the Plan shall not exceed 100,000.
In the event of any changes in the outstanding Common Stock by reason of stock
dividends, split-ups, spin-offs, recapitalizations, mergers, consolidations,
combinations or exchanges of shares and the like, the aggregate number and
class of shares available under the Plan shall be appropriately adjusted.
9. No Interest in Assets.
No Participant or any other person shall have any interest in any specific
asset of the Corporation by reason of any amount credited to him or her
hereunder, nor any right to receive any distribution under the Plan except as
and to the extent expressly provided in the Plan. There shall be no funding
of any benefits which may become payable hereunder. No trust shall be created
by the execution or adoption of this Plan or be required to be created in
connection herewith. Any amounts which become payable hereunder shall be paid
from the general assets of the Corporation. Nothing in the Plan shall be
deemed to give any member of the Board of Directors any right to participate
in the Plan, except in accordance with the provisions of the Plan, or to
continue as a director of the Corporation. A Participant whose Account has
been credited with Common Stock Units hereunder shall not have any rights as a
holder of Common Stock until certificates for shares of such stock are issued
to such Participant.
10. Restriction Against Assignment.
No Common Stock Units credited to a Participant's Account or shares of Common
Stock subject to any Common Stock Unit shall be sold, assigned, transferred,
pledged or otherwise encumbered by a Participant otherwise than by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code prior to the date on which the
underlying Common Stock is issued, except that Participants may designate
beneficiaries to receive Common Stock underlying Common Stock Units as
provided in Plan Section 5.7 hereof.
The Corporation shall pay all amounts payable hereunder only to the person or
persons designated by the Plan as Participant or beneficiary, as appropriate,
and not to any other person or corporation. No part of a Participant's
Account shall be liable for the debts, contracts or engagements of any
Participant, his or her beneficiaries or successors in interest, nor shall it
be subject to execution by levy, attachment or garnishment or by any other
legal or equitable proceeding, nor shall any such person have any right to
alienate, anticipate, commute, pledge, encumber or assign any benefits or
payments hereunder in any manner whatsoever.
11. Government Regulations.
The Plan, and the deferral of Fees and purchase of Common Stock thereunder,
and the obligation of the Corporation to issue, sell and deliver shares, as
applicable, under the Plan, shall be subject to all applicable laws, rules and
regulations.
12. Governing Law.
This Plan shall be construed, regulated and administered under the internal
laws of the State of Ohio.
13. Shareholder Approval.
This Plan shall be without force and effect unless and until approved by the
Corporation's shareholders.
5
<PAGE>
Exhibit 10.1
ARMCO INC.
ANNUAL INCENTIVE COMPENSATION PLAN
1. Purpose.
The purposes of the Annual Incentive Compensation Plan (the "Plan") are to
advance the interests of Armco Inc. (the "Corporation") by providing
participants in the Plan with annual incentive opportunities linked directly
to specific results. It is intended that the Plan will: (a) reinforce the
Corporation's goal-setting and strategic planning process; (b) recognize the
efforts of management in achieving objectives; and (c) aid in attracting and
retaining competent management, thus ensuring the long-range success of the
Corporation.
2. Definitions.
(a) "Award" shall mean an incentive payment made under the Plan.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Committee" shall mean a committee of the Board of Directors of the
Corporation, which will consist of not less than three directors of the
Corporation who are appointed by the Board of Directors and who will not be
and will not have been an officer or an employee of the Corporation. In
addition, in order to be a member of the Committee, a director must be an
"outside director" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder (the "Code").
The Committee shall initially be the Compensation Committee of the Board of
Directors.
(d) "Participant" shall mean a person who is eligible under Section 5 of the
Plan to receive an Award.
3. Administration.
The Committee will administer the Plan, establish and amend rules relating to
the Plan and make all other determinations necessary under the Plan.
Determinations made by the Committee will be final and binding upon
Participants and their legal representatives and, in the case of deceased
Participants, upon their executors, administrators, estates, beneficiaries,
heirs and legatees. The terms and provisions of the Plan will be construed
under and controlled by the law of the State of Ohio.
4. Effectiveness of the Plan.
The Plan shall be effective as of January 1, 1995, subject to approval by the
shareholders of the Corporation at the Annual Meeting of the Corporation's
Shareholders to be held on April 28, 1995. The Plan shall remain effective
until April 28, 2000 or such earlier date as the Board shall determine.
5. Participants.
All officers and corporate and operating management employees of the
Corporation and its subsidiaries are eligible for selection to participate in
the Plan.
6. Awards.
The Committee may, subject to the terms hereof, make Awards in each calendar
year with respect to the preceding year hereunder ("Award Year"), beginning
with an award made in 1996 with respect to Award Year 1995, to Participants
eligible for awards under the Plan. Awards shall be paid as soon as
reasonably practicable after the Committee's certification of the achievement
of applicable performance goals in the calendar year following the Award Year,
except to the extent that a Participant has made an election to defer the
receipt of such Award pursuant to any deferred compensation plan of the
Corporation.
1
<PAGE>
The Committee shall establish a Target Award for each Participant selected by
the Committee to participate in the Plan during the Award Year. Target Awards
shall be established prior to the start of the Award Year, except Target
Awards may be established after the start of the Award Year if doing so would
not cause the payment of the Award to fail to be deductible by reason of
Section 162(m) of the Code.
Using objective criteria preestablished by the Committee, a percentage (which
may exceed 100%) of the Target Award for each Award Year will be determined by
the Committee for each eligible Participant based upon achievement of levels
during such Award Year of performance goals, preestablished by the Committee.
Such objective criteria and performance goals shall be established by the
Committee prior to the start of the Award Year, except that the objective
criteria and performance goals may be established after the start of the Award
Year if doing so would not cause the payment of the Award to fail to be
deductible by reason of Section 162(m) of the Code. The performance goals may
relate to a particular area of the business for which the participant is
responsible, to one or more business units or to the Corporation as a whole,
or a combination of the foregoing. The Committee shall certify the level of
achievement of performance goals before payment of any Award.
The Award made to an individual Participant may be less (including no Award)
than the percentage of the Target Award determined based on the level of
achievement of applicable performance goals. The Committee shall be precluded
from increasing such percentage of the Target Award but may apply its
discretion to reduce or eliminate such percentage without the consent of the
Participant.
The performance goals may include one or more of the following performance
measures for a calendar year: (a) income before federal taxes and net
interest expense; (b) achievement of specific and measurable operational
objectives; (c) working capital, generally defined to include receivables,
inventories and controllable current liabilities, measured either in absolute
dollars or relative to sales and/or (d) such other performance goals as may be
established by the Committee which may be based on earnings growth, revenues,
expenses, stock price, market share, return on assets, equity or investment,
regulatory compliance, satisfactory internal or external audits, improvement
of financial ratings, or achievement of balance sheet, income statement or
cash flow objectives, or any other objective goals established by the
Committee, and may be absolute in their terms or measured against or in
relationship to other companies comparably, similarly or otherwise situated.
If a Participant's active employment with the Corporation or a subsidiary of
the Corporation, as the case may be, ceases during any Award Year because of
retirement, disability or death, the Participant or the Participant's
beneficiary designated hereunder will, subject to achievement of applicable
performance goals, receive a prorated share of the Award for that Award Year
based upon the base salary of the Participant accrued from January 1 of the
Award Year through the date active employment ceases. Such prorated payment
shall be made at the same time payments for that Award Year are made to other
Participants. If employment is terminated during an Award Year for any reason
other than retirement, disability or death, the Participant will forfeit all
right to receive an Award for that Award Year.
7. Designation of Beneficiaries.
A Participant may designate a beneficiary or beneficiaries to receive in case
of the Participant's death all or part of the Awards which may be made to the
Participant under the Plan. A designation of beneficiary may be replaced by a
new designation or may be revoked by the Participant at any time. A
designation or revocation shall be on a form to be provided for the purpose
and shall become effective only when filed with the Corporation during the
Participant's lifetime with written acknowledgment of receipt from the
Corporation. In case of the Participant's death, an Award made under the Plan
with respect to which a designation of beneficiary has been made (to the
extent it is valid and enforceable under applicable law) shall be paid to the
designated beneficiary or beneficiaries.
8. Modification or Termination of Plan.
The Board may modify or terminate the Plan at any time to be effective at such
date as the Board may determine. The Committee shall be authorized to make
changes to the Plan that are consistent with the purpose of the Plan or
changes to comply with government regulations. A modification may affect
present and future Participants.
2
<PAGE>
9. Payment of Awards; Maximum Awards.
Awards shall be paid in cash, provided that the Committee may determine,
including pursuant to an irrevocable election by a Participant made at least
six months in advance of the Award, to pay any Award earned under the Plan in
shares of the Corporation's stock, including restricted stock (issued under
the Corporation's 1993 Long-Term Incentive Plan or any other stock plan of the
Corporation that has been approved by its shareholders), in lieu of cash.
Awards paid in shares of the Corporation's stock, including restricted stock,
in lieu of cash may be made at a discounted price, which shall not in any
event be less than the lesser of $3.50 per share and 70% of market value on
the date the Target Award is established (as adjusted to reflect any stock
splits, reverse stock splits, stock dividends, mergers, consolidations,
recapitalizations, reclassifications, special dividends or other similar
events affecting the Corporation's stock). If all or a portion of a
Participant's incentive payments is to be made shares of restricted stock, the
Committee may also determine to provide that, if any such shares are forfeited
because such Participant's employment terminates before the restrictions on
such shares lapse, such Participant shall be entitled to a cash payment from
the Corporation for such forfeited shares equal to the lesser of (i) the
dollar amount of the incentive payment that was paid in the forfeited shares
in lieu of cash and (ii) the market value of the forfeited shares at the time
of such employment termination. Such amount shall be payable by the
Corporation within 30 days after the Participant's termination of employment.
In no event may the sum of the dollar amount of incentive payments paid in
cash and the market value of incentive payments paid in common stock,
including restricted stock (based in all cases on the market price of the
common stock on the date the Target Award is established), to any Participant
under this Plan for any Award Year exceed $1,500,000.
10. General.
(a) No person shall have any claim to be granted an Award under the Plan and
there is no obligation for uniformity of treatment of Participants under the
Plan. Awards under the Plan may not be assigned or alienated.
(b) Neither the Plan nor any action taken hereunder shall be construed as
giving to any employee the right to be retained in the employ of the
Corporation or any subsidiary of the Corporation.
(c) The Corporation shall have the right to deduct from any Award to be paid
under the Plan any federal, state or local taxes required by law to be
withheld with respect to such payment.
3
<PAGE>
<TABLE>
EXHIBIT 11
ARMCO INC.
COMPUTATION OF LOSS PER COMMON SHARE
<CAPTION>
(Dollars and shares in millions,
except per share amounts) Three Months Ended
PRIMARY March 31,
- -------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ 2.4 $(27.2)
Preferred stock dividends (4.5) (4.5)
- -------------------------------------------------------------------------
Net loss applicable to common stock $ (2.1) $(31.7)
- -------------------------------------------------------------------------
Weighted average number of common shares 105.6 104.1
Net loss per common share $(0.02) $(0.30)
FULLY DILUTED*
- -------------
Net income (loss) $ 2.4 $(27.2)
Preferred stock dividends (4.5) (4.5)
- -------------------------------------------------------------------------
Net loss applicable to common stock $ (2.1) $(31.7)
- -------------------------------------------------------------------------
Weighted average number of common shares 105.6 104.1
Weighted average number of common equivalent shares ** **
Weighted average number of preferred shares
on an "if converted" basis ** **
- -------------------------------------------------------------------------
Average common shares outstanding as adjusted 105.6 104.1
- -------------------------------------------------------------------------
Net loss per common share $(0.02) $(0.30)
Shares of stock outstanding at March 31
Common 105.9 104.1
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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 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.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 211,400
<SECURITIES> 1,500
<RECEIVABLES> 196,400
<ALLOWANCES> 0
<INVENTORY> 182,900
<CURRENT-ASSETS> 636,300
<PP&E> 1,108,000
<DEPRECIATION> 511,600
<TOTAL-ASSETS> 1,939,800
<CURRENT-LIABILITIES> 381,100
<BONDS> 375,400
<COMMON> 962,900
0
185,900
<OTHER-SE> (1,370,600)
<TOTAL-LIABILITY-AND-EQUITY> 1,939,800
<SALES> 368,400
<TOTAL-REVENUES> 368,400
<CGS> 327,700
<TOTAL-COSTS> 327,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,500
<INCOME-PRETAX> 1,500
<INCOME-TAX> 200
<INCOME-CONTINUING> 2,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,400
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
