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SECURITIES AND EXCHANGE COMMISSION
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 8, 1998
Armco Inc.
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(Exact name of registrant as specified in charter)
Ohio
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(State or other jurisdiction of incorporation or organization)
1-873-2 31-0200500
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(Commission File Number) (I.R.S. Employer Identification No.)
One Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania 15219-1415
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412/255-9800
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Item 5. Other Events.
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On April 8, 1998, Armco Inc. announced that it will record a gain of
$237.5 million, or $2.21 per share of common stock, for the cumulative effect
of an accounting change. Armco stated that effective January 1, 1998, it
changed the method used to amortize unrecognized net gains and losses
associated with accounting for pension and other postretirement benefit plans.
Item 7. Exhibits.
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99.2 Press release dated April 8, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARMCO INC.
Date: April 8, 1998 By: /s/ Gary R. Hildreth
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Name: Gary R. Hildreth
Title: Vice President
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EXHIBIT LIST
99.2 Press release dated April 8, 1998.
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Exhibit 99.2
[ARMCO LOGO] ARMCO INC.
SPECIALTY FLAT-ROLLED STEELS
Pittsburgh, Pennsylvania
N E W S F R O M A R M C O CONTACT:
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Jim Herzog
412-255-9825
ARMCO TO RECORD ONE-TIME GAIN OF $237.5 MILLION IN FIRST QUARTER
PITTSBURGH, PA, April 8, 1998 --- Armco Inc. (NYSE:AS) announced
that it will record a gain of $237.5 million, or $2.21 per share of
common stock, related to previously unrecognized net gains in its
retiree benefit programs.
Armco has continued to aggressively manage the significant
liabilities associated with these programs through expanded cost
containment actions in both pension and retiree medical benefits,
including use of managed care and contributions to the pension plans
that exceeded minimum funding requirements. These actions, coupled with
investment returns on pension plan assets that substantially exceeded
assumed returns and lower than expected increases in retiree medical
benefit costs, have contributed to an improved financial position of the
plans and an increase in unrecognized net gains over the last several
years.
Armco stated that effective January 1, 1998, it changed the method
used to amortize unrecognized net gains and losses associated with
accounting for pension and other postretirement benefit plans. The
cumulative effect of this accounting change will increase Armco's first
quarter 1998 net income by $237.5 million, or $2.21 per share of common
stock. Armco believes that the change provides an improved assessment
of its financial condition since recorded liabilities will now more
closely reflect current estimated economic obligations.
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Background on change in accounting method
At December 31, 1997, Armco reported pension and other
postretirement liabilities of $1,227.1 million. However, the
actuarially determined estimate of the net present value of Armco's
future payments for these obligations was $747.8 million. Therefore,
total recorded pension and postretirement benefit liabilities exceeded
estimated future obligations by $479.3 million. Of this amount, $419.3
million was unrecognized net gains, which are generated when actual
experience differs from assumptions used to calculate pension and other
postretirement benefit obligations. These assumptions include discount
rates, assumed returns on plan assets, mortality and health care cost
trend rates.
In 1987, when Armco adopted Statement of Financial Accounting
Standards, No. 87, Employers' Accounting for Pensions (SFAS 87), and in
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1993, when it adopted SFAS No. 106, Employers' Accounting for
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Postretirement Benefits Other Than Pensions (SFAS 106), Armco chose to
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use the minimum amortization method allowable. This method, combined
with the favorable trends previously mentioned, resulted in the
accumulation of substantial unrecognized net gains, causing reported
long-term employee benefit liabilities on Armco's balance sheet to be
higher than the actuarially determined economic obligations.
The newly adopted method accelerates the amortization process by
immediately recognizing all net gains or losses that exceed a 10-percent
corridor as defined in SFAS 87 and 106. Also under the new method,
Armco will amortize net gains or losses within the 10-percent corridor
over the average remaining service life of covered employees, or about
15 years.
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Armco said that, while the new amortization method could lead to
future earnings that are more sensitive to changes in interest rates and
other assumptions used to establish the benefit obligations, it believes
that maintaining an amortization period of about 15 years within the 10-
percent corridor provides a reasonable buffer against volatility. In
analyzing the long-term effect on its financial statements, Armco
concluded that the overall benefits of recorded liabilities more closely
reflecting economic obligations outweighed the potential for increased
volatility to the income statement.
Effect on Shareholders' Equity
The change will also result in Armco reporting positive total
shareholders' equity for the first time since 1992. At December 31,
1997, Armco reported negative shareholders' equity of $152.5 million.
Adjusting for the cumulative effect of adopting the accounting change
increases shareholders' equity by $237.5 million. On a pro forma basis
at December 31, 1997, shareholders' equity would have been a positive
$85 million.
Armco Inc. is a leading domestic producer of specialty flat-rolled
stainless, electrical and galvanized steels with plants in Butler,
Pennsylvania and Coshocton, Dover, Mansfield and Zanesville, Ohio.
Armco also produces snowplows and other ice control products, and
standard pipe and tubular products.
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