-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XRj2f1oE+bWQSQW4GtZggNXy2CwS7nuLua10hY87kwhTmnnnFHu53nTA8GVnPkle 6oDlVILDxdgsrSIIOPqnTA== 0000007383-95-000039.txt : 19950508 0000007383-95-000039.hdr.sgml : 19950508 ACCESSION NUMBER: 0000007383-95-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950505 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARMCO INC CENTRAL INDEX KEY: 0000007383 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 310200500 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00873 FILM NUMBER: 95534801 BUSINESS ADDRESS: STREET 1: 301 GRANT ST STREET 2: ONE OXFORD CENTRE CITY: PITTSBURGH STATE: PA ZIP: 15219-1415 BUSINESS PHONE: 2013165200 MAIL ADDRESS: STREET 1: 300 INTERPACE PARKWAY CITY: PARSIPPANY STATE: NJ ZIP: 07054-0324 FORMER COMPANY: FORMER CONFORMED NAME: ARMCO STEEL CORP DATE OF NAME CHANGE: 19790506 10-Q 1 MARCH 31, 1995 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1995 -------------------------------------- OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ----------------- ------------------ Commission File No. 1-873-2 -------------------------------------------------- ARMCO INC. ---------- (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 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (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 ------- ------ 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 ------- ------ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of common stock outstanding at March 31, 1995: 105,918,066 2 ARMCO INC. INDEX Page ---- Part I. Financial Information Condensed Statement of Consolidated Financial Position - March 31, 1995 and December 31, 1994 2 Condensed Statement of Consolidated Operations and Retained Deficit - Three Months Ended March 31, 1995 and 1994 3 Condensed Statement of Consolidated Cash Flows - Three Months Ended March 31, 1995 and 1994 4 Notes to Condensed Consolidated Financial Statements 5-7 Management's Discussion and Analysis of the Condensed Consolidated Financial Statements 8-12 Segment Report 13 Part II. Other Information Item 1 Legal Proceedings 14 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 6 Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit 11 Computation of Loss Per Common Share -1- 3 ARMCO INC. CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION (Unaudited)
(Dollars in millions) March 31, December 31, 1995 1994 ---------- ---------- ASSETS Current assets Cash and cash equivalents $ 211.4 $ 202.8 Short-term liquid investments 1.5 25.8 Receivables, less allowance for doubtful accounts 196.4 183.3 Inventories (Note 2) 182.9 165.5 Net assets held for sale 2.4 25.6 Other (Note 10) 41.7 46.0 - --------------------------------------------------------------------------- Total current assets 636.3 649.0 Investments Investment in National-Oilwell (Note 5) 79.9 79.5 Investment in AFSG (Note 6) 97.1 97.1 Other, less allowance for impairment 38.4 39.9 Property, plant and equipment 1,108.0 1,064.2 Accumulated depreciation (511.6) (499.6) - --------------------------------------------------------------------------- Property, plant and equipment - net 596.4 564.6 Deferred tax asset 321.8 321.8 Goodwill and other intangible assets 153.1 156.4 Other assets 16.8 26.6 - --------------------------------------------------------------------------- Total assets $ 1,939.8 $ 1,934.9 - --------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities Accounts and notes payable $ 126.0 $ 122.6 Employee benefit obligations 121.3 133.8 Accrued salaries and wages 31.4 32.7 Other accrued liabilities 92.0 90.8 Current portion of long-term debt 10.4 10.5 - --------------------------------------------------------------------------- Total current liabilities 381.1 390.4 Long-term debt, less current portion 375.4 363.8 Long-term employee benefit obligations 1,269.6 1,255.3 Other liabilities 135.5 143.9 Commitments and contingencies (Notes 6 and 8) Shareholders' deficit (Note 7) Preferred stock - Class A 137.6 137.6 Preferred stock - Class B 48.3 48.3 Common stock 1.1 1.1 Additional paid-in capital 961.8 956.3 Retained deficit (1,392.5) (1,390.4) Unrealized gain on equity securities (Note 10) 26.5 31.6 Other (4.6) (3.0) - --------------------------------------------------------------------------- Total shareholders' deficit (221.8) (218.5) - --------------------------------------------------------------------------- Total liabilities and shareholders' deficit $ 1,939.8 $ 1,934.9 - --------------------------------------------------------------------------- See Notes to Condensed Consolidated Financial Statements.
-2- 4 ARMCO INC. CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS AND RETAINED DEFICIT (Unaudited) (Dollars and shares in millions, except per share amounts)
Three Months Ended March 31, 1995 1994 -------- -------- Net sales $ 368.4 $ 379.6 Cost of products sold (327.7) (346.7) Selling and administrative expenses (24.2) (23.8) Special charge (Note 3) - (20.0) - --------------------------------------------------------------------- Operating profit (loss) 16.5 (10.9) Interest income 3.7 1.9 Interest expense (7.5) (8.9) Sundry other - net (Note 4) (11.2) (10.7) - --------------------------------------------------------------------- Income (loss) before income taxes 1.5 (28.6) Provision for income taxes (0.2) (0.2) - --------------------------------------------------------------------- Income (loss) from Armco and consolidated subsidiaries 1.3 (28.8) Equity in income of equity companies (Note 5) 1.1 1.6 - --------------------------------------------------------------------- Net income (loss) 2.4 (27.2) Retained deficit, beginning of period (1,390.4) (1,450.3) Preferred stock dividends (4.5) (4.5) - --------------------------------------------------------------------- Retained deficit, end of period $(1,392.5) $(1,482.0) - --------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding - primary 105.6 104.1 Net loss applicable to common stock $ (2.1) $ (31.7) Net loss per common share - primary $ (0.02) $ (0.30) Net loss per common share - fully dilutive * * Cash dividends per share $2.10 Class A $ 0.525 $ 0.525 $3.625 Class A 0.906 0.906 $4.50 Class B 1.125 1.125 * Antidilutive or dilution less than 3% See Notes to Condensed Consolidated Financial Statements.
-3- 5 ARMCO INC. CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited) (Dollars in millions)
Three Months Ended March 31, ------------------ 1995 1994 -------- -------- Cash flows from operating activities: Net income (loss) $ 2.4 $ (27.2) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and lease-right amortization 12.5 12.2 Gain on sales of investments and facilities (1.5) - Equity in net undistributed earnings of associated companies (0.1) (0.6) Special charge - 20.0 Other 3.4 3.1 Change in assets and liabilities, net of effects of dispositions: Accounts receivable (15.0) (10.4) Inventory (16.8) 15.0 Payables and accrued expenses 9.0 8.0 Other assets and liabilities - net 8.7 (9.3) - ------------------------------------------------------------------------------------------ Net cash provided by operating activities 2.6 10.8 - ------------------------------------------------------------------------------------------ Cash flows from investing activities: Net proceeds from the sale of businesses and assets 15.7 0.8 Proceeds from the sale and maturity of liquid investments 24.7 - Proceeds from the sale of investments 1.3 4.6 Purchase of investments (1.0) (6.9) Capital expenditures (33.1) (15.4) Net cash provided by (used in) businesses held for sale 4.4 (0.7) Other 0.1 2.8 - ------------------------------------------------------------------------------------------ Net cash provided by (used in) investing activities 12.1 (14.8) - ------------------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from drawdown of construction debt - 7.5 Principal payments on debt - (5.6) Dividends paid (7.5) (4.5) Other 1.4 (1.0) - ------------------------------------------------------------------------------------------ Net cash used in financing activities (6.1) (3.6) - ------------------------------------------------------------------------------------------ Net change in cash and cash equivalents 8.6 (7.6) Cash and cash equivalents: Beginning of period 202.8 183.5 - ------------------------------------------------------------------------------------------ End of period $ 211.4 $ 175.9 - ------------------------------------------------------------------------------------------ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of capitalization) $ 4.0 $ 4.8 Income taxes 0.1 0.1 Supplemental schedule of noncash investing and financing activities: Issuance of restricted stock 4.4 - Debt incurred directly for property 11.6 - See Notes to Condensed Consolidated Financial Statements.
-4- 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in millions, except per share amounts) 1. The condensed consolidated financial statements of Armco Inc. (Armco) should be read in conjunction with the financial statements in Armco's Annual Report to Shareholders for the year ended December 31, 1994. In the opinion of Armco's management, the accompanying condensed consolidated financial statements contain all adjustments, which were of a normal recurring nature, necessary to present fairly, in all material respects, the financial position as of March 31, 1995 and the results of operations and cash flows for the three months ended March 31, 1995 and 1994. The results of operations for the three months ended March 31, 1995 are not necessarily indicative of the results to be expected for the year 1995. 2. Armco's inventories are valued at the lower of cost or market. Cost of inventories at most of Armco's domestic operations is measured on the LIFO - Last In, First Out - method. Other inventories are valued principally at average cost. March 31, December 31, 1995 1994 --------- ------------ Inventories on LIFO: Finished and semi-finished $ 172.4 $ 158.7 Raw materials and supplies 29.7 24.8 Adjustment to state inventories at LIFO value (43.5) (41.1) -------- --------- Total 158.6 142.4 -------- --------- Inventories on average cost: Finished and semi-finished 15.5 14.8 Raw materials and supplies 8.8 8.3 -------- --------- Total 24.3 23.1 -------- --------- Total inventories $ 182.9 $ 165.5 ======== =======
3. In the three months ended March 31, 1994, Armco recorded a special charge of $20.0 for expenses associated with the temporary idling and restructuring of its Mansfield and Dover, Ohio steelmaking and finishing facilities. These facilities were idled in March of 1994. Approximately two-thirds of the charge was associated with group insurance and other benefits for employees while the plant was idled. The remainder of the charge related to asset writedowns. The Dover plant started limited production in early 1995 and the Mansfield facility resumed operating in early April 1995, coinciding with the start-up of its new thin-slab caster. 4. Sundry other - net in Armco's Condensed Statement of Consolidated Operations and Retained Deficit includes expense of $9.6 and $8.3 for the three months ended March 31, 1995 and 1994, respectively, for interest on employees benefit obligations related to facilities which have been discontinued. The increase is primarily due to the additional obligations recorded for units closed or sold in 1994. 5. Armco owns a 50% interest in National-Oilwell, an oil field equipment and supply joint venture with USX Corporation. National-Oilwell's results of operations for the three months ended March 31, 1995 and 1994 were as follows: March 31, March 31, 1995 1994 ----------- ---------- Net revenues $ 135.9 $ 129.4 Gross profit 17.7 19.5 Net income 3.0 0.5
6. At March 31, 1995, Armco Financial Services Group (AFSG) consisted primarily of insurance companies which Armco intended to sell and which continued underwriting activities (AFSG companies to be sold) and insurance companies that had stopped writing new business and are being liquidated (runoff companies). -5- 7 On April 7, 1995, the sale of the AFSG companies to be sold was completed. The proceeds from the sale consisted of $64.2 in cash at the closing and $15.0 to be received in three years. The latter amount is subject to potential adjustment for adverse experience in certain insurance reserves. Substantially all of these proceeds have been pledged as security for certain note obligations due to the runoff companies and will be retained in the investment portfolio of those companies. At March 31, 1995 and December 31, 1994, Armco's investment in the AFSG companies to be sold was recorded at estimated net realizable value of $73.9. Upon completion of the sale, this amount became part of Armco's investment in the runoff companies. The runoff companies are accounted for by Armco as discontinued operations under the liquidation basis of accounting whereby all future cash inflows and outflows are considered. Armco management continues to believe, based on current facts and circumstances and the views of outside counsel and advisors, that future charges, if any, resulting from the runoff companies will not be material to Armco's financial condition or liquidity. However, it is possible that due to fluctuations in Armco's results, future developments could have a material effect on the results of one or more future interim or annual periods. As of March 31, 1995 and December 31, 1994, Armco's investment in the net assets of the runoff companies was $23.2. There are various matters pending which involve AFSG, relating to litigation, arbitration and regulatory affairs, including matters related to Northwestern National Insurance Company, a runoff company currently involved in, among other matters, arbitration and litigation with respect to certain reinsurance programs. The ultimate liability from such matters at March 31, 1995 cannot be determined; but in Armco's opinion, based on current facts and circumstances and the views of outside counsel and advisors, any liability resulting will not materially affect Armco's financial condition or liquidity. However, it is possible that due to fluctuations in Armco's results, future developments with respect to changes in the ultimate liability could have a material effect on future interim or annual results of operations. 7. Under the terms of Armco's $170.0 amended credit agreement, Armco is not permitted to pay cash dividends on its common stock. The payment of dividends on preferred stock is prohibited if Armco is in default under the credit agreement. Under the terms of the indentures for Armco's 11.375% Senior Notes Due 1999 and 9.375% Senior Notes Due 2000, Armco cannot pay a dividend on its common stock or repurchase its capital stock, unless it meets certain financial tests described in the indentures. Armco does not expect to be able to meet all of these tests in the near term. At its April 1995 meeting, the Board of Directors declared the regular quarterly dividends payable on Armco's $2.10 Cumulative Convertible Class A, $3.625 Cumulative Convertible Class A and $4.50 Cumulative Convertible Class B preferred stock issues. 8. A subsidiary of LTV Steel Company and First Taconite Company, a subsidiary of Armco, each owned a 50% interest in the properties and assets of Reserve Mining Company (Reserve Mining), a Minnesota partnership that produced taconite iron ore pellets and which filed for reorganization under Chapter 11 in 1986. On August 17, 1989, Cyprus Northshore Mining Corporation (Cyprus), a wholly-owned subsidiary of Cyprus Minerals Company, purchased the assets of Reserve Mining. On that date, Armco and First Taconite Company entered into an agreement with the State of Minnesota, the Reserve Mining Company bankruptcy trustee and Cyprus, whereby Cyprus agreed to operate the Reserve Mining facility and, upon the purchase by AK Steel Holding Corporation (formerly Armco Steel Company, L.P.) of certain quantities of iron ore pellets produced by the facility, or upon an approved modification to a tailings disposal site closure plan by the state as provided in the agreement, Cyprus agreed to assume closure and perpetual maintenance obligations of the tailings disposal site. Cyprus continues to operate the facility and Armco expects that either the purchase of such specified quantities or the approved modification will occur in 1995. -6- 8 There are various claims pending involving Armco and its subsidiaries regarding product liability, antitrust, patent, employee benefits, environmental and hazardous waste matters, reinsurance and insurance arrangements (Note 6), and other matters arising out of the conduct of Armco's business. Armco believes, based on current facts and circumstances, that the ultimate liability from pending claims and contingent liabilities will not materially affect the consolidated financial condition or liquidity of Armco; however, it is possible that due to fluctuations in Armco's results, future developments with respect to such matters could have a material effect on the results of operations in future interim or annual periods. Like other manufacturers, Armco is subject to various environmental laws. These laws require expenditures to assure Armco's compliance to remediate sites where contamination has occurred. Compliance costs are either expensed as they are incurred or, when appropriate, are recorded as capital expenditures. Armco has accrued its estimate of remediation costs for sites where it is probable that a liability has been incurred and the amount can be reasonably estimated. The recorded amounts are currently believed by management to be sufficient. However, such estimates could significantly change in future periods to reflect new laws or regulations, advances in technologies, additional sites requiring remediation, new remediation requirements at existing sites, and Armco's share of liability at multi-party sites. Armco believes, based on current facts and circumstances, that its ultimate liability for environmental matters identified to date, will not materially affect its consolidated financial condition or liquidity. However, it is possible that due to fluctuations in Armco's results, future developments with respect to environmental matters could have a material effect on the results of operations of future interim or annual periods. At March 31, 1995, Armco had recorded on its Condensed Statement of Consolidated Financial Position, legal and environmental reserves of $86.0, of which $22.1 was classified as current. 9. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of -------------------------------- Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This - ------------------------------------------------------------- statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The statement requires that such assets, that are to be held and used by an entity, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable; and that such assets, that are to be disposed of, be reported at the lower of carrying amount or fair value less cost to sell, unless the assets are considered a discontinued operation as defined by Accounting Principle Board Opinion No. 30. Armco is required to adopt this statement no later than 1996. While a study of the effects of this statement has not been completed, Armco believes that there will be no material impact on its Condensed Statement of Consolidated Financial Position or Condensed Statement of Consolidated Operations as a result of adoption of this statement. 10. On May 4, 1995, Armco announced that it had completed a series of trades resulting in the sale of 1,023,987 shares of AK Steel Holding Corporation (AK Steel) common stock. As a result of the sales, Armco realized total net proceeds of $27.2. Armco had received the stock, which represented approximately four percent of the outstanding common stock of AK Steel, in April 1994 as part of the initial public offering and recapitalization of that company. With the completion of these transactions, Armco no longer owns any stock in AK Steel. In connection with the sales, Armco will record a gain of $25.9 or $0.24 per share in the second quarter of 1995. Armco will use available capital loss carryforwards to offset federal and state income taxes on this gain. At March 31, 1995 and December 31, 1994, the investment in AK Steel stock was recorded in Other current assets with a corresponding credit in Unrealized gain on equity securities, in the Condensed Statement of Consolidated Financial Position. 11. Information relating to Armco's industry segments can be found on page 13. -7- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE ------------------------------------------- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Dollars in millions, except per share data) GENERAL - ------- During the first three months of 1995, the previously announced asset sale by Eastern Stainless Corporation (Eastern Stainless) was completed. Eastern Stainless, an 84%-owned subsidiary of Armco Inc. (Armco), completed the sale of substantially all of its assets to Avesta Sheffield Holding Company (Avesta Sheffield) on March 14, 1995, receiving approximately $10.1 in cash and the assumption of certain Eastern Stainless liabilities. Cash received on the sale will be used to satisfy normal operating and employee benefit obligations not assumed by Avesta Sheffield. Net liabilities not satisfied by the sale proceeds or assumed by Avesta Sheffield have been retained by Armco. Such liabilities retained by Armco totaled approximately $50.0. Upon completion of the transaction, Eastern Stainless had no assets remaining as a corporate legal entity and was dissolved and its corporate existence terminated without any shareholder distribution. On April 7, 1995, the sale of the Armco Financial Services Group ongoing insurance companies was completed. The sale is more fully described under DISCONTINUED OPERATIONS, below. Armco's results in the first quarter of 1995 and 1994 were as follows:
Three Months Ended March 31, ------------------ 1995 1994 ------ ------ Net sales $368.4 $379.6 Special charge -- (20.0) Operating profit (loss) 16.5 (10.9) Net income (loss) 2.4 (27.2) Net loss per common share (0.02) (0.30)
Sales in the three months ended March 31, 1995 decreased 3% from the same period in 1994, primarily because of the idling of operations at the Mansfield and Dover, Ohio steelmaking and finishing plants in March of last year. This decrease was largely offset by an 11% increase in sales from the Specialty Flat-Rolled Steel segment. The increase was achieved despite the divestiture of Eastern Stainless which had $19.2 of sales in the first quarter of 1994 and was not consolidated in the three months ended March 31, 1995. As a result of the decision to idle and restructure Mansfield and Dover, Armco recognized a $20.0 special charge in the first quarter of 1994. Excluding the effects of the special charge, operating profit increased 81% in 1995 compared to first quarter 1994 as a result of improved volume, pricing and productivity in the Specialty Flat-Rolled Steel segment. Net loss per common share reflects the deduction of $4.5 per quarter for preferred stock dividends declared. BUSINESS SEGMENT RESULTS - ------------------------ Specialty Flat-Rolled Steel - ---------------------------
Three Months Ended March 31, ------------------ 1995 1994 ------ ------ Net sales $293.3 $263.2 Operating profit 47.1 30.1 Shipments (tons 000s) 187 177 Raw steel produced (tons 000s) 239 212 Capability utilization 109 % 99 %
-8- 10 Customer sales and tons shipped increased by 11% and 6%, respectively, in the first quarter of 1995 versus 1994, as strong market demand for all product lines in this business segment continued. While the Butler, Pennsylvania, and Zanesville and Coshocton, Ohio plants produced at full capability in both periods, productivity improvements increased output in 1995. On January 2, 1995, price increases of 5% to 7% went into effect for electrical steels. Due to the strong market conditions, these increases, as well as increases in stainless steel prices announced in late 1994 and early 1995, are expected to remain in effect. Prices for products containing molybdenum, nickel and chrome have also been favorably impacted by raw material price surcharges placed in effect in the first quarter of 1995. Operating profit as a percent of sales for the three months ended March 31, 1995 and 1994 was 16% and 11%, respectively, reflecting improved volume, productivity and a favorable product mix, as well as elimination of the operating losses of Eastern Stainless. In the third quarter of 1994, Armco announced that Eastern Stainless was selling its assets to Avesta Sheffield, a stainless steel plate manufacturer. As of September 30, 1994, Armco stopped recording Eastern Stainless' results; and the sale was completed on March 14, 1995. During the first quarter of 1994, Armco recognized $19.2 of sales and a small operating loss from Eastern Stainless. Partially offsetting the favorable effects on operating profit were higher raw material costs, including those on scrap steel and alloys. Outlook: Operating results are expected to continue to improve relative to 1994 as a result of continued strong market conditions, improved production efficiencies and scheduled price increases. Until Mansfield become fully operational, demand for electrical steel is expected to exceed Armco's ability to supply. At March 31, 1995, order backlog for all products was 59% higher than one year ago and 22% higher than December 31, 1994. However, Armco is cautious regarding its automotive-related business based on that industry's disappointing first quarter sales. The Mansfield Operations, while still part of the Other Steel and Fabricated Products segment, will use a portion of its capacity to melt and finish specialty steels following the successful start-up of the thin-slab caster and hot strip mill. Sales of these specialty steel products will be reported in the Specialty Flat-Rolled Steel business segment. Mansfield's specialty steel production is expected to relieve some of Armco's melt constraints. Testing of the Mansfield equipment for the production of specialty steels is expected to occur in the latter part of the second quarter of this year. In 1994, Armco announced an expanded capital improvement program under which it will spend up to $95.0 over the next two years to upgrade and expand its specialty steel finishing facilities. The program is intended to reduce existing production constraints by increasing specialty steel finishing capacity approximately 180,000 tons per year, particularly in electrical steels, specialty sheet and strip products, and nonautomotive chrome stainless. Other Steel and Fabricated Products - -----------------------------------
Three Months Ended March 31, ------------------ 1995 1994 ------ ------ Net sales $ 75.1 $116.4 Special charge -- (20.0) Operating loss (23.1) (34.1)
-9- 11 Net sales decreased by 35% in the first quarter of 1995 compared to the same period in 1994. The shortfall was primarily due to the continued idling of the Mansfield Operations. As a result of the temporary idling and restructuring of the steelmaking facilities in Mansfield and Dover, Ohio, first quarter sales were down $44.6 from last year. Excluding the $20.0 special charge recorded in the first quarter of 1994 for the temporary idling and restructuring of Mansfield and Dover, the operating loss in this segment increased 64%. Armco's Mansfield Operations' operating loss increased $2.4 from the first quarter last year. As a result of losses generated as an idled facility in addition to higher costs incurred as the plant prepared to start-up with its new and modernized equipment, this facility's operating loss was $24.0 in the first quarter of 1995. Douglas Dynamics' operating profit was down substantially from the record- setting results of last year due to lower sales as a result of the recent mild winter. The first quarter is traditionally the slowest for the snowplow manufacturer, but last year's near record snowfall caused much higher than normal sales in the 1994 first quarter. The first quarter 1995 results are considered normal for this business. Despite an increase in sales, Sawhill Tubular had slightly lower operating profit in the first quarter of 1995, primarily due to higher carbon steel prices. Outlook: The Mansfield Operations started up at the beginning of April, successfully casting and hot rolling carbon steel. However, for the second quarter, losses approximating the levels experienced in the first quarter are expected. And while anticipating losses at Mansfield into the third quarter, Armco expects the facility to be fully operational in carbon and automotive chrome steels, and be able to return to profitability sometime in the fourth quarter. Douglas Dynamics' sales and earnings are expected to be lower in 1995 than in 1994, driven by the lack of snow last winter compared to the prior two years. Sawhill Tubular's sales and profits are expected to remain flat or rise slightly through the end of the year. Armco continues to review the operations and prospects of Sawhill Tubular to determine how these operations fit into Armco's future. EQUITY AND OTHER INVESTMENTS - ---------------------------- In the three months ended March 31, 1995 and 1994, Armco recognized $1.1 and $1.6, respectively, of equity income from its investments in joint ventures and equity companies. The 1994 first quarter income primarily represented the results of, and commission income from, North American Stainless (NAS), a former 50%-owned joint venture with Acerinox S.A. Armco sold 90% of its investment in NAS in the third quarter of 1994. First quarter 1995 equity income consisted primarily of the results of National-Oilwell, a 50%-owned joint venture with USX Corporation. National-Oilwell sells oil field tubular pipe, and produces and sells drilling and production equipment and process pumps used in the world's oil and gas services industry. National-Oilwell recorded sales and net income of $135.9 and $3.0, respectively, compared to first quarter 1994 sales and net income of $129.4 and $0.5. The higher net income relative to the 5% increase in revenues reflects the benefits of rationalization and restructuring efforts undertaken by the joint venture in the past few years. In the first quarter of 1995, Armco received a $1.0 cash dividend from National-Oilwell. National-Oilwell maintains its own cash and credit lines and funds its own operations, liabilities and capital expenditures. National-Oilwell has a $60.0 credit facility which expires in the first quarter of 1998. Armco does not consider National-Oilwell part of its core business and, therefore, continues to evaluate its options with respect to the investment in this joint venture. On May 4, 1995, Armco announced that it had completed a series of trades resulting in the sale of 1,023,987 shares of AK Steel Holding Corporation (AK Steel) common stock. As a result of the sales, Armco realized total net proceeds of $27.2. Armco had received the stock, which represented approximately four percent of the outstanding common stock of AK Steel, in April 1994 as part of the initial public offering and recapitalization of that company. With the completion of these transactions, Armco no longer owns any stock in AK Steel. -10- 12 In connection with the sales, Armco will record a gain of $25.9 or $0.24 per share in the second quarter of 1995. Armco will use available capital loss carryforwards to offset federal and state income taxes on this gain. DISCONTINUED OPERATIONS - ----------------------- Armco Financial Services Group - ------------------------------ At March 31, 1995, the Armco Financial Services Group consisted primarily of insurance companies which Armco intended to sell and which continued underwriting policies (AFSG companies to be sold) and insurance companies that have stopped writing new business for retention and are being liquidated (runoff companies). AFSG companies to be sold On April 7, 1995, Armco completed the sale of the AFSG companies to be sold to Vik Brothers Insurance Inc., a privately held, North Carolina-based property and casualty insurance holding company. The proceeds from the sale, consisted of $64.2 in cash at the closing and $15.0 to be received in three years. The latter amount is subject to potential adjustment for adverse experience in certain insurance reserves. Substantially all of the proceeds have been pledged as security for certain note obligations due to the runoff companies and will be retained in the investment portfolio of those companies. Runoff companies The addition of the proceeds from the sale of the AFSG companies to be sold to the investment portfolio of the runoff companies is expected to have a long- term positive effect on the liquidity and future strength of these companies. Armco management continues to believe, based on current facts and circumstances and the views of outside counsel and advisors, that future charges, if any, resulting from the runoff companies will not be material to Armco's financial condition or liquidity. However, it is possible that due to fluctuations in Armco's results, future developments could have a material effect on the results of one or more future interim or annual periods. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At March 31, 1995, Armco had $211.4 of cash and cash equivalents compared to $202.8 at December 31, 1994. In addition, Armco had $1.5 and $25.8 of short- term liquid investments at March 31, 1995 and December 31, 1994, respectively. Total cash and cash equivalents increased $8.6 during the first three months of 1995, including $24.7 from the maturity of liquid investments and $17.0 for proceeds on the sale of assets and investments. Partially offsetting these cash inflows were capital expenditures and $7.5 for preferred stock dividends. Capital expenditures totaling $44.7 are presented in the Condensed Statement of Consolidated Cash Flows, net of $11.6 of direct project financing related to the Mansfield thin-slab caster. Operating activities provided $2.6 in cash. In addition to the cash on hand, Armco has a $170.0 revolving credit facility that expires on December 31, 1995. At March 31, 1995, $80.4 of the credit facility was used as support for letters of credit and $89.6 was available for borrowing. Borrowings under the credit facility are secured by certain of Armco's inventories and receivables. As amended in 1994, the credit agreement requires Armco to be in compliance with several covenants and meet certain ratio requirements. Based on its current financial condition and internal forecasts through the end of 1995, Armco believes that it will remain in compliance with all covenants. As discussed above Armco completed the divestments of Eastern Stainless and the AFSG companies to be sold in 1995. The Eastern Stainless sale generated approximately $10.1 in cash, which will be used to partially fund approximately $50.0 of liabilities Armco retained as part of the transaction. Proceeds from the April 7, 1995 sale of the AFSG companies to be sold, totaling $64.2, have been retained in the investment portfolio of the runoff companies and will not be available to Armco. -11- 13 Armco anticipates that its 1995 cash expenditures for capital projects will total approximately $125.0, including $34.0 for expenditures to complete the thin-slab caster at Mansfield, $40.0 of the $95.0 expanded capital improvement program and the remainder for normal replacement, environmental and expansion programs. In addition, Armco anticipates that for the year, a total of $16.2 of capital expenditures for the thin-slab caster will be paid by direct project financing. Armco has no significant debt commitments due through the end of the year. However, Armco expects to contribute from $15.0 to $65.0 to its major pension funds during the remainder of 1995. The capital expenditures and pension funding will be paid out of existing cash balances, cash generated from operations and the sales of assets, including the sale of Armco's investment in AK Steel common stock. On April 28, 1995, Armco's Board of Directors declared the regular quarterly dividends of $.525 per share on the $2.10 Cumulative Convertible Preferred Stock, Class A, and $.90625 per share on the $3.625 Cumulative Convertible Preferred Stock, Class A, each payable June 30, 1995 to shareholders of record on June 2, 1995. The Board of Directors also declared the regular quarterly dividend of $1.125 per share on the $4.50 Cumulative Convertible Preferred Stock, Class B, payable July 3, 1995, to shareholders of record on June 2, 1995. Payment of dividends on Armco's common stock is currently prohibited under the terms of certain of Armco's debt instruments and under the terms of the amended bank credit agreement. NEW ACCOUNTING STANDARD - ----------------------- In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The statement requires that such assets, that are to be held and used by an entity, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable; and that such assets, that are to be disposed of, be reported at the lower of carrying amount or fair value less cost to sell, unless the assets are considered a discontinued operation as defined by Accounting Principle Board Opinion No. 30. Armco is required to adopt this statement by not later than 1996. While a study of the effects of this statement has not been completed, Armco believes that there will be no material impact on its Condensed Statement of Consolidated Financial Position or Condensed Statement of Consolidated Operations as a result of adoption of this statement. -12- 14 ARMCO INC. SEGMENT REPORT (Unaudited) (Dollars in millions)
1995 1994 ------- --------------------------------- 1st 4th 3rd 2nd 1st Qtr. Qtr. Qtr. Qtr. Qtr. ------- ------- ------- ------- ------- Specialty Flat-Rolled Steel: Customer sales $293.3 $237.0 $279.1 $269.2 $263.2 Special charge - - (15.0) - - Operating profit 47.1 34.0 27.5 34.7 30.1 Other Steel and Fabricated Products: Customer sales 75.1 98.1 88.9 85.7 116.4 Special charge - - - - (20.0) Operating loss (23.1) (3.1) (4.6) (13.1) (34.1) Corporate General (7.5) (8.5) (9.2) (7.6) (6.9) - ------------------------------------------------------------------------------ Total operating profit (loss) 16.5 22.4 13.7 14.0 (10.9) Interest income 3.7 3.3 3.4 1.9 1.9 Interest expense (7.5) (8.3) (8.2) (8.4) (8.9) Gain on sale of investments in joint ventures - - 26.1 36.5 - Sundry other - net (11.2) (10.9) (12.8) (10.4) (10.7) Credit (provision) for income taxes (0.2) (0.5) (0.4) 29.8 (0.2) - ------------------------------------------------------------------------------ Income (loss) of Armco and consolidated subsidiaries 1.3 6.0 21.8 63.4 (28.8) Equity in income of equity companies 1.1 3.6 3.6 6.5 1.6 - ------------------------------------------------------------------------------ Net income (loss) $ 2.4 $ 9.6 $ 25.4 $ 69.9 $(27.2) ============================================================================== See Notes to Condensed Consolidated Financial Statements
-13- 15 Item 1. Legal Proceedings ------------------ There are various claims pending against Armco and its subsidiaries involving product liability, antitrust, patent, insurance arrangements, environmental and hazardous waste matters, employee benefits and other matters arising out of the conduct of the business of Armco as previously described in Armco's Annual Report on Form 10-K for the year ended December 31, 1994 (the Form 10- K). As previously described in the Form 10-K, on April 25, 1994, an action entitled Larry B. Ricke, Trustee v. Armco was filed in the United States -------------------------------- District Court for the District of Minnesota by the Trustee appointed by the Pension Benefit Guaranty Corporation (PBGC) for the purpose of recovering from Reserve Mining Company assets to satisfy Reserve Mining Company's liability for pension benefit entitlements which are in addition to those guaranteed by the PBGC. The pension benefits which are the subject of this action were part of the class settlement of United Steelworkers of America v. Armco. --------------------------------------- Approximately fifteen hundred members of the class signed individual releases (the 19 members who did not are plaintiffs in Warner, Donovan, et. al. v. --------------------------- Armco) releasing Armco from all claims, liabilities, etc. based upon or which - ----- arise out of any Reserve Employee Pension Benefit Plan. Armco filed a Motion to Dismiss the complaint on the basis of said releases which the court denied on March 28, 1995. Armco has filed a motion seeking interlocutory appellate review of the denial of the Motion to Dismiss. As previously described in the Form 10-K, in the case Rosa Ann Barrett, et al. ----------------------- v. Atlantic Richfield Company, et al., on September 20, 1994, the court - ------------------------------------- entered a final order denying plaintiff's motion for rehearing or new trial and dismissing all of plaintiffs' claims in this case. The Barrett plaintiffs ------- filed a notice of appeal on October 19, 1994. On April 26, 1995, the Fifth Circuit Court of Appeals dismissed the appeal for failure to prosecute. The total liability on the foregoing claim and those other claims described under ITEM 3. LEGAL PROCEEDINGS in the Form 10-K is not determinable; but, in the opinion of management, the ultimate liability resulting will not materially affect the consolidated financial condition or liquidity of Armco and its subsidiaries; however, it is possible that due to fluctuations in Armco's results, future developments with respect to changes in the ultimate liability could have a material effect on future interim or annual results of operations. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Annual Meeting of Shareholders was held on April 28, 1995, and all eight nominees to the Board of Directors named in Armco's Proxy Statement were elected. Approximately 86% of the outstanding common and preferred shares were voted. The vote on the election was as follows: Name For Withheld ---- --- --------- John J. Burns, Jr. 93,269,407 1,928,344 David A. Duke 93,226,286 1,971,465 John C. Haley 93,095,333 2,102,417 Paul H. Henson 91,632,786 3,565,405 Bruce E. Robbins 93,184,058 2,013,693 Burnell R. Roberts 93,153,937 2,043,813 John D. Turner 93,263,559 1,934,192 James F. Will 93,264,893 1,932,583
A resolution to consider and adopt the 1995 Directors Stock Purchase and Deferred Compensation Plan (Director Plan) to give non-employee directors of Armco a direct and personal financial stake in Armco by paying them up to 100% (but not less than 25%) of the annual retainer fee for service on the Board in shares of Armco common stock in lieu of cash during the term of the Director Plan was submitted and approved by the shareholders. The vote on the resolution was as follows: -14- 16 Broker Voting Classes For Against Abstain Nonvotes -------------- --- ------- ------- -------- Common, $2.10 and $3.625 Preferred Stocks 90,175,907 4,232,269 788,473 1,102
In addition, a resolution to adopt the Annual Incentive Compensation Plan, a performance based plan intended to enable Armco better to preserve tax deductibility of compensation expenses under Section 162(m) of the Internal Revenue Code, was submitted and approved by the shareholders. The vote on the resolution was as follows: Broker Voting Classes For Against Abstain Nonvotes -------------- --- ------- ------- -------- Common, $2.10 and $3.625 Preferred Stocks 86,256,094 8,100,299 827,238 24,120
Item 6. Exhibits and Reports on Form 8-K -------------------------------- A. The following is an index of the exhibits included in the Form 10-Q: Exhibit 10 1995 Directors Stock Purchase and Deferred Compensation Plan Exhibit 10.1 Annual Incentive Compensation Plan Exhibit 11 Computation of Loss Per Common Share B. The following Reports on Form 8-K were filed by Armco since December 31, 1994. Report Date Description ----------- ----------- March 14, 1995 Reporting that on March 14, 1995, Armco, Eastern Stainless, an 84%-owned subsidiary of Armco, and Avesta Sheffield completed the sale of substantially all of the assets of Eastern Stainless to Avesta Sheffield and providing pro forma financial information with respect to the sale. Also reporting that a minority shareholder of Eastern Stainless filed a complaint against Armco and Eastern Stainless seeking various relief based upon Armco's relationship with Eastern Stainless. April 7, 1995 Reporting that on April 7, 1995, Armco completed the sale of its ongoing insurance operations, Northwestern National Holding Company, Inc. and its subsidiaries, to Vik Brothers Insurance, Inc.
-15- 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the registrant by the following duly authorized persons. Armco Inc. ----------------------------------------- (Registrant) Date May 5, 1995 /s/ D. G. Harmer ----------------------- ----------------------------------------- D. G. Harmer Vice President and Chief Financial Officer Date May 5, 1995 /s/ P. G. Leemputte ----------------------- ----------------------------------------- P. G. Leemputte Vice President and Controller -16- EX-10 2 EX-10 Exhibit 10 ARMCO INC. 1995 DIRECTORS STOCK PURCHASE AND DEFERRED COMPENSATION PLAN 1. Purpose. The Armco Inc. 1995 Directors Stock Purchase and Deferred Compensation Plan (the Plan) is established effective May 1, 1995 for the benefit of directors of Armco Inc. (the Corporation) who are not employees of the Corporation or any of its subsidiaries. The Corporation has adopted the Plan in recognition that its long-term success and achievements are enhanced and the interests of its shareholders are best served when its outside directors have a direct and personal stake in the performance of the Corporation's stock. 2. Definitions As used herein, the following terms have the meanings hereinafter set forth unless the context clearly indicates to the contrary: (a) "Account" shall mean the deferred Fees account established for a Participant pursuant to Plan Section 5.3. (b) "Board of Directors" shall mean the board of directors of the Corporation. (c) "Common Stock" shall mean shares of the common stock, par value $.01 per share, of the Corporation. (d) "Common Stock Unit" shall mean the bookkeeping entry representing the equivalent of one share of Common Stock. (e) "Secretary" shall mean the person holding the position of Secretary of the Corporation. (f) "Effective Date" shall mean May 1, 1995. (g) "Fees" shall mean all retainer, meeting and committee fees payable to a non-employee director for service on the Board of Directors for any calendar year from and after the Effective Date, before any reduction pursuant to this Plan. (h) "Fee Payment Date" shall mean the first calendar day of the third month of each fiscal quarter or, if such date is not a business day for the Corporation, the next succeeding business day. (i) "Participant" shall mean any member of the Board of Directors who is not also a regular, salaried employee of the Corporation or any of its subsidiaries. (j) "Stock Price" shall mean the simple average of the high and low sales prices of a share of Common Stock as reported in the report of composite transactions (or other independent published source designated by the Board of Directors) on the Fee Payment Date (or if there shall be no trading on such date then on the first previous date on which sales were made on a national securities exchange). Notwithstanding the foregoing, if Common Stock is purchased in the market for purposes of the Plan on a Fee Payment Date, Stock Price means the actual average cost per share of the aggregate purchases of Common Stock for the Plan on such date. 3. Participation. All members of the Board of Directors who are not also regular salaried employees of the Corporation or any of its subsidiaries shall participate in the Plan. 4. Payment of Fees. 4.1 Automatic Payment of Fees in Common Stock Twenty-five percent (25%) of that portion of the Fees paid as an annual retainer to each Participant on and after the Effective Date shall be applied to the purchase of Common Stock. A Participant may elect to defer receipt of such Fees by complying with the requirements of Plan Section 5.1, 1 in which case such Fees shall be credited as Common Stock Units at the Stock Price on the Fee Payment Date. If not deferred pursuant to Plan Section 5.1, whole shares of Common Stock purchased in respect of such Fees shall be issued to the Participant as soon as practicable after their purchase. Cash shall be paid to a Participant in lieu of a fractional share of Common Stock. 4.2 Election to Receive Fees in Common Stock Fees paid as an annual retainer which are not automatically paid in Common Stock pursuant to Plan Section 4.1 or which are not deferred pursuant to Plan Section 5.1 may be applied at a Participant's election to the purchase of Common Stock at the Stock Price on the Fee Payment Date. A Participant may make such an election by filing the appropriate election form with the Secretary at least six (6) months before the beginning of the period of service to which the election applies. Whole shares of Common Stock purchased in respect of such Fees shall be issued to the Participant as soon as practicable thereafter. Cash shall be paid to a Participant in lieu of a fractional share of Common Stock. 4.3 Revising An Election A Participant may amend or terminate an election under this Plan Section 4.2 by written notice to the Secretary. Such amendment or termination shall be effective with respect to Fees payable for service during calendar periods six (6) months after the date of delivery of such notice to the Secretary. 4.4 Restrictions on Resale of Stock To the extent necessary to satisfy the requirements of the exemption afforded by Rule 16b-3 under the Securities Exchange Act of 1934, no Participant shall be permitted to sell any shares of Common Stock purchased and issued to such Participant pursuant to this Paragraph 4 prior to the expiration of a period of six (6) months from the date of issuance of such shares to such Participant. Prior to the time the resale restriction described herein lapses, none of the shares of Common Stock purchased in respect of Fees may be sold, assigned, bequeathed, transferred, pledged, hypothecated or otherwise disposed of in any way by the Participant. The Board of Directors may, in its discretion, take such action as it shall deem necessary or appropriate to insure compliance with this Plan Section 4.4 and any applicable securities laws. 5. Deferral of Fees. 5.1 Deferral Election A Participant may elect to defer receipt of his or her Fees, including all or any portion of his or her Fees which are subject to Plan Section 4.1 hereof, by filing the appropriate deferral form with the Secretary on or before December 15th of the calendar year prior to the calendar year in which such deferral is to be effective; provided that, to the extent such deferral is to be credited as Common Stock Units, such election must be made by filing the appropriate deferral form no later than six (6) months before the beginning of the period of service to which the deferral applies. Notwithstanding the foregoing, no deferral shall be permitted to the extent prohibited by applicable law. 5.2 Period of Deferral Subject to Plan Section 5.8, a Participant may elect to defer receipt of Fees until (i) a specified date in the future, (ii) cessation of the Participant's service as a member of the Board of Directors or (iii) the end of the calendar year in which cessation of the Participant's service as a member of the Board of Directors occurs. 5.3 Deferred Fees Account There shall be established an Account in the Participant's name on the books of the Corporation for each Participant electing to defer Fees pursuant to this Paragraph 5. 5.4 Investment of Deferrals Except as provided in the next sentence, deferrals shall be credited to a Participant's Account in Common Stock Units. With respect to that portion of his or her deferrals under the Plan which is not subject to Plan Section 4.1, the Participant may elect under the procedures set forth in Plan Section 4.2 that such deferrals be credited to his or her Account in dollars or Common Stock Units. 2 5.5 Amounts Credited to Accounts (a) Investment in Common Stock Units. To the extent the deferral of a - --- -------------------------------- Participant's Fees is deemed to be invested in Common Stock Units, such amounts shall be credited to his or her Account on the Fee Payment Date to which the deferral election applies. The amount deferred shall be converted into a number of Common Stock Units by dividing the amount of Fees payable by the Stock Price as of such date. The quotient, which shall be expressed in whole or fractional Common Stock Units to the nearest one/one hundredth (1/100th), shall be credited to the Participant's Account as of such date. (b) Cash Dividends. Whenever cash dividends are paid with respect to shares of - --- --------------- Common Stock, each Participant's Account shall be credited on the payment date of such dividend with additional Common Stock Units (including fractional units to the nearest one/one hundredth (1/100th)) equal in value to the amount of the cash dividend paid on a single share of Common Stock multiplied by the number of Common Stock Units (including fractional units) credited to a Participant's Account as of the date of record for dividend purposes. For purposes of crediting dividends, the value of a Common Stock Unit shall be the Stock Price as of the payment date of the dividend. (c) Recapitalizations, Splits and Mergers. The number of Common Stock Units - --- -------------------------------------- credited to each Participant's Account shall be appropriately adjusted and modified upon the occurrence of any stock split, stock dividend or stock consolidation affecting the Common Stock. In the event of a merger, consolidation or an acquisition involving more than 50% of the issued and outstanding shares of Common Stock, the Board of Directors shall have the authority to amend the Plan to provide for the conversion of Common Stock Units credited to Participants' Accounts into units equal to shares of stock of the resulting or acquiring company (or a related company), as appropriate, if such stock is publicly traded or, if not, into cash of equal value on the date of merger, consolidation or acquisition. If pursuant to the preceding sentence cash is credited to Participants' Accounts, income shall be credited thereon from the date such cash is received to the date of distribution at the rate determined pursuant to Plan Section 5.5(d). If units representing publicly traded stock of the resulting or acquired company (or a related company) are credited to Participants' Accounts, dividends shall be credited thereto in the same manner as dividends are credited on Common Stock Units credited to such Accounts. (d) Deferrals in Cash. To the extent not deemed invested in Common Stock Units - --- ------------------ pursuant to Plan Section 5.5(a), the Account of a Participant will be credited with the dollar amount of the Participant's deferrals as of the Fee Payment Date. Interest shall be credited thereon from the date such cash is received to the date of distribution quarterly, at the end of each calendar quarter, at a rate per annum (computed on the basis of a 360 day year and a 91 day quarter) equal to the prime rate announced publicly by PNC Bank, N.A. at the end of such calendar quarter. 5.6 Distribution of Deferral Account Subject to Plan Section 5.8, distributions of a Participant's Account under the Plan shall be made as follows: (a) if a Participant has elected to defer his or her Fees to a specified date in the future, payment shall be as of such date and shall be made or shall commence, as the case may be, within thirty (30) days after the date specified; (b) if a Participant has elected to defer his or her Fees until cessation of his or her service as a member of the Board of Directors, payment shall be as of the date of such cessation of service and shall be made or shall commence, as the case may be, within thirty (30) days after the cessation of the Participant's service as a director; and (c) if a Participant has elected to defer his or her Fees until the end of the calendar year in which the cessation of his or her service as a member of the Board of Directors occurs, payment shall be made or commence, as the case may be, on or within thirty (30) days after December 31st of such year. 5.7 Payment Upon Death Notwithstanding any elections pursuant to Plan Sections 5.2 and/or 5.9 hereof, in the event of the death of the Participant prior to the distribution of his or her Account hereunder, the balance credited to such Participant's Account as of the date of his or her death shall be paid, as soon as reasonably practicable thereafter, in a single distribution to the Participant's beneficiary or beneficiaries designated on such Participant's deferral election form. If no such election or designation has been made, such amounts shall be payable to the Participant's estate. 3 5.8 Timing of Distribution to Satisfy Section 16(b) Notwithstanding Plan Sections 5.6 and 5.7, the Board of Directors may delay any distribution of amounts deferred hereunder which are deemed invested in Common Stock Units until six (6) months have elapsed from the date Common Stock Units are credited to a Participant's account, or such earlier date that such distribution can be made without violating the provisions of Section 16(b) of the Securities Exchange Act of 1934. 5.9 Form of Payment A Participant may elect to have his or her Account under the Plan paid in a single distribution or equal annual installments, not to exceed ten (10) annual installments. To the extent a Participant's Account is deemed to be invested in Common Stock Units, such Common Stock Units shall be converted to Common Stock on the distribution date as provided in the next paragraph. To the extent deemed invested in units of any other stock such units shall similarly be converted and distributed in the form of stock. To the extent invested in a medium other than Common Stock Units or other units, each such distribution hereunder shall be in the medium credited to the Participant's Account. To the extent a Participant's Account is deemed invested in Common Stock Units, a single distribution shall consist of the number of whole shares of Common Stock equal to the number of Common Stock Units credited to the Participant's Account on the date as of which the distribution occurs. Cash shall be paid to a Participant in lieu of a fractional share, determined by reference to the Stock Price on the date as of which the distribution occurs. In the event a Participant has elected to receive annual installment payments, each such payment shall be determined as follows: (a) To the extent his or her Account is deemed to be invested in Common Stock Units, each such payment shall consist of the number of whole shares of Common Stock equal to the number of Common Stock Units (including fractional units) credited to the Participant's Account on the date as of which the distribution occurs, divided by the number of annual installments remaining as of such distribution date. Cash shall be paid to Participants in lieu of fractional shares, determined by reference to the Stock Price on the date as of which the distribution occurs. (b) To the extent his or her Account has been credited in cash, each such payment shall be calculated by dividing the value on the date the distribution occurs of that portion of the Participant's Account which is in cash by the number of annual installments remaining as of such distribution date. Each Participant or beneficiary agrees that prior to any distribution under the Plan, he or she will make such representations and execute such documents as are deemed by the Board of Directors to be necessary to comply with applicable laws. 6. Administration of the Plan. The Board of Directors shall administer the Plan. The Board of Directors shall have plenary authority in its discretion to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to it; to determine the terms of Fees deferral agreements executed and delivered under the Plan, including such terms and provisions as shall be requisite in the judgment of the Board of Directors to conform to any change in any law or regulation applicable thereto; and to make all other determinations deemed necessary or advisable for the administration of the Plan; provided, however, that the Board shall have no discretion with respect to the eligibility or selection of directors to receive shares of Common Stock under Section 4.1 of the Plan, the number of shares of Common Stock to be granted or purchased under the Plan or the timing of the grant or purchase of such shares, or the purchase price for such shares. The Board of Directors' determination on the foregoing matters shall be conclusive. 7. Termination and Amendment of the Plan. The Board of Directors may at any time terminate the Plan or make such modification or amendment of the Plan as it shall deem advisable; provided, however, that no amendment may be made, without the approval of the Corporation's shareholders, which would (i) materially increase the benefits accruing to Participants under the Plan, (ii) materially increase the maximum number of shares reserved for issuance under the Plan (except pursuant to the last paragraph of "Stock Reserved for the Plan" below) or (iii) materially amend the requirements as to the class of persons eligible to participate in the Plan and, provided further, that no modification or amendment of the Plan shall reduce any amount already credited to a Participant's Account as of the effective date of such modification or amendment. This Plan may be amended without shareholder approval in order to ensure that this Plan, in form and 4 operation, complies with regulations issued under Section 16 of the Securities Exchange Act of 1934. In no event may the Plan's Participation, Payment of Fees or Deferral of Fees provisions be amended more than once every six (6) months other than to comport with changes in the Internal Revenue Code of 1986, as amended (the "Code"), or the Employee Retirement Income Security Act of 1974, as amended. 8. Stock Reserved for the Plan. One hundred thousand (100,000) shares of authorized but unissued Common Stock are reserved for issuance and may be issued pursuant to the terms of the Plan. In lieu of such unissued shares, the Corporation may, in its discretion, transfer to Participants under the terms of the Plan treasury shares, reacquired shares or shares bought in the market for the purposes of the Plan, provided that (subject to the provisions of the next paragraph), the total number of shares which may be granted or sold pursuant to awards granted under the Plan shall not exceed 100,000. In the event of any changes in the outstanding Common Stock by reason of stock dividends, split-ups, spin-offs, recapitalizations, mergers, consolidations, combinations or exchanges of shares and the like, the aggregate number and class of shares available under the Plan shall be appropriately adjusted. 9. No Interest in Assets. No Participant or any other person shall have any interest in any specific asset of the Corporation by reason of any amount credited to him or her hereunder, nor any right to receive any distribution under the Plan except as and to the extent expressly provided in the Plan. There shall be no funding of any benefits which may become payable hereunder. No trust shall be created by the execution or adoption of this Plan or be required to be created in connection herewith. Any amounts which become payable hereunder shall be paid from the general assets of the Corporation. Nothing in the Plan shall be deemed to give any member of the Board of Directors any right to participate in the Plan, except in accordance with the provisions of the Plan, or to continue as a director of the Corporation. A Participant whose Account has been credited with Common Stock Units hereunder shall not have any rights as a holder of Common Stock until certificates for shares of such stock are issued to such Participant. 10. Restriction Against Assignment. No Common Stock Units credited to a Participant's Account or shares of Common Stock subject to any Common Stock Unit shall be sold, assigned, transferred, pledged or otherwise encumbered by a Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code prior to the date on which the underlying Common Stock is issued, except that Participants may designate beneficiaries to receive Common Stock underlying Common Stock Units as provided in Plan Section 5.7 hereof. The Corporation shall pay all amounts payable hereunder only to the person or persons designated by the Plan as Participant or beneficiary, as appropriate, and not to any other person or corporation. No part of a Participant's Account shall be liable for the debts, contracts or engagements of any Participant, his or her beneficiaries or successors in interest, nor shall it be subject to execution by levy, attachment or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, commute, pledge, encumber or assign any benefits or payments hereunder in any manner whatsoever. 11. Government Regulations. The Plan, and the deferral of Fees and purchase of Common Stock thereunder, and the obligation of the Corporation to issue, sell and deliver shares, as applicable, under the Plan, shall be subject to all applicable laws, rules and regulations. 12. Governing Law. This Plan shall be construed, regulated and administered under the internal laws of the State of Ohio. 13. Shareholder Approval. This Plan shall be without force and effect unless and until approved by the Corporation's shareholders. 5 EX-10.1 3 EX-10.1 Exhibit 10.1 ARMCO INC. ANNUAL INCENTIVE COMPENSATION PLAN 1. Purpose. The purposes of the Annual Incentive Compensation Plan (the "Plan") are to advance the interests of Armco Inc. (the "Corporation") by providing participants in the Plan with annual incentive opportunities linked directly to specific results. It is intended that the Plan will: (a) reinforce the Corporation's goal-setting and strategic planning process; (b) recognize the efforts of management in achieving objectives; and (c) aid in attracting and retaining competent management, thus ensuring the long-range success of the Corporation. 2. Definitions. (a) "Award" shall mean an incentive payment made under the Plan. (b) "Board" shall mean the Board of Directors of the Corporation. (c) "Committee" shall mean a committee of the Board of Directors of the Corporation, which will consist of not less than three directors of the Corporation who are appointed by the Board of Directors and who will not be and will not have been an officer or an employee of the Corporation. In addition, in order to be a member of the Committee, a director must be an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code"). The Committee shall initially be the Compensation Committee of the Board of Directors. (d) "Participant" shall mean a person who is eligible under Section 5 of the Plan to receive an Award. 3. Administration. The Committee will administer the Plan, establish and amend rules relating to the Plan and make all other determinations necessary under the Plan. Determinations made by the Committee will be final and binding upon Participants and their legal representatives and, in the case of deceased Participants, upon their executors, administrators, estates, beneficiaries, heirs and legatees. The terms and provisions of the Plan will be construed under and controlled by the law of the State of Ohio. 4. Effectiveness of the Plan. The Plan shall be effective as of January 1, 1995, subject to approval by the shareholders of the Corporation at the Annual Meeting of the Corporation's Shareholders to be held on April 28, 1995. The Plan shall remain effective until April 28, 2000 or such earlier date as the Board shall determine. 5. Participants. All officers and corporate and operating management employees of the Corporation and its subsidiaries are eligible for selection to participate in the Plan. 6. Awards. The Committee may, subject to the terms hereof, make Awards in each calendar year with respect to the preceding year hereunder ("Award Year"), beginning with an award made in 1996 with respect to Award Year 1995, to Participants eligible for awards under the Plan. Awards shall be paid as soon as reasonably practicable after the Committee's certification of the achievement of applicable performance goals in the calendar year following the Award Year, except to the extent that a Participant has made an election to defer the receipt of such Award pursuant to any deferred compensation plan of the Corporation. 1 The Committee shall establish a Target Award for each Participant selected by the Committee to participate in the Plan during the Award Year. Target Awards shall be established prior to the start of the Award Year, except Target Awards may be established after the start of the Award Year if doing so would not cause the payment of the Award to fail to be deductible by reason of Section 162(m) of the Code. Using objective criteria preestablished by the Committee, a percentage (which may exceed 100%) of the Target Award for each Award Year will be determined by the Committee for each eligible Participant based upon achievement of levels during such Award Year of performance goals, preestablished by the Committee. Such objective criteria and performance goals shall be established by the Committee prior to the start of the Award Year, except that the objective criteria and performance goals may be established after the start of the Award Year if doing so would not cause the payment of the Award to fail to be deductible by reason of Section 162(m) of the Code. The performance goals may relate to a particular area of the business for which the participant is responsible, to one or more business units or to the Corporation as a whole, or a combination of the foregoing. The Committee shall certify the level of achievement of performance goals before payment of any Award. The Award made to an individual Participant may be less (including no Award) than the percentage of the Target Award determined based on the level of achievement of applicable performance goals. The Committee shall be precluded from increasing such percentage of the Target Award but may apply its discretion to reduce or eliminate such percentage without the consent of the Participant. The performance goals may include one or more of the following performance measures for a calendar year: (a) income before federal taxes and net interest expense; (b) achievement of specific and measurable operational objectives; (c) working capital, generally defined to include receivables, inventories and controllable current liabilities, measured either in absolute dollars or relative to sales and/or (d) such other performance goals as may be established by the Committee which may be based on earnings growth, revenues, expenses, stock price, market share, return on assets, equity or investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, or achievement of balance sheet, income statement or cash flow objectives, or any other objective goals established by the Committee, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. If a Participant's active employment with the Corporation or a subsidiary of the Corporation, as the case may be, ceases during any Award Year because of retirement, disability or death, the Participant or the Participant's beneficiary designated hereunder will, subject to achievement of applicable performance goals, receive a prorated share of the Award for that Award Year based upon the base salary of the Participant accrued from January 1 of the Award Year through the date active employment ceases. Such prorated payment shall be made at the same time payments for that Award Year are made to other Participants. If employment is terminated during an Award Year for any reason other than retirement, disability or death, the Participant will forfeit all right to receive an Award for that Award Year. 7. Designation of Beneficiaries. A Participant may designate a beneficiary or beneficiaries to receive in case of the Participant's death all or part of the Awards which may be made to the Participant under the Plan. A designation of beneficiary may be replaced by a new designation or may be revoked by the Participant at any time. A designation or revocation shall be on a form to be provided for the purpose and shall become effective only when filed with the Corporation during the Participant's lifetime with written acknowledgment of receipt from the Corporation. In case of the Participant's death, an Award made under the Plan with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under applicable law) shall be paid to the designated beneficiary or beneficiaries. 8. Modification or Termination of Plan. The Board may modify or terminate the Plan at any time to be effective at such date as the Board may determine. The Committee shall be authorized to make changes to the Plan that are consistent with the purpose of the Plan or changes to comply with government regulations. A modification may affect present and future Participants. 2 9. Payment of Awards; Maximum Awards. Awards shall be paid in cash, provided that the Committee may determine, including pursuant to an irrevocable election by a Participant made at least six months in advance of the Award, to pay any Award earned under the Plan in shares of the Corporation's stock, including restricted stock (issued under the Corporation's 1993 Long-Term Incentive Plan or any other stock plan of the Corporation that has been approved by its shareholders), in lieu of cash. Awards paid in shares of the Corporation's stock, including restricted stock, in lieu of cash may be made at a discounted price, which shall not in any event be less than the lesser of $3.50 per share and 70% of market value on the date the Target Award is established (as adjusted to reflect any stock splits, reverse stock splits, stock dividends, mergers, consolidations, recapitalizations, reclassifications, special dividends or other similar events affecting the Corporation's stock). If all or a portion of a Participant's incentive payments is to be made shares of restricted stock, the Committee may also determine to provide that, if any such shares are forfeited because such Participant's employment terminates before the restrictions on such shares lapse, such Participant shall be entitled to a cash payment from the Corporation for such forfeited shares equal to the lesser of (i) the dollar amount of the incentive payment that was paid in the forfeited shares in lieu of cash and (ii) the market value of the forfeited shares at the time of such employment termination. Such amount shall be payable by the Corporation within 30 days after the Participant's termination of employment. In no event may the sum of the dollar amount of incentive payments paid in cash and the market value of incentive payments paid in common stock, including restricted stock (based in all cases on the market price of the common stock on the date the Target Award is established), to any Participant under this Plan for any Award Year exceed $1,500,000. 10. General. (a) No person shall have any claim to be granted an Award under the Plan and there is no obligation for uniformity of treatment of Participants under the Plan. Awards under the Plan may not be assigned or alienated. (b) Neither the Plan nor any action taken hereunder shall be construed as giving to any employee the right to be retained in the employ of the Corporation or any subsidiary of the Corporation. (c) The Corporation shall have the right to deduct from any Award to be paid under the Plan any federal, state or local taxes required by law to be withheld with respect to such payment. 3 EX-11 4 EX-11 EXHIBIT 11 ARMCO INC. COMPUTATION OF LOSS PER COMMON SHARE
(Dollars and shares in millions, except per share amounts) Three Months Ended PRIMARY March 31, - ------------------------------------------------------------------------- 1995 1994 - ------------------------------------------------------------------------- Net income (loss) $ 2.4 $(27.2) Preferred stock dividends (4.5) (4.5) - ------------------------------------------------------------------------- Net loss applicable to common stock $ (2.1) $(31.7) - ------------------------------------------------------------------------- Weighted average number of common shares 105.6 104.1 Net loss per common share $(0.02) $(0.30) FULLY DILUTED* - ------------- Net income (loss) $ 2.4 $(27.2) Preferred stock dividends (4.5) (4.5) - ------------------------------------------------------------------------- Net loss applicable to common stock $ (2.1) $(31.7) - ------------------------------------------------------------------------- Weighted average number of common shares 105.6 104.1 Weighted average number of common equivalent shares ** ** Weighted average number of preferred shares on an "if converted" basis ** ** - ------------------------------------------------------------------------- Average common shares outstanding as adjusted 105.6 104.1 - ------------------------------------------------------------------------- Net loss per common share $(0.02) $(0.30) Shares of stock outstanding at March 31 Common 105.9 104.1 Preferred - $2.10 Class A 1.7 1.7 Preferred - $3.625 Class A 2.7 2.7 Preferred - $4.50 Class B 1.0 1.0 * Calculation of fully diluted loss per share is submitted in accordance with Securities Exchange Act of 1934 Release No. 9083, although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an antidilutive result, or is not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. ** Antidilutive
EX-27 5 ARTICLE 5 FDS FOR 1ST QUARTER 10-Q
5 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. 1,000 3-MOS DEC-31-1995 MAR-31-1995 211,400 1,500 196,400 0 182,900 636,300 1,108,000 511,600 1,939,800 381,100 375,400 962,900 0 185,900 (1,370,600) 1,939,800 368,400 368,400 327,700 327,700 0 0 7,500 1,500 200 2,400 0 0 0 2,400 (0.02) (0.02)
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