300 Interpace Parkway
Parsippany, New Jersey 07054
Armco Inc. is a worldwide producer of stainless, electrical, and carbon steel products. Through several joint ventures in the United States and abroad, Armco produces oil-field machinery and coated, high-strength, porcelain-enameled steel and low-carbon flat rolled steel. In 1991 the company was in the process of selling Armco Financial Services Group (AFSG), its financial-services division, which specializes in providing insurance services.
Armco was founded in 1900 by George M. Verity as the American Rolling Mill Company. Verity was at the time in the roofing business in Cincinnati, Ohio. The chaotic conditions existing in the emerging U.S. steel industry created a supply problem for Verity’s small roofing enterprise, and Armco originally was conceived as an attempt to solve Verity’s own sheet-metal supply problems. American Rolling Mill’s first plant was opened in Middletown, Ohio, in 1900 and was the first steel plant to consolidate all the steps necessary to produce, roll, galvanize, corrugate, and fabricate metal sheets into specific finished products. The nation’s first integrated steel-production plant started with 35 stockholders and a total of 325 employees.
The growth of the rolled steel industry was fueled by pressure from the automobile business. The need for long, wide sheets of metal to finally construct an all-steel car provided incentive to improve the milling processes used at the time. In the years following the turn of the century there was an ample supply of rolled metal sheets. Their size and quality, however, were not acceptable to automobile makers. There was a lack of uniformity in sheet thickness, and the steel had unacceptable surface defects. The deficiencies were the result of hand-sheet mills. As late as 1926 there were approximately 1,200 such mills in the United States, each producing a small amount of product of variable quality. The need for a better rolling process was apparent.
In 1904 John Butler Tytus was hired as a “spare hand” by Armco’s superintendent, Charles Hook. Tytus, son of a well-to-do Middletown family and a Yale University graduate was fascinated with the archaic milling process as it existed. Within two-and-a-half years, Tytus rose through the ranks of the company and became superintendent of American Rolling Mill’s Zanesville, Ohio, plant. Tytus believed that the same rolling process that was used in the manufacture of paper stock—his family was in the paper-milling business—could be modified and the same milling principles applied to the production of rolled metal sheets.
World War I afforded Tytus the opportunity to test his theories. During the war American Rolling Mill, like most steel operations in the United States, was concentrating on heavy-steel manufacturing that employed forging processes. The nation’s sheet mills were mostly standing idle. During the war years Tytus was given permission to use one of the rolling mills as a laboratory. In 1921 American Rolling Mill purchased the closed plant owned by the Ashland Iron and Mining Company of Ashland, Kentucky. Under a cloak of secrecy, Tytus, his blue prints, and about 100 of the company’s most skilled workers converged on the newly purchased plant and began to construct an experimental facility. After three years of trial and error, a completed wide-sheet mill was finally operational. The mill was capable of producing milled sheets up to 36 inches in width and as thin as 0.065 inch.
The process was far from perfect. The Tytus mill had some problems. The metal sheets slipped from side to side as they went through the milling process, and there were difficulties in maintaining the proper pressure between the rollers. The Columbia Steel Company solved these problems in 1926 with the development of a mill similar to the Tytus design. Named the Butler mill, it became the prototype of the modern continuous wide hot strip mill. American Rolling Mill and Columbia Steel soon were confronted with the problem of conflicting patents which was resolved with American Rolling Mill Company’s purchase of Columbia Steel in 1930. The acquisition left American Rolling Mill with complete control of all basic patents on the continuous wide hot strip mill. The company opted to share the process with the rest of the steel industry by licensing the use of its patents, and over the following ten years, an estimated $500 million was invested in the construction of more than 25 continuous wide strip mills.
In 1940 Charles Hook who was then president, took American Rolling Mill one step further with the development of the cold reduction mill. This process produced a smooth, polished surface on the steel with just a slight reduction in its thickness. The development of the new milling systems not only gave a superior product but increased production and lowered operating costs for the producers. As a result, American Rolling Mill was able to lower its price for iron and steel sheets from $110.15 per ton in 1923 to $57.31 per ton in 1939. Lower steel costs helped fuel the industrialized world’s economies as well as American Rolling Mill’s growth during those years. The company changed its name to Armco Steel Corporation in 1948. Between 1925 and 1950, more than 500 million tons of thin flat steel was absorbed by the U.S. economy. The development of modern conveniences such as automatic washing machines, and steam irons were manufactured by machines that were supplied with the unending flow of sheet metal produced by U.S. steel manufacturers. During the 1950s, 1960s, and 1970s, many other steel-fabricating and industrial products were added to the company’s steel-based business.
Armco Steel entered into the coal business with the acquisition of Princess Dorothy Coal Company of West Virginia in 1954. Several other coal companies were purchased following Princess Dorothy. In 1958 Armco acquired National Supply Company, the world’s largest producer of oil- and gas-well drilling machinery and equipment. Overall, Armco acquired or bought considerable interest in more than 24 heavy-industry companies by the end of 1979. The company expanded overseas by moving its corrugated pipe, tubing, and steel fabricating technologies to developing countries such as Spain and Brazil.
In 1965 C. William Verity Jr., grandson of Armco Steel’s founder, became the company’s president and CEO. He assumed leadership of the company at a time when the steel industry was facing increased foreign competition, slower growth, and a decline in profits. The company’s new president chose to remain competitive in the steel business while diversifying into enterprises that he felt would continue to prosper even during the potential cyclical downturns that were being projected for the steel business.
Armco expanded aggressively into oil-well equipment and oil exploration, building products, strategic metals, and financial services. At first the moves into these new business areas seemed to pay off. Between 1976 and 1981, the company prospered through two recessions and boosted its net income by more than 135% to $295 million based on almost $7 billion in sales. During these years, Verity won high praise by leading Armco into trade with both the Soviet Union and China. In 1978 Armco Steel Corporation again changed its name, to Armco Inc.
The accelerated growth of the company into new areas of business was not without its problems. Armco’s upper management was composed of steel people, who, isolated in the Middletown, Ohio, steel community often came into conflict with lower divisional managers. Verity’s proposed solution to this problem was to decentralize, moving the decision-making process to 15 separate business units.
During 1982 and the first nine months of 1983, Armco showed losses totaling over $970 million. Corporate restructuring included the closing of steel mills in Kansas City, Missouri; Ashland, Kentucky; and Middletown, Ohio. The company was forced to sell coal properties and an oil- and gas-producing property, Strata Energy, Inc. Circumstances did not improve much in 1984. Armco reported a loss of $295 million on $4.5 billion in sales. The company was forced to eliminate 250 corporate staff positions. During the period from 1981 to 1988, Armco sold or divested enterprises both in the United States and abroad.
The company began a slow process of greatly reducing its size. The closing of several of its steel mills, and the sale of coal and oil properties—difficult to sell because of the lower energy costs and depressed circumstances in the U.S. energy exploration business—was followed by an attempt to sell off the company’s extensive finance, leasing, and insurance businesses.
Many observers felt that Armco’s expansion into insurance and finance accounted for most of the company’s financial woes. Until 1977 its involvements in financial services had been limited to ownership of the Bellefonte Insurance Company and a leasing and finance operation, Armco-Boothe Corporation. With the formation of Armco Financial Services Corporation in 1977, the company became heavily involved in the acquisition of insurance, reinsurance, and finance businesses. Verity believed that there was great potential for Armco in insurance. Bellefonte had been a pioneer in the self-insurance field and had established a profitable record by providing customers outside of Armco with coverage.
Between 1977 and 1981, Armco acquired seven insurance organizations in the United States and abroad. Spearheaded by Bellefonte, which specialized in self-insurance, high-risk policies were sold at low premiums to insurers seeking to spread the risk of their own existing policies. Armco went so far as to help insure the Libyan navy. Many of the policies written had exposure lasting up to 20 years for Armco. Eagerness to grow in the insurance field resulted in AFSG taking on many inordinately risky policies, reportedly due to the naivete of its executives. In the steel business it is easy to track production costs and adjust prices to guarantee profits. An insurance company’s profitability cannot be estimated until all claims against the company come due. Armco’s aggressive entrance into the insurance business initially showed high profits. This picture did not last long. As early as 1979 claims against Armco-held policies began pouring in.
C. William Verity Jr. retired in 1979. He named as his successor Harry Holiday, a 30-year veteran of the steel business. A steel man, Holiday often was more concerned with how the blast furnaces at the Middletown mill were working than what was happening to Armco’s far-flung enterprises. Holiday began to hire non-steel executives in an attempt to round out the corporation’s management team. Still committed to the plans of Armco’s recently retired CEO, the company acquired Northwestern National Insurance Company in 1980 at a cost of $393 million. Holiday hired more insurance management to help run the newly acquired company.
The recession in 1982 forced Holiday to curtail his plans for further expansion and forced the company to reduce the size of its work force and close some aging steel mills. With a loss of $1.5 billion during the period between 1982 and 1984, mostly from steel, oil, and insurance, the company continued to sell many of its holdings in an attempt to raise needed cash and reduce its size.
In April of 1985, Standard & Poor’s Corporation placed Armco on its Credit-Watch list and downgraded the company’s rating. That same year, in an attempt to upgrade its image, the company moved its headquarters from Middletown, to Morris-town, New Jersey. The move allowed Armco to decentralize its structure and separate its corporate staff from the steel industry. At the same time, the company was able to eliminate over $535 million of its debt with the sale of Armco Financial Corporation to Glendale Federal Savings; its Australian and European financial leasing subsidiaries had been sold the previous month. The April sale to Glendale ended Armco’s involvement in financial leasing.
In 1984 Holiday was forced by his health to retire. During the following 12 months, insurance officials in several states demanded large additions of capital for several of Armco’s floundering insurance subsidiaries. Faced with a payment of more than $600 million in corporate debt, the company’s next president, Robert E. Boni, negotiated recovery plans with insurance regulators and won new credit from a group of nervous bankers. The agreements were reached with Boni’s promise to reverse Armco’s diversification and return the company to its roots in the steel business.
In the five years following Boni’s agreement in 1985, the company sold 12 of its subsidiaries, some located in Spain, Canada, Australia, and England. Between 1980 and 1990, Armco’s employee base shrank from 47,000 to less than 11,000. In 1989 the company’s profits were beginning to increase as the consolidation of Armco’s business centers continued. Although the company’s sales dropped form $2.9 billion in 1987 to $2.4 billion in 1989, the company’s operating profit rose over $100 million in the same period of time.
Operating from Armco’s headquarters in Parsippany, New Jersey, Boni kept his word to his bankers. The company reduced its debt significantly after 1987, bringing it down to 30% of total capitalization in 1989. Insurance operations, which in 1990 were still in the process of being liquidated, showed profits from 1986 onward. The run-off business, claims being paid by subsidiaries that are no longer writing new policies, was still a problem for Armco in 1991, but appeared to be manageable.
A joint venture with Kawasaki Steel Corporation involving the company’s eastern U.S. division won approval by Armco stockholders in May 1989. A cash infusion of $350 million as a result of the deal was earmarked primarily to overhaul and modernize the company’s mills. The eastern steel division is a flat roll producer that accounts for about 60% of Armco’s business, serving mainly appliance, construction, and automotive markets.
As the company moved into the 1990s, the need for cash was still pressing. Cash conservation programs were in effect.
Modernization of the production plants along with more corporate restructuring was expected to further reduce operating costs. Laser welding techniques used to recycle steel were being researched, along with lighter-weight steel products for the automobile industry. Nevertheless, Armco lost $89.5 million in 1990, and chairman Robert L. Purdum, elected in 1990, foresaw additional trouble in 1991. Despite Armco’s cash difficulties, in 1991 the company’s new aluminized stainless steel products were well received, and Armco had plans to introduce many more new products and technologies.
Armco Argentina, S.A. Industrial y Comercial; Armco Chile S.A. Metalurgica Industrial; Armco Financial Services Corporation; Armco Insurance Group, Inc.; Armco Management Corp.; Armco G.M.B.H. (Germany); Armco Perunan, S.A. (Peru); C.A. Armco Venezolana (Venezuela); Productos Metalicos (Ecuador); Armco Colombiana (Columbia); Prolansa (Peru); Adesur (Peru); Armco Uruguaya S.A. (Uruguay); Armco Molycop S.p.A. (Italy); Southwestern Ohio Steel, Inc.; Southwestern Ohio Steel Leveling Co. Inc.
Fisher, Douglas Alan, The Epic of Steel, New York, Harper & Row, 1963; “Armco Inc.: A Brief History,” Armco corporate typescript, 1987.
—William R. Grossman