-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JTU+Zp10QFMI+rdaE0JNmhd//eefXxUADp6Z4BYrF4slO43U+/Wpf15ktGuqNo5B jGbEHuHCL93PhOg0uH2SlA== 0000007383-98-000014.txt : 19980430 0000007383-98-000014.hdr.sgml : 19980430 ACCESSION NUMBER: 0000007383-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980429 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: SEC FILE NUMBER: 001-00873 FILM NUMBER: 98604263 BUSINESS ADDRESS: STREET 1: 301 GRANT ST - 15TH FLR STREET 2: ONE OXFORD CENTRE CITY: PITTSBURGH STATE: PA ZIP: 15219-1415 BUSINESS PHONE: 4122559859 MAIL ADDRESS: STREET 1: 301 GRANT ST - 15TH FLR CITY: PITTSBURGH STATE: PA ZIP: 15219-1415 FORMER COMPANY: FORMER CONFORMED NAME: ARMCO STEEL CORP DATE OF NAME CHANGE: 19790506 10-Q 1 MARCH 31, 1998 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 ----------------- ------------------ 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 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, 1998: 107,848,181 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 -1- ARMCO INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in millions) March 31, December 31, 1998 1997 ---------- ---------- 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 - ------------------------------------------------------------------------ See Notes to Condensed Consolidated Financial Statements.
-2- ARMCO INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT (Unaudited)
(Dollars and shares in millions, Three Months Ended except per share amounts) March 31, ---------------------- 1998 1997 ---------- ---------- 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 See Notes to Condensed Consolidated Financial Statements.
-3- ARMCO INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in millions)
Three Months Ended March 31, -------------------- 1998 1997 -------- -------- 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 See Notes to Condensed Consolidated Financial Statements
-4- 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.
March 31, December 31, 1998 1997 -------- -------- 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 ======== ========
-5- 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- 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:
Three Months Ended March 31, ------------------- 1998 1997 -------- -------- 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
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- 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 - ----------------------------
Three Months Ended March 31, ------------------- 1998 1997 -------- -------- Customer sales $391.4 $375.0 Operating profit 26.5 22.4
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:
Three Months Ended March 31, ---------------------------- 1998 1997 ------------- ------------- (tons in thousands) Sales Tons Sales Tons ----- ---- ----- ---- 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
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 -8- 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 - -------------------
Three Months Ended March 31, ------------------- 1998 1997 -------- -------- Customer sales $56.3 $66.3 Operating profit (loss) (1.4) 2.6
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- 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- ARMCO INC. SEGMENT REPORT (Unaudited) (Dollars in millions)
1998 1997 ------ ------------------------------- 1st 4th 3rd 2nd 1st Qtr. Qtr. Qtr. Qtr. Qtr. ------ ------ ------ ------ ------ 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 ============================================================================== See Notes to Condensed Consolidated Financial Statements.
-11- 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:
Name For Withheld - ---- --- -------- 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
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:
Broker Voting Classes For Against Abstain Non-votes - -------------- --- -------- ------- --------- Common, $2.10 and $3.625 Preferred Stocks 67,510,948 29,511,660 670,704 0 -12- 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- 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-
EX-10 2 AMENDED 1993 LONG-TERM INCENTIVE PLAN 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. (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 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 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 (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 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 EX-18 3 ACCOUNTANT'S PREFERABILITY LETTER 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 EX-27 4 ARTICLE 5 FDS FOR 1998 FIRST QUARTER FORM 10-Q
5 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. 0000007383 ARMCO INC. 1,000 U.S. DOLLAR JAN-01-1998 3-MOS DEC-31-1998 MAR-31-1998 1 126,600 10,000 183,300 0 283,700 614,400 1,309,900 669,000 1,841,900 338,900 305,700 0 185,900 1,100 (84,100) 1,841,900 447,700 447,700 404,400 404,400 0 0 7,600 22,100 1,800 20,300 0 0 237,500 257,800 2.36 2.04
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