<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, 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 June 30, 1998:  107,879,090
<PAGE>



                                   ARMCO INC.

                                     INDEX

                                                                         Pages


Part I.   Financial Information

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

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

          Condensed Consolidated Statements of Cash Flows - 
           Six Months Ended June 30, 1998 and 1997                           4

          Notes to Condensed Consolidated Financial Statements             5-7

          Management's Discussion and Analysis of the Condensed
           Consolidated Financial Statements                              8-11

          Segment Report                                                    12


Part II.  Other Information

          Item 1.  Legal Proceedings                                        13

          Item 5.  Other Information                                        13
 
          Item 6.  Exhibits and Reports on Form 8-K                         13

          Signatures                                                        14
                                      -1-
<PAGE>
<TABLE>
                                   ARMCO INC. 
                      CONDENSED CONSOLIDATED BALANCE SHEETS 
                                  (Unaudited) 
<CAPTION>
(Dollars in millions)                                June 30,     December 31,
                                                       1998           1997
                                                   ------------   ------------
<S>                                                 <C>            <C>
ASSETS
Current assets 
  Cash and cash equivalents                         $   125.6      $   189.9 
  Short-term liquid investments                          12.3            5.0 
  Receivables, less allowance for doubtful accounts     187.8          156.6 
  Inventories (Note 2)                                  275.1          268.0 
  Other                                                  13.0           17.9 
-----------------------------------------------------------------------------
Total current assets                                    613.8          637.4 
 
Investments 
  Investment in Armco Financial
   Services Group (Note 5)                               85.6           85.6 
  Other, less allowance for impairment                   30.3           30.3 
 
Property, plant and equipment                         1,316.8        1,305.5 
Accumulated depreciation                               (685.1)        (653.0)
-----------------------------------------------------------------------------
Property, plant and equipment - net                     631.7          652.5 
 
Deferred tax asset                                      317.6          319.3 
Goodwill and other intangible assets                    132.3          137.4 
Other assets                                             16.5           18.8 
-----------------------------------------------------------------------------
Total assets                                        $ 1,827.8      $ 1,881.3 
=============================================================================
 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 
Current liabilities 
  Trade accounts and notes payable                  $   125.0      $   148.9 
  Employment-related obligations                        118.1          126.4 
  Other liabilities                                      64.2           72.8 
  Current portion of long-term debt                       7.0           38.2 
-----------------------------------------------------------------------------
Total current liabilities                               314.3          386.3 
 
Long-term debt, less current portion                    303.0          306.9 
Long-term employee benefit obligations                  914.4        1,178.1 
Other liabilities                                       165.8          162.5 
Commitments and contingencies (Note 5) 
Shareholders' equity (deficit) 
  Preferred stock - Class A                             137.6          137.6 
  Preferred stock - Class B                              48.3           48.3 
  Common stock                                            1.1            1.1 
  Additional paid-in capital                            971.9          967.7 
  Accumulated deficit                                (1,025.0)      (1,305.0)
  Other                                                  (3.6)          (2.2)
-----------------------------------------------------------------------------
Total shareholders' equity (deficit)                    130.3         (152.5)
-----------------------------------------------------------------------------
Total liabilities and shareholders'
  equity (deficit)                                  $ 1,827.8      $ 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      Six Months Ended 
   except per share amounts)              June 30,              June 30,  
                                    --------------------  --------------------
                                      1998       1997       1998       1997 
                                    ---------  ---------  ---------  ---------
<S>                                <C>        <C>        <C>        <C>
 Net sales                         $   450.1  $   490.3  $   897.8  $   931.6 
 
 Cost of products sold                (396.1)    (436.1)    (800.5)    (833.6)
 Selling and administrative expenses   (22.2)     (26.2)     (44.2)     (50.8)
------------------------------------------------------------------------------
 Operating profit                       31.8       28.0       53.1       47.2 
 
 Interest income                         1.6        2.4        4.1        4.9 
 Interest expense                       (7.1)      (8.5)     (14.7)     (17.2)
 Sundry other - net (Note 3)             6.9       (0.6)      12.8       (4.0)
------------------------------------------------------------------------------
 Income before income taxes             33.2       21.3       55.3       30.9 
 
 Provision for income taxes             (2.1)      (1.1)      (3.9)      (1.3)
------------------------------------------------------------------------------
 Income from continuing operations      31.1       20.2       51.4       29.6 
 
 Discontinued operations -   
   Gain on Sale of Aerospace and
   Strategic Materials                   -          1.3        -          1.3 
------------------------------------------------------------------------------
 Income before cumulative effect of
   an accounting change                 31.1       21.5       51.4       30.9 
 
 Cumulative effect of a change in
   accounting for postretirement
   benefits (Note 1)                     -          -        237.5        -  
------------------------------------------------------------------------------
 Net income                             31.1       21.5      288.9       30.9 
 
 Accumulated deficit, beginning
   of period                        (1,051.7)  (1,359.0)  (1,305.0)  (1,363.9)
 Preferred stock dividends              (4.4)      (4.4)      (8.9)      (8.9)
------------------------------------------------------------------------------
 Accumulated deficit, end
   of period                       $(1,025.0) $(1,341.9) $(1,025.0) $(1,341.9)
==============================================================================

 Basic earnings per share (Note 4)  
  Weighted average shares              107.9      107.1      107.6      106.9 
  Income from continuing operations    $0.25      $0.15      $0.39      $0.20 
  Discontinued operations                -         0.01        -         0.01 
  Cumulative effect of a change
   in accounting                         -          -         2.21        -   
------------------------------------------------------------------------------
  Net income                           $0.25      $0.16      $2.60      $0.21 
------------------------------------------------------------------------------

 Diluted earnings per share (Note 4)  
  Weighted average shares              126.4      125.4      126.1      106.9 
  Income from continuing operations    $0.23      $0.15      $0.38      $0.20 
  Discontinued operations                -         0.01        -         0.01 
  Cumulative effect of a change
   in accounting                         -          -         1.88        -  
------------------------------------------------------------------------------
  Net income                           $0.23      $0.16      $2.26      $0.21 
------------------------------------------------------------------------------
 
 Cash dividends per share  
  $2.10 Class A                       $0.525     $0.525     $1.050     $1.050 
  $3.625 Class A                       0.906      0.906     $1.812      1.812 
  $4.50 Class B                        1.125      1.125     $2.250      2.250 
<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>
                                                          Six Months Ended 
                                                              June 30, 
                                                          ----------------
                                                           1998      1997
                                                          ------    ------
<S>                                                      <C>        <C>
Cash flows from operating activities: 
 Net income                                              $ 288.9    $ 30.9 
 Adjustments to reconcile net income to net cash
  (used in) provided by operating activities: 
  Depreciation expense                                      32.2      30.8 
  Net gain on sales of investments and facilities           (0.8)     (1.0)
  Cumulative effect of accounting change                  (237.5)      -
  Other                                                      2.2       4.9 
  Change in assets and liabilities: 
   Trade accounts and notes receivable                     (29.3)    (44.7)
   Inventories                                              (7.1)    (18.1)
   Payables and accrued operating expenses                 (27.5)     30.2 
   Employee benefit liabilities                            (24.4)     (1.0)
   Other assets and liabilities - net                       (6.6)      2.6 
---------------------------------------------------------------------------
 Net cash (used in) provided by operating activities        (9.9)     34.6 
---------------------------------------------------------------------------
Cash flows from investing activities: 
 Net proceeds from the sale of businesses and assets         1.3       2.5 
 Proceeds from the sale of investments                       6.0       0.3 
 Purchase of liquid investments                             (7.3)      -
 Capital expenditures                                      (11.2)    (15.1)
 Other                                                       0.2      (0.2)
---------------------------------------------------------------------------
 Net cash used in investing activities                     (11.0)    (12.5)
---------------------------------------------------------------------------
Cash flows from financing activities: 
 Proceeds from drawdown of debt                              -         2.0 
 Payments on debt                                          (34.2)     (7.4)
 Dividends paid on preferred stock                          (8.9)     (8.9)
 Other                                                      (0.3)     (1.5)
---------------------------------------------------------------------------
 Net cash used in financing activities                     (43.4)    (15.8)
---------------------------------------------------------------------------
Net change in cash and cash equivalents                    (64.3)      6.3 
Cash and cash equivalents:  
 Beginning of period                                       189.9     168.9 
---------------------------------------------------------------------------
 End of period                                           $ 125.6   $ 175.2 
---------------------------------------------------------------------------
Supplemental disclosures of cash flow information: 
 Cash paid during the period for: 
  Interest (net of capitalized interest)                 $  15.1   $  16.6 
  Income taxes                                               1.2       1.6 
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 June 30, 1998, results of operations for the three 
and six months ended June 30, 1998 and 1997, and cash flows for the six months 
ended June 30, 1998 and 1997.  The results of operations for the six months 
ended June 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 six months ended June 30, 1998, Armco 
recognized income of $237.5 or $2.21 per share ($1.88 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 immediately into income 
unrecognized net gains and losses which exceed the 10% corridor, as described 
above, and amortizes amounts inside the corridor over the average remaining 
service life of active participants.  For the three  and six months ended June 
30, 1998, adoption of the new method increased income from continuing 
operations by $0.7 and $1.5 or approximately $0.01 per share, respectively.  
Assuming Armco had applied the accounting change retroactively, income from 
continuing operations and net income for the three and six months ended June 
30, 1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
                                         Three Months Ended   Six Months Ended
                                              June 30,            June 30,
                                         ------------------  -----------------
                                            1998     1997      1998     1997
                                           ------   ------    ------   ------
<S>                                         <C>      <C>       <C>      <C>
Income from continuing operations           $31.1    $21.1     $51.4    $31.4
Net income                                   31.1     22.4      51.4     32.7
Basic earnings per share
 Income from continuing operations           0.25     0.16      0.39     0.21
 Net income                                  0.25     0.17      0.39     0.22
Diluted earnings per share
 Income from continuing operations           0.23     0.15      0.38     0.21
 Net income                                  0.23     0.16      0.38     0.22
</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 year end 1997 have be reclassified to agree to the 1998 
presentation.
<TABLE>
<CAPTION>
                                                   June 30,    December 31,
                                                     1998          1997 
                                                   --------      --------
     <S>                                            <C>           <C>
     Inventories on LIFO:
       Finished and semi-finished                   $287.2        $280.5
       Raw materials                                  20.9          25.8
       Adjustment to state inventories at LIFO value (51.3)        (54.0)
                                                    ------        ------
           Total                                     256.8         252.3
                                                    ------        ------
     Inventories on average cost:
       Finished and semi-finished                     15.5          10.6
       Raw materials and supplies                      2.8           5.1
                                                    ------        ------
           Total                                      18.3          15.7
                                                    ------        ------
           Total inventories                        $275.1        $268.0
                                                    ======        ======
</TABLE>
3.  Sundry other - net in the Condensed Consolidated Statements of Income and 
Accumulated Deficit includes income of $5.9 and $12.0 for the three and six 
months ended June 30, 1998 and expense of $0.5 and $2.1 for the three and six 
months ended June 30, 1997, respectively, for employee benefit obligations 
related to facilities that have been shut down or divested.  The improvement 
in results for 1998 was primarily due to continued favorable investment 
returns on pension plan assets and lower than expected increases in medical 
benefit costs.

4.  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   Six Months Ended
                                              June 30,            June 30,
                                         ------------------  -----------------
                                            1998     1997      1998     1997
                                           ------   ------    ------   ------
<S>                                         <C>      <C>       <C>      <C>
Income from continuing operations
---------------------------------
Income as reported                          $31.1    $20.2     $51.4    $29.6
Less:  Preferred stock dividends             (4.4)    (4.4)     (8.9)    (8.9)
                                            -----    -----     -----    -----
Income available to common 
 shareholders - Basic                        26.7     15.8      42.5     20.7
Assumed conversion of $3.625 
 Preferred Stock, Class A                     2.4      2.4       4.9      -
                                            -----    -----     -----    -----
Income available to common 
 shareholders - Diluted                     $29.1    $18.2     $47.4    $20.7
                                            =====    =====     =====    =====
Shares (in millions)
------
Weighted average shares 
 outstanding - Basic                        107.9    107.1     107.6    106.9
Assumed exercise of stock options             0.2      -         0.2      -
Assumed conversion of $3.625 
 Preferred Stock, Class A                    18.3     18.3      18.3      - 
                                            -----    -----     -----    -----
Weighted average shares 
 outstanding - Diluted                      126.4    125.4     126.1    106.9
                                            =====    =====     =====    =====
</TABLE>

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

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

There are various pending matters relating to litigation, arbitration and 
regulatory affairs arising out of the runoff operations of the Armco Financial 
Services Group (AFSG) companies, including matters related to Northwestern 
National Insurance Company (NNIC), a runoff company currently involved in, 
among other matters, litigation with respect to certain reinsurance programs.

In March 1997, a group of international insurance companies, previously 
affiliated with AFSG and sold in 1991, filed an application for voluntary 
liquidation in the United Kingdom.  NNIC is currently investigating its 
exposure with respect to transactions entered into with these companies.  
However, 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 June 30, 1998, Armco had recorded in its Condensed Consolidated Balance 
Sheets, legal and environmental reserves of $64.7, of which $12.1 was 
classified as a current liability.

6.  Effective January 1, 1998, Armco adopted Statement of Financial Accounting 
Standards No. 130, Reporting Comprehensive Income.  This standard 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 solely of foreign 
currency translation adjustments related to its European subsidiaries.  For 
the three and six months ended June 30, 1998 and 1997, comprehensive income 
was as follows:
<TABLE>
<CAPTION>
                                         Three Months Ended   Six Months Ended
                                              June 30,            June 30,
                                         ------------------  -----------------
                                            1998     1997      1998     1997
                                           ------   ------    ------   ------
<S>                                         <C>      <C>      <C>       <C>
Net income                                  $31.1    $21.5    $288.9    $30.9
Foreign currency translation adjustment       0.2     (0.8)     (0.5)    (1.5)
                                            -----    -----     -----    -----
Comprehensive income                        $31.3    $20.7    $288.4    $29.4
                                            =====    =====     =====    =====
</TABLE>
7.  At its July 17, 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 prohibited under the terms of certain of 
Armco's debt instruments and inventory credit facility.

8.  Information relating to Armco's industry segments can be found on page 12.
                                     -7-
<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, 1998 
and 1997 were as follows:
<TABLE>
<CAPTION>
                                         Three Months Ended   Six Months Ended
                                              June 30,            June 30,
                                         ------------------  -----------------
                                            1998     1997      1998     1997
                                           ------   ------    ------   ------
<S>                                        <C>      <C>       <C>      <C>
Net sales                                  $450.1   $490.3    $897.8   $931.6
Operating profit                             31.8     28.0      53.1     47.2
Sundry other-net                              6.9     (0.6)     12.8     (4.0)
Income from continuing operations            31.1     20.2      51.4     29.6
Discontinued operations                       -        1.3       -        1.3
Cumulative effect of a change in 
 accounting for postretirement benefits       -        -       237.5      -
Net income                                   31.1     21.5     288.9     30.9
Basic earnings per share -
 Income from continuing operations           0.25     0.15      0.39     0.20
 Net income                                  0.25     0.16      2.60     0.21
Diluted earnings per share -
 Income from continuing operations           0.23     0.15      0.38     0.20
 Net income                                  0.23     0.16      2.26     0.21
</TABLE>

Net sales in the three and six months ended June 30, 1998 were $40.2 and $33.8 
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 and six months ended June 30, 1998 was 
approximately 13% higher than the amounts reported in the same periods last 
year, reflecting higher specialty flat-rolled steel shipments, improved 
product mix and lower pension and retiree medical benefit expenses.  
Postretirement employee benefit expenses in the current year were again lower 
as a result of favorable investment returns on pension plan assets and lower 
than expected increases in medical benefit costs. Improved results in the 
Specialty Flat-Rolled Steels segment were partially offset by lower profits in 
the Fabricated Products segment.

The change in sundry other - net between 1997 and 1998 is 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 continued favorable investment returns on pension plan assets and lower 
than expected increases in medical benefit costs.

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 six months ended June 30, 1998, Armco 
recognized income of $237.5, or $2.21 per share of common stock ($1.88 per 
diluted share), for the cumulative effect of this accounting change.  Under 
the newly adopted accounting method, 
                                     -8-
<PAGE>
Armco recognizes immediately into income unrecognized net gains and losses 
that exceed 10% of the larger of the benefit obligations or plan assets, and 
amortizes amounts inside this 10% corridor over the average remaining service 
life of active participants (approximately 15 years). For the three and six 
months ended June 30, 1998, adoption of the new method increased income from 
continuing operations by $0.7 and $1.5, or approximately $0.01 per share, 
respectively.

BUSINESS SEGMENT RESULTS
------------------------
Specialty Flat-Rolled Steels
----------------------------
<TABLE>
<CAPTION>
                                         Three Months Ended   Six Months Ended
                                              June 30,            June 30,
                                         ------------------  -----------------
                                            1998     1997      1998     1997
                                           ------   ------    ------   ------
<S>                                        <C>      <C>       <C>      <C>
Net sales                                  $376.2   $402.9    $767.6   $777.9
Operating profit                             27.1     22.3      53.6     44.7
</TABLE>
In the three months ended June 30, 1998, net sales for the segment were 7% 
lower than in the same period one year ago, primarily as a result of reduced 
specialty steel pricing and lower volumes of specialty semi-finished and 
galvanized steels.  Overall segment average sales per ton decreased 5% as 
record import levels continue to depress pricing across all stainless and 
electrical product lines.

Customer sales and shipments by major product line were as follows:
<TABLE>
<CAPTION>
                        Three Months Ended June 30,  Six Months Ended June 30,
                        --------------------------- --------------------------
                             1998          1997          1998          1997 
                         -----------   -----------   -----------   -----------
(tons in thousands)      Sales  Tons   Sales  Tons   Sales  Tons   Sales  Tons
                         -----  ----   -----  ----   -----  ----   -----  ----
<S>                     <C>      <C>  <C>      <C>  <C>      <C>  <C>      <C>
Specialty flat-rolled   $293.0   213  $287.3   196  $599.1   436  $568.4   389
Specialty semi-finished   37.7    37    65.1    53    85.6    81   105.2    87
Galvanized/carbon         36.6    68    40.6    76    66.4   123    86.6   162
Other                      8.9     -     9.9     -    16.5     -    17.7     -
                         -----  ----   -----  ----   -----  ----   -----  ----
     Total              $376.2   318  $402.9   325  $767.6   640  $777.9   638
                         =====  ====   =====  ====   =====  ====   =====  ====
</TABLE>
In the first six months of 1998, shipments of specialty flat-rolled products, 
which include automotive exhaust stainless, electrical steel and specialty 
sheet and strip, increased 12% over 1997.  Record shipments of automotive 
exhaust stainless and electrical steels led the increase.  Automotive exhaust 
stainless demand was driven by high production of light trucks and sport 
utility vehicles, while electrical steel sales were stimulated by strong 
housing starts and demand for electrical machinery and equipment.  However, 
lower prices, particularly for specialty sheet and strip products, reduced 
average sales per ton by 6% in the year-to-year comparison.

Specialty semi-finished shipments and average sales per ton decreased in the 
first half of 1998 versus the same period in 1997 reflecting worldwide market 
softness and imports.

Galvanized carbon steel shipments declined earlier in the year as a result of 
temporarily short supplies of carbon steel coils purchased by the Dover 
Operations during the transition period following Armco's decision to 
eliminate production of carbon steel at its Mansfield Operations.

In the first half of 1998, operating profit increased 20% over the same period 
in 1997, primarily as a result of higher shipments of the more profitable 
specialty flat-rolled products, lower operating costs and reduced pension and 
other retiree benefit expenses.  
                                     -9-
<PAGE>
Outlook: The elimination of carbon steel production at the Mansfield 
Operations should lower costs in this segment. In addition, Armco continues to 
focus on cost containment efforts.  However, 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, offsetting some of the benefits realized by the cost containment 
efforts.

Shipment levels in the second half of the year are expected to be lower than 
in the first half.  While the labor strike at General Motors had little effect 
on Armco's results during the first half of 1998, automotive exhaust stainless 
and sheet and strip shipments could be substantially reduced by a prolonged 
dispute, compounding the effects of a seasonally slower third quarter.  

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 late in 1998.  On July 24, 1998, the 
International Trade Commission issued its preliminary finding that there has 
been injury to domestic producers.  However, there can be no assurance of a 
successful final outcome and the imposition of such tariffs on imports.

Fabricated Products
-------------------
<TABLE>
<CAPTION>
                                         Three Months Ended   Six Months Ended
                                              June 30,            June 30,
                                         ------------------  -----------------
                                            1998     1997      1998     1997
                                           ------   ------    ------   ------
<S>                                         <C>      <C>      <C>      <C>
Net sales                                   $73.9    $87.4    $130.2   $153.7
Operating profit                              9.6     11.9       8.2     14.5
</TABLE>
Net sales in the three and six months ended June 30, 1998 decreased $13.5 and 
$23.5, respectively, compared to 1997.  Lower customer sales at Douglas 
Dynamics reflected the mild winter experienced in its major markets and 
relatively high dealer inventory levels, which affected both snowplow and ice 
control product shipments.  Operating profit also reflected the lower shipment 
levels.  

Net sales at Sawhill Tubular decreased on lower volume and selling prices, 
which reflected softness in the market.  However, improved product mix, lower 
costs and improved quality more than offset the lower sales, resulting in a 
slight increase in operating profit at Sawhill.    

Greens Port's revenues and operating profit for 1998 increased over last year 
in both the quarter and first six months.

Outlook: High dealer inventories, resulting from last winter's mild weather, 
and the ongoing General Motors strike are expected to depress snowplow 
shipments during the remainder of 1998.  Sawhill shipments are expected to 
remain flat, however, increasing pressure from imported pipe is likely to 
result in a decrease in pricing. However, tubular profitability is expected to 
increase on the strength of continued cost control.  Greens Port is expected 
to maintain its current performance level.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At June 30, 1998, Armco had $137.9 of cash, cash equivalents and liquid 
investments compared to $194.9 at December 31, 1997.  Cash, cash equivalents 
and liquid investments decreased $57.0 during the first six months of 1998, 
primarily due to principal payments on debt of $34.2, capital expenditures of 
                                     -10-
<PAGE>
$11.2, preferred stock dividend payments of $8.9 and $9.9 of cash used by 
operations, principally as a result of increases in working capital.  
Partially offsetting these cash outflows were $7.3 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 June 
30, 1998, no borrowings were outstanding under either facility.  However, 
Armco had outstanding $53.9 of letters of credit and a total of $95.7 was 
available for borrowing under both facilities.

Armco anticipates cash outlays of $40.0 to $45.0 during the remainder of 1998 
for capital expenditures, which it expects to be paid out of existing cash 
balances and cash generated from operations.

On July 17, 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 September 30, 1998 to shareholders of 
record on August 21, 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 October 1, 1998 to shareholders of record on 
August 21, 1998.  Payment of dividends on Armco's common stock is currently 
prohibited under the terms of certain of Armco's debt instruments and 
inventory credit facility.

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 what derivative instruments Armco has on and after 
adoption.

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 section entitled NEW ACCOUNTING
                                                              -------------- 
STANDARD and in Note 5 relating to contingencies.
--------
As discussed in its Form 10-K for the year ended December 31, 1997, Armco 
cautions readers that such forward-looking statements involve risks and 
uncertainties that could cause actual results to differ materially from those 
expected by management.  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; 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. 
                                     -11-
<PAGE>
<TABLE>
                                 ARMCO INC.  
                               SEGMENT REPORT  
                                (Unaudited)  

 (Dollars in millions)  
<CAPTION>
                                    1998                    1997   
                               --------------  ------------------------------
                                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               $376.2  $391.4  $353.7  $365.4  $402.9  $375.0 
  Operating profit               27.1    26.5    23.2    20.7    22.3    22.4 
 
 Fabricated Products:   
  Customer sales                 73.9    56.3    82.7    95.9    87.4    66.3 
  Operating profit (loss)         9.6    (1.4)    7.9    19.5    11.9     2.6 
 
 Corporate general               (4.9)   (3.8)   (6.9)   (6.2)   (6.2)   (5.8)
------------------------------------------------------------------------------
 Total operating profit          31.8    21.3    24.2    34.0    28.0    19.2 
 
 Interest income                  1.6     2.5     3.2     2.5     2.4     2.5 
 Interest expense                (7.1)   (7.6)   (8.8)   (9.5)   (8.5)   (8.7)
 Sundry other - net               6.9     5.9    (0.3)    3.2    (0.6)   (3.4)
------------------------------------------------------------------------------
 Income before income taxes      33.2    22.1    18.3    30.2    21.3     9.6 
 
 Provision for income taxes      (2.1)   (1.8)   (0.5)   (0.5)   (1.1)   (0.2)
------------------------------------------------------------------------------
 Income from continuing
  operations                     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 post-
  retirement benefits             -     237.5     -       -       -       -  
------------------------------------------------------------------------------
 Net income                     $31.1  $257.8   $19.2   $26.7   $21.5    $9.4 
==============================================================================
<FN>
 See Notes to Condensed Consolidated Financial Statements.  
</TABLE>
                                      -12-
<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, 1997 (the Form 10-K) and Armco's Quarterly Report on 
Form 10-Q for the quarter ended March 31, 1998 (the Form 10-Q).  The 
following summarizes significant developments in previously reported 
matters and any material claims asserted since March 31, 1998:

In the Kingsbridge action, the 45 day appeal period has expired and the 
       -----------
plaintiffs have not filed a notice of appeal to the Texas Supreme Court, 
thus rendering Armco's dismissal final and nonappealable and bringing an 
end to the Cornerstones line of cases with no finding of liability 
           ------------
against Armco.

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 5.  Other Information
         -----------------

Any shareholder proposals intended to be presented at the 1999 annual 
meeting of shareholders must be received by Armco by November 16, 1998, 
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 1999 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 24, 1999.


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

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

         None

B.       The following Reports on Form 8-K were filed by Armco during 
         the quarter ended March 31, 1998.

            Report Date                   Description
            -----------                   -----------
            April 8, 1998      On April 8, 1998, Armco announced that it 
                               would record a gain of $237.5 million, or 
                               $2.21 per share of common stock, for the 
                               cumulative effect of an accounting 
                               change.  Armco stated that effective 
                               January 1, 1998, it changed the method
                               used to amortize unrecognized net gains 
                               and losses associated with accounting for 
                               pension and other postretirement benefit 
                               plans.

            April 27, 1998     Armco filed restated Financial Data  
                               Schedules for the three years ended
                               December 31, 1997 and for the three
                               year-to-date interim periods in the years 
                               1997 and 1996.  All periods report basic 
                               and diluted earnings per share as 
                               restated to conform with Statement of 
                               Financial Accounting Standards No. 128, 
                               Earnings Per Share, which Armco adopted 
                               on December 31, 1997.


                                  -13-

<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     July 24, 1998             /s/ Jerry W. Albright 
      ------------------           -------------------------------------------
                                   Jerry W. Albright
                                   Vice President and Chief Financial Officer



Date     July 24, 1998             /s/ John N. Davis 
      ------------------           -------------------------------------------
                                   John N. Davis
                                   Vice President and Controller
                                     -14-
<PAGE>