<PAGE>
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, 1997
--------------------------------------
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
-----------------------------------------------------------
(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, 1997: 107,051,408
<PAGE>
ARMCO INC.
INDEX
Page
Part I. Financial Information
Condensed Statement of Consolidated Financial Position -
March 31, 1997 and December 31, 1996 2
Condensed Statement of Consolidated Income and
Accumulated Deficit - Three Months Ended
March 31, 1997 and 1996 3
Condensed Statement of Consolidated Cash Flows -
Three Months Ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5-6
Management's Discussion and Analysis of the Condensed
Consolidated Financial Statements 7-10
Segment Report 11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 11 Computation of Earnings Per Common Share
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<PAGE>
<TABLE>
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Unaudited)
<CAPTION>
(Dollars in millions) March 31, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 151.9 $ 168.9
Receivables, less allowance for doubtful accounts 183.0 149.6
Inventories (Note 2) 262.7 246.9
Other 6.0 6.4
- -----------------------------------------------------------------------------
Total current assets 603.6 571.8
Investments
Investment in Armco Financial Services Group
(Note 6) 85.6 85.6
Other, less allowance for impairment 48.5 52.4
Property, plant and equipment 1,278.3 1,267.7
Accumulated depreciation (612.6) (597.6)
- -----------------------------------------------------------------------------
Property, plant and equipment - net 665.7 670.1
Deferred tax asset 325.8 325.8
Goodwill and other intangible assets 143.2 144.8
Other assets 13.9 17.3
- -----------------------------------------------------------------------------
Total assets $1,886.3 $1,867.8
- -----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Trade accounts and notes payable $ 150.1 $ 136.3
Employment-related obligations 119.8 115.1
Other liabilities 76.0 79.6
Current portion of long-term debt 25.7 27.2
- -----------------------------------------------------------------------------
Total current liabilities 371.6 358.2
Long-term debt, less current portion 341.2 344.3
Long-term employee benefit obligations 1,201.5 1,200.2
Other liabilities 179.0 177.1
Commitments and contingencies (Note 6)
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 967.4 965.0
Accumulated deficit (1,359.0) (1,363.9)
Other (2.4) (0.1)
- -----------------------------------------------------------------------------
Total shareholders' deficit (207.0) (212.0)
- -----------------------------------------------------------------------------
Total liabilities and shareholders' deficit $ 1,886.3 $ 1,867.8
- -----------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED INCOME
AND ACCUMULATED DEFICIT
(Unaudited)
(Dollars and shares in millions,
except per share amounts)
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales $ 441.3 $ 430.4
Cost of products sold (Note 3) (397.5) (391.3)
Selling and administrative expenses (24.6) (24.0)
- ------------------------------------------------------------------------------
Operating profit 19.2 15.1
- ------------------------------------------------------------------------------
Interest income 2.5 3.0
Interest expense (8.7) (9.2)
Sundry other - net (Note 4) (3.4) (1.6)
- ------------------------------------------------------------------------------
Income before income taxes 9.6 7.3
Provision for income taxes (0.2) (0.4)
- ------------------------------------------------------------------------------
Net income 9.4 6.9
Accumulated deficit, beginning of period (1,363.9) (1,378.5)
Preferred stock dividends (4.5) (4.5)
- ------------------------------------------------------------------------------
Accumulated deficit, end of period $(1,359.0) $(1,376.1)
- ------------------------------------------------------------------------------
Weighted average number of common and common
equivalent shares outstanding - primary 106.7 106.4
Net income applicable to common stock $ 4.9 $ 2.4
Earnings per common share - primary $ 0.05 $ 0.02
Earnings per common share - fully diluted * *
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>
<TABLE>
ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in millions)
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9.4 $ 6.9
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation expense 15.4 14.6
Net gain on sales of investments and facilities - (1.4)
Other 2.5 (3.7)
Change in assets and liabilities:
Trade accounts and notes receivable (36.8) (1.9)
Inventory (15.8) (10.4)
Payables and accrued operating expenses 16.3 24.0
Employee benefit obligations 0.8 7.0
Other assets and liabilities - net 7.3 (7.2)
- ----------------------------------------------------------------------------
Net cash (used in) provided by operating activities (0.9) 27.9
- ----------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds from the sale of businesses and assets 0.1 3.1
Proceeds from the sale of investments 0.3 77.2
Contributions to investees - (1.6)
Capital expenditures (7.5) (11.6)
Other (0.3) (2.8)
- ----------------------------------------------------------------------------
Net cash (used in) provided by investing activities (7.4) 64.3
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from drawdown of debt 1.1 -
Principal payments on debt (4.7) -
Dividends paid (4.5) (4.5)
Other (0.6) (0.6)
- ----------------------------------------------------------------------------
Net cash used in financing activities (8.7) (5.1)
- ----------------------------------------------------------------------------
Net change in cash and cash equivalents (17.0) 87.1
Cash and cash equivalents:
Beginning of period 168.9 136.8
- ----------------------------------------------------------------------------
End of period $151.9 $223.9
- ----------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of capitalized interest) $ 4.7 $ 5.5
Supplemental schedule of noncash investing and
financing activities:
Issuance of restricted stock 2.4 3.2
Note received in partial payment for asset sale - 10.6
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>
ARMCO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions,
except per share amounts)
1. The condensed consolidated financial statements of Armco Inc. should be
read in conjunction with the financial statements in Armco's Annual Report to
Shareholders for the year ended December 31, 1996. In the opinion of Armco's
management, the accompanying condensed consolidated financial statements
contain all adjustments, which are of a normal recurring nature, necessary to
present fairly, in all material respects, Armco's financial position as of
March 31, 1997, and its results of operations and cash flows for the three
months ended March 31, 1997 and 1996. The results of operations for the three
months ended March 31, 1997 are not necessarily indicative of the results to
be expected for the year 1997.
Certain amounts in the prior year financial statements have been reclassified
to conform to the 1997 presentation.
2. Armco's inventories are valued at the lower of cost or market. Most of
Armco's domestic inventories are valued using the LIFO - Last In, First Out -
method. Other inventories are valued principally at average cost.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
Inventories on LIFO:
Finished and semi-finished $ 268.1 $ 259.0
Raw materials and supplies 25.2 21.4
Adjustment to state inventories at LIFO value (53.8) (52.8)
------ ------
Total 239.5 227.6
------ ------
Inventories on average cost:
Finished and semi-finished 17.9 11.9
Raw materials and supplies 5.3 7.4
------ ------
Total 23.2 19.3
------ ------
Total inventories $ 262.7 $ 246.9
====== ======
</TABLE>
3. Cost of products sold for the three months ended March 31, 1997 and 1996
includes income of $2.0 and $4.2, respectively, for the partial settlements of
a business interruption insurance claim.
4. Sundry other - net in Armco's Condensed Statement of Consolidated Income
and Accumulated Deficit includes expenses of $1.6 and $7.9 for the three
months ended March 31, 1997 and 1996, respectively, for interest on employee
benefit obligations related to facilities that have been divested. The
reduction in expense in 1997 is primarily due to favorable investment returns
in 1996 on pension plan assets.
In the three months ended March 31, 1996, Sundry other - net included a gain
of $6.3, which resulted from the recognition of gains previously deferred in
connection with asset sales at the Greens Port Industrial Park, which is owned
by Armco.
5. Effective January 1, 1997, having reevaluated its plan to sell the
remaining assets of the Greens Port Industrial Park as a single entity, Armco
began to report the consolidated results of the operations of the park in its
Fabricated Products business segment. Greens Port operates a loading dock on
the Houston Ship Channel, and leases buildings and land located on its
property. In the first three months of 1996, while Armco discussed selling
Greens Port with
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<PAGE>
several potential buyers, $1.1 of operating profit generated by the park was
reported in Sundry other - net. Greens Port had revenues of $1.8 in the
quarter ended March 31, 1996. Future operating profit will include gains or
losses from the sale of miscellaneous assets and properties which may, from
time to time, be sold.
6. There are various claims pending involving Armco and its subsidiaries
regarding product liability, antitrust, patent, employee benefits,
environmental, reinsurance and insurance arrangements, and other matters
arising out of the conduct of Armco's business.
Like other manufacturers, Armco is subject to various environmental laws.
These laws necessitate expenditures to assure compliance at Armco's facilities
and 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.
There are various pending matters relating to litigation, arbitration and
regulatory affairs arising out of the runoff operations of the Armco Financial
Services Group (AFSG), including matters related to Northwestern National
Insurance Company (NNIC), a runoff company currently involved in, among other
matters, litigation with respect to certain reinsurance programs.
In March 1997, a group of international insurance companies, previously
affiliated with AFSG and sold in 1991, filed an application for voluntary
liquidation in the United Kingdom. NNIC is currently investigating its
exposure with respect to reinsurance transactions entered into with these
companies. Armco believes, based on current facts and circumstances, that the
liquidation of the international insurance companies will not have a material
effect on its investment in AFSG.
Armco believes, based on current facts and circumstances, that its ultimate
liability for pending claims, contingent liabilities, environmental matters
and matters related to the AFSG 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 such pending claims, contingent liabilities and other matters could have a
material effect on the results of its operations in future interim or annual
periods.
At March 31, 1997, Armco had recorded in its Condensed Statement of
Consolidated Financial Position, legal and environmental reserves of $83.4, of
which $19.2 was classified as current.
7. Under the terms of one of Armco's revolving credit facilities, which
expires on December 31, 1998, 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 future.
At its April 25, 1997 meeting, the Board of Directors declared the regular
quarterly dividends payable on Armco's $2.10 Cumulative Convertible Preferred
Stock, Class A, $3.625 Cumulative Convertible Preferred Stock, Class A, and
$4.50 Cumulative Convertible Preferred Stock, Class B.
8. Information relating to Armco's industry segments can be found on page 11.
-6-
<PAGE>
ARMCO INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)
GENERAL
- -------
Armco's consolidated results for the three months ended March 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales $441.3 $430.4
Operating profit 19.2 15.1
Net income 9.4 6.9
Earnings per common share 0.05 0.02
</TABLE>
Net sales in the three months ended March 31, 1997 were $10.9 higher than in
the same period last year, primarily due to higher sales of tubular products
in the Fabricated Products segment as well as an increase in sales in the
Specialty Flat-Rolled Steels segment.
In the three months ended March 31, 1997 and 1996, operating profit included
income of $2.0 and $4.2, respectively, related to the partial settlements of a
business interruption insurance claim. Excluding these credits, operating
profit increased by $6.3 or 58% from the first quarter of 1996 to the first
quarter of 1997. This increase was primarily due to improved performance at
the Mansfield Operations of the Specialty Flat-Rolled Steels segment and the
consolidation of Greens Port Industrial Park into the Fabricated Products
business segment beginning on January 1, 1997.
Included in first quarter 1996 net income was the above-mentioned insurance
settlement and a $6.3 gain, which resulted from the recognition of gains
previously deferred in connection with asset sales at Greens Port Industrial
Park which, at the time, was being held for sale. Excluding these credits,
net income improved $11.0 in 1997, primarily due to improved performance at
Mansfield and a $6.3 reduction in expenses related to long-term benefit
obligations for employees of Armco facilities that have been divested. The
reduction in expense in 1997 was primarily due to favorable investment returns
on pension plan assets.
Earnings per common share reflects a deduction of $4.5 in each quarter for
preferred stock dividends declared.
BUSINESS SEGMENT RESULTS
- ------------------------
Specialty Flat-Rolled Steels
- ----------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Customer sales $375.0 $372.1
Operating profit 22.4 20.0
</TABLE>
Customer sales for the segment were slightly higher in the first quarter of
1997 than in the same period in 1996, primarily as a result of higher sales of
specialty semi-finished products. Segment average sales per ton in 1997
increased from 1996 levels due to a shift in carbon steel product mix to
galvanized products from lower priced hot bands. This offset a 5% reduction
in average sales per ton of specialty-flat rolled products and a 22% decrease
in specialty semi-finished steels sales per ton.
-7-
<PAGE>
Customer sales and shipments by major product line and total cast production
were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1997 1996
------------- --------------
(tons in thousands) Sales Tons Sales Tons
----- ---- ----- ----
<S> <C> <C> <C> <C>
Specialty flat-rolled $281.1 193 $287.0 187
Specialty semi-finished 40.1 34 31.6 21
Carbon 46.0 86 44.2 108
Other 7.8 -- 9.3 --
----- --- ----- ---
Total $375.0 313 $372.1 316
Cast production 363 390
</TABLE>
Shipments of specialty flat-rolled products, which include automotive exhaust
stainless, electrical steel and specialty strip and sheet, increased 3% from
the first quarter of 1996 to the first quarter of 1997. However, average
realized prices declined 5%, reflecting elimination this year of raw material
surcharges on stainless steel and increased import competition on certain
grades of chrome nickel stainless steel and cold rolled non-oriented
electrical steel.
Specialty semi-finished shipments increased 62% in the first quarter of 1997
over the same period in 1996, primarily as a result of increased sales of
chrome nickel hot bands. However, a 22% reduction in average sales per ton
reflected worldwide market softness and import competition.
Carbon steel shipments in the first quarter of 1997 decreased 20% due to the
elimination of carbon hot band shipments and the increased use of Armco's melt
capacity for specialty products. In the first half of 1996, Armco began
exiting the lower-priced hot band market, shifting the product mix to more
profitable galvanized steel and increasing average sales per ton by 31% in the
quarter-to-quarter comparison.
Specialty Flat-Rolled Steels' operating profit includes gains of $2.0 in the
first quarter of 1997 and $4.2 in the first quarter of 1996 from the partial
settlements of a business interruption insurance claim. Excluding these
credits, the increase in first quarter operating profit in 1997 over 1996 was
primarily due to improved performance at Mansfield.
Outlook: Demand for Armco's automotive exhaust stainless, specialty strip and
sheet, electrical steel and carbon steel products remains relatively strong.
Although demand for specialty semi-finished products has been weak and import
competition has been intense, market conditions appear to be gradually
improving. Armco has announced a price increase of 5% on stainless cold-
rolled strip and sheet and stainless hot-rolled products, effective with
shipments on May 5, 1997. However, there can be no assurance that the stated
price increase will be implemented.
Fabricated Products
- -------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Customer sales $ 66.3 $ 58.3
Operating profit 2.6 1.5
</TABLE>
First quarter customer sales increased $8.0 over last year's level, primarily
due to higher sales at Sawhill Tubular and the consolidation of Greens Port
Industrial Park. Greens Port recorded sales of $1.6 in the first three months
of 1997 from loading dock fees and rental of land and buildings. During the
first three months of 1996, Greens Port had revenues of $1.8 but because, at
that time, the park was held for sale, Armco did not include the results of
this business in the Fabricated Products operating segment. The 1997 higher
customer sales at Sawhill were the result of volume increases
-8-
<PAGE>
along all major tubular product lines. Douglas Dynamics' sales in the
quarter-to-quarter comparison were approximately equal.
Despite the sales increase, Sawhill's operating profit was slightly lower in
1997 primarily due to increased steel hot band costs. This decrease was
offset by a slight increase at Douglas Dynamics, resulting from reduced
operating expenses following the decision in 1996 to exit certain unprofitable
product lines. The increase in this segment's operating profit was largely
due to the consolidation of Greens Port.
Outlook: The first quarter of the year is traditionally the slowest sales
period for snowplows and ice control products. Sales for the remainder of the
year should increase, with preseason shipments in the second and third
quarters and normal in-season selling beginning in the fourth quarter.
However, Douglas Dynamics anticipates lower snowplow and parts sales over the
next twelve months compared to the last twelve months as a result of lighter
snowfall in populated areas. Operating results for 1997 are expected to be
commensurately lower than 1996, which was Douglas Dynamics' second highest
snowplow sales year.
Sawhill Tubular's 1997 sales and profitability are expected to be slightly
higher than last year. Prices for Sawhill's products have improved with price
increases announced in February and April, though some discounting continues.
In addition, volume increases in certain product lines have been experienced
and should continue during the year. However, any increase in operating
profit as a result of higher sales may be substantially offset by the
continued high cost of steel hot bands.
ARMCO FINANCIAL SERVICES GROUP (AFSG)
- -------------------------------------
In March 1997, a group of international insurance companies, previously
affiliated with AFSG and sold in 1991, filed an application for voluntary
liquidation in the United Kingdom. NNIC is currently investigating its
exposure with respect to reinsurance transactions entered into with these
companies. Armco believes, based on current facts and circumstances, that the
liquidation of the international insurance companies will not have a material
effect on its investment in AFSG.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1997, Armco had $151.9 of cash and cash equivalents compared to
$168.9 at December 31, 1996. Cash and cash equivalents decreased $17.0 during
the first three months of 1997, primarily due to capital expenditures of $7.5,
principal payments on debt of $4.7 and preferred stock dividends of $4.5.
In addition to cash on hand, Armco has a receivables credit facility, under
which Armco Funding Corporation, a wholly owned subsidiary to which Armco
sells substantially all of its receivables, may borrow up to $120.0 secured by
those receivables. In addition, Armco can borrow up to $50.0 under a credit
facility secured by certain of its inventories. At March 31, 1997, $64.5 of
the receivables facility was used as support for letters of credit, while no
borrowings were outstanding under either facility.
Armco anticipates that cash expenditures for capital projects during the
remainder of the year will total approximately $60.0. In addition, Armco has
$22.6 of debt maturing through December 1997. These expenditures will be paid
out of existing cash balances and cash generated from operations.
On April 25, 1997, 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, 1997 to shareholders of record
on May 30, 1997. 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, 1997 to shareholders of record on May 30,
1997. Payment of dividends on Armco's common stock is
-9-
<PAGE>
currently prohibited under the terms of certain of Armco's debt instruments
and under the terms of its inventory credit facility.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain statements made in this Management's Discussion & Analysis of the
Condensed Consolidated Financial Statements and in the Notes to the Condensed
Consolidated Financial Statements reflect management's estimates and beliefs
and are intended to be, and are hereby identified as, "forward looking
statements" for purposes of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These include statements in the
foregoing paragraphs entitled "Outlook" and ARMCO FINANCIAL SERVICES GROUP
------------------------------
(AFSG), and in footnote No. 6 relating to contingencies.
- ------
As discussed in its Form 10-K for the year ended December 31, 1996, Armco
cautions readers that such forward looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expected by management. These factors include, but are not limited to, the
following: risks of a downturn in the general economy or in the highly
cyclical steel industry; changes in demand for Armco's products; unplanned
plant outages, equipment failures or labor difficulties; actions by Armco's
foreign and domestic competitors; unexpected outcomes of major litigation and
contingencies; changes in U.S. trade policy and actions respecting imports;
disruptions in the supply of raw materials and changes in application or scope
of environmental regulations applicable to Armco.
-10-
<PAGE>
<TABLE>
ARMCO INC.
SEGMENT REPORT
(Unaudited)
(Dollars in millions)
<CAPTION>
1997 1996
------ ------------------------------
1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr.
------ ------ ------ ------ ------
<S> <C> <C> <C. <C> <C>
Specialty Flat-Rolled Steels:
Customer sales $375.0 $322.5 $350.5 $376.1 $372.1
Operating profit 22.4 21.4 19.3 12.2 20.0
Fabricated Products:
Customer sales 66.3 91.1 78.7 74.7 58.3
Special charges - (8.8) - - -
Operating profit 2.6 4.4 10.5 6.4 1.5
Corporate general (5.8) (2.6) (5.6) (6.4) (6.4)
- ------------------------------------------------------------------------------
Total operating profit 19.2 23.2 24.2 12.2 15.1
Interest income 2.5 2.1 2.2 2.8 3.0
Interest expense (8.7) (8.8) (9.0) (9.3) (9.2)
Sundry other - net (3.4) (2.8) (7.2) (9.5) (1.6)
- ------------------------------------------------------------------------------
Income (loss) before income taxes 9.6 13.7 10.2 (3.8) 7.3
Provision for income taxes (0.2) (0.5) (0.3) (0.2) (0.4)
- ------------------------------------------------------------------------------
Income (loss) from continuing operations 9.4 13.2 9.9 (4.0) 6.9
Discontinued operation -
Gain on sale of Aerospace and
Strategic Materials - - 6.5 - -
- ------------------------------------------------------------------------------
Net income (loss) $ 9.4 $ 13.2 $ 16.4 $ (4.0) $ 6.9
==============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-11-
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
------------------
There are various claims pending against Armco and its subsidiaries involving
product liability, patent, reinsurance and insurance arrangements,
environmental, antitrust, 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, 1996 (the Form 10-K). The
following summarizes significant developments in previously reported matters
and any material claims asserted since December 31, 1996:
In the Pension Benefit Guaranty Corporation v. Armco and Eastern Stainless
-------------------------------------------------------------------
Corporation action, the parties agreed on a settlement of all claims, subject
- -----------
to approval of the Court. Armco expects that the Court will approve the
settlement at a fairness hearing on June 19, 1997.
In the Southern Ohio Port Authority matter, Armco filed its answer and
counterclaims in March, 1997. Trial has been set for July, 1998. Based on
the estimated costs and the presence of other PRPs, Armco does not expect its
liability, if any, to be material.
The total liability on the forgoing claims 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 25, 1997, and all eight
nominees to the Board of Directors named in Armco's Proxy Statement were
elected. Approximately 85% of the outstanding common, $2.10 Cumulative
Convertible Preferred and $3.625 Cumulative Convertible Preferred shares were
voted. The vote on the election was as follows:
<TABLE>
<CAPTION>
Name For Withheld
---- --- ---------
<S> <C> <C>
Paula H.J. Cholmondeley 90,637,619 3,958,139
David A. Duke 90,733,145 3,862,613
Dorothea C. Gilliam 90,742,780 3,852,978
John C. Haley 90,634,453 3,961,305
Bruce E. Robbins 90,780,761 3,814,997
Burnell R. Roberts 90,751,591 3,844,167
John D. Turner 90,826,376 3,769,382
James F. Will 90,692,554 3,903,204
</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 11 Computation of Earnings Per Common Share
B. No report on Form 8-K was filed by Armco since December 31, 1996.
-12-
<PAGE>
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 April 30, 1997 /s/ Jerry W. Albright
------------------------- -----------------------------------------
Jerry W. Albright
Vice President and Chief Financial Officer
Date April 30, 1997 /s/ John N. Davis
------------------------- -----------------------------------------
John N. Davis
Vice President and Controller
-13-
<PAGE>
<TABLE>
EXHIBIT 11
ARMCO INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
(Dollars and shares in millions, Three Months Ended
except per share amounts) March 31,
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Net income $ 9.4 $ 6.9
Preferred stock dividends (4.5) (4.5)
- ------------------------------------------------------------------------------
Net income applicable to common stock $ 4.9 $ 2.4
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Weighted average number of common shares 106.7 106.4
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Earnings per common share $ 0.05 $ 0.02
- ------------------------------------------------------------------------------
FULLY DILUTED*
- ------------------------------------------------------------------------------
Net income applicable to common stock $ 9.4 $ 6.9
- ------------------------------------------------------------------------------
Weighted average number of common shares 106.7 106.4
Weighted average number of preferred shares on an
"if converted" basis 22.7 22.7
- ------------------------------------------------------------------------------
Average common shares outstanding as adjusted 129.4 129.1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Earnings per common share $ 0.07 $ 0.05
- ------------------------------------------------------------------------------
Shares of stock outstanding at March 31,
Common 107.1 106.7
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 income 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%.
</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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 151,900
<SECURITIES> 0
<RECEIVABLES> 183,000
<ALLOWANCES> 0
<INVENTORY> 262,700
<CURRENT-ASSETS> 603,600
<PP&E> 1,278,300
<DEPRECIATION> 612,600
<TOTAL-ASSETS> 1,886,300
<CURRENT-LIABILITIES> 371,600
<BONDS> 341,200
<COMMON> 1,100
0
185,900
<OTHER-SE> (394,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,886,300
<SALES> 441,300
<TOTAL-REVENUES> 441,300
<CGS> 397,500
<TOTAL-COSTS> 397,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,700
<INCOME-PRETAX> 9,600
<INCOME-TAX> 200
<INCOME-CONTINUING> 9,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,400
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.07
</TABLE>
