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, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-873-2
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ARMCO INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-0200500
- ------------------------------------ --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Oxford Centre, 301 Grant St., Pittsburgh, PA 15219-1415
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(Address of principal executive offices, Zip Code)
(412) 255-9800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares of common stock outstanding at March 31, 1996: 106,676,883
2
ARMCO INC.
INDEX
Page
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Part I. Financial Information
Condensed Statement of Consolidated Financial Position -
March 31, 1996 and December 31, 1995 2
Condensed Statement of Consolidated Operations and
Retained Deficit - Three Months Ended March 31,
1996 and 1995 3
Condensed Statement of Consolidated Cash Flows -
Three Months Ended March 31, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5-6
Management's Discussion and Analysis of the Condensed
Consolidated Financial Statements 7-10
Segment Report 11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12-13
Signatures 14
Exhibit 11 Computation of Income (Loss) Per Common Share
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ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Unaudited)
(Dollars in millions) March 31, December 31,
1996 1995
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 223.9 $ 136.8
Receivables, less allowance for doubtful accounts 180.1 169.4
Inventories (Note 2) 226.6 216.2
Net assets held for sale (Note 5) - 85.5
Other 6.5 5.9
- ------------------------------------------------------------------------------
Total current assets 637.1 613.8
Investments
Investment in AFSG 85.6 85.6
Other, less allowance for impairment 53.0 37.2
Property, plant and equipment 1,221.6 1,208.3
Accumulated depreciation (554.7) (539.8)
- ------------------------------------------------------------------------------
Property, plant and equipment - net 666.9 668.5
Deferred tax asset 325.8 326.1
Goodwill and other intangible assets 145.1 145.9
Other assets 15.3 19.5
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Total assets $ 1,928.8 $ 1,896.6
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Trade accounts and notes payable $ 173.3 $ 148.2
Employee-related obligations 140.1 172.4
Other liabilities 72.8 72.6
Current portion of long-term debt 29.3 25.8
- ------------------------------------------------------------------------------
Total current liabilities 415.5 419.0
Long-term debt, less current portion 358.4 361.6
Long-term employee benefit obligations 1,193.2 1,165.9
Other liabilities 186.3 180.5
Commitments and contingencies (Note 6)
Shareholders' deficit (Note 7)
Preferred stock - Class A 137.6 137.6
Preferred stock - Class B 48.3 48.3
Common stock 1.1 1.1
Additional paid-in capital 966.3 963.0
Retained deficit (1,376.1) (1,378.5)
Other (1.8) (1.9)
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Total shareholders' deficit (224.6) (230.4)
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Total liabilities and shareholders' deficit $ 1,928.8 $ 1,896.6
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<FN>
See Notes to Condensed Consolidated Financial Statements.
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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,
-------------------
1996 1995
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Net sales $ 430.4 $ 368.4
Cost of products sold (Note 3) (392.9) (327.7)
Selling and administrative expenses (22.4) (24.2)
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Operating profit 15.1 16.5
Interest income 3.0 3.7
Interest expense (9.2) (7.5)
Gain on sale of investment in AK Steel stock - 1.3
Sundry other - net (Note 4) (1.6) (12.9)
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Income before income taxes 7.3 1.1
Provision for income taxes (0.4) (0.2)
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Income from continuing operations 6.9 0.9
Discontinued operation -
Equity in income of National-Oilwell (Note 5) - 1.5
- ------------------------------------------------------------------------------
Net income 6.9 2.4
Retained deficit, beginning of period (1,378.5) (1,390.4)
Preferred stock dividends (4.5) (4.5)
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Retained deficit, end of period $(1,376.1) $(1,392.5)
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Weighted average number of common and common
equivalent shares outstanding - primary 106.4 105.6
Net income (loss) applicable to common stock $ 2.4 $ (2.1)
Earnings per common share - primary
Income (loss) from continuing operations $ 0.02 $ (0.03)
Discontinued operation -
Equity in income of National-Oilwell (Note 5) - 0.01
- ------------------------------------------------------------------------------
Net income (loss) $ 0.02 $ (0.02)
Earnings (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
<FN>
* Antidilutive or dilution less than 3%
See Notes to Condensed Consolidated Financial Statements.
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ARMCO INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
-------------------
1996 1995
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Cash flows from operating activities:
Net income $ 6.9 $ 2.4
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and lease-right amortization 14.6 12.5
Undistributed earnings from discontinued operations - (1.5)
Net gain on sales of investments and facilities (1.4) (1.5)
Other (3.7) 3.8
Change in assets and liabilities:
Trade accounts and notes receivable (1.9) (10.1)
Inventory (10.4) (16.8)
Payables and accrued operating expenses 24.0 5.0
Employee benefit obligations 7.0 11.3
Other assets and liabilities - net (7.2) (4.1)
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Net cash provided by operating activities 27.9 1.0
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Cash flows from investing activities:
Net proceeds from the sale of businesses and assets 3.1 15.7
Proceeds from the sale and maturity of liquid
investments 0.2 24.7
Proceeds from the sale of investments 77.2 1.3
Purchase of investments (0.4) (1.0)
Contributions to investees (1.6) -
Capital expenditures (11.6) (33.1)
Net cash (used in) provided by businesses held
for sale (2.9) 6.0
Other 0.3 0.1
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Net cash provided by investing activities 64.3 13.7
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Cash flows from financing activities:
Dividends paid (4.5) (7.5)
Other (0.6) 1.4
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Net cash used in financing activities (5.1) (6.1)
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Net change in cash and cash equivalents 87.1 8.6
Cash and cash equivalents:
Beginning of period 136.8 202.8
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End of period $223.9 $211.4
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of capitalized interest) $ 5.5 $ 4.0
Income taxes - 0.1
Supplemental schedule of noncash investing and
financing activities:
Issuance of restricted stock 3.2 4.4
Debt incurred directly for property - 11.6
Note received in partial payment for asset sale 10.6 -
<FN>
See Notes to Condensed Consolidated Financial Statements.
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ARMCO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions,
except per share amounts)
1. The condensed consolidated financial statements of Armco Inc. (Armco)
should be read in conjunction with the financial statements in Armco's Annual
Report to Shareholders for the year ended December 31, 1995. 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, 1996, and the results of operations and cash flows for the
three months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the year 1996.
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,
1996 1995
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Inventories on LIFO:
Finished and semi-finished $ 235.5 $ 226.8
Raw materials and supplies 27.4 24.8
Adjustment to state inventories at
LIFO value (57.4) (57.3)
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Total 205.5 194.3
Inventories on average cost:
Finished and semi-finished 13.7 15.5
Raw materials and supplies 7.4 6.4
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Total 21.1 21.9
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Total inventories $ 226.6 $ 216.2
======== ========
3. Cost of products sold for the first quarter of 1996 included income of
$4.2 related to the partial settlement of a business interruption insurance
claim for a third quarter 1995 unplanned outage. The outage resulted from the
failure of a generator on one stand of the hot mill at the Butler Operations,
which reduced efficiency during a six-week period, resulting in the use of
alternative and more costly product routings and lost sales.
4. Sundry other - net in Armco's Condensed Statement of Consolidated
Operations and Retained Deficit included expenses of $7.9 and $9.6 for the
three months ended March 31, 1996 and 1995, respectively, for interest on
employee benefit obligations related to facilities which have been divested.
The reduction in expense in 1996 is primarily due to lower interest rates.
In the three months ended March 31, 1996, Sundry other - net included a gain
of $6.3, which resulted from the recognition of gains previously deferred in
connection with asset sales at a 500-acre industrial park owned by Armco.
Armco had elected to defer gains resulting from individual asset sales at this
site because of the uncertainty concerning realization of the carrying value
of the remaining property. The gains were recognized following receipt, in
March 1996, of an independent appraiser's report indicating that the land,
buildings and dock facilities in the park had a market value significantly in
excess of Armco's historical cost carrying value. Armco is currently
discussing the sale of this property with a number of potential buyers.
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5. At December 31, 1995, Armco had recorded $85.5 in Net assets held for sale
in the Condensed Statement of Consolidated Financial Position for its 50%
ownership interest in National-Oilwell, an oil field equipment and supply
joint venture. The sale of National-Oilwell was completed on January 16,
1996, with Armco receiving $77.0 in cash and receivables with a face value of
$13.0. The receivables were recorded in other investments at a discounted
value of $10.6. After recording $2.1 for recognition of deferred foreign
translation losses and miscellaneous expenses, no gain or loss was recorded on
the sale. The equity income of National-Oilwell recognized prior to the
fourth quarter of 1995 is reported in Discontinued operation on the Condensed
Statement of Consolidated Operations and Retained Deficit.
6. There are various claims pending involving Armco and its subsidiaries
regarding product liability, antitrust, patent, employee benefits,
environmental, reinsurance and insurance arrangements, and other matters
arising out of the conduct of Armco's business.
Like other manufacturers, Armco is subject to various environmental laws.
These laws necessitate expenditures to assure compliance at Armco's facilities
and to remediate sites where contamination has occurred. Compliance costs are
either expensed as they are incurred or, when appropriate, are recorded as
capital expenditures. Armco has accrued its estimate of remediation costs for
sites where it is probable that a liability has been incurred and the amount
can be reasonably estimated. The recorded amounts are currently believed by
management to be sufficient. However, such estimates could significantly
change in future periods to reflect new laws or regulations, advances in
technologies, additional sites requiring remediation, new remediation
requirements at existing sites, and Armco's share of liability at multi-party
sites.
There are various pending matters relating to litigation, arbitration and
regulatory affairs arising out of the operations of Armco's runoff insurance
companies, including matters related to Northwestern National Insurance
Company, a runoff company currently involved in, among other matters,
litigation with respect to certain reinsurance programs. Armco has recorded
an $85.6 investment in these companies.
Armco believes, based on current facts and circumstances, that its ultimate
liability for pending claims, contingent liabilities, environmental matters
and matters related to its runoff insurance companies identified to date will
not materially affect its consolidated financial condition or liquidity.
However, it is possible that due to fluctuations in Armco's results, future
developments with respect to such pending claims, contingent liabilities and
other matters could have a material effect on the results of its operations in
future interim or annual periods.
At March 31, 1996, Armco had recorded in its Condensed Statement of
Consolidated Financial Position, legal and environmental reserves of $86.5, of
which $13.9 was classified as current.
7. Under the terms of one of Armco's revolving credit facilities, which
expires on December 31, 1998, Armco is not permitted to pay cash dividends on
its common stock. The payment of dividends on preferred stock is prohibited
if Armco is in default under the credit agreement.
Under the terms of the indentures for Armco's 11.375% Senior Notes Due 1999
and 9.375% Senior Notes Due 2000, Armco cannot pay a dividend on its common
stock or repurchase its capital stock, unless it meets certain financial tests
described in the indentures. Armco does not expect to be able to meet all of
these tests in the near term.
At its April 26, 1996 meeting, the Board of Directors declared the regular
quarterly dividends payable on Armco's $2.10 Cumulative Convertible Preferred
Stock, Class A, $3.625 Cumulative Convertible Preferred Stock, Class A, and
$4.50 Cumulative Convertible Preferred Stock, Class B.
8. Information relating to Armco's industry segments can be found on page 11.
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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 first three months of 1996 and 1995 were
as follows:
Three Months Ended
March 31,
------------------
1996 1995
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Net sales $430.4 $368.4
Operating profit 15.1 16.5
Income from continuing operations 6.9 0.9
Discontinued operation -
National-Oilwell equity income -- 1.5
Net income 6.9 2.4
Net income (loss) per common share - primary 0.02 (0.02)
Net sales in the three months ended March 31, 1996 were 17% higher than in the
same period last year, primarily due to higher sales of carbon, automotive
chrome stainless and specialty semi-finished steels in the Specialty Flat-
Rolled Steels segment.
First quarter 1996 operating profit included income of $4.2 related to the
partial settlement of a business interruption claim. Excluding this one-time
credit, the decrease in operating profit from last year was due to the effects
of planned equipment outages, high outside processing costs, continued
operating problems at the Mansfield Operations and sales of lower-priced
carbon steel products.
Income from continuing operations was $6.0 higher in 1996 than 1995. However,
included in the 1996 amount was the above-mentioned insurance settlement and a
$6.3 gain, which resulted from the recognition of gains previously deferred in
connection with asset sales at a 500-acre industrial park owned by Armco.
Armco had elected to defer gains resulting from individual asset sales at this
site because of the uncertainty concerning realization of the carrying value
of the remaining property. The gains were recognized following receipt, in
March 1996, of an independent appraiser's report indicating that the land,
buildings and dock facilities in the park had a market value significantly in
excess of Armco's historical cost carrying value. Armco is currently
discussing the sale of this property with a number of potential buyers.
At December 31, 1995, Armco had recorded $85.5 in Net assets held for sale for
its 50% ownership interest in National-Oilwell, an oil field equipment and
supply joint venture. The sale of National-Oilwell was completed on January
16, 1996, with Armco receiving $77.0 in cash and receivables with a face value
of $13.0. The receivables were recorded at a discounted value of $10.6.
After recording $2.1 for recognition of deferred foreign translation losses
and miscellaneous expenses, no gain or loss was recorded on the sale. The
equity income of National-Oilwell recognized prior to the fourth quarter of
1995 is reported in Discontinued operation.
Net income (loss) per common share reflects a deduction of $4.5 for the first
quarter of each year for preferred stock dividends declared.
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BUSINESS SEGMENT RESULTS
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Specialty Flat-Rolled Steels
- ----------------------------
Three Months Ended
March 31,
------------------
1996 1995
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Customer sales $372.1 $303.7
Operating profit 20.0 23.2
During the first quarter of 1995, Armco's Mansfield Operations was idle
pending completion of its new thin-slab caster. The caster was completed, and
the plant resumed operations, in April 1995. First quarter 1996 customer
sales for the segment increased $68.4, primarily as a result of strong demand
for automotive chrome stainless, higher volumes of specialty semi-finished
products and sharply higher shipments of carbon steels from Mansfield.
Customer sales and shipments by major product line and total raw steel
production were as follows:
Three Months Ended March 31,
--------------------------------
1996 1995
--------------- ---------------
(tons in thousands) Sales Tons Sales Tons
------- ------ ------- ------
Automotive chrome $ 130.2 96 $ 106.6 82
Electrical 91.1 67 88.2 63
Specialty strip and sheet 65.7 24 68.1 27
Specialty semi-finished 31.6 21 20.9 15
Carbon 44.2 108 10.4 16
Other 9.3 -- 9.5 --
------- ----- ------- -----
Total $ 372.1 316 $ 303.7 203
Raw steel production 390 239
Automotive chrome shipments were 17% higher in the first quarter of 1996 than
in the same period in 1995, as the Mansfield Operations began shipping
significant quantities of this product. Healthy production of North American
light vehicles and increased use of stainless in exhaust systems stimulated
demand.
Shipments of electrical steel products remained high as a result of generally
good market conditions and supplier contracts. Demand remained strong for
grain oriented electrical steel used in utility distribution transformers and
non-oriented electrical steel used in motors and generators. However, Armco's
ability to ship these products continues to be limited by finishing capacity
constraints.
The decline in specialty strip and sheet shipments was due to lower customer
demand related to inventory liquidations.
Specialty semi-finished shipments increased 6,000 tons in the first quarter of
1996, despite a weaker domestic market. Much of the increase was due to
export sales.
Carbon steel shipments in the first quarter of 1996 totaled 108,000 tons
compared to 16,000 tons in the first quarter of 1995. During the first
quarter of 1995, Mansfield was idle and selling only on-hand inventory, while
the Dover facility was selling some galvanized carbon steel produced from
steel purchased from outside sources.
Operating profit for the first quarter of 1996 included income of $4.2 related
to the partial settlement of a business interruption insurance claim for a
third quarter 1995 unplanned outage. The outage resulted from the failure of
a generator on one stand of the hot mill at the Butler Operations, which
reduced efficiency during a six-week period, resulting in the use of
alternative and more costly product routings and lost sales.
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10
First quarter 1996 operating profit also included $16.5 of losses from the
Mansfield Operations, compared to losses totaling $24.0 while the plant was
idle in the same period last year. Mansfield, in addition to producing carbon
steels, helped meet customer demand for stainless steels by shipping a
significant percentage of Armco's automotive chrome in the first quarter of
this year. The products shipped by Mansfield were of high quality and fully
met customer requirements; however, operating costs, throughput and
productivity at the plant were not at acceptable levels. In addition to its
direct losses, Mansfield's operating problems were reflected in the results of
the other operations in the Specialty Flat-Rolled Steels segment due to the
increasing interdependence of the operating facilities.
First quarter 1996 operating profit was also lower due to several planned
equipment outages, necessary to upgrade Armco's finishing facilities as part
of the strategic facilities plan. The outages and the subsequent process of
restarting and returning these facilities to full capability contributed to
lower yields, particularly in electrical steel production. In addition, in
order to meet demand during this time, Armco used outside processors to finish
some of its stainless steels, resulting in increased costs.
Outlook: Armco is encouraged by the quality of products produced at
Mansfield, but continues to concentrate on improving the operations and
integrating its specialty steel producing capability with the other plants in
the segment. The results for the second and third quarters of 1996 will be
adversely affected by several more planned outages needed to complete the
strategic facilities plan. Extensive upgrades of the Mansfield cold mill and
an anneal and pickle line at the Zanesville Operations, both used to finish
automotive chrome stainless, are scheduled to begin in the second quarter and
should be completed early in the third quarter.
While Armco has experienced some softness in the specialty strip and sheet
market, overall demand for specialty flat-rolled products remains good.
However, the production of electrical steel will continue to be constrained,
through most of this year, with new finishing capacity not available until, at
least, the fourth quarter.
Armco expects the effects of continued weak pricing in carbon steel orders
currently in backlog to negatively affect second quarter results. However,
carbon markets appear to be strengthening and prices are expected to increase
in the third quarter.
Fabricated Products
- -------------------
Three Months Ended
March 31,
------------------
1996 1995
-------- --------
Customer sales $ 58.3 $ 64.7
Operating profit 1.5 0.8
Customer sales decreased by 10% from last year, with the decline attributable
to both Sawhill Tubular and Douglas Dynamics, LLC (Douglas Dynamics). The
first quarter of the year is the seasonal slow time for snowplow sales. The
higher sales realized in the first three months of 1995 were a result of sales
related to the year-end backlog carried over from the 1994 record-setting
sales year for Douglas Dynamics. Lower snowplow sales were partially offset
by higher parts sales, which were attributable to the greater snowfalls this
year. Lower customer sales for Sawhill resulted from lower prices and a
slight decline in volume.
In spite of lower sales, Douglas Dynamics was able to maintain the same
operating profit it recorded in the first three months of last year, while
Sawhill Tubular experienced increased profits. Douglas Dynamics reduced costs
by eliminating production outsourcing, while operating results at both
businesses were enhanced by cost containment measures begun last year.
Sawhill Tubular also benefited from lower hot band costs and quality
improvements.
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Outlook: Douglas Dynamics anticipates somewhat lower snowplow sales over the
next twelve months compared to the last twelve months; however, Armco expects
the lower volume to be more than offset by normal annual price increases and
new product sales. Operating results for 1996 are expected to improve over
last year's levels.
Sawhill Tubular's sales are expected to remain level for the next 12 months,
though availability and pricing of hot bands will be a concern during the
remainder of the year. Sawhill Tubular is expected to remain profitable
throughout the year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1996, Armco had $223.9 of cash and cash equivalents compared to
$136.8 at December 31, 1995. Cash and cash equivalents increased $87.1 during
the first three months of 1996, primarily due to cash inflows of $77.0 from
the sale of Armco's investment in National-Oilwell and $27.9 of cash generated
by operations. Partially offsetting these cash inflows were capital
expenditures of $11.6 and preferred stock dividends of $4.5.
In addition to the cash on hand, Armco has a receivables credit facility,
underwhich Armco Funding Corporation, a wholly owned subsidiary to which Armco
sells substantially all of its receivables, may borrow up to $120.0 secured by
those receivables. In addition, Armco can borrow up to $50.0 under a credit
facility secured by certain of its inventories. At March 31, 1996, $74.2 of
the receivables facility was used as support for letters of credit; while no
borrowings were outstanding under either facility.
Armco anticipates that its 1996 cash expenditures for capital projects will
total approximately $60.0 to $70.0. In addition, Armco has $29.3 of debt
commitments maturing through March 1997 and expects to make discretionary
pension payments of up to $65.0 during the remainder of 1996. The capital
expenditures, and debt and pension payments will be paid out of existing cash
balances and cash generated from operations and asset disposals.
On April 26, 1996, 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 28, 1996 to shareholders of record
on May 31, 1996. 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, 1996, to shareholders of record on May 31,
1996. 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
its inventory credit facility.
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ARMCO INC.
SEGMENT REPORT
(Unaudited)
(Dollars in millions)
1996 1995
------ ----------------------------
1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr.
------ ------ ------ ------ ------
Specialty Flat-Rolled Steels:
Customer sales $372.1 $326.3 $326.1 $320.9 $303.7
Operating profit 20.0 12.1 13.3 27.4 23.2
Fabricated Products:
Customer sales 58.3 70.5 78.0 69.7 64.7
Operating profit 1.5 5.1 10.7 5.4 0.8
Corporate general (6.4) (7.3) (7.2) (7.0) (7.5)
- ------------------------------------------------------------------------------
Total operating profit 15.1 9.9 16.8 25.8 16.5
Interest income 3.0 1.9 3.0 3.2 3.7
Interest expense (9.2) (8.2) (8.7) (8.5) (7.5)
Gain on sale of investment in AK
Steel stock - - - 25.9 1.3
Sundry other - net (1.6) (11.7) (12.3) (12.7) (12.9)
Provision for income taxes (0.4) (0.3) (0.9) (0.6) (0.2)
- ------------------------------------------------------------------------------
Income (loss) from continuing operations 6.9 (8.4) (2.1) 33.1 0.9
Discontinued operation -
Equity in income of National-Oilwell - - 2.0 2.8 1.5
- ------------------------------------------------------------------------------
Net income (loss) $ 6.9 $ (8.4) $ (0.1) $ 35.9 $ 2.4
==============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
-11-
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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, 1995 (the Form
10-K).
In the Cornerstones Litigation, as previously described in the Form 10-K, on
-----------------------
April 10, 1996, an amended summary judgment order was entered by the
District Court in the severed Kingsbridge action clarifying that summary
-----------
judgment had been granted in favor of Armco and against only the claims of
the Kingsbridge Municipal Utility District (Kingsbridge) and John
Kepplinger, individually. A motion for class certification is pending
before the court with respect to the claims of the remaining homeowners in
the Kingsbridge.
The total liability on the forgoing 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 26, 1996, and all eight
nominees to the Board of Directors named in Armco's Proxy Statement were
elected. Approximately 86% 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
- ---- --- --------
John J. Burns, Jr. 89,553,741 5,806,716
Paula H.J. Cholmondeley 93,199,898 2,160,559
David A. Duke 93,449,744 1,910,713
John C. Haley 93,364,074 1,996,383
Bruce E. Robbins 93,429,759 1,930,698
Burnell R. Roberts 93,376,789 1,983,668
John D. Turner 93,530,527 1,829,930
James F. Will 93,376,043 1,984,414
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 3.1 Certificate of Amendment to Amended Articles of
Incorporation of Armco.
Exhibit 3.2 Amended Articles of Incorporation of Armco, as amended as
of April 4, 1996.
Exhibit 11 Computation of Income (Loss) Per Common Share
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B. The following Reports on Form 8-K were filed by Armco since December
31, 1995.
Report Date Description
------------ -----------
January 16, 1996 Reporting that Armco sold its
partnership interest in National-
Oilwell, a joint venture engaged in
the oil and gas service business that
was equally owned by subsidiaries of
Armco and USX Corporation.
February 23, 1996 Reporting that Armco adopted a
Stockholder Rights Plan and declared a
dividend distribution of one preferred
stock purchase right for each
outstanding share of common stock of
Armco to stockholders of record at
the close of business on June 26,
1996.
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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 1, 1996 /s/ David G. Harmer
--------------- -----------------------------
David G. Harmer
Corporate Vice President and Chief
Financial Officer
Date May 1, 1996 /s/ Peter G. Leemputte
--------------- -----------------------------
Peter G. Leemputte
Corporate Vice President and Controller
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