<PAGE>
                                  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        September 30, 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 October 31, 1998:  107,905,722
<PAGE>

                                  ARMCO INC.
                                    INDEX
                                                                         Pages
                                                                         -----

Part I.   Financial Information

  Condensed Consolidated Balance Sheets -
    September 30, 1998 and December 31, 1997                                 2

  Condensed Consolidated Statements of Income and Accumulated Deficit -
    Three and Nine Months Ended September 30, 1998 and 1997                  3

  Condensed Consolidated Statements of Cash Flows - 
    Nine Months Ended September 30, 1998 and 1997                            4

  Notes to Condensed Consolidated Financial Statements                     5-8

  Management's Discussion and Analysis of the Condensed
    Consolidated Financial Statements                                     8-13

  Segment Report                                                            14


Part II.  Other Information

  Item 1.  Legal Proceedings                                                15

  Item 6.  Exhibits and Reports on Form 8-K                                 15

  Signatures                                                                16
                                      -1-
<PAGE>
<TABLE>
                                   ARMCO INC. 
                     CONDENSED CONSOLIDATED BALANCE SHEETS 
                                  (Unaudited) 
<CAPTION> 
(Dollars in millions)                             September 30,   December 31,
                                                      1998            1997
                                                   ----------      ----------
<S>                                                <C>             <C>
ASSETS 
Current assets 
  Cash and cash equivalents                         $  111.1        $  189.9 
  Short-term liquid investments                         12.6             5.0 
  Receivables, less allowance for doubtful accounts    226.4           156.6 
  Inventories (Note 2)                                 264.6           268.0 
  Other                                                 12.2            17.9 
-----------------------------------------------------------------------------
Total current assets                                   626.9           637.4 
 
Investments 
  Investment in Armco Financial Services Group
    (Note 7)                                            85.6            85.6 
  Other, less allowance for impairment                  30.5            30.3 
 
Property, plant and equipment                        1,323.7         1,305.5 
Accumulated depreciation                              (700.1)         (653.0)
-----------------------------------------------------------------------------
Property, plant and equipment - net                    623.6           652.5 
 
Deferred tax asset                                     316.8           319.3 
Goodwill and other intangible assets                   130.7           137.4 
Other assets                                            16.2            18.8 
-----------------------------------------------------------------------------
Total assets                                        $1,830.3        $1,881.3 
=============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 
Current liabilities 
  Trade accounts and notes payable                  $  109.4        $  148.9 
  Employment-related obligations                       126.4           126.4 
  Other liabilities                                     60.4            72.8 
  Current portion of long-term debt                      5.9            38.2 
-----------------------------------------------------------------------------
Total current liabilities                              302.1           386.3 
 
Long-term debt, less current portion                   304.0           306.9 
Long-term employee benefit obligations                 901.5         1,178.1 
Other liabilities                                      165.5           162.5 
Commitments and contingencies (Note 7) 
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                           972.0           967.7 
  Accumulated deficit                                 (998.8)       (1,305.0)
  Other                                                 (3.0)           (2.2)
-----------------------------------------------------------------------------
Total shareholders' equity (deficit)                   157.2          (152.5)
-----------------------------------------------------------------------------
Total liabilities and shareholders'
  equity (deficit)                                  $1,830.3        $1,881.3 
=============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements. 
</TABLE>
                                      -2-
<PAGE>
<TABLE>
                                  ARMCO INC.  
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
                            AND ACCUMULATED DEFICIT  
                                 (Unaudited)  
<CAPTION>
(Dollars and shares in millions,  Three Months Ended     Nine Months Ended 
  except per share amounts)          September 30,          September 30,  
                               ----------------------   ---------------------
                                  1998        1997         1998        1997 
                               ----------  ----------   ----------  ----------
<S>                            <C>         <C>          <C>         <C>
 Net sales                     $   415.4   $   461.3    $ 1,313.2   $ 1,392.9 
 
 Cost of products sold            (360.6)     (402.9)    (1,161.1)   (1,236.5)
 Selling and administrative
   expenses                        (24.5)      (24.4)       (68.7)      (75.2)
------------------------------------------------------------------------------
 Operating profit                   30.3        34.0         83.4        81.2 
 
 Interest income                     1.9         2.5          6.0         7.4 
 Interest expense                   (7.0)       (9.5)       (21.7)      (26.7)
 Sundry other - net (Note 3)         7.0         3.2         19.8        (0.8)
------------------------------------------------------------------------------
 Income before income taxes         32.2        30.2         87.5        61.1 
 
 Provision for income taxes         (1.5)       (0.5)        (5.4)       (1.8)
------------------------------------------------------------------------------
 Income from continuing operations  30.7        29.7         82.1        59.3 
 
 Discontinued operations -   
   Gain on Sale of Aerospace and
     Strategic Materials (Note 4)    -           -            -           1.3 
------------------------------------------------------------------------------
 Income before extraordinary loss
   and cumulative effect of an 
   accounting change                30.7        29.7         82.1        60.6 
 
 Extraordinary loss on retirement
   of debt (Note 5)                  -          (3.0)         -          (3.0)
 Cumulative effect of a change in
   accounting for postretirement
   benefits (Note 1)                 -           -          237.5         -  
------------------------------------------------------------------------------
 Net income                         30.7        26.7        319.6        57.6 
 
 Accumulated deficit, beginning
   of period                    (1,025.0)   (1,341.9)    (1,305.0)   (1,363.9)
 Preferred stock dividends          (4.5)       (4.5)       (13.4)      (13.4)
------------------------------------------------------------------------------
 Accumulated deficit,
   end of period               $  (998.8)  $(1,319.7)   $  (998.8)  $(1,319.7)
==============================================================================
 Basic earnings per share
   (Note 6)  
   Weighted average shares         107.9       107.0        107.7       106.9 
   Income from continuing
     operations                $    0.24   $    0.24    $    0.64   $    0.43 
   Discontinued operations           -           -            -          0.01 
   Extraordinary loss on
     retirement of debt              -         (0.03)         -         (0.03)
   Cumulative effect of a
     change in accounting            -           -           2.20         -   
------------------------------------------------------------------------------
   Net income                  $    0.24   $    0.21    $    2.84   $    0.41 
------------------------------------------------------------------------------
 Diluted earnings per share
   (Note 6)  
   Weighted average shares         126.3       125.4        126.1       125.3 
   Income from continuing
     operations                $    0.23   $    0.22    $    0.60   $    0.42 
   Discontinued operations           -           -            -          0.01 
   Extraordinary loss on
     retirement of debt              -         (0.02)         -         (0.02)
   Cumulative effect of a
     change in accounting            -           -           1.89         -  
------------------------------------------------------------------------------
   Net income                  $    0.23   $    0.20    $    2.49   $    0.41 
------------------------------------------------------------------------------
 Cash dividends per share  
   $2.10 Class A               $   0.525   $   0.525    $   1.575   $   1.575 
   $3.625 Class A                  0.906       0.906        2.718       2.718 
  $4.50 Class B                    1.125       1.125        3.375       3.375 
<FN>
 See Notes to Condensed Consolidated Financial Statements.  
</TABLE>
                                      -3-
<PAGE>
<TABLE>
                                  ARMCO INC. 
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
                                  (Unaudited) 
 (Dollars in millions) 
<CAPTION>
                                                            Nine Months Ended 
                                                              September 30, 
                                                            ------------------
                                                              1998      1997
                                                            --------  --------
<S>                                                         <C>       <C>
Cash flows from operating activities: 
  Net income                                                $ 319.6   $  57.6 
  Adjustments to reconcile net income to net cash (used in) 
    provided by operating activities: 
    Depreciation expense                                       48.0      46.2 
    Net gain on disposal of investments and facilities         (0.9)     (2.8)
    Cumulative effect of accounting change                   (237.5)      -
    Extraordinary loss on retirement of debt                    -         3.0 
    Other                                                       5.4       3.8 
    Change in assets and liabilities: 
      Trade accounts and notes receivable                     (66.5)    (64.0)
      Inventories                                               3.4     (17.7)
      Payables and accrued operating expenses                 (38.4)     11.2 
      Employee benefit liabilities                            (35.9)     (5.0)
      Other assets and liabilities - net                       (9.1)     (0.7)
------------------------------------------------------------------------------
  Net cash (used in) provided by operating activities         (11.9)     31.6 
------------------------------------------------------------------------------
Cash flows from investing activities: 
  Net proceeds from the sale of businesses and assets           1.4       3.7 
  Proceeds from the sale of investments                         6.0       0.5 
  Purchase of liquid investments                               (7.6)      -
  Capital expenditures                                        (19.0)    (25.5)
  Other                                                         0.2       0.2 
------------------------------------------------------------------------------
  Net cash used in investing activities                       (19.0)    (21.1)
------------------------------------------------------------------------------
Cash flows from financing activities: 
  Proceeds from issuance of debt                                -       151.2 
  Payments on debt                                            (34.4)    (34.8)
  Dividends paid on preferred stock                           (13.4)    (13.4)
  Other                                                        (0.1)     (2.5)
------------------------------------------------------------------------------
  Net cash (used in) provided by financing activities         (47.9)    100.5 
------------------------------------------------------------------------------
Net change in cash and cash equivalents                       (78.8)    111.0 
Cash and cash equivalents:  
  Beginning of period                                         189.9     168.9 
------------------------------------------------------------------------------
  End of period                                             $ 111.1   $ 279.9 
------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: 
  Cash paid during the period for:
    Interest (net of capitalized interest)                  $  22.4   $  22.1 
    Income taxes                                                2.0       2.4 
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. 
</TABLE>
                                      -4-
<PAGE>

                                  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 September 30, 1998, results of operations for the 
three and nine months ended September 30, 1998 and 1997, and cash flows for 
the nine months ended September 30, 1998 and 1997. The results of operations 
for the nine months ended September 30, 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 nine months ended September 30, 1998, Armco 
recognized income of $237.5, or $2.20 per share ($1.89 per diluted share), for 
the cumulative effect of this accounting change.

At the time it originally 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, as a fourth quarter adjustment, any 
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 and nine months ended 
September 30, 1998, adoption of the new method increased income from 
continuing operations by $0.8 and $2.3, or approximately $0.01 and $0.02 per 
share, respectively. Assuming Armco had applied the accounting change 
retroactively, income from continuing operations and net income for the three 
and nine months ended September 30, 1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
                                   Three Months Ended   Nine Months Ended
                                      September 30,       September 30, 
                                   ------------------  ------------------
                                     1998      1997      1998      1997
                                   --------  --------  --------  --------
<S>                                 <C>       <C>       <C>       <C>
Income from continuing operations   $30.7     $30.7     $82.1     $62.1
Net income                           30.7      27.7      82.1      60.4
Basic earnings per share
  Income from continuing operations  0.24      0.25      0.64      0.46
  Net income                         0.24      0.22      0.64      0.44
Diluted earnings per share
  Income from continuing operations  0.23      0.23      0.60      0.45
  Net income                         0.23      0.20      0.60      0.43
</TABLE>
                                      -5-
<PAGE>
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. Certain 
amounts from December 31, 1997 have been reclassified to agree to the 1998 
presentation.
<TABLE>
<CAPTION>
                                             September 30,  December 31,
                                                 1998          1997 
                                               --------      --------
  <S>                                            <C>          <C>
  Inventories on LIFO:
    Finished and semi-finished                   $279.6       $280.3
    Raw materials                                  15.9         25.8
    Adjustment to state inventories at LIFO value (51.5)       (54.0)
                                                 -------      -------
        Total                                     244.0        252.1
  Inventories on average cost:
    Finished and semi-finished                     15.8         10.8
    Raw materials and supplies                      4.8          5.1
                                                 -------      -------
        Total                                      20.6         15.9
                                                 -------      -------
        Total inventories                        $264.6       $268.0
                                                 =======      =======
</TABLE>
3.  Sundry other - net in the Condensed Consolidated Statements of Income and 
Accumulated Deficit includes income of $6.1 and $18.1 for the three and nine 
months ended September 30, 1998, income of $0.1 for the three months ended 
September 30, 1997 and net expense of $2.0 for the nine months ended September 
30, 1997 for employee benefit obligations related to facilities that have been 
shut down or divested. The improvement in results for 1998 was primarily due 
to prior years' favorable investment returns on pension plan assets and lower 
than expected increases in medical benefit costs.

In the three and nine months ended September 30, 1997, sundry other - net 
included a one-time gain of $4.0 on the settlement of certain partially 
impaired long-term receivables.

4.  In the nine months ended September 30, 1997, Armco recorded $1.3 of income 
from discontinued operations for a tax refund related to a company in the 
previously divested Aerospace and Strategic Materials business segment.

5.  In the three and nine months ended September 30, 1997, Armco recognized a 
$3.0 extraordinary loss for the early retirement of certain debt. The debt was 
refinanced with a $150.0 issue of 9% Senior Notes due 2007.

6.  The following information was used in the calculation of basic and diluted 
earnings per share in accordance with Statement of Financial Accounting 
Standards No. 128, Earnings Per Share.
<TABLE>
<CAPTION>
                                   Three Months Ended   Nine Months Ended
                                      September 30,       September 30,
                                   ------------------  ------------------
                                     1998      1997      1998      1997
                                   --------  --------  --------  --------
<S>                                 <C>       <C>       <C>       <C>
Income from continuing operations
Income as reported                  $30.7     $29.7     $82.1     $59.3
Less:  Preferred stock dividends     (4.5)     (4.5)    (13.4)    (13.4)
                                   --------  --------  --------  --------
Income available to common 
  shareholders - Basic               26.2      25.2      68.7      45.9
Assumed conversion of $3.625 
  Preferred Stock, Class A            2.5       2.5       7.3       7.3
                                   --------  --------  --------  --------
Income available to common 
  shareholders - Diluted            $28.7     $27.7     $76.0     $53.2
                                   ========  ========  ========  ========
</TABLE>
                                      -6-
<PAGE>
<TABLE>
<CAPTION>
                                   Three Months Ended   Nine Months Ended
                                      September 30,       September 30,
                                   ------------------  ------------------
                                     1998      1997      1998      1997
                                   --------  --------  --------  --------
<S>                                 <C>       <C>       <C>       <C>
Common Shares (in millions)
Weighted average shares 
  outstanding - Basic               107.9     107.0     107.7     106.9
Assumed exercise of stock options     0.1       0.1       0.1       0.1
Assumed conversion of $3.625 
  Preferred Stock, Class A           18.3      18.3      18.3      18.3
                                   --------  --------  --------  --------
Weighted average shares 
  outstanding - Diluted             126.3     125.4     126.1     125.3
                                   ========  ========  ========  ========
</TABLE>
7.  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, North Atlantic Insurance Company, a group of international 
insurance companies previously affiliated with AFSG and sold in 1991, filed an 
application for voluntary liquidation in the United Kingdom. As a result of 
this voluntary liquidation filing, certain claims have been asserted against 
NNIC by insureds of North Atlantic. NNIC is defending these claims as well as 
pursuing related claims against third parties, including North Atlantic. 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 September 30, 1998, Armco had recorded in its Condensed Consolidated 
Balance Sheets, legal and environmental reserves of $63.6, of which $12.1 was 
classified as a current liability.

8.  Effective January 1, 1998, Armco adopted Statement of Financial Accounting 
Standards No. 130, Reporting Comprehensive Income (SFAS No. 130). SFAS No. 130 
requires Armco to report "other comprehensive income," as defined in the 
standard, that is not otherwise presented in its Condensed Consolidated 
Statements of Income. Currently, Armco's other comprehensive income consists 
                                      -7-
<PAGE>
solely of foreign currency translation adjustments related to its European 
subsidiaries. For the three and nine months ended September 30, 1998 and 1997, 
comprehensive income was as follows:
<TABLE>
<CAPTION>
                                    Three Months Ended   Nine Months Ended
                                      September 30,       September 30,
                                   ------------------  ------------------
                                     1998      1997      1998      1997
                                   --------  --------  --------  --------
<S>                                 <C>       <C>      <C>        <C>
Net income                          $30.7     $26.7    $319.6     $57.6
Foreign currency translation
  adjustment                          0.1      (1.1)     (0.4)     (2.6)
                                    ------    ------   -------    ------
Comprehensive income                $30.8     $25.6    $319.2     $55.0
                                    ======    ======   =======    ======
</TABLE>
9.  At its October 23, 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 Convertible Preferred Stock, Class 
A; and $4.50 Cumulative Convertible Preferred Stock, Class B. Payment of 
dividends on Armco's common stock is currently limited or prohibited under the 
terms of certain of Armco's debt instruments and inventory credit facility.

10.  Information relating to Armco's industry segments can be found on page 
14.


                                  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 and nine months ended September 30, 
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
                                   Three Months Ended   Nine Months Ended
                                      September 30,       September 30,
                                   ------------------  ------------------
                                     1998      1997      1998      1997
                                   --------  --------  --------  --------
<S>                                 <C>       <C>      <C>       <C>
Net sales                           $415.4    $461.3   $1,313.2  $1,392.9
Operating profit                      30.3      34.0       83.4      81.2
Sundry other-net                       7.0       3.2       19.8      (0.8)
Income from continuing operations     30.7      29.7       82.1      59.3
Discontinued operations                -         -          -         1.3
Extraordinary loss on retirement
  of debt                              -        (3.0)       -        (3.0)
Cumulative effect of a change in 
 accounting for postretirement
  benefits                             -         -        237.5       -
Net income                            30.7      26.7      319.6      57.6
Basic earnings per share -
  Income from continuing operations   0.24      0.24       0.64      0.43
  Net income                          0.24      0.21       2.84      0.41
Diluted earnings per share -
  Income from continuing operations   0.23      0.22       0.60      0.42
  Net income                          0.23      0.20       2.49      0.41
</TABLE>
                                      -8-
<PAGE>
Net sales in the three and nine months ended September 30, 1998 were $45.9 and 
$79.7 lower than in the respective periods of last year, primarily due to 
reduced pricing across all steel product lines, lower volume in the specialty 
semi-finished and galvanized steel product lines, and lower snowplow 
shipments.

Operating profit in the three months ended September 30, 1998 was 11% lower 
than the amount reported in the same period last year, reflecting lower steel 
prices and declining results in the Fabricated Products business segment, 
partially offset by lower pension and retiree medical benefit expenses and a 
one-time gain of $7.1 for a settlement with a vendor. Postretirement employee 
benefit expenses in the current year were again lower as a result of prior 
years' favorable investment returns on pension plan assets and lower than 
expected increases in medical benefit costs. 

The change in sundry other - net between 1997 and 1998 is primarily the result 
of lower expenses related to long-term benefit obligations for former 
employees of Armco facilities that have been shut down or divested. This was 
primarily due to prior years' favorable investment returns on pension plan 
assets and lower than expected increases in medical benefit costs. In the 
three and nine months ended September 30, 1998, an additional gain of $1.1 for 
the above mentioned vendor settlement is reflected in sundry other - net. This 
amount was related to a previously divested business. In the three and nine 
months ended September 30, 1997, sundry other - net included a one-time gain 
of $4.0 on the settlement of certain partially impaired long-term receivables.

In the nine months ended September 30, 1997, Armco recorded $1.3 of income 
from discontinued operations for a tax refund related to a company in the 
previously divested Aerospace and Strategic Materials business segment.

In the three and nine months ended September 30, 1997, Armco recognized a $3.0 
extraordinary loss on the early retirement of debt. The debt was refinanced 
with a $150.0 issue of 9% Senior Notes due 2007.

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 nine months ended September 30, 1998, Armco 
recognized income of $237.5, or $2.20 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 into income, as a fourth 
quarter adjustment, 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 and nine months ended 
September 30, 1998, adoption of the new method increased income from 
continuing operations by $0.8 and $2.3 or approximately $0.01 and $0.02 per 
share, respectively. However, a decline in interest rates or a marked 
deterioration in earnings on pension plan assets in the last three months of 
1998, could cause Armco to recognize a charge in the fourth quarter related to 
unrecognized losses outside the 10% corridor. While Armco does not currently 
expect that unrecognized losses will exceed the 10% corridor, if such a 
circumstance occurred as of the end of the year, the resulting charge could be 
material. 

Armco may be required to recognize a reduction in shareholders' equity at 
December 31, 1998 to record a minimum pension liability in accordance with 
current pension accounting rules. The amount of such reduction, if any, will 
depend on the performance of the pension assets during the fourth quarter and 
the effects of the then prevailing interest rates used to determine the 
present value of pension liabilities at year-end.  While the amount of such 
reduction in shareholders' equity cannot be determined until year-end, if such 
a determination was made as of October 31, 1998, a $65.0 charge would have 
been required. The reduction, if any, will not affect Armco's net income.

As a result of expected lower pension funded status at year-end, Armco 
anticipates higher pension expense in 1999. This would adversely affect 
operating profit and sundry other - net. However, Armco 
                                      -9-
<PAGE>
does not expect any of the above adjustments to result in additional required 
pension contributions in 1999.

BUSINESS SEGMENT RESULTS
------------------------
Specialty Flat-Rolled Steels
----------------------------
<TABLE>
<CAPTION>
                                   Three Months Ended   Nine Months Ended
                                      September 30,       September 30,
                                   ------------------  ------------------
                                     1998      1997      1998      1997
                                   --------  --------  --------  --------
<S>                                 <C>       <C>      <C>       <C>
Net sales                           $332.8    $365.4   $1,100.4  $1,143.3
Operating profit                      23.1      20.7       76.7      65.4
</TABLE>
In the three months ended September 30, 1998, net sales for the segment were 
9% lower than in the same period one year ago, primarily as a result of 
reduced specialty steel pricing, lower volumes of specialty semi-finished and 
galvanized steels and the General Motors labor strike. Overall, 1998 third 
quarter average sales per ton decreased 4% compared to 1997, as record import 
levels continue to depress pricing across most stainless and electrical 
product lines.

Customer sales and shipments by major product line were as follows:
<TABLE>
<CAPTION>
                            Three Months Ended           Nine Months Ended
                               September 30,               September 30,
                        -------------------------   -------------------------
                            1998          1997          1998          1997
                        -----------   -----------   -----------   -----------
                         Sales Tons    Sales Tons    Sales Tons    Sales Tons
(tons in thousands)     ------ ----   ------ ----   ------ ----   ------ ----
<S>                     <C>    <C>    <C>    <C>   <C>     <C>    <C>    <C>
Specialty flat-rolled   $269.1  195   $269.9  182  $ 868.2  631   $838.3  571
Specialty semi-finished   19.7   24     45.2   38    105.3  105    150.4  125
Galvanized/carbon         35.1   66     43.2   80    101.5  189    129.8  242
Other                      8.9    -      7.1    -     25.4    -     24.8    -
                        ------ ----   ------ ---- -------- ---- -------- ----
     Total              $332.8  285   $365.4  300 $1,100.4  925 $1,143.3  938
                        ====== ====   ====== ==== ======== ==== ======== ====
</TABLE>
In the first nine months of 1998, shipments of specialty flat-rolled products, 
which include automotive exhaust stainless, electrical steel and specialty 
sheet and strip, increased 10.5% over 1997. Higher shipments of automotive 
exhaust stainless, in spite of the General Motors strike, and record shipments 
of 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 6% in the 
year-to-year comparison.

Specialty semi-finished shipments and average sales per ton decreased 
substantially in the first nine months of 1998 versus the same period in 1997 
reflecting worldwide market softness and the effect of increased imports. 
Pricing was also affected by declining raw material costs, primarily costs for 
nickel.

Galvanized carbon steel shipments, produced by the Dover Operations from 
purchased cold rolled bands, decreased 22% as a result of increases in 
domestic competition and low-priced imports.

In the first nine months of 1998, operating profit increased $11.3 over the 
same period in 1997, primarily as a result of a settlement with a vendor and 
reduced pension and other retiree benefit expenses. The one-time gain of $7.1 
for the Specialty Flat-Rolled Steels portion of the settlement is reflected in 
the segment's operating profit for the three and nine months ended September 
30, 1998.
                                      -10-
<PAGE>
Outlook: Shipment levels in the fourth quarter of 1998 are expected to remain 
near the same levels as the third quarter. The labor strike at General Motors 
should have little effect on Armco's 1998 results taken as a whole, as sales 
lost in the third quarter are expected to be made up in the fourth quarter. 
Shipments and net sales for 1999 will depend on consumer demand for durable 
goods, the outcome of the trade cases discussed below and whether recent price 
increases for stainless steels are realized.

During the remainder of the year, high levels of specialty steel imports are 
expected to continue to depress pricing. However, in June 1998, Armco and 
other domestic producers of flat-rolled stainless sheet and strip products 
filed petitions with the U.S. Department of Commerce and the International 
Trade Commission charging eight foreign countries with violations of U.S. 
trade laws. A finding that unfairly traded imports have caused injury to 
domestic producers could result in tariffs that may help slow the flood of 
imports, but probably not until 1999. On July 24, 1998, the International 
Trade Commission issued its preliminary finding that there has been injury to 
domestic producers. A preliminary determination on antidumping margins is 
expected to be made by the U.S. Department of Commerce on December 17, 1998. 
However, there can be no assurance of a successful final outcome and the 
imposition of tariffs on imports.

Armco has reduced production turns at the Butler and Mansfield melt shops, 
along with selected finishing operations, in an effort to match production to 
order levels and balance inventories. A reduction in production turns can be 
expected to unfavorably impact costs. In addition, pension and other post-
retirement benefit expenses are expected to increase in 1999, adversely 
affecting the segment's results.

Fabricated Products
-------------------
<TABLE>
<CAPTION>
                                   Three Months Ended   Nine Months Ended
                                      September 30,       September 30,
                                   ------------------  ------------------
                                     1998      1997      1998      1997
                                   --------  --------  --------  --------
<S>                                  <C>       <C>      <C>       <C>
Net sales                            $82.6     $95.9    $212.8    $249.6
Operating profit                      14.0      19.5      22.2      34.0
</TABLE>
Net sales in the three and nine months ended September 30, 1998 decreased 
$13.3 and $36.8, respectively, compared to 1997. Lower customer sales at 
Douglas Dynamics reflected significantly below average snowfall this past 
winter in its major markets resulting in relatively high dealer inventories, 
which affected both snowplow and ice control product shipments. A decline in 
operating profit also reflected the lower shipment levels. 

Net sales and operating profit at Sawhill Tubular decreased on lower volume 
and selling prices, which reflected softness in the market. Greens Port's 
revenues and operating profit for 1998 increased over last year in both the 
quarter and first nine months.

Outlook: High dealer inventories, resulting from last winter's mild weather, 
are expected to depress snowplow shipments during the remainder of 1998. 
Shipments and net sales for 1999 will depend heavily on the amount of snowfall 
this winter in Douglas Dynamics' market areas and the strength of four wheel 
drive light truck sales. Tubular sales and operating profit are expected to 
remain flat with slight volume increases offset by increasing pressure on 
pricing from excess capacity and imported pipe. Greens Port is expected to 
maintain its current performance level.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 1998, Armco had $123.7 of cash, cash equivalents and liquid 
investments compared to $194.9 at December 31, 1997. Cash, cash equivalents 
and liquid investments decreased $71.2 during the first nine months of 1998, 
primarily due to principal payments on debt of $34.4, capital expenditures of
                                      -11-
<PAGE>
$19.0, preferred stock dividend payments of $13.4 and $11.9 of cash used by 
operations, principally as a result of increases in working capital. Partially 
offsetting these cash outflows were $7.4 of proceeds from the sale of assets 
and investments. 

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 
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 
September 30, 1998, no borrowings were outstanding under either facility. 
However, Armco had outstanding $61.1 of letters of credit and a total of $92.5 
was available for borrowing under both facilities. 

The inventory credit facility expires at the end of 1998 and Armco is 
currently in negotiations with its bank group to extend this facility. Armco 
Funding Corporation is currently in discussions with its bank group to 
renegotiate and extend its receivables facility, which currently expires at 
the end of 2000. Armco expects that the extended facilities, with total 
commitments of $170.0, will be in place prior to the end of the year.

Armco anticipates cash outlays of approximately $20.0 during the remainder of 
1998 and $55.0 to $65.0 in 1999 for capital expenditures, which it expects to 
be paid out of existing cash balances and cash generated from operations.

On October 23, 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 December 31, 1998 to shareholders of 
record on November 27, 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 January 4, 1999 to shareholders of record on 
November 27, 1998. Payment of dividends on Armco's common stock is currently 
limited or prohibited under the terms of certain of Armco's debt instruments 
and inventory credit facility.

NEW ACCOUNTING STANDARD
-----------------------
In June 1998, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 133, Accounting for Derivative Instruments 
and Hedging Activities (SFAS No. 133). Armco intends to adopt the new standard 
when required in 2000. Armco does not expect that SFAS No. 133 will have a 
material effect on its financial statements; however, its effect, if any, will 
depend on Armco's exposure to derivative instruments at the time of adoption 
and thereafter.

THE YEAR 2000 ISSUE
-------------------
Many existing computer systems may not be able to appropriately interpret 
dates after December 31, 1999 because such systems allow only two digits to 
indicate a year in the date field. If not corrected, many computers and 
computer applications could fail or create erroneous results, causing safety, 
operational and financial problems. If such a failure were to occur to certain 
of its computer systems, Armco's manufacturing and financial systems could be 
temporarily shut down, resulting in a material adverse effect on its financial 
condition, liquidity and results of operations. In addition, the failure of 
vendor computer systems could cause interruption of deliveries of key supplies 
or utilities, which might result in similar material adverse impacts. Because 
of the complexity of the issues and the number of parties involved, Armco 
cannot reasonably predict with certainty the nature or likelihood of such 
impacts.
                                      -12-
<PAGE>
However, Armco, using its internal staff and outside consultants, is actively 
addressing this situation and anticipates that it will not experience a 
material adverse impact to its operations, liquidity or financial condition 
related to systems under its control. Armco has completed an assessment of 
substantially all business information, manufacturing and facility control 
systems to identify areas of concern. Armco is in the process of modifying or 
replacing noncompliant computer hardware and software used internally. In 
addition, Armco has surveyed its suppliers in regard to their Year 2000 
preparations, focusing on those suppliers most critical to its operations. 
Armco intends to continue to monitor the Year 2000 compliance efforts of its 
suppliers and to obtain, to the extent possible, assurances that they will be 
able to deliver their products and services without interruption. 

To prepare for the reasonably likely worst case scenario, Armco is developing 
a contingency plan designed to mitigate the effects on its operations in case 
certain of its systems or suppliers fail to perform as planned. This plan is 
expected to be completed by the end of the second quarter of 1999. Contingency 
planning will consist of providing all required resources to repair internal 
systems should they fail at critical times, as well as establishing additional 
inventories and back-up procedures in the event suppliers are unable to 
deliver raw materials and services in a timely manner. 

Armco has prioritized its efforts, planning to complete work on noncompliant 
systems in the most critical areas first, with the expectation that virtually 
all Year 2000 compliance activities, including system testing, will be 
completed by September 30, 1999. In this process, Armco has redirected its 
systems resources from noncritical projects to Year 2000 compliance 
activities, resulting in an immaterial increase in expense. Armco currently 
anticipates that it will spend approximately $6.0 and $11.0 in 1998 and 1999, 
respectively, on Year 2000 compliance activities. These expenditures, which 
are expected to consist primarily of capital expenditures, outside consultants 
and internal personnel costs, have been and will be funded out of operating 
cash flows.

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", the sections entitled NEW ACCOUNTING 
                                                               --------------
STANDARD and THE YEAR 2000 ISSUE, and Note 7 relating to contingencies. They 
--------     -------------------
also include the discussion regarding the 1998 accounting change in the 
section entitled GENERAL.
                 -------
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 
currently expected by management. In addition to those risk factors 
specifically noted in the above referenced Management's Discussion and 
Analysis and Notes, such factors include, but are not limited to, the 
following:  risks of a downturn in the general economy or in the highly 
cyclical steel industry; volatility in financial markets, which may affect 
invested pension plan assets and the calculation of benefit plan liabilities 
and expenses; 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.
                                      -13-
<PAGE>
<TABLE>
                                   ARMCO INC.  
                                 SEGMENT REPORT  
                                  (Unaudited)  
 (Dollars in millions)  
<CAPTION>
                                      1998                    1997   
                               ------------------   -------------------------
                               3rd    2nd    1st    4th    3rd    2nd    1st 
                               Qtr.   Qtr.   Qtr.   Qtr.   Qtr.   Qtr.   Qtr. 
                              -----  -----  -----  -----  -----  -----  -----
<S>                          <C>    <C>    <C>    <C>    <C>    <C>    <C>
Specialty Flat-Rolled Steels:  
  Customer sales             $332.8 $376.2 $391.4 $353.7 $365.4 $402.9 $375.0 
  Operating profit             23.1   27.1   26.5   23.2   20.7   22.3   22.4 
 
Fabricated Products:  
  Customer sales               82.6   73.9   56.3   82.7   95.9   87.4   66.3 
  Operating profit (loss)      14.0    9.6   (1.4)   7.9   19.5   11.9    2.6 
 
Corporate general              (6.8)  (4.9)  (3.8)  (6.9)  (6.2)  (6.2)  (5.8)
------------------------------------------------------------------------------
Total operating profit         30.3   31.8   21.3   24.2   34.0   28.0   19.2 
 
Interest income                 1.9    1.6    2.5    3.2    2.5    2.4    2.5 
Interest expense               (7.0)  (7.1)  (7.6)  (8.8)  (9.5)  (8.5)  (8.7)
Sundry other - net              7.0    6.9    5.9   (0.3)   3.2   (0.6)  (3.4)
------------------------------------------------------------------------------
Income before income taxes     32.2   33.2   22.1   18.3   30.2   21.3    9.6 
 
Provision for income taxes     (1.5)  (2.1)  (1.8)  (0.5)  (0.5)  (1.1)  (0.2)
------------------------------------------------------------------------------
Income from continuing
  operations                   30.7   31.1   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                   $ 30.7 $ 31.1 $257.8 $ 19.2 $ 26.7 $ 21.5 $  9.4 
==============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.  
</TABLE>
                                       -14-
<PAGE>

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, 19983 (the Form 10-K) and Armco's Quarterly Reports 
on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 
(the Form 10-Qs).  The following summarizes significant developments in 
previously reported matters and any material claims asserted since June 
30, 1998:

On September 30, 1998, the United States Environmental Protection Agency 
("USEPA") issued an order under Section 3013 of the Resource 
Conservation and Recovery Act requiring environmental investigation at 
Armco's Mansfield Operations.  The cost of the investigation is not 
expected to have a material effect on future, interim or annual results 
of operations.  Armco has filed a complaint against the USEPA in the 
U.S. District Court for the Northern District of Ohio, Eastern Division, 
which seeks injunctive relief and to set aside penalties during the 
pendency of the legal proceeding.  Armco believes the order is without 
legal basis and is technically unnecessary due to the results of past 
USEPA investigations and sampling at Mansfield.  While Armco believes 
the court should set aside penalties, if the court does not set aside 
these penalties, the USEPA can assert its authority to assess $5,500 a 
day in penalties for each violation of the order.

The total liability of those claims described under ITEM 3.  LEGAL 
PROCEEDINGS in the Form 10-K or under Item 1 in the Form 10-Q 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 6.   Exhibits and Reports on Form 8
          ------------------------------

A.        The following is an index of the exhibits included in the Form
          10-Q:

          None

B.        No Report on Form 8-K was filed by Armco during the quarter
          ended March 31, 1998.

                                       -15-
<PAGE>


                                  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    November 5, 1998           /s/ Jerry W. Albright 
      ---------------------        ---------------------------------------
                                   Jerry W. Albright
                                   Vice President and Chief Financial Officer



Date    November 5, 1998           /s/ John N. Davis 
      ---------------------        ---------------------------------------
                                   John N. Davis
                                   Vice President and Controller

                                      -16-
<PAGE>