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
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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 No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock outstanding at March 31, 1998: 107,848,181
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
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Total assets $ 1,841.9 $ 1,881.3
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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
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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)
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Total shareholders' equity (deficit) 102.9 (152.5)
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Total liabilities and shareholders'
equity (deficit) $ 1,841.9 $ 1,881.3
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<FN>
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
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Net sales $ 447.7 $ 441.3
Cost of products sold (404.4) (397.5)
Selling and administrative expenses (22.0) (24.6)
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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)
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Income before income taxes 22.1 9.6
Provision for income taxes (1.8) (0.2)
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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
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Accumulated deficit, beginning of period $(1,305.0) $(1,363.9)
Net income 257.8 9.4
Preferred stock dividends (4.5) (4.5)
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Accumulated deficit, end of period $(1,051.7) $(1,359.0)
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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
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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
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Cash dividends per share
$2.10 Class A $0.525 $0.525
$3.625 Class A 0.906 0.906
$4.50 Class B 1.125 1.125
<FN>
See Notes to Condensed Consolidated Financial Statements.
-3-
ARMCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
--------------------
1998 1997
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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
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Net cash used in operating activities (24.4) (0.9)
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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)
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Net cash used in investing activities (2.4) (7.4)
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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)
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Net cash used in financing activities (36.5) (8.7)
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Net change in cash and cash equivalents (63.3) (17.0)
Cash and cash equivalents:
Beginning of period 189.9 168.9
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End of period $ 126.6 $151.9
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of capitalized interest) $ 8.8 $ 4.7
Income taxes 0.3 -
Supplemental schedule of non-cash investing and
financing activities:
Issuance of restricted stock 4.0 2.4
<FN>
See Notes to Condensed Consolidated Financial Statements
-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)
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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
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Total 32.4 25.0
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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
==============================================================================
<FN>
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
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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
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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 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
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