<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        June 30, 1997
                               --------------------------------------
                                           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    X    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 June 30, 1997:  107,049,587
<PAGE>

ARMCO INC.
                                    INDEX



                                                                          
Pages


Part I.    Financial Information

           Condensed Statement of Consolidated Financial Position -
             June 30, 1997 and December 31, 1996                             2

           Condensed Statement of Consolidated Income and Accumulated 
             Deficit - Three and Six Months Ended June 30, 1997 and 1996     3

           Condensed Statement of Consolidated Cash Flows - 
             Six Months Ended June 30, 1997 and 1996                         4

           Notes to Condensed Consolidated Financial Statements            5-6

           Management's Discussion and Analysis of the Condensed
             Consolidated Financial Statements                            7-10

           Segment Report                                                   11


Part II.   Other Information

           Item 1.  Legal Proceedings                                       12

           Item 5.  Other Information                                       12

           Item 6.  Exhibits and Reports on Form 8-K                        12

           Signatures                                                       13

           Exhibit 11  Computation of  Earnings (Loss) Per Common Share

                                     -1-
<PAGE>

<TABLE>
                                  ARMCO INC.
              CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
                                 (Unaudited)
<CAPTION>
(Dollars in millions)                                June 30,     December 31,
                                                       1997          1996
                                                    ----------     ----------
<S>                                                 <C>            <C>
ASSETS 
Current assets 
   Cash and cash equivalents                        $   175.2      $   168.9 
   Receivables, less allowance for doubtful accounts    191.6          149.6 
   Inventories (Note 2)                                 265.0          246.9 
   Other                                                  5.9            6.4 
-----------------------------------------------------------------------------
Total current assets                                    637.7          571.8 

Investments 
   Investment in Armco Financial Services Group (Note 6) 85.6           85.6 
   Other, less allowance for impairment                  47.7           52.4 

Property, plant and equipment                         1,284.1        1,267.7 
Accumulated depreciation                               (627.4)        (597.6)
-----------------------------------------------------------------------------
Property, plant and equipment - net                     656.7          670.1 

Deferred tax asset                                      325.8          325.8 
Goodwill and other intangible assets                    141.5          144.8 
Other assets                                             12.7           17.3 
-----------------------------------------------------------------------------
Total assets                                         $1,907.7       $1,867.8 
-----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
   Trade accounts and notes payable                 $   163.0      $   136.3 
   Employment-related obligations                       112.6          115.1 
   Other liabilities                                     68.4           79.6 
   Current portion of long-term debt                     27.3           27.2 
-----------------------------------------------------------------------------
Total current liabilities                               371.3          358.2 

Long-term debt, less current portion                    337.0          344.3 
Long-term employee benefit obligations                1,203.7        1,200.2 
Other liabilities                                       186.0          177.1 
Commitments and contingencies (Note 6)
Shareholders' deficit (Note 7)
   Preferred stock - Class A                            137.6          137.6 
   Preferred stock - Class B                             48.3           48.3 
   Common stock                                           1.1            1.1 
   Additional paid-in capital                           967.4          965.0 
   Accumulated deficit                               (1,341.9)      (1,363.9)
   Other                                                 (2.8)          (0.1)
-----------------------------------------------------------------------------
Total shareholders' deficit                            (190.3)        (212.0)
-----------------------------------------------------------------------------
Total liabilities and shareholders' deficit          $1,907.7       $1,867.8 
-----------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
                                   -2-
<PAGE>
<TABLE>
                                  ARMCO INC.
                  CONDENSED STATEMENT OF CONSOLIDATED INCOME
                           AND ACCUMULATED DEFICIT
                                 (Unaudited)
(Dollars and shares in millions,
  except per share amounts)
<CAPTION>
                                   Three Months Ended       Six Months Ended
                                        June 30,                June 30,
                                   -------------------    -------------------
                                     1997       1996        1997       1996
                                   --------   --------    --------   --------
<S>                               <C>        <C>         <C>        <C>
Net sales                         $   490.3  $   450.8   $   931.6  $   881.2 

Cost of products sold                (436.1)    (414.3)     (833.6)    (805.6)
Selling and administrative expenses   (26.2)     (24.3)      (50.8)     (48.3)
------------------------------------------------------------------------------
Operating profit                       28.0       12.2        47.2       27.3 
 
Interest income                         2.4        2.8         4.9        5.8 
Interest expense                       (8.5)      (9.3)      (17.2)     (18.5)
Sundry other - net (Note 3)            (0.6)      (9.5)       (4.0)     (11.1)
------------------------------------------------------------------------------
Income (loss) before income taxes      21.3       (3.8)       30.9        3.5 
 
Provision for income taxes             (1.1)      (0.2)       (1.3)      (0.6)
------------------------------------------------------------------------------
Income (loss) from continuing 
   operations                          20.2       (4.0)       29.6        2.9 
 
Discontinued operations -  
   Gain on sale of Aerospace and 
     Strategic Materials (Note 5)       1.3         -          1.3         -
------------------------------------------------------------------------------
Net income (loss)                      21.5       (4.0)       30.9        2.9 
 
Accumulated deficit, beginning of
   period                          (1,359.0)  (1,376.1)   (1,363.9)  (1,378.5)
Preferred stock dividends              (4.4)      (4.4)       (8.9)      (8.9)
------------------------------------------------------------------------------
Accumulated deficit, end of
   period                         $(1,341.9) $(1,384.5)  $(1,341.9) $(1,384.5)
------------------------------------------------------------------------------
 
Weighted average number of common 
   and common equivalent shares 
   outstanding - primary              107.1      106.7       106.9      106.5 
Net income applicable to 
   common stock                   $    17.1  $    (8.4)  $    22.0  $    (6.0)
 
Income (loss) per common share
   from continuing operations          0.15      (0.08)       0.20      (0.06)
Income per share from 
   discontinued operations             0.01         -         0.01         -
------------------------------------------------------------------------------
Net income (loss) per common 
share - primary                   $    0.16  $   (0.08)  $    0.21  $   (0.06)
Net income (loss) per common
   share - fully diluted                 *          *           *          *  

Cash dividends per share 
   $2.10 Class A                  $   0.525  $   0.525   $   1.050  $   1.050 
   $3.625 Class A                     0.906      0.906       1.813      1.813 
   $4.50 Class B                      1.125      1.125       2.250      2.250 
<FN>
* Antidilutive or dilution less than 3% 

See Notes to Condensed Consolidated Financial Statements. 
</TABLE>
                                     -3-
<PAGE>
<TABLE>
                                  ARMCO INC. 
               CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS 
                                 (Unaudited) 
<CAPTION>
(Dollars in millions)                                       Six Months Ended
                                                                June 30, 
                                                          -------------------
                                                            1997       1996
                                                          --------   --------
<S>                                                        <C>        <C>
Cash flows from operating activities: 
  Net income                                               $ 30.9     $  2.9 
  Adjustments to reconcile net income to net cash 
  provided by operating activities: 
    Depreciation expense                                     30.8       29.3 
    Net gain on disposal of investments and facilities       (1.0)      (1.4)
    Other                                                     4.9       (1.1)
  Change in assets and liabilities: 
    Trade accounts and notes receivable                     (44.7)     (30.4)
    Inventory                                               (18.1)     (10.2)
    Payables and accrued operating expenses                  30.2       11.7 
    Employee benefit obligations                             (1.0)      11.3 
    Other assets and liabilities - net                        2.6       (2.4)
-----------------------------------------------------------------------------
  Net cash provided by operating activities                  34.6        9.7 
-----------------------------------------------------------------------------
Cash flows from investing activities:  
  Net proceeds from the sale of businesses and assets         2.5        4.9 
  Proceeds from the sale of investments                       0.3       79.2 
  Contributions to investees                                  -         (3.6)
  Capital expenditures                                      (15.1)     (27.0)
  Other                                                      (0.2)      (6.4)
-----------------------------------------------------------------------------
  Net cash (used in) provided by investing activities       (12.5)      47.1 
-----------------------------------------------------------------------------
Cash flows from financing activities: 
  Proceeds from drawdown of debt                              2.0        0.6 
  Payments on debt                                           (7.4)      (3.2)
  Dividends paid                                             (8.9)      (8.9)
  Other                                                      (1.5)      (1.1)
-----------------------------------------------------------------------------
  Net cash used in financing activities                     (15.8)     (12.6)
-----------------------------------------------------------------------------
Net change in cash and cash equivalents                       6.3       44.2 
Cash and cash equivalents:  
  Beginning of period                                       168.9      136.8 
-----------------------------------------------------------------------------
  End of period                                            $175.2     $181.0 
-----------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
  Cash paid during the period for: 
    Interest (net of capitalized interest)                 $ 16.6     $17.4 
    Income taxes                                              1.6       0.6 
Supplemental schedule of noncash investing and 
  financing activities:
  Issuance of restricted stock                                2.4       3.0 
  Note received in partial payment for asset sale             0.3      10.6 
<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 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, 1996.  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 
June 30, 1997, its results of operations for the three and six months ended 
June 30, 1997 and 1996, and its cash flows for the six months ended June 30, 
1997 and 1996.  The results of operations for the three and six months ended 
June 30, 1997 are not necessarily indicative of the results to be expected for 
the year 1997.

Certain amounts in the prior year financial statements have been reclassified 
to conform to the 1997 presentation.

 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.
<TABLE>
<CAPTION>
                                                June 30,     December 31,
                                                  1997           1996 
                                                --------       --------
<S>                                             <C>            <C>
Inventories on LIFO:
  Finished and semi-finished                    $ 268.9        $ 259.0
  Raw materials and supplies                       25.3           21.4
  Adjustment to state inventories at LIFO value   (55.3)         (52.8)
                                                --------       --------
      Total                                       238.9          227.6
                                                --------       --------
Inventories on average cost:
  Finished and semi-finished                       19.8           11.9
  Raw materials and supplies                        6.3            7.4
                                                --------       --------
      Total                                        26.1           19.3
                                                --------       --------
      Total inventories                         $ 265.0        $ 246.9
                                                ========       ========
</TABLE>
3.  Sundry other - net in Armco's Condensed Statement of Consolidated Income 
and Accumulated Deficit includes $0.5 and $2.1 for the three and six months 
ended June 30, 1997 and $7.9 and $15.8 for the three and six months ended June 
30, 1996, respectively, of expense for employee benefit obligations related to 
facilities that have been divested.  The reduction in expense in 1997 is 
primarily due to favorable investment returns on pension plan assets and 
favorable experience in pension and retiree medical benefit costs.

In the six months ended June 30, 1996, Sundry other - net includes a gain of 
$6.3, which resulted from the recognition of gains previously deferred in 
connection with asset sales at the Greens Port Industrial Park, which operates 
a loading dock on the Houston Ship Channel, and leases buildings and land 
located on its property to third parties.  

4.  Effective January 1, 1997, having reevaluated its plan to sell the 
remaining assets of Greens Port as a single entity, Armco began to report the 
consolidated results of the operations of the industrial park in its 
Fabricated Products business segment.  In the first six months of 1997, Greens 
Port had revenues of $3.5 and operating profit of $2.2.  
                                     -5-
<PAGE>
5.  In the three and six months ended June 30, 1997, Armco recorded $1.3 of 
income in discontinued operations for a state tax refund related to a company 
in the previously divested Aerospace and Strategic Materials business segment.

6.  There are various claims pending involving Armco and its subsidiaries 
regarding product liability, antitrust, patent, employee benefits, 
environmental, reinsurance and insurance arrangements, and other matters 
arising out of the conduct of Armco's business.  

Like other manufacturers, Armco is subject to various environmental laws.  
These laws necessitate expenditures to assure compliance at Armco's facilities 
and to remediate sites where contamination has occurred.  Compliance costs are 
either expensed as they are incurred or, when appropriate, are recorded as 
capital expenditures.  Armco has accrued its estimate of remediation costs for 
sites where it is probable that a liability has been incurred and the amount 
can be reasonably estimated.  The recorded amounts are currently believed by 
management to be sufficient.  However, such estimates could significantly 
change in future periods to reflect new laws or regulations, advances in 
technologies, additional sites requiring remediation, new remediation 
requirements at existing sites, and Armco's share of liability at multi-party 
sites.  

There are various pending matters relating to litigation, arbitration and 
regulatory affairs arising out of the 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 reinsurance transactions entered into with these 
companies.  Armco believes that its investment in AFSG will not be materially 
affected as a result of pending claims, contingent liabilities or matters 
related to AFSG.

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 June 30, 1997, Armco had recorded in its Condensed Statement of 
Consolidated Financial Position, legal and environmental reserves of $78.1, of 
which $15.3 was classified as current.

7.  Under the terms of the indentures for Armco's 11.375% Senior Notes Due 
1999 and 9.375% Senior Notes Due 2000, Armco cannot pay a dividend on its 
common stock or repurchase its capital stock, unless it meets certain 
financial tests described in the indentures.  Armco does not expect to be able 
to meet all of these tests in the near future.

At its July 25, 1997 meeting, the Board of Directors declared the regular 
quarterly dividends payable on Armco's $2.10 Cumulative Convertible Preferred 
Stock, Class A, $3.625 Cumulative Convertible Preferred Stock, Class A, and 
$4.50 Cumulative Convertible Preferred Stock, Class B.

8.  Information relating to Armco's industry segments can be found on page 11.

                                     -6-
<PAGE>

                                  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 six months ended June 30, 1997 
and 1996 were as follows:
<TABLE>
<CAPTION>
                                     Three Months Ended   Six Months Ended
                                          June 30,            June 30, 
                                    ------------------   ------------------
                                      1997      1996       1997      1996
                                    --------  --------   --------  --------
<S>                                  <C>       <C>        <C>       <C>
Net sales                            $490.3    $450.8     $931.6    $881.2
Operating profit                       28.0      12.2       47.2      27.3
Net income (loss)                      21.5      (4.0)      30.9       2.9
Earnings (loss) per common share       0.16     (0.08)      0.21     (0.06)
</TABLE>
Net sales in the three and six months ended June 30, 1997 were higher by $39.5 
and $50.4, respectively, than in the same periods last year, primarily due to 
increased volume of specialty semi-finished products and higher sales of 
galvanized steel products in the Specialty Flat-Rolled Steels segment, as well 
as sales growth in snowplows and tubular products in the Fabricated Products 
segment.

Operating profit in the three months ended June 30, 1997 was more than double 
the amount reported in the same period last year, reflecting a substantial 
improvement in the Specialty Flat-Rolled Steels business segment, higher sales 
of snowplows and favorable experience in pension and retiree medical benefit 
expenses.  Operating profit in the three- and six-month periods of 1997 
included $1.1 and $2.2, respectively, for income generated by Greens Port 
Industrial Park, which Armco began consolidating in the Fabricated Products 
business segment on January 1, 1997.  Prior to 1997, Greens Port was held for 
sale and its results were reported in Sundry other - net.

Operating profit, in the six months ended June 30, 1997 and 1996, included 
income of $2.0 and $4.2, respectively, related to partial settlement of 
business interruption insurance claims.  Excluding the results of Greens Port 
and the insurance credits, operating profit increased by $19.9 in the first 
six months of 1997 over the same period in 1996, primarily due to the reasons 
given for the quarterly improvement.

Included in net income for the first six months of 1996 was the above-
mentioned insurance settlement and $6.3 of gains previously deferred in 
connection with asset sales at Greens Port.  In addition, net income for the 
three and six months ended June 30, 1997 included $1.3 for a tax refund 
related to a company in the divested Aerospace and Strategic Materials 
business segment.  

Armco's net income also improved as a result of lower expenses related to 
long-term benefit obligations for employees of Armco facilities that have been 
divested.  The reductions of $7.4 and $13.7 for the three- and six-month 
period comparisons were primarily due to favorable investment returns on 
pension plan assets and lower pension and retiree medical benefit costs.

Earnings (loss) per common share reflects the deduction from net income of 
preferred stock dividends declared.

                                     -7-
<PAGE>
BUSINESS SEGMENT RESULTS
------------------------
Specialty Flat-Rolled Steels
----------------------------
<TABLE>
<CAPTION>
                                    Three Months Ended   Six Months Ended
                                          June 30,            June 30, 
                                    ------------------   ------------------
                                      1997      1996       1997      1996
                                    --------  --------   --------  --------
<S>                                  <C>       <C>        <C>       <C>
Customer sales                       $402.9    $376.1     $777.9    $748.2
Operating profit                       22.3      12.2       44.7      32.2
</TABLE>
Customer sales for the segment were 7% and 4% higher in the three and six 
months ended June 30, 1997 than in the respective periods in 1996, primarily 
as a result of increased volume of specialty semi-finished products and higher 
sales of galvanized steel products.  The segment's average sales per ton in 
1997 decreased from 1996 due to the effects of high levels of imports of 
stainless and electrical steels, partially offset by a shift in carbon steel 
product mix to higher priced galvanized products from lower priced hot bands.  
Specialty strip and sheet and semi-finished products were affected most by 
weakening prices. 

Customer sales and shipments by major product line and total cast production 
were as follows:
<TABLE>
<CAPTION>
                       Three Months Ended June 30,  	Six Months Ended June 30,
                       ---------------------------  -------------------------
                            1997          1996          1997          1996
                       ------------  ------------  ------------  ------------
(tons in thousands)     Sales  Tons   Sales  Tons   Sales  Tons   Sales  Tons
                       ------  ----  ------  ----  ------  ----  ------  ----
<S>                    <C>     <C>   <C>     <C>   <C>     <C>   <C>     <C>
Specialty flat-rolled  $287.3  196   $297.2  199   $568.4  389   $584.2  386
Specialty semi-
  finished               65.1   53     39.3   29    105.2   87     70.9   50 
Galvanized/carbon        40.6   76     31.4   67     86.6  162     75.6  175
Other                     9.9    -      8.2    -     17.7    -     17.5    -
                       ------  ---   ------  ---   ------  ---   ------  ---
     Total             $402.9  325   $376.1  295   $777.9  638   $748.2  611

Cast production                389           353           752           743
</TABLE>
Shipments of specialty flat-rolled products, which include automotive exhaust 
stainless, electrical steel and specialty strip and sheet, were approximately 
the same in the respective three- and six-month periods of 1997 and 1996.  
However, 1997 average sales per ton declined 3% from the first six months of 
1996, reflecting elimination of raw material surcharges on stainless steel and 
increased import competition on certain grades of chrome nickel stainless and 
cold rolled non-oriented electrical steels.

Specialty semi-finished shipments increased substantially in 1997 over 1996, 
primarily as a result of increased sales of chrome nickel hot bands.  However, 
a 15% reduction in average sales per ton for the first six months of 1997 
compared to 1996 reflected worldwide market softness and import competition.

Carbon steel shipments in the second quarter of 1997 increased as a result of 
strong demand for galvanized steel, partially offset by the elimination of 
carbon hot band shipments and the increased use of Armco's melt capacity for 
specialty products.  In the first half of 1996, Armco began exiting the lower 
priced hot band market, shifting to higher priced galvanized steel products 
and thus increasing average sales per ton by 24% in the six-month period 
comparison.

Second quarter operating profit increased in 1997 as a result of higher sales 
and lower costs.  The lower costs were primarily due to more stable operating 
conditions and favorable experience in pension and retiree medical benefit 
costs. Costs in 1996 were adversely affected by several planned outages 
necessary
                                      -8-
<PAGE>
to complete equipment upgrades.  These outages disrupted operations and 
resulted in the increased use of outside processors.  Specialty Flat-Rolled 
Steels' operating profit included gains of $2.0 and $4.2 in the first half of 
1997 and 1996, respectively, from the partial settlements of a business 
interruption insurance claim.

Outlook:  Third quarter 1997 shipments of automotive chrome stainless are 
expected to decline from second quarter levels due to normal vehicle model 
changeovers.  While vehicle production remained strong in the first half of 
the year, recent automotive sales figures trailed those of a year ago, raising 
concerns about weakening demand.

Armco expects electrical products, in general, to be under pressure due to 
softening demand and continued high imports.  Demand for specialty strip and 
sheet and semi-finished products has increased, but pricing remains low due to 
pressure from imports.


Fabricated Products
-------------------
<TABLE>
<CAPTION>
                                    Three Months Ended   Six Months Ended
                                          June 30,            June 30, 
                                    ------------------   ------------------
                                      1997      1996       1997      1996
                                    --------  --------   --------  --------
<S>                                  <C>       <C>        <C>       <C>
Customer sales                       $87.4     $74.7      $153.7    $133.0
Operating profit                      11.9       6.4        14.5       7.9
</TABLE>
Customer sales increased $12.7 and $20.7 for the second quarter and first six 
months, respectively, of 1997, primarily due to higher sales at Douglas 
Dynamics and Sawhill Tubular, and the consolidation of the Greens Port 
Industrial Park.  Higher customer sales at Douglas Dynamics reflected a 
significant improvement in snowplow shipments primarily due to an expanded 
sales network and the introduction of new products.  Higher sales at Sawhill 
were a result of volume increases along most major product lines.  Greens Port 
recorded sales of $3.5 in the first six months of 1997 from loading dock fees 
and rental of land and buildings.  During 1996, Greens Port revenues were not 
included in the segment.

Douglas Dynamics' and Sawhill's operating profit were substantially higher in 
1997.  Douglas Dynamics' results improved due to manufacturing efficiencies 
achieved during the year and reduced operating expenses following the decision 
in 1996 to exit certain unprofitable product lines.  The increase in Sawhill's 
profits was also driven by lower costs.  This segment's operating profit in 
the first six months of 1997 included $2.2 from Greens Port.

Outlook: Douglas Dynamics' sales are expected to be somewhat lower in the 
second half of 1997 compared to last year.  However, savings from 
manufacturing efficiencies and cost reduction programs are expected to result 
in improved operating profit in the same comparative periods.  Sawhill 
Tubular's 1997 sales and profitability are expected to exceed last year due to 
higher volume in certain product lines and lower costs.


ARMCO FINANCIAL SERVICES GROUP (AFSG)
-------------------------------------
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 reinsurance transactions entered into with these 
companies. Armco believes that its investment in AFSG will not be materially 
affected as a result of pending claims, contingent liabilities or matters 
related to AFSG.

                                      -9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At June 30, 1997, Armco had $175.2 of cash and cash equivalents compared to 
$168.9 at December 31, 1996.  Cash and cash equivalents increased $6.3 during 
the first six months of 1997, primarily due to $34.6 of cash generated by 
operations, partially offset by capital expenditures of $15.1, preferred stock 
dividends of $8.9 and principal payments on debt of $7.4.  

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. While no 
borrowings were outstanding under either facility, at June 30, 1997, Armco had 
outstanding $64.3 of letters of credit. A total of $91.4 was available for 
borrowing.

Armco anticipates that expenditures for capital projects during the remainder 
of the year will total approximately $40.0.  In addition, Armco has $19.8 of 
debt maturing through December 1997. Armco expects that these expenditures 
will be paid out of existing cash balances and cash generated from operations.

On July 25, 1997, 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 September 30, 1997 to shareholders of 
record on August 29, 1997.  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 October 1, 1997 to shareholders of record on 
August 29, 1997.  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 & 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 ARMCO 
                                                                            --
--- FINANCIAL SERVICES GROUP (AFSG) and in footnote No. 6 relating to 
contingencies.
------------------------------

As discussed in its Form 10-K for the year ended December 31, 1996, 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 and changes in application or scope 
of environmental regulations applicable to Armco.
                                      -10-
<PAGE>

<TABLE>
                                  ARMCO INC. 
                                SEGMENT REPORT 
                                 (Unaudited) 

(Dollars in millions) 


<CAPTON>
                                   1997                    1996  
                               --------------  ------------------------------
                                2nd     1st     4th     3rd     2nd     1st
                                Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.
                               ------  ------  ------  ------  ------  ------
<S>                            <C>     <C>     <C>     <C>     <C>     <C>
Specialty Flat-Rolled Steels: 
  Customer sales               $402.9  $375.0  $322.5  $350.5  $376.1  $372.1 
  Operating profit               22.3    22.4    21.4    19.3    12.2    20.0 
 
Fabricated Products: 
  Customer sales                 87.4    66.3    91.1    78.7    74.7    58.3 
  Special charges                 -       -      (8.8)    -       -       -  
  Operating profit               11.9     2.6     4.4    10.5     6.4     1.5 
 
Corporate general                (6.2)   (5.8)   (2.6)   (5.6)   (6.4)   (6.4)
------------------------------------------------------------------------------
Total operating profit           28.0    19.2    23.2    24.2    12.2    15.1 
 
Interest income                   2.4     2.5     2.1     2.2     2.8     3.0 
Interest expense                 (8.5)   (8.7)   (8.8)   (9.0)   (9.3)   (9.2)
Sundry other - net               (0.6)   (3.4)   (2.8)   (7.2)   (9.5)   (1.6)
------------------------------------------------------------------------------
Income (loss) before 
  income taxes                   21.3     9.6    13.7    10.2    (3.8)    7.3 
 
Provision for income taxes       (1.1)   (0.2)   (0.5)   (0.3)   (0.2)   (0.4)
------------------------------------------------------------------------------
Income (loss) from continuing 
  operations                     20.2     9.4    13.2     9.9    (4.0)    6.9 
 
Discontinued operation - 
  Gain on sale of Aerospace 
    and Strategic Materials       1.3     -       -       6.5     -       -  
------------------------------------------------------------------------------
Net income (loss)              $ 21.5  $  9.4  $ 13.2  $ 16.4  $ (4.0) $  6.9 
==============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements. 
</TABLE>
                                      -11-
<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, 1996 (the Form 10-K) and 
Armco's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 
(the Form 10-Q).  The following summarizes significant developments in 
previously reported matters and any material claims asserted since March 31, 
1997:

In the Pension Benefit Guaranty Corporation v. Armco and Eastern Stainless
       -------------------------------------------------------------------
Corporation action, the parties agreed on a settlement of all claims in the 
-----------
amount of $4.5 million.  On June 19, 1997, the Court approved the settlement 
at a fairness hearing and no appeals were timely filed thereafter.  The 
settlement of this matter is now final.

In the Fultz Landfill Superfund action, Armco has added eight additional 
companies as third-party defendants.  Armco continues to seek an equitable 
settlement of this case.  In June, 1997, the Court approved a settlement 
agreement under which three of the companies initially identified as PRPs by 
the USEPA (Armco is not among them), plus their successors and certain other 
companies, have agreed to undertake remediation of the site.  USEPA continues 
to seek approximately $6 million in oversight costs.  No estimate of Armco's 
proportionate liability can be made at this time.

The total liability on the foregoing claims and those other 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 5.     Other Information
            -----------------
Any shareholder proposals intended to be presented at the 1998 annual meeting 
of shareholders must be received by Armco by November 17, 1997, in order to be 
considered for inclusion in the proxy statement and form of proxy for that 
meeting.  Shareholders intending to nominate director candidates for election 
at the 1998 annual meeting of shareholders must deliver written notice, 
including specified information, to the Secretary of Armco, at its offices at 
One Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania 15219-1415, by 
January 25, 1998.

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 11  Computation of Earnings Per Common Share

B.        No report on Form 8-K was filed by Armco since March 31, 1997.

                                       -12-
<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        August 1, 1997               /s/ Jerry W. Albright
      -----------------------            --------------------------------
                                         Jerry W. Albright
                                         Vice President and Chief 
                                           Financial Officer


Date        August 1, 1997               /s/ John N. Davis
      -----------------------           ---------------------------------
                                         John N. Davis
                                         Vice President and Controller

                                -13-