<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, 1998
--------------------------------------
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 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, 1998: 107,848,181
<PAGE>
ARMCO INC.
INDEX
Pages
Part I. Financial Information
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Income and
Accumulated Deficit - Three Months Ended
March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5-7
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 13
Signatures 14
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<PAGE>
<TABLE>
ARMCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
(Dollars in millions) March 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 126.6 $ 189.9
Short-term liquid investments 10.0 5.0
Receivables, less allowance for doubtful
accounts 183.3 156.6
Inventories (Note 2) 283.7 268.0
Other 10.8 17.9
- ------------------------------------------------------------------------
Total current assets 614.4 637.4
Investments
Investment in Armco Financial
Services Group (Note 5) 85.6 85.6
Other, less allowance for impairment 30.0 30.3
Property, plant and equipment 1,309.9 1,305.5
Accumulated depreciation (669.0) (653.0)
- ------------------------------------------------------------------------
Property, plant and equipment - net 640.9 652.5
Deferred tax asset 318.5 319.3
Goodwill and other intangible assets 135.9 137.4
Other assets 16.6 18.8
- ------------------------------------------------------------------------
Total assets $ 1,841.9 $ 1,881.3
- ------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Trade accounts and notes payable $ 139.3 $ 148.9
Employment-related obligations 117.8 126.4
Other liabilities 74.8 72.8
Current portion of long-term debt 7.0 38.2
- ------------------------------------------------------------------------
Total current liabilities 338.9 386.3
Long-term debt, less current portion 305.7 306.9
Long-term employee benefit obligations 928.8 1,178.1
Other liabilities 165.6 162.5
Commitments and contingencies (Note 5)
Shareholders' equity (deficit)
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 971.7 967.7
Accumulated deficit (1,051.7) (1,305.0)
Foreign currency translation (0.2) 0.5
Other (3.9) (2.7)
- ------------------------------------------------------------------------
Total shareholders' equity (deficit) 102.9 (152.5)
- ------------------------------------------------------------------------
Total liabilities and shareholders'
equity (deficit) $ 1,841.9 $ 1,881.3
- ------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
ARMCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND ACCUMULATED DEFICIT
(Unaudited)
<CAPTION>
(Dollars and shares in millions, Three Months Ended
except per share amounts) March 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales $ 447.7 $ 441.3
Cost of products sold (404.4) (397.5)
Selling and administrative expenses (22.0) (24.6)
- --------------------------------------------------------------------------
Operating profit 21.3 19.2
Interest income 2.5 2.5
Interest expense (7.6) (8.7)
Sundry other - net (Note 3) 5.9 (3.4)
- --------------------------------------------------------------------------
Income before income taxes 22.1 9.6
Provision for income taxes (1.8) (0.2)
- --------------------------------------------------------------------------
Income before cumulative effect of an
accounting change 20.3 9.4
Cumulative effect of a change in accounting for
postretirement benefits (Note 1) 237.5 -
- --------------------------------------------------------------------------
Net income 257.8 9.4
Foreign currency translation adjustment (0.7) (0.7)
- --------------------------------------------------------------------------
Comprehensive income $ 257.1 $ 8.7
- --------------------------------------------------------------------------
Accumulated deficit, beginning of period $(1,305.0) $(1,363.9)
Net income 257.8 9.4
Preferred stock dividends (4.5) (4.5)
- --------------------------------------------------------------------------
Accumulated deficit, end of period $(1,051.7) $(1,359.0)
- --------------------------------------------------------------------------
Basic earnings per share (Note 4)
Weighted average shares 107.4 106.7
Income before cumulative effect of an
accounting change $0.15 $0.05
Cumulative effect of a change in accounting for
postretirement benefits 2.21 -
- --------------------------------------------------------------------------
Net income $2.36 $0.05
- --------------------------------------------------------------------------
Diluted earnings per share (Note 4)
Weighted average shares 125.7 106.7
Income before cumulative effect of an
accounting change $0.15 $0.05
Cumulative effect of a change in accounting
for postretirement benefits 1.89 -
- --------------------------------------------------------------------------
Net income $2.04 $0.05
- --------------------------------------------------------------------------
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>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-3-
<PAGE>
<TABLE>
ARMCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 257.8 $ 9.4
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation expense 16.1 15.4
Cumulative effect of accounting change (237.5) -
Other 1.2 2.5
Change in assets and liabilities:
Trade accounts and notes receivable (24.4) (36.8)
Inventories (15.6) (15.8)
Payables and accrued operating expenses (14.5) 16.3
Employee benefit liabilities (12.4) 0.8
Other assets and liabilities - net 4.9 7.3
- ---------------------------------------------------------------------------
Net cash used in operating activities (24.4) (0.9)
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds from the sale of businesses and assets 0.4 0.1
Proceeds from the sale of investments 6.1 0.3
Purchase of liquid investments (5.0) -
Capital expenditures (4.2) (7.5)
Other 0.3 (0.3)
- ---------------------------------------------------------------------------
Net cash used in investing activities (2.4) (7.4)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt - 1.1
Payments on debt (31.4) (4.7)
Dividends paid on preferred stock (4.5) (4.5)
Other (0.6) (0.6)
- ---------------------------------------------------------------------------
Net cash used in financing activities (36.5) (8.7)
- ---------------------------------------------------------------------------
Net change in cash and cash equivalents (63.3) (17.0)
Cash and cash equivalents:
Beginning of period 189.9 168.9
- ---------------------------------------------------------------------------
End of period $ 126.6 $151.9
- ---------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of capitalized interest) $ 8.8 $ 4.7
Income taxes 0.3 -
Supplemental schedule of non-cash investing and
financing activities:
Issuance of restricted stock 4.0 2.4
<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 accompanying 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, 1997. 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, 1998 and its results of operations and cash
flows for the three months ended March 31, 1998 and 1997. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year 1998.
Effective January 1, 1998, Armco changed its method of amortizing unrecognized
net gains and losses related to its obligations for pensions and other
postretirement benefits. In the three months ended March 31, 1998, Armco
recognized income of $237.5 or $2.21 per share ($1.89 per diluted share) for
the cumulative effect of this accounting change.
At the time it adopted the standards governing accounting for pensions and
other postretirement benefits, Armco chose to use a minimum amortization
method whereby unrecognized net gains and losses, to the extent they exceeded
10% of the larger of the benefit obligations or plan assets, were amortized
over the average remaining service life of active participants. At Armco, the
average remaining service life is approximately 15 years. Use of this method,
however, resulted in the accumulation of $419.3 of unrecognized net gains for
pensions and other postretirement benefits through 1997. Under the new
method, Armco recognizes immediately into income unrecognized net gains and
losses which exceed the 10% corridor, as described above, and amortizes
amounts inside the corridor over the average remaining service life of active
participants. For the three months ended March 31, 1998, adoption of the new
method increased Income before cumulative effect of an accounting change by
$0.8, or $0.01 per share. Assuming Armco had applied the accounting change
retroactively, net income for the three months ended March 31, 1998 and 1997
would have been $20.3, or $0.15 per share, and $10.3 or $0.05 per share,
respectively.
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,
1998 1997
-------- --------
<S> <C> <C>
Inventories on LIFO:
Finished and semi-finished $288.3 $271.2
Raw materials and supplies 19.8 25.8
Adjustment to state inventories at
LIFO value (56.8) (54.0)
-------- --------
Total 251.3 243.0
Inventories on average cost:
Finished and semi-finished 28.1 19.9
Raw materials and supplies 4.3 5.1
-------- --------
Total 32.4 25.0
-------- --------
Total inventories $283.7 $268.0
======== ========
</TABLE>
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<PAGE>
3. Sundry other - net in the Condensed Consolidated Statements of Income and
Accumulated Deficit includes income (expense) of $6.1 and $(1.6) for the three
months ended March 31, 1998 and 1997, respectively, for employee benefit
obligations related to facilities that have been shut down or divested. The
reduction in expense in 1998 is primarily due to continued favorable
investment returns on pension plan assets and lower than expected increases in
medical benefit costs.
4. In accordance with Statement of Financial Accounting Standards No. 128,
Earnings Per Share, Armco subtracted $4.5 of preferred stock dividends from
Income before cumulative effect of an accounting change and Net income before
dividing each by weighted average shares outstanding to calculate basic
earnings per share for each quarter presented. The same calculation applied
to diluted earnings per share for the three months ended March 31, 1997. In
the three months ended March 31, 1998, conversion of the $3.625 Cumulative
Convertible Preferred Stock, Class A was assumed for the calculation of
diluted earnings per share. As such, $2.4 of dividends from this preferred
stock issue were added back to earnings available to common shareholders and
18.3 million shares were added to weighted average shares outstanding.
5. 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 an 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) companies, 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 transactions entered into with these companies.
Armco believes that its investment in AFSG will not be materially affected as
a result of pending claims or contingent liabilities related to this matter.
Armco believes that its ultimate liability for pending claims, contingent
liabilities, environmental matters and matters related to AFSG identified to
date will not materially affect its consolidated financial condition or
liquidity. However, it is possible that 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 periods.
At March 31, 1998, Armco had recorded in its Condensed Consolidated Balance
Sheets, legal and environmental reserves of $71.3, of which $18.3 was
classified as a current liability.
6. At its April 24, 1998 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
-6-
<PAGE>
Convertible Preferred Stock, Class A, and $4.50 Cumulative Convertible
Preferred Stock, Class B. Payment of dividends on Armco's common stock is
currently prohibited under the terms of certain of Armco's debt instruments
and inventory credit facility.
7. Information relating to Armco's industry segments can be found on page 11.
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, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $447.7 $441.3
Operating profit 21.3 19.2
Sundry other - net 5.9 (3.4)
Cumulative effect of a change in
accounting for postretirement benefits 237.5 --
Net income 257.8 9.4
Basic earnings per common share
Income before cumulative effect of an
accounting change 0.15 0.05
Net income 2.36 0.05
Diluted earnings per common share
Income before cumulative effect of an
accounting change 0.15 0.05
Net income 2.04 0.05
</TABLE>
Net sales in the three months ended March 31, 1998 were $6.4 higher than in
the first quarter of last year, primarily due to record volume in the
specialty steel product lines, partially offset by reduced pricing in these
lines, lower carbon steel shipments and much lower snowplow shipments.
Operating profit in the three months ended March 31, 1998 was 11% higher than
the amount reported in the same period last year, reflecting the higher
specialty steel shipments, improved product mix and lower pension and retiree
medical benefit expenses. Postretirement employee benefit expenses continue
to go down as a result of favorable investment returns on pension plan assets
and lower than expected increases in medical costs. Improved results in the
Specialty Flat-Rolled Steels segment were partially offset by a loss in the
Fabricated Products segment.
The change in Sundry other - net was a result of lower expenses related to
long-term benefit obligations for former employees of Armco facilities that
have been shut down or divested. The reduction in expense in the first
quarter of 1998 was primarily due to continued favorable investment returns on
pension plan assets and lower than expected increases in medical benefit
costs.
-7-
<PAGE>
Effective January 1, 1998, Armco changed its method of amortizing unrecognized
net gains and losses related to its obligations for pensions and other
postretirement benefits. In the three months ended March 31, 1998, Armco
recognized income of $237.5, or $2.21 per share of common stock ($1.89 per
diluted share), for the cumulative effect of this accounting change. Under
the newly adopted accounting method, Armco recognizes immediately into income
unrecognized net gains and losses that exceed 10% of the larger of the benefit
obligations or plan assets, and amortizes amounts inside this 10% corridor
over the average remaining service life of active participants (approximately
15 years). For the three months ended March 31, 1998, adoption of the new
method increased Income before cumulative effect of an accounting change by
$0.8, or $0.01 per share.
BUSINESS SEGMENT RESULTS
- ------------------------
Specialty Flat-Rolled Steels
- ----------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Customer sales $391.4 $375.0
Operating profit 26.5 22.4
</TABLE>
In the three months ended March 31, 1998, customer sales for the segment were
4% higher than in the first quarter one year ago, primarily as a result of
higher volumes of specialty flat-rolled and specialty semi-finished steels.
Overall segment average sales per ton increased due to the reduction of
relatively low-priced carbon tons shipped in 1998, while prices across all
specialty product lines declined compared to last year's first quarter.
Record import levels continue to depress pricing.
Customer sales and shipments by major product line were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------- -------------
(tons in thousands) Sales Tons Sales Tons
----- ---- ----- ----
<S> <C> <C> <C> <C>
Specialty flat-rolled $306.1 223 $281.1 193
Specialty semi-finished 47.9 44 40.1 34
Galvanized carbon 29.8 55 46.0 86
Other 7.6 -- 7.8 --
----- ---- ----- ----
Total $391.4 322 $375.0 313
</TABLE>
First quarter 1998 shipments of specialty flat-rolled products, which include
automotive exhaust stainless, electrical steel and specialty sheet and strip,
increased 16% over the 1997 first quarter. Record shipments of automotive
exhaust stainless and electrical steels led the increase. Automotive exhaust
stainless demand was driven by high production of light trucks and sport
utility vehicles, while electrical steel sales were stimulated by strong
housing starts and demand for electrical machinery and equipment. However,
lower prices, particularly for specialty sheet and strip products, reduced
average sales per ton by almost 6% in the year-to-year comparison.
Specialty semi-finished shipments increased substantially in 1998 over 1997;
however, an 8% reduction in average sales per ton reflected worldwide market
softness and import competition, as well as a shift in product mix.
Galvanized carbon steel shipments declined as a result of temporarily short
supplies of carbon steel coils purchased by the Dover Operations during the
transition period following Armco's decision to eliminate
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<PAGE>
production of carbon steel at its Mansfield Operations. However, steel coils
acquired by Dover during 1998 have been at prices favorable to last year.
First quarter 1998 operating profit increased 18% over the same period in
1997, primarily as a result of the higher shipments, improved product mix and
reduced pension and other retiree benefit expenses.
Outlook: Armco anticipates modest year-over-year increases in volume for most
product lines during the balance of 1998. However, during that period, high
levels of imports are expected to continue to depress pricing. The trend
towards lower costs should also continue, due to cost containment efforts and
the elimination of carbon steel production at Mansfield.
Armco has reduced production turns at its Mansfield Operations' melt shop to
an average of 15 turns per week, down from 20 turns. Production turns at the
Butler Operations may also be reduced during the next twelve months in an
effort to balance inventory levels and match production to order levels. A
reduction in production turns can be expected to unfavorably impact costs,
offsetting some of the trend towards lower costs.
Fabricated Products
- -------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Customer sales $56.3 $66.3
Operating profit (loss) (1.4) 2.6
</TABLE>
Customer sales decreased $10.0 in the first three months of 1998 compared to
1997, primarily at Douglas Dynamics. Lower customer sales at Douglas Dynamics
reflected relatively high customer inventory levels and the mild winter
experienced in its major markets, which affected both snowplow and ice control
product shipments. Operating results reflected the lower shipment levels.
Customer sales at Sawhill Tubular decreased slightly on lower volume.
However, improved product mix, lower conversion costs and improved quality
more than offset the lower sales, resulting in a slight increase in operating
profit at Sawhill.
Greens Port's first quarter revenues and operating profit for 1998 increased
over last year's first quarter.
Outlook: The mild winter and high customer inventories are expected to depress
snowplow shipments during the remainder of 1998. Sawhill sales and
profitability are expected to increase on the strength of higher volumes,
though pricing is expected to remain flat. Greens Port is expected to
maintain its current performance level.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1998, Armco had $136.6 of cash, cash equivalents and liquid
investments compared to $194.9 at December 31, 1997. Cash, cash equivalents
and liquid investments decreased $58.3 during the first three months of 1998,
primarily due to principal payments on debt of $31.4 and $24.4 of cash used by
operations, principally as a result of increases in receivables and
inventories.
In addition to cash on hand, Armco has a receivables credit facility with a
commitment of up to $120.0 for borrowings and letters of credit. Under this
facility, Armco Funding Corporation, a wholly owned subsidiary to which Armco
sells substantially all of its receivables, may borrow, depending on its
-9-
<PAGE>
available borrowing base and the amount of letters of credit outstanding, 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, 1998, no borrowings were outstanding under either facility. However,
Armco had outstanding $53.2 of letters of credit and a total of $107.4 was
available for borrowing under both facilities.
Armco anticipates cash outlays of $50.0 to $60.0 during the remainder of the
year for capital expenditures, which it expects to be paid out of existing
cash balances and cash generated from operations.
On April 24, 1998, 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, 1998 to shareholders of record
on May 29, 1998. 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, 1998 to shareholders of record on May 29,
1998. Payment of dividends on Armco's common stock is currently prohibited
under the terms of certain of Armco's debt instruments and inventory credit
facility.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain statements made in this Management's Discussion and Analysis of the
Condensed Consolidated Financial Statements and in the Notes to 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 in Note 4 relating to
contingencies.
As discussed in its Form 10-K for the year ended December 31, 1997, 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; actions by reinsurance companies
with which AFSG does business or foreign or domestic insurance regulators; and
changes in application or scope of environmental regulations applicable to
Armco.
-10-
<PAGE>
<TABLE>
ARMCO INC.
SEGMENT REPORT
(Unaudited)
(Dollars in millions)
<CAPTION>
1998 1997
------ -------------------------------
1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr.
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Specialty Flat-Rolled Steels:
Customer sales $391.4 $353.7 $365.4 $402.9 $375.0
Operating profit 26.5 23.2 20.7 22.3 22.4
Fabricated Products:
Customer sales 56.3 82.7 95.9 87.4 66.3
Operating profit (loss) (1.4) 7.9 19.5 11.9 2.6
Corporate general (3.8) (6.9) (6.2) (6.2) (5.8)
- ------------------------------------------------------------------------------
Total operating profit 21.3 24.2 34.0 28.0 19.2
Interest income 2.5 3.2 2.5 2.4 2.5
Interest expense (7.6) (8.8) (9.5) (8.5) (8.7)
Sundry other - net 5.9 (0.3) 3.2 (0.6) (3.4)
- ------------------------------------------------------------------------------
Income before income taxes 22.1 18.3 30.2 21.3 9.6
Provision for income taxes (1.8) (0.5) (0.5) (1.1) (0.2)
- ------------------------------------------------------------------------------
Income from continuing operations 20.3 17.8 29.7 20.2 9.4
Discontinued operations -
Gain on sale of Aerospace and
Strategic Materials - 1.4 - 1.3 -
Extraordinary loss on retirement
of debt - - (3.0) - -
Cumulative effect of a change in
accounting for postretirement
benefits 237.5 - - - -
- ------------------------------------------------------------------------------
Net income 257.8 19.2 26.7 21.5 9.4
Foreign currency translation
adjustment (0.7) 1.2 (1.1) (0.8) (0.7)
- ------------------------------------------------------------------------------
Comprehensive income $257.1 $ 20.4 $ 25.6 $ 20.7 $ 8.7
==============================================================================
<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, 1997. The following
summarizes significant developments in previously reported matters and any
material claims asserted since December 31, 1997:
In the Kingsbridge action, on April 9, 1998, following briefing and oral
-----------
argument, a three-member panel of the Court of Appeals issued an opinion
overruling every point of error raised by the appellants and unanimously
affirming the trial court's entry of summary judgment in favor of Armco on
statue of limitations grounds. It is uncertain whether the Kingsbridge
-----------
plaintiffs will seek further appeal by writ of error to the Supreme Court of
Texas.
The total liability on the claim described above and those 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 24, 1998, and all nine
nominees to the Board of Directors named in Armco's Proxy Statement were
elected. Approximately 87% 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>
Dan R. Carmichael 96,708,793 984,519
Paula H.J. Cholmondeley 96,691,329 1,001,984
Dorothea C. Gilliam 96,697,064 996,248
John C. Haley 96,617,096 1,076,216
Charles J. Hora, Jr. 96,753,564 939,749
Bruce E. Robbins 96,734,529 958,783
Jan H. Suwinski 96,744,250 949,062
John D. Turner 96,775,054 918,259
James F. Will 96,648,411 1,044,902
</TABLE>
A resolution to consider and adopt the Amended and Restated 1993 Long-Term
Incentive was submitted and approved by the shareholders. The vote on the
resolution was as follows:
<TABLE>
<CAPTION>
Broker
Voting Classes For Against Abstain Non-votes
- -------------- --- -------- ------- ---------
<S> <C> <C> <C> <C>
Common, $2.10 and
$3.625 Preferred Stocks 67,510,948 29,511,660 670,704 0
-12-
<PAGE>
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 Amended 1993 Long-Term Incentive Plan
Exhibit 18 Accountant's Preferability Letter
B. No Report on Form 8-K was filed by Armco during the quarter ended
March 31, 1998
-13-
<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 29, 1998 /s/ Jerry W. Albright
------------------------- -----------------------------------------
Jerry W. Albright
Vice President and Chief Financial Officer
Date April 29, 1998 /s/ John N. Davis
------------------------- ------------------------------------------
John N. Davis
Vice President and Controller
-14-
<PAGE>
</TABLE>
AMENDED 1993 LONG-TERM INCENTIVE PLAN
OF
ARMCO INC.
PREFATORY NOTE: The 1993 Long-Term Incentive Plan (the "Original
Plan") of Armco Inc. (the "Corporation") was adopted by the shareholders
of the Corporation on April 23, 1993. Any "Awards" (as such term is
defined in the Original Plan) granted under the Original Plan prior to
the effectiveness of the amendment and restatement of the Original Plan
as provided below shall continue to be subject to the terms and
conditions of the Original Plan as in effect immediately prior to such
amendment and restatement.
Upon adoption by the shareholders of the Corporation, the Original
Plan is amended and restated to read in its entirety as set forth below:
1. Purpose. The purpose of the Amended and Restated 1993
Long-Term Incentive Plan (as so amended and restated, the "Plan") is to
advance the interests of Armco Inc. (the "Corporation") and its
Affiliates by providing a larger personal and financial interest in the
success of the Corporation and its Affiliates to selected Employees upon
whose judgment, interest and special efforts the Corporation and its
Affiliates are largely dependent for the successful conduct of their
operations and to enable the Corporation and its Affiliates to compete
effectively with others for the services of new Employees as may be
needed for the continued improvement of the enterprise. It is believed
that such interests will stimulate the efforts of such Employees on
behalf of the Corporation and its Affiliates and strengthen their desire
to remain in the employ of the Corporation and its Affiliates.
2. Definitions.
As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean any entity (i) which is
controlled, directly or indirectly, by the Corporation, or (ii) in which
the Corporation has a significant equity interest, as determined by the
Committee.
(b) "Award" shall mean any award of an Option, SAR,
Restricted Stock, Performance Unit, or Other Stock Unit Award granted
pursuant to the provisions of the Plan.
(c) "Award Instrument" shall mean any written agreement or
other instrument or document evidencing any Award granted by the
Committee hereunder.
(d) "Board" shall mean the Board of Directors of the
Corporation.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" shall mean a committee of the Board, which
initially shall be the Compensation Committee of the Board, composed of
three or more directors, which committee shall be authorized to
administer the Plan and shall be constituted in such a manner as to
satisfy the requirements of applicable law.
(g) "Corporation" shall mean Armco Inc.
(h) "Derivative Security" shall mean, except to the extent
excluded from the definition of a "derivative security" under the rules
promulgated pursuant to Section 16 of the Exchange Act, any option,
warrant, convertible security, stock appreciation right or similar right
related to an "equity security" within the meaning of Section 16 of the
Exchange Act.
(i) "Employee" shall mean any key employee of the
Corporation or of any Affiliate.
<PAGE>
(j) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder.
(k) "Fair Market Value" shall mean, with respect to any
property, the market value of such property determined by such methods
or procedures as shall be established from time to time by the
Committee.
(l) "Incentive Stock Option" shall mean any Option granted
under Section 7 hereof that is intended to meet the requirements of
Section 422 of the Code.
(m) "Legal Representative" shall mean, with respect to any
Participant, any legal representative or guardian which (i) is a mere
custodian with respect to the property of such Participant, (ii) stands
in a fiduciary relationship to such Participant and (iii) is subject to
court supervision in the performance of its duties as a legal
representative or guardian.
(n) "Nonstatutory Stock Option" shall mean any Option
granted under Section 6 hereof that is not intended to be an Incentive
Stock Option.
(o) "Officer" shall mean any Participant who is subject to
Section 16 of the Exchange Act.
(p) "Option" shall mean any right granted to a Participant
under the Plan allowing such Participant to purchase Shares at such
price or prices and during such period or periods as the Committee shall
determine.
(q) "Other Stock Unit Award" shall mean any right granted
to a Participant under the Plan pursuant to Section 11 hereof.
(r) "Participant" shall mean any Employee who is selected
by the Committee to receive an Award under the Plan. Any Employee
(other than a member of the Committee) shall be eligible to be so
selected.
(s) "Performance Period" shall mean the period established
by the Committee at the time any Performance Unit is awarded or at any
time thereafter during which any performance goals specified by the
Committee with respect to such Award are to be measured.
(t) "Performance Unit" shall mean any unit granted pursuant
to Section 10 hereof.
(u) "Person" shall mean any "person" as such term is used
in Sections 13(d)(3) and 14(d) of the Exchange Act.
(v) "Restricted Stock" shall mean shares of restricted
stock awarded to a Participant pursuant to Section 9 hereof.
(w) "SAR" shall mean any stock appreciation right granted
to a Participant pursuant to Section 8 hereof.
(x) "Shares" shall mean the common stock of the
Corporation, and such other securities of the Corporation as the
Committee may from time to time determine.
(y) "Tandem SAR" shall mean any SAR exercisable only upon
surrender of the Option related to such SAR.
3. Administration. The Plan shall be administered by the
Committee. The Committee shall have full power and authority to (i)
select the Employees to whom Awards may be granted under the Plan, (ii)
determine the size and types of Awards to be granted to each such
Employee, (iii) determine the terms and conditions, not inconsistent
with the provisions of the Plan, governing such Awards, (iv) interpret
the Plan and any instrument or agreement entered into under the Plan,
(v) establish such rules and regulations as it shall deem
2
<PAGE>
appropriate for the administration of the Plan and (vi) take such other
action as it deems necessary or desirable for the administration of the
Plan. The interpretation and construction of any provision of the Plan,
or any Award Instrument, by the Committee shall be final, conclusive
and binding on all parties.
The Committee may delegate to the chief executive officer
and other senior officers of the Corporation its responsibilities with
respect to grants of Awards to Employees who are not Officers, including
the selection of the recipients of such Awards.
4. Effectiveness of Plan. The Plan shall become effective
upon adoption by the shareholders of the Corporation on April 24, 1998
and shall remain effective until April 23, 2008 or such earlier date as
the Board shall determine. In the event of the termination of the Plan
by the Board, any Award outstanding under the Plan at that time shall
remain in effect in accordance with its terms and conditions and those
of the Plan.
5. The Shares. Subject to adjustment as provided in Section
12 hereof, the total number of Shares available for grant under the Plan
from and after its effective date shall be 45,048,848. All Shares
subjected under the Plan to an Award which, for any reason, expires or
terminates as to such Shares, or with respect to which other
consideration is paid in lieu of such Shares, shall again be available
for grant under the Plan; provided, however, that Shares as to which an
Incentive Stock Option has been surrendered in connection with the
exercise of a related SAR shall not increase the number of shares
available for grants of Incentive Stock Options.
6. Options. Options, which shall be evidenced by Award
Instruments, shall be subject to the terms and conditions set forth in
the Plan and such other terms and conditions not inconsistent herewith
as the Committee may approve and may be granted either alone or in
addition to other Awards granted under the Plan. Except as hereinafter
provided, all Options granted pursuant to the Plan shall be subject to
the following terms and conditions:
(a) Price. The purchase price of the Shares shall be
determined by the Committee in its sole discretion, provided, however,
that (i) if the purchase price of the Shares is pre-established for the
full duration of the Option, it shall never be less than 100% of the
Fair Market Value of the Shares on the date of the grant of the Option,
or (ii) if the purchase price of the Shares varies based on an index or
other variable, it shall not start at less than 100% of the Fair Market
Value of the Shares on the date of the grant of the Option. The
purchase price shall be paid in full at the time of purchase in cash, in
Shares valued at the Fair Market Value of the Shares on the date of
purchase, in any combination thereof or in such other form of
consideration as the Committee may determine. In addition, if the
Committee so provides, an Option may be exercised by delivering a
properly executed exercise notice together with irrevocable instructions
to a broker to deliver promptly to the Corporation the amount of sale or
loan proceeds necessary to pay the purchase price and applicable
withholding taxes in full and such other documents as the Committee
shall determine. The purchase price shall be subject to adjustment as
provided in Section 12 hereof.
(b) Duration and Exercise of Options. Options may be
granted for such terms as the Committee shall establish. Options shall
be exercisable as provided by the Committee at the time of grant
thereof.
(c) Surrender of Options. The Committee may require the
surrender of outstanding Options as a condition precedent to the grant
of new Options.
(d) Form of Settlement. In its sole discretion, the
Committee may provide at the time of grant of an Option, that Restricted
Stock or other similar securities or other Awards may be issued upon
exercise of such Option, or the Committee may reserve the right so to
provide after the time of grant.
(e) Other Terms and Conditions. Options may also contain
such other provisions, which shall not be inconsistent with any of the
foregoing terms, as the Committee shall deem appropriate. The maximum
number of Shares with respect to which Options may be granted to any
Employee under this Plan during any calendar year is 500,000, subject to
adjustment as provided in Section 12.
3
<PAGE>
7. Incentive Stock Options. The Committee may grant
Incentive Stock Options under the Plan. Incentive Stock Options granted
pursuant to the Plan shall be subject to all the terms and conditions
set forth in Section 6 hereof and to the following terms and conditions:
(i) The term of an Incentive Stock Option shall not exceed
ten years.
(ii) No Incentive Stock Option may be granted under the Plan
if such grant, together with any applicable prior grants which are
incentive stock options within the meaning of Section 422 of the Code,
would cause any limitation established under the Code for incentive
stock options to be exceeded, not taking into account any acceleration
of the exercisability of any Options pursuant to any term or condition
included in such Options by the Committee.
8. Stock Appreciation Rights. Stock appreciation rights
("SARs") may be granted either alone or in addition to other Awards
granted under the Plan and may, but need not, relate to an Option. Any
SAR related to a Nonstatutory Stock Option may be granted at the same
time such Option is granted or at any time thereafter before the
exercise or expiration of such Option. Any SAR related to an Incentive
Stock Option must be granted at the same time such Option is granted.
Upon the exercise of an SAR, the Participant shall be
entitled to receive for each Share covered by the SAR so exercised the
excess of (i) the Fair Market Value of one Share on the date of exercise
or, if the Committee shall so determine in the case of any such SAR
other than one related to an Incentive Stock Option, at any time during
a specific period before the date of exercise, over (ii) the option
exercise price per Share specified in the related Option, if any, and if
none, the Fair Market Value of one Share on the date the SAR is granted.
Any payment by the Corporation in respect of an SAR may be made in cash,
Shares, Restricted Stock, or other Award, or any combination thereof, as
the Committee in its sole discretion shall determine.
In addition to the terms and conditions set forth elsewhere
in the Plan, SARs shall be subject to the following terms and conditions
and to such other terms and conditions not inconsistent with the Plan as
the Committee from time to time approves:
(i) A Tandem SAR shall be exercisable, in whole or in
part, only at such times and to the extent that the Option to which it
relates is exercisable and only when the Fair Market Value of the Shares
exceeds the option price of the related Option. An SAR which is related
to an Option but which is not a Tandem SAR shall be exercisable, in
whole or in part, only at such times and to the extent that the Option
to which it relates is exercisable or, if such Option has been
exercised, until the Option to which it relates would have expired had
it not been exercised. An SAR granted without relationship to an Option
shall be exercisable as determined by the Committee.
9. Restricted Stock.
(a) Issuance. The Committee may grant awards of Restricted
Stock for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other
Awards granted under the Plan. Shares of Restricted may be issued with
such terms and conditions, including acceleration and forfeiture and
other provisions and restrictions as the Committee, in its sole
discretion, may impose (including, without limitation, any restriction
on the right to vote such Shares and the right to receive any cash
dividends with respect thereto). Such restrictions may lapse separately
or in combination at such time or times, in installments or otherwise,
as the Committee may deem appropriate, and any such Shares may not be
sold, transferred, pledged, assigned or otherwise disposed of by the
Participant, except as may be otherwise provided, until such
restrictions lapse. All restrictions applicable to any Restricted Stock
shall also apply to any shares resulting from a stock dividend, stock
split or other distribution of Shares with respect to such Restricted
Stock. Upon termination of employment during the restricted period, all
Restricted Stock shall be forfeited, subject to such exceptions, if any,
as are authorized by the Committee relating to termination of employment
pursuant to retirement, disability, death or other special
circumstances.
4
<PAGE>
(b) Registration. Any Restricted Stock issued hereunder may
be evidenced in such manner as the Committee in its sole discretion
shall deem appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In the
event any stock certificate is issued in respect of shares of Restricted
Stock awarded under the Plan, such certificate shall be registered in
the name of the Participant and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Award. In such event, the Committee shall require that the stock
certificates evidencing such Shares be held in custody by the
Corporation until the restrictions thereon shall have lapsed and that,
as a condition of the award of any Restricted Stock, the Participant
shall have delivered a duly signed stock power, endorsed in blank,
relating to the Shares covered by such Award.
10. Performance Units. The Committee may grant awards of
units ("Performance Units") valued by reference to Shares or other
property or measured in dollar amounts, which value may be paid to the
Participant by delivery of such property as the Committee shall
determine, including, without limitation, cash, Shares or any
combination thereof, upon achievement of such performance goals during
the Performance Period as the Committee shall establish at the time of
such grant or thereafter. Performance Units may be issued for no cash
consideration or for such minimum consideration as may be required by
applicable law, either alone or in addition to other Awards granted
under the Plan. The performance criteria to be achieved during any
Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Unit or
thereafter. The performance levels to be achieved for each Performance
Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Units may be paid
in a lump sum or in installments following the close of the Performance
Period or, in accordance with procedures established by the Committee,
on a deferred basis.
11. Other Stock Unit Awards. The Committee may grant other
Awards of Shares and other Awards that are valued in whole or in part by
reference to Shares ("Other Stock Unit Awards"). Other Stock Unit
Awards may be granted for no cash consideration or for such minimum
consideration as may be required by applicable law, either alone or in
addition to other Awards granted under the Plan. Such Other Stock Unit
Awards may be paid in Shares, other securities of the Corporation, cash
or any other form of property as the Committee shall determine. Subject
to the provisions of the Plan, the Committee shall have sole and
complete authority to determine all conditions of Other Stock Unit
Awards.
12. Adjustment of and Changes in the Shares. In the event of
any merger, consolidation, recapitalization, reclassification, stock
dividend, reverse split, distribution of property, special cash dividend
or other change in corporate structure affecting the Shares as
determined by the Committee, the Committee shall make such adjustments
as it deems appropriate to the number, class and option price of Shares
subject to outstanding Options granted under the Plan, and in the value
of, or number or class of Shares subject to, other Awards granted or
available to be granted under the Plan or to individual Employees during
the term of this Plan.
13. Securities Act Requirements. No Award granted pursuant
to the Plan shall be exercisable or realizable in whole or in part, and
the Corporation shall not be obligated to sell any Shares subject to any
such Award, if such exercise, sale or vesting would, in the opinion of
counsel for the Corporation, violate the Securities Act of 1933, as
amended (or other Federal or state statutes having similar
requirements). As a condition precedent to the issuance of Shares
pursuant to the grant or exercise of an Award, the Corporation may
require the Participant to take any reasonable action to meet such
requirements. Each Award shall be subject to the further requirement
that, if at any time the Board shall determine in its discretion that
the listing or qualification of the Shares subject to such Award under
any securities exchange requirements or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such
Award or the issuance of Shares thereunder, certificates for Shares
under the Plan pursuant to such Award will not be delivered unless such
listing, qualification, consent or approval shall have been effected or
obtained free of any condition not acceptable to the Board, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such requirements.
5
<PAGE>
14. Amendments and Termination. The Board may amend or
terminate the Plan, and the Committee may amend the terms of any Award
Instrument; provided, however, that, to the extent required by
applicable law or to comply with the shareholder approval requirements
of Section 422 of the Code or applicable stock exchange requirements,
any amendment to the Plan may be subject to the approval of the
shareholders of the Corporation. Amendments to the Plan or to any Award
Instrument may be applied prospectively or retroactively, provided that
no such amendments shall impair the rights of any Participant with
respect to any outstanding Award without such Participant's consent.
The Committee may also substitute new Awards for previously
granted Awards, including without limitation the substitution of Options
having lower option prices than previously granted Options. The
Committee's powers include, but are not limited to, the adoption of such
modifications, amendments, procedures, subplans and the like as may be
necessary to comply with the provisions of the laws of other countries
in which the Corporation or its Affiliates may operate.
15. Change in Control. The Committee may, without limitation
of the breadth of its authority elsewhere in the Plan and
notwithstanding any provision to the contrary contained elsewhere in the
Plan or in any agreement between the Corporation and a Participant,
provide that, upon a change in control (as such may be defined by the
Committee) of the Corporation, the exercisability or release from
restrictions of outstanding Awards may be accelerated, other payments
may be made in respect of outstanding Awards, Options or other Awards
may be surrendered to the Corporation for cash or other consideration
and other consequences with respect to outstanding Awards may result,
all on such terms and conditions as the Committee shall, in its
discretion, provide.
16. General Provisions.
(a) Except as otherwise approved by the Committee, in its
discretion, no Award, or Shares subject to an Award, 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 Shares are issued, or, if later, the date on
which any applicable restriction, performance or reference period
lapses; provided, however, that if so determined by the Committee, a
Participant may, in the manner established by the Committee, designate a
beneficiary to exercise the rights of the Participant with respect to
any Award upon the death of the Participant. Each Award shall be
exercisable, during the Participant's lifetime, only by the Participant
or, if permissible under applicable law, by the Participant's Legal
Representative.
(b) The provisions of Awards need not be the same with respect
to each recipient. Subject to the provisions of the Plan, the term of
each Award shall be such period as may be determined by the Committee.
(c) The Committee may, in its discretion, grant to the holder
of any Award the right to receive interest or interest equivalents, or
the right to receive with respect to each Share covered by such Award
payments of amounts equal to the regular cash dividends paid to holders
of the Shares during the period that the Award is outstanding.
(d) The Corporation shall be authorized to withhold from any
Award granted or payment due under the Plan, in such manner as the
Committee shall determine (including mandatory withholding imposed as a
provision of an Award), the amount of withholding taxes due in respect
of such Award or payment hereunder and to take such other actions as may
be necessary in the opinion of the Corporation to satisfy all
obligations for the payment of such taxes.
(e) Nothing contained herein shall require the Corporation to
segregate any monies from its general funds, or to create any trusts, or
to make any special deposits for any immediate or deferred amounts
payable to any Participant for any year.
(f) Nothing contained in the Plan, or in any Award granted
pursuant to the Plan, shall confer upon any Employee or Participant any
right to continue in the employ of the Corporation or its Affiliates or
limit in any way the right of the Corporation or its Affiliates to
terminate such Participant's employment at any time.
6
<PAGE>
April 29, 1998
Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219
Dear Sirs/Madams:
At your request, we have read the description included in your Quarterly
Report on Form 10-Q to the Securities and Exchange Commission for the
quarter ended March 31, 1998, of the facts relating to a change in Armco
Inc.'s method of accounting for unrecognized net gains or losses related
to pension and other postretirement benefit plans from the minimum
amortization method as defined by Statement of Financial Accounting
Standards Nos. 87 and 106, to a method whereby the Company will
recognize immediately into income any unrecognized net gains or losses
outside a 10% corridor and will amortize into income any unrecognized
net gains or losses inside such corridor over the average expected
remaining service period of active plan participants. We believe, on
the basis of the facts so set forth and other information furnished to
us by officials of the Company, that the accounting change described in
your Form 10-Q is to an alternative accounting principle that is
preferable under the circumstances.
We have not audited any consolidated financial statements of the Company
and its consolidated subsidiaries as of any date or for any period
subsequent to December 31, 1997. Therefore, we are unable to express,
and we do not express, an opinion on the facts set forth in the above-
mentioned Form 10-Q, on the related information furnished to us by
officials of the Company, or on the financial position, results of
operations, or cash flows of the Company and its consolidated
subsidiaries as of any date or for any period subsequent to December 31,
1997.
Yours truly,
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE ARMCO INC. CONDENSED CONSOLIDATED BALANCE
SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
ACCUMULATED DEFICIT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0000007383
<NAME> ARMCO INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-START> JAN-01-1998
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 126,600
<SECURITIES> 10,000
<RECEIVABLES> 183,300
<ALLOWANCES> 0
<INVENTORY> 283,700
<CURRENT-ASSETS> 614,400
<PP&E> 1,309,900
<DEPRECIATION> 669,000
<TOTAL-ASSETS> 1,841,900
<CURRENT-LIABILITIES> 338,900
<BONDS> 305,700
0
185,900
<COMMON> 1,100
<OTHER-SE> (84,100)
<TOTAL-LIABILITY-AND-EQUITY> 1,841,900
<SALES> 447,700
<TOTAL-REVENUES> 447,700
<CGS> 404,400
<TOTAL-COSTS> 404,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,600
<INCOME-PRETAX> 22,100
<INCOME-TAX> 1,800
<INCOME-CONTINUING> 20,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 237,500
<NET-INCOME> 257,800
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.04
</TABLE>
