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                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                      FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
     SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
     For the fiscal year ended December 31, 1995
                               -----------------
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
     SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from                     to                
                                    ------------------      --------------

                          Commission file number 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 Street, Pittsburgh, Pennsylvania      15219-1415
-------------------------------------------------------------      ----------
            (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code: 412/255-9800

Securities registered pursuant to Section 12(b) of the Act:
                                                     Name of Each Exchange
          Title of Each Class                         on Which Registered
          -------------------                         -------------------
      Class A Preferred Stock, without par value     New York Stock Exchange
      Class B Preferred Stock, $1 par value each     New York Stock Exchange
      Common Stock, $.01 par value each/             New York Stock Exchange
      Rights to Purchase Participating Preferred
        Stock of Class A Preferred Stock             New York Stock Exchange
      Sinking Fund Debentures:                       New York Stock Exchange
          9.20%, due 2000
          8.50%, due 2001
      11.375% Notes, due 1999                        New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

     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 
such filing requirements for the past 90 days.  Yes   X     No      
                                                    -----
     Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained 
herein, and will not be contained, to the best of registrant's knowledge, in 
definitive proxy or information statements incorporated by reference in Part 
III of this Form 10-K or any amendment to this Form 10-K. [X]

     The aggregate market value of voting stock held by nonaffiliates of 
Armco Inc. (assuming solely for purposes of this Form, that all members of 
registrant's Board of Directors are "affiliates") was approximately 
$770,963,308 as of February 29, 1996.

     As of the close of business on February 29, 1996, there were 106,550,937 
shares of Common Stock outstanding.
Documents incorporated by reference herein include:

     Annual Report to Shareholders for the year ended December 31, 1995 -- 
Parts I, II, and IV of this report.
     Proxy Statement for the 1996 Annual Meeting of Shareholders filed with 
the Commission under Rule  14a-6 of the Securities Exchange Act of 1934 in 
connection with the Company's 1996 Annual Meeting of Shareholders -- Part III 
of this report.

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                                      PART I


ITEM 1.     BUSINESS

General

     Armco Inc. ("Armco" or the "Company") was incorporated as an Ohio 
corporation in 1917 as a successor to a New Jersey corporation incorporated in 
1899.  Based on sales revenues, Armco is the second largest domestic producer 
of stainless flat-rolled steels and is the largest domestic producer of 
electrical steels.  Armco's Sawhill Tubular Division manufactures a wide range 
of steel pipe and tubing products for use in the construction, industrial and 
plumbing fields.  The Company also owns Douglas Dynamics, L.L.C. ("Douglas 
Dynamics"), the largest North American manufacturer of snowplows for four-
wheel drive pick-up trucks and utility vehicles.  

     As part of its strategy to focus on the production of specialty flat-
rolled steel, Armco has continued to evaluate the growth potential and 
profitability of its businesses and investments, and to rationalize or divest 
those that do not represent a strategic fit or offer growth potential or 
positive cash flow.  In 1993, 1994 and 1995, Armco divested or otherwise 
rationalized several unprofitable or nonstrategic operations.

     On March 14, 1995, Armco, Eastern Stainless Corporation ("Eastern 
Stainless"), an 84%-owned subsidiary of Armco, and Avesta Sheffield Holding 
Co. ("Avesta Sheffield") completed the sale of substantially all of the assets 
of Eastern Stainless to Avesta Sheffield for consideration consisting of 
approximately $10.1 million in cash and the assumption by Avesta Sheffield of 
certain liabilities of Eastern Stainless.  The cash proceeds were used by 
Eastern Stainless to satisfy part of the liabilities not assumed by Avesta 
Sheffield in the transaction.  The net liabilities not assumed by Avesta 
Sheffield or satisfied by the sale proceeds were assumed by Armco.

	On April 7, 1995, Armco completed the sale of Northwestern National 
Holding Company, Inc. and its subsidiaries, the  AFSG companies to be sold, to 
Vik Brothers Insurance, Inc., a privately held property and casualty insurance 
holding company.  The proceeds from the sale consisted of $64.2 million in 
cash at the closing and an additional $15 million to be received in 1998, 
subject to an adjustment based on a reserve analysis at that time.  The cash 
proceeds have been retained by Armco's unconsolidated runoff insurance 
subsidiaries and pledged as security for certain note obligations.

     On January 16, 1996, Armco sold its partnership interest in National-
Oilwell, a joint venture engaged in the oil and gas service business, which 
was equally owned by subsidiaries of Armco and USX Corporation, to an entity 
formed by Duff & Phelps/Inverness and First Reserve Funds along with certain 
members of National-Oilwell's management.  Armco received $77 million in cash 
and receivables with a face value of $13 million.  The receivables will be 
recorded at a discounted value of $10.6 million.  The terms of all the above 
transactions were the result of arm's-length negotiation among the parties.

Business Segments

     The information on the amounts of revenue, operating results and 
identifiable assets attributable to each of Armco's business segments, set 
forth in Note 7 of the Notes to Financial Statements in Armco's Annual Report 
to Shareholders for the year ended December 31, 1995, is incorporated by 
reference herein.  

     Additional information about Armco's business segments and equity 
investments is set forth in Management's Discussion and Analysis in Armco's 
Annual Report to Shareholders for the year ended December 31, 1995, which is 
incorporated by reference herein.

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Specialty Flat-Rolled Steels

     Armco's Specialty Flat-Rolled Steels businesses produce and finish flat-
rolled stainless, electrical and carbon steels at manufacturing operations 
located in Butler, Pennsylvania, and Coshocton, Dover, Mansfield and 
Zanesville, Ohio.  The Butler and Mansfield Operations produce and finish 
stainless and electrical steels in sheet and hot band form.  The Coshocton 
Operations finish stainless steel in strip and sheet form and the Zanesville 
Operations finish stainless and electrical strip and sheet.  In addition, the 
Mansfield Operations produce commodity grades of carbon steel sheet, much of 
which is coated at a dedicated galvanizing facility at the Dover Operations.  
The segment also includes the results of European trading companies that buy 
and sell steel and manufactured steel products.  Stainless steel plate 
products were finished at Eastern Stainless, which was sold on March 14, 1995.

     Under a plan to upgrade the facilities at Mansfield to enhance their 
steel production capability and improve the operating performance of both the 
Mansfield and Dover Operations, Armco installed a thin-slab caster and made 
related plant modifications at Mansfield.  The new state-of-the-art continuous 
thin-slab caster is designed to produce three different types of steels 
(stainless, electrical and carbon) with rapid switchover from one type to 
another.  The installation of the thin-slab caster, certain hot mill upgrades 
and other modifications at the Mansfield Operations were made over a 15-month 
period at a cost totaling approximately $140 million.  The casting process 
used at Mansfield helps to ensure consistently high quality because it 
eliminates intermediate production steps and reduces the amount of rolling 
required to achieve desired thickness.  The new caster can produce slabs from 
three to five inches thick, up to 50 inches wide, and up to 60 feet in length. 

     The Mansfield and Dover Operations were idled from late in the first 
quarter of 1994 through the first quarter of 1995, although Dover began 
limited operations early in the first quarter of 1995.  By mid-year, the Dover 
plant was fully operational.  During the idle period, these operations sold 
only on-hand coil inventory.  With the completion of its new thin-slab caster 
and modernized hot strip mill, Mansfield restarted in April 1995.  The restart 
was hampered by process control system difficulties and, in the third quarter, 
by the failure of the refractory lining and a skid in the new walking beam 
furnace.  The furnace problems necessitated an unscheduled 17-day outage, 
halting the steel melting and casting operations.  Early in the first quarter 
of 1996, the Mansfield facility was operating at approximately 70% of 
capacity.

     The stainless and electrical steel industry is a relatively small but 
distinct segment of the overall steel industry that represented approximately 
2% of domestic steel tonnage but accounted for approximately 10% of domestic 
steel revenues in 1995.  Stainless and electrical steels refer to alloy tool 
steel, electrical steel and stainless strip and sheet products.  These steels 
differ from basic carbon steel by their metallurgical composition.  They are 
made with a high alloy content, which permits their use in environments that 
demand exceptional hardness, toughness, strength and resistance to heat, 
corrosion or abrasion or combinations thereof.  Unlike high-volume carbon 
steel, stainless and electrical steel is generally produced in relatively 
small quantities utilizing special processing techniques designed to meet more 
exacting specifications and tolerances.

     Stainless steel contains elements such as chromium, nickel and molybdenum 
that give it the unique qualities of resistance to rust, corrosion and heat; 
high strength; good wear characteristics; natural attractiveness; and ease of 
maintenance.  Stainless steel is used in the automotive and aerospace 
industries, and in the manufacture of food handling, chemical processing, 
pollution control, medical and health equipment and other products where its 
combination of strength, durability and attractiveness is desirable.  
Electrical steels are iron-silicon alloys which, through special production 
techniques, possess unique magnetic properties that make them desirable for 
use as energy efficient core material in such applications as electrical 
transformers, motors and generators.

     Armco expects that the demand for stainless steel will continue to be 
positively affected by its increasing use in the manufacture of consumer 
durable goods and industrial applications.  Per capita stainless steel usage 
in many highly developed countries significantly exceeds per capita usage in 
the 

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United States and Armco believes that this is an indication of the growth 
potential of demand for stainless steel in the United States.  In addition, 
the 1990 amendments to the Clean Air Act have resulted in the increasing use 
of corrosion-resistant materials in a number of applications for which 
stainless steel is well suited, including industrial pollution control devices 
and motor vehicle exhaust systems for use in the United States, where Armco 
now has the leading market share.  Another factor that Armco believes will 
affect demand positively is the increasing issuance of new car bumper-to-
bumper warranties and the use of stainless steel in passenger restraint 
systems.  Stainless steel products generate higher average profit margins than 
carbon steel products and, depending on the stainless grade, sell at average 
prices of three to five times those of carbon steel.

     Armco produces flat-rolled stainless steel and alloy electrical steel 
strip and sheet products that are used in a diverse range of consumer durables 
and industrial applications.  During the last three years, approximately 62% 
of Armco's sales of specialty flat-rolled steel has been stainless steel, 24% 
has been electrical steel and 10% has been carbon steel.  The remaining sales 
in this segment of Armco's business is primarily related to the foreign 
subsidiaries that buy, warehouse, and sell specialty steel products.  Major 
markets served are industrial machinery and electrical equipment, automotive, 
construction and service centers.

     In the stainless steel market, Armco is the leading producer of chrome 
grades used primarily in the domestic market for automotive exhaust 
components.  Stainless steel, which formerly was not used in parts of the 
exhaust system other than the catalytic converter, is now used in the entire 
exhaust system from manifold to tailpipe by many auto manufacturers.  Armco 
has developed a number of specialty grades for this application, many of which 
are patented.  Armco is also known for its "bright anneal" chrome grade 
finishes utilized for automotive and appliance trim and other chrome grades 
used for cutlery, kitchen utensils, scissors and surgical instruments.  
Specialty chrome nickel grades produced by Armco are used in household 
cookware, restaurant and food processing equipment and medical equipment.

     Other Armco stainless products include functional stainless steel 
manufactured for automotive, agricultural, heating, air conditioning and other 
manufacturing uses.  Before the sale of Eastern Stainless in March 1995, 
Armco's stainless products also included stainless steel plate, principally in 
flat plate form, for use in industrial applications.  

     Armco is the only United States manufacturer of a complete line of flat-
rolled electrical steel products and is the sole domestic producer of certain 
high permeability oriented electrical steels.  It is also the only domestic 
manufacturer utilizing laser scribing technology.  In this process, the 
surface of electrical steel is etched with high-technology lasers that refine 
the magnetic domains of the steels, resulting in superior electrical 
efficiency.  Major electrical product categories are:  Regular Grain Oriented 
("RGO"), used in the cores of power and distribution transformers; Cold Rolled 
Non-Oriented ("CRNO"), used for electrical motors and lighting ballasts; and 
TRAN COR[registered tradmark]H, which is used in power transformers and is the 
only high permeability electrical steel made domestically.

     Armco had trade orders on hand for its Specialty Flat-Rolled Steels 
segment of $231.9 million at December 31, 1995, and $188.7 million at December 
31, 1994.  The backlog increased in 1995 primarily due to the start up of the 
Mansfield and Dover Operations.  While substantially all of the orders on hand 
at year-end 1995 are expected to be shipped in 1996, such orders, as is 
customary in the industry, are subject to modification, extension or 
cancellation.

     Armco's specialty steelmaking operations are concentrated in Pennsylvania 
and Ohio, which permits cost-efficient materials flow between plants.  Armco's 
Butler, Pennsylvania facility, which is situated on 1,300 acres with 3.2 
million square feet of buildings, continuously casts 100% of its steel.  At 
Butler, melting takes place in three 170-ton electric arc furnaces that feed 
the world's largest (175-ton) argon-oxygen decarburization unit and a 170-ton 
vacuum degassing unit for refining molten metal that, in turn, feed two double 
strand continuous casters.  The melt capacity at Butler was approximately 
940,000 tons cast by year-end 1995.  Butler also operates a hot-strip mill, 
anneal and pickle units and two fully-automated tandem cold-rolling mills.  It 
also has various intermediate and finishing operations for both stainless and 
electrical steels.

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     The finishing plant in Coshocton, Ohio, located on 650 acres, is housed 
in a 500,000 square-foot plant and has three Sendzimer mills, three anneal and 
pickle facilities, three "bright anneal" lines, two 4-high mills for cold 
reduction and other processing equipment, including temper rolling, slitting 
and packaging facilities.  

     The Mansfield, Ohio plant currently consists of a 1.4 million square-foot 
facility, including a melt shop with two electric arc furnaces (170-ton and 
120-ton), a 120-ton argon-oxygen decarburization unit, a thin-slab continuous 
caster, a six-stand hot strip mill, a five-stand tandem cold rolling mill and 
a newly retrofitted pickle line. 

     The Dover, Ohio plant produces a full range of galvanized products and is 
a principal supplier to the heating, ventilating, air conditioning (HVAC) 
market with its Reeves TiteKote[registered trademark] product.  It also 
supplies galvanized products to the automotive, construction, appliance and 
service center markets.

     Armco's Zanesville, Ohio plant, with 508,000 square feet of buildings on 
88 acres, is a finishing plant for some of the steel produced at Butler and 
Mansfield and has a Sendzimer cold-rolling mill, anneal and pickle facilities, 
high temperature box anneal and other decarburization and coating units.

     In the fourth quarter of 1994, Armco announced an expanded capital 
improvement program under which it would spend up to $95 million over a two-
year period to upgrade and expand its stainless and electrical steel finishing 
facilities.  The program is intended to reduce existing production 
constraints, increasing specialty steel finishing capacity by approximately 
180,000 tons per year, particularly in electrical steels, specialty strip and 
sheet products and chrome stainless.  Armco expects to have the projects 
scheduled under this program completed by mid-1996.

Fabricated Products

     The businesses currently included in the Fabricated Products segment are 
described below:

     --  Douglas Dynamics is the largest North American manufacturer of 
snowplows for four-wheel drive pick-up trucks and utility vehicles.  Douglas 
Dynamics, which is headquartered in Milwaukee, Wisconsin, and has 
manufacturing plants in Rockland, Maine, Milwaukee, Wisconsin and Johnson 
City, Tennessee, sells its snowplows and other light truck equipment and 
accessories under the names Western Products, Fisher Engineering and Douglas 
Dynamics through independent distributors throughout the United States and 
Canada.  

     --  Sawhill Tubular manufactures a wide range of steel pipe and tubular 
products for use in the construction, industrial and plumbing markets at 
plants in Sharon and Wheatland, Pennsylvania and Warren, Ohio.  Sawhill 
Tubular operates a stretch reduction mill, continuous welding mills and 
finishing and galvanizing facilities.

     Armco had trade orders on hand for its Fabricated Products segment of 
$16.4 million at December 31, 1995 and $38.6 million at December 31, 1994.  
The segment's backlog decreased in 1995 primarily as a result of reduced 
demand in the snowplow and steel pipe and tubing businesses.  While 
substantially all of the orders on hand at year-end 1995 are expected to be 
shipped in 1996, such orders, as is customary in these industries, are subject 
to modification, extension or cancellation.

Employees

     At December 31, 1995, Armco had approximately 5,900 employees in its 
continuing operations and approximately 200 employees in its insurance and 
other discontinued operations.   Most of Armco's domestic production and 
maintenance employees are represented by international, national or 
independent local unions, although some operations are not unionized.  

     Armco has agreements with the local unions at the specialty steel plants 
in Butler, Pennsylvania and Zanesville, Ohio which terminate September 30, 
1996, and June 30, 1996,

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respectively.  In June 1993, employees represented by the United Steelworkers 
of America ("USWA") at Armco's Mansfield and Dover, Ohio plants ratified new 
six-year contracts, which became effective September 1, 1993.  In the second 
half of 1994, the USWA employees and management at the Mansfield and Dover 
plants reached local agreements that provide for additional improvements in 
manning levels and work practices.  

Competition

     Armco faces intense competition from within the domestic steel industry, 
from manufacturers of competing products other than steel, including aluminum, 
plastics, composites and ceramics, and from foreign steel producers as well as 
foreign producers of components and other products.  Many of these foreign 
producers have lower labor costs and are subsidized by their governments.  
Their decisions with regard to production and sales may be influenced more by 
political and social considerations than prevailing market forces.  Many 
foreign steel producers continue to ship into the United States market despite 
decreasing profit margins or losses.  Depending on a number of market factors, 
including the strength of the dollar, import levels, and the effectiveness of 
our nation's trade laws, pricing of the Company's products could be adversely 
affected.  Competition is based primarily on price, with factors such as 
reliability of supply, service and quality also being important in certain 
segments.

     Import penetration for stainless strip and sheet was 20% in 1995 compared 
to 23% in 1994.  Import penetration of electrical steels was 21% in 1995 
compared to 20% in 1994. 

     In 1992, when the voluntary steel import restraint agreements (VRAs) 
program was discontinued, President Bush committed to negotiating a 
Multilateral Steel Agreement ("MSA") aimed at controlling steel industry 
subsidies around the world.  However, to date no MSA has been concluded.  In 
1995, led by the Specialty Steel Industry of North America, the industry's 
trade organization, a major initiative was begun with European specialty steel 
producers to attempt to reach a consensus on an MSA for specialty steel 
producers only.  By the end of 1995, considerable progress had been made 
toward developing a framework Multilateral Specialty Steel Agreement, or MSSA, 
aimed at controlling specialty steel industry subsidies.  It is hoped that 
during 1996 the terms of the MSSA can be finalized and the agreement extended 
to all specialty steel producers worldwide, although there can be no assurance 
that such consensus can be achieved.

     Competition is also presented by the so-called "mini-mills", which 
generally have smaller, non-unionized workforces and are relatively free of 
many of the employee, environmental and other obligations that traditionally 
have burdened steel producers.  Nucor Corporation, a mini-mill steel company, 
in 1995 entered the automotive chrome stainless steel business, with the 
addition of an argon-oxygen decarburization (AOD) vessel at its 
Crawfordsville, Indiana melt shop.  In 1995, Nucor produced 16,000 tons of 
automotive chrome stainless with targeted shipments of 60,000 to 70,000 tons 
for 1996.  Nucor's entry will intensify competition in the automotive chrome 
stainless market, which totals about 400,000 tons per year.  Armco is 
currently the leading U.S. producer of Raw Materials and Energy Sources

Raw Materials and Energy Sources

     Raw material prices represent a major component of per ton production 
costs in the steel industry.  The principal raw materials used by Armco in the 
production of steels are iron and carbon steel scrap, molybdenum, chrome and 
nickel and their ferroalloys, stainless steel scrap, silicon and zinc.  These 
materials are purchased in the open market from various outside sources.  
Since much of this purchased raw material is not covered by long-term 
contracts, availability and price are subject to world market conditions.  
Chrome, nickel and certain other materials in mined alloy form, can be 
acquired only from foreign sources, many of them located in developing 
countries that may be subject to unstable political and economic conditions 
that might disrupt supplies or affect the price of these materials.  A 
significant portion of the chrome and nickel requirements, however, is 
obtained from stainless steel scrap rather than mined alloys.  While certain 
raw materials have been in short supply from time to time, Armco currently is 
not experiencing and does not anticipate any problems obtaining appropriate 
materials in amounts sufficient to meet its production needs.  Armco also uses

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large amounts of electricity and natural gas in the manufacture of its 
products.  It is expected that such energy sources will continue to be 
reasonably available in the foreseeable future.  

Environmental Matters

     Armco, in common with other United States manufacturers, is subject to 
various federal, state and local requirements for environmental controls 
relating to its operations.  Armco has devoted, and will continue to devote, 
significant resources to control air and water pollutants, to dispose of 
wastes, and to remediate sites of past waste disposal.  Armco estimates 
capital expenditures for pollution control in its manufacturing operations 
will be about $29 million for the years 1996-2000, with the largest 
expenditures being made in the Specialty Flat-Rolled Steels segment.  
Approximately $5 million is related to control of air pollution pursuant to 
regulations currently promulgated under the Clean Air Act, as amended, and 
corresponding state laws.  These projections, which have been prepared 
internally and without independent engineering or other assistance, reflect 
Armco's current analysis of probable required capital projects for pollution 
control.  During the period 1991 through 1995, Armco's capital expenditures 
for pollution control projects amounted to approximately $28.1 million, 
including $18.1 million in 1995.  Statutory and regulatory requirements in 
this area continue to evolve and, accordingly, the type and magnitude of 
expenditures may change.  

     Armco has been named as a defendant, or identified as a potentially 
responsible party, in various governmental proceedings regarding cleanup of 
certain past waste disposal sites.  Armco is also a defendant in various 
private lawsuits alleging property damage and personal injury from waste 
disposal sites.  Joint and several liability could be imposed on Armco or 
other parties for these matters; thus, theoretically, one party could be held 
liable for all costs related to a site.  While such governmental and private 
actions are being contested, the outcome of individual matters cannot be 
predicted with assurance.  However, based on its experience with such cases 
and a review of current claims, Armco expects that in most cases any ultimate 
liability will be apportioned between Armco and other financially viable 
parties.  

     From time to time, Armco has been and may be subject to penalties or 
other requirements as a result of administrative actions by regulatory 
agencies and to claims for indemnification for properties it has previously 
owned or leased.  In addition, environmental exit costs may be incurred if 
Armco decides to dispose of additional properties.  It is Armco's policy not 
to accrue such costs until a decision is made to dispose of a property.

     Based on current facts and circumstances known to Armco, Armco's 
experience with site remediation, an understanding of current environmental 
laws and regulations, environmental assessments, the existence of other 
financially viable parties, expected remediation methods and the years in 
which Armco is expected to make payments toward each remediation (which range 
from the current year to 30 years or more in the future), Armco believes that 
the ultimate liability for environmental remediation matters identified to 
date will not materially affect its consolidated financial condition or 
liquidity.  However, it is possible that, due to fluctuations in Armco's 
results, future developments with respect to such matters could have a 
material effect on the results of operations of future interim or annual 
periods.  

     Furthermore, the identification of additional sites, changes in known 
circumstances with respect to identified sites, the failure of other parties 
to contribute their share of remediation costs, decisions to dispose of 
additional properties and other changed circumstances may result in increased 
costs to Armco, which could have a material effect on its consolidated 
financial condition, liquidity and results of operations in future interim or 
annual periods.  However, it is not possible to determine whether additional 
loss, due to changed circumstances, will occur or to reasonably estimate the 
amount or range of any potential additional loss.

     Statutes and regulations relating to the protection of the environment 
have resulted in higher operating costs and capital investments by the 
industries in which Armco operates.  Although it cannot predict precisely how 
changes in environmental requirements will affect its businesses, Armco does 
not believe such requirements would affect its competitive position.

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Research and Development

     Armco carries on a broad range of research and development activities 
aimed at improving its existing products and manufacturing processes and 
developing new products and processes.  Armco's research and development 
activities are carried out primarily at a central research and technology 
laboratory located in Middletown, Ohio.  This laboratory is engaged in applied 
materials research related to iron and steel, non-ferrous materials and new 
materials.  In addition, the materials and metallurgy departments at each 
operating unit develop and implement improvements to products and processes 
that are directly connected with the activities of such operating unit.

     Armco spent $14 million, $12 million, and $9.4 million, respectively, on 
research in the years ended December 31, 1995, 1994 and 1993, of which $.9 
million and $3.9 million was funded by affiliates, primarily ASC, which is no 
longer an affiliate, in 1994 and 1993, respectively.

Other Investments

North American Stainless ("NAS")

     Armco and Acerinox S.A. of Spain each owned a 50% partnership interest in 
NAS through their respective subsidiaries, First Stainless, Inc. and Stainless 
Steel Invest, Inc.  In 1994, Armco's subsidiary sold 90% of its 50% equity 
interest in NAS to its partner for $73 million in cash.  Through First 
Stainless, Inc., Armco maintains a 5% limited partnership interest in NAS.  In 
connection with the transaction, Armco entered into an annual supply contract 
with NAS to provide the former joint venture with semi-finished stainless 
steel at market prices.

Armco Steel Company, L.P. ("ASC")

     ASC was a joint venture limited partnership formed in 1989 by Armco and 
Kawasaki Steel Corporation.  With plants located in Middletown, Ohio and 
Ashland, Kentucky, ASC produced primarily high strength, low carbon flat-
rolled steel.  These products were supplied to the automotive, appliance and 
manufacturing markets, as well as to the construction industry and independent 
steel distributors and service centers.  

     In April 1994, ASC completed an initial public offering and 
recapitalization.  As part of this transaction, the business and assets of ASC 
were transferred to AK Steel Holding Corporation ("AK Steel").  In the 
recapitalization, Armco received 1,023,987 shares, or 4.2%, of the AK Steel 
common stock and was released from certain obligations to make future cash 
payments to the former joint venture.  On May 4, 1995, Armco announced that it 
had completed a series of trades resulting in the sale of 1,023,987 shares of 
AK Steel.  As a result of the sales, Armco realized total net proceeds of 
$27.2 million.  With the completion of these transactions, Armco no longer 
owns any stock in AK Steel. 

Discontinued Operations

National-Oilwell 

     Armco, through a wholly owned subsidiary, had a 50% partnership interest 
in National-Oilwell, which was formed in 1987 when Armco and USX Corporation 
each contributed their oil field equipment operations to National-Oilwell in 
exchange for equal interests in the new partnership.  On January 16, 1996, 
Armco sold its partnership interest in National-Oilwell to an entity formed by 
Duff & Phelps/Inverness and First Reserve Funds along with certain members of 
National-Oilwell's management.  Armco received $77 million in cash and 
receivables with a face value of $13 million.  The receivables will be 
recorded at a discounted value of $10.6 million.  
                                      7
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Armco Financial Services Group ("AFSG")

     Prior to April 7, 1995, AFSG consisted primarily of insurance companies 
that Armco intended to sell (the "AFSG companies to be sold") and companies 
that have ceased writing new business and are being liquidated (the "runoff 
companies").  

     On April 7, 1995, Armco completed the sale of Northwestern National 
Holding Company, Inc. and its subsidiaries, the  AFSG companies to be sold, to 
Vik Brothers Insurance, Inc., a privately held property and casualty insurance 
holding company.  The proceeds from the sale consisted of $64.2 million in 
cash at the closing and an additional $15 million to be received in 1998.  The 
latter amount is subject to potential adjustment for adverse experience in 
certain insurance reserves.  Substantially all of these proceeds were pledged 
as security for certain note obligations due to the runoff companies and have 
been retained in the investment portfolio of those companies.  

Runoff Companies

     The runoff insurance companies have not written any new business for 
retention except for an immaterial amount of guaranteed renewable accident and 
health business.  The number of policyholders of this business has decreased 
from approximately 4,000 at December 31, 1986 to 1,007 at December 31, 1995.

     Claims are paid by using the investment portfolio of the runoff companies 
and the related investment income from such portfolio.  The portfolio had a 
market value of $188 million at December 31, 1995.  The runoff companies 
believe the existing invested assets, related future income and other assets 
will provide sufficient funds to meet all future claims payments.  

     The runoff companies estimate that 60% of future claims will be paid in 
the next five years and that substantially all of the claims will be paid by 
the year 2017.  The ultimate amount of the claims as well as the timing of the 
claims payments are estimated based on the annual review of loss reserves 
performed by the runoff companies' independent and consulting actuaries.  
While there have been no charges recorded with respect to the runoff companies 
since 1990, in the future there may be further adverse developments with 
respect to the runoff companies, which, if not otherwise offset through 
favorable commutations or other actions, will require additional charges to 
income.  Armco expects that any such charges would not have a material adverse 
effect on its financial condition.

     The terms of the NAS, ASC, National-Oilwell and AFSG transactions 
described in "Other Investments" and "Discontinued Operations", above, were 
the result of arm's-length negotiation among the parties.


ITEM 2.     PROPERTIES

     Armco owns and leases property primarily in the United States.  This 
property includes manufacturing facilities, offices and undeveloped property.  
The locations of Armco's principal plants and materially important physical 
properties are described in ITEM 1. "BUSINESS" and are used by the Specialty 
Flat-Rolled Steels and Fabricated Products businesses.  Armco believes that 
all its operating facilities are being adequately maintained and are in good 
operating condition.


ITEM 3.     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.

     Reserve Mining Litigation.  In August 1992, an action styled Warner, 
    --------------------------                                    -------
Donovan, et al. v. Armco Inc. was filed in the U.S. District Court, District 
-----------------------------
of Minnesota by members of the United Steelworkers of America ("USWA") who 
declined to participate in the USWA v. Armco settlement.  
                               -------------

                                      8
<PAGE>


The complaint alleges breaches of the Basic Labor Agreement, Supplemental 
Unemployment Benefit Plan, Insurance Agreement, Pension Agreement and Program 
of Hospital-Medical Benefits for Pensioners and Surviving Spouses and seeks an 
unspecified amount of damages.  On February 17, 1993, the Court granted 
Armco's motion to dismiss plaintiffs' state law claims.  The plaintiffs' 
claims based on the labor agreements remain pending.  Plaintiffs filed an 
amended complaint, in response to which Armco filed a motion to dismiss 
certain claims therein.  On October 22, 1993, the Court granted Armco's 
motion.  On November 8, 1993, Armco filed an answer to the allegations in the 
amended complaint not subject to the motion to dismiss.  Further proceedings 
in this case have been stayed pending the decision in the Ricke case discussed 
below.                                                    -----

     On April 25, 1994, an action entitled Larry B. Ricke, Trustee v. Armco
                                            --------------------------------
Inc. was filed in the United States District Court for the District of
----
Minnesota by the Trustee appointed by the Pension Benefit Guaranty Corporation 
("PBGC") for the purpose of recovering from Reserve Mining Company ("Reserve") 
assets to satisfy Reserve's liability for pension benefit entitlements which 
are in addition to those guaranteed by the PBGC.  The complaint alleges that 
Armco is liable for the unfunded nonguaranteed benefits under the Pension Plan 
of Reserve in the amount of $9.2 million plus interest.  The pension benefits 
which are the subject of this action were part of the class settlement of USWA
                                                                          ----
v. Armco.  Approximately fifteen hundred members of the class signed
--------
individual releases (19 members who did not are plaintiffs in Warner, Donovan,
                                                              ----------------
et al. v. Armco Inc.) releasing Armco from all claims, liabilities, etc. based
--------------------
upon or which arise out of any Reserve Employee Pension Benefit Plan.  Armco 
filed a motion to dismiss the complaint on the basis of said releases, which 
the court denied on March 28, 1995.  Armco filed a motion seeking 
interlocutory appellate review.  This motion was granted on June 6, 1995.  
Oral argument was held on December 11, 1995.  No decision has been rendered. 

     Eastern Stainless Corporation ("Eastern") Stockholder Litigation.  On or 
     -----------------------------------------------------------------
about March 13, 1995, an action styled Pension Benefit Guaranty Corporation v. 
                                       ---------------------------------------
Armco Inc. and Eastern Stainless Corporation was filed in the United States
--------------------------------------------
District Court for the Southern District of Ohio by the PBGC as a Class B 
shareholder of Eastern.  The complaint is captioned as a shareholder 
derivative and class action on behalf of all Class B shareholders.  The 
plaintiff alleges breach of fiduciary duty as well as certain other claims 
arising from Armco's status as a majority shareholder in Eastern.  The damages 
are alleged to be in excess of $12 million.  The Class B shares were 
redeemable by Eastern Stainless for $1 a share, or approximately $13 million.  
On March 15, 1995, Eastern was dissolved without any shareholder distribution.  
In accordance with Virginia corporation law, a special independent committee 
of the Board of Directors of Eastern ("Committee") was appointed to evaluate 
the merits of plaintiff's derivative claims under the business judgment rule.  
Armco filed a motion to dismiss the direct claims, stay the derivative claims 
and stay discovery pending completion of the Committee's investigation.  
Plaintiff filed a motion for class certification.  The court denied Armco's 
motion to dismiss the direct claims and stay discovery, and granted Armco's 
motion to stay the derivative claims and plaintiff's motion for class 
certification.  The court issued a preliminary pre-trial order setting the 
case for non-binding summary jury trial for November 18, 1996.  Trial on the 
merits is currently set for January 6, 1997.  Armco has filed an answer to the 
complaint and discovery is in progress.  

     On January 31, 1996, the Committee issued a report on its review and 
evaluation of the derivative claims, which concluded that the Class B 
shareholders were treated fairly by Armco and Eastern and that there is no set 
of circumstances or assumptions under which the maintenance of the litigation 
can serve the interests of Eastern or its Class B Shareholders.  Eastern filed 
on March 18, 1996, a Motion to Dismiss the derivative claims on the basis of 
the Committee's findings.  

     Cornerstones Litigation.  An action was filed by Cornerstones Municipal 
     ------------------------
Utility District ("Cornerstones") and William St. John, as representative of a 
class of owners of real property situated within Cornerstones, in the District 
Court of Harris County, Texas, in July 1989, seeking damages in excess of $40 
million for allegedly defective pipe supplied by Armco Construction Products 
for a sanitary sewer system in three residential subdivisions.  In May 1991, 
the Cornerstones plaintiffs amended their petition to add owners of some 1,500 
    ------------
residences within the Kingsbridge Municipal Utility District ("Kingsbridge").  
Subsequently, the Kingsbridge claims were severed into a separate action.  In 
                  -----------
January 1992, the trial court granted Armco's motion for summary judgment, 
dismissing 

                                      9
<PAGE>

all claims asserted by the Cornerstones plaintiffs as barred by the 
                           ------------
statute of limitations.  In January 1993, the Court of Appeals reversed the 
dismissal.  Upon Armco's petition, the Supreme Court of Texas reversed and 
summary judgment in favor of Armco was reinstated by the Court of Appeals in 
November 1994.  In March 1995, the Cornerstones plaintiffs sought writ of 
                                   ------------
error to the Supreme Court of Texas.  On May 11, 1995, the Supreme Court of 
Texas denied plaintiffs' application for writ of error, concluding the 
Cornerstones matter in favor of Armco.  On February 22, 1996, the District 
------------
Court of Harris County entered summary judgment in favor of Armco in the 
severed Kingsbridge action.  The plaintiffs in Kingsbridge have thirty days in 
        -----------                            -----------
which to appeal the court's ruling.

	In addition, there are three multiple-party homeowners actions that 
remain pending on behalf of property owners in the Cornerstones Municipal 
Utility District.  The first of these actions, Vincent and Linda Adduci, et 
                                               ----------------------------
al. v. Armco Steel Corporation, et al., was filed in the 127th District Court 
--------------------------------------
of Harris County, Texas on or about April 3, 1992, by approximately 87 
residents, including the lead plaintiffs, against the same defendants as in 
the Cornerstones case.  On or about September 11, 1992, Harris W. Arthur and
    ------------
other plaintiff homeowners commenced a similar action, styled Harris W. 
                                                              ---------
Arthur, et al. v. Monsanto Company, et al., in the 133rd Judicial District 
------------------------------------------
Court of Harris County.  On or about March 22, 1993, a third action, captioned 
William C. Irons, et al. v. Turner, Collie & Braden, Inc., et al., was filed
-----------------------------------------------------------------
in the 152nd Judicial District Court of Harris County by the lead plaintiff 
and approximately 100 additional residents.  All three cases are substantially 
based upon the same theories as the Cornerstones case and were separately 
                                    ------------
filed after an effort to have the Cornerstones complaints certified as a class
                                  ------------
action was denied by the court.  These three actions each seek an unspecified 
amount of damages.

     Environmental Proceedings.  Most environmental actions involving Armco
     --------------------------
relate to alleged contamination at off-site treatment and disposal sites.  In 
many of these cases, Armco is one of several hundred companies who have been 
identified as potentially responsible parties ("PRPs").  In a few instances, 
Armco is one of only a few parties or solely liable.  It is routinely asserted 
that joint and several liability will be applied in such cases; thus, a single 
party could be held liable for all costs related to a site. However, Armco's 
experience has been that liability is apportioned on the basis of volume 
and/or toxicity of materials sent to a site and Armco expects that any 
ultimate liability will be apportioned among Armco and other financially 
viable parties.  Other claims sometimes arise from contractual obligations for 
properties Armco previously owned or leased and from regulatory actions.  
Armco intends to assert all meritorious legal and equitable defenses that are 
available to it with respect to environmental matters.  See "Item 1- BUSINESS-
-Environmental Matters".  The following paragraphs provide information about 
unresolved environmental matters that have been reported in previous Form 10-K 
or Form 10-Q filings and certain new matters.

     On July 31, 1989, the United States filed a civil action in the United 
States District Court for the Southern District of Texas, Houston Division, 
against 85 parties including Armco under the Comprehensive Environmental 
Response, Compensation and Liability Act ("CERCLA") for cost recovery and 
injunctive relief associated with the French Limited Superfund site near 
Crosby, Texas.  In January 1996, the United States Environmental Protection 
Agency ("USEPA") certified that the required remediation work had been 
completed.

     Armco is one of four defendants in the case styled, Rosa Ann Barrett, et
                                                         --------------------
al. v. Atlantic Richfield Company, et al., which was filed in January 1993, in 
-----------------------------------------
the United States District Court for the Southern District of Texas, Houston 
Division on behalf of certain residents near the French Limited Site.  On June 
20, 1994, the court granted summary judgment against most plaintiffs.  The 
case is now on appeal before the Fifth Circuit with the exception of one 
litigant whose case is before the trial court.  Armco filed its brief in the 
appellate case on March 4, 1996.  Based on its experience to date with 
resolution of claims in this matter, Armco does not believe its liability with 
regard to the remaining claims will be material.

     Armco is subject to a Consent Agreement and Final Order ("CAFO") dated 
October 27, 1988, relating to two inactive surface impoundments located at the 
former E.G. Smith plant in Cambridge, Ohio.  The Department of Justice 
notified Armco in March 1994 that it was prepared to file a complaint in this 
matter alleging that there was non-compliance with the CAFO in 1989 and 1990. 
A consent order to resolve this matter has been negotiated.  The consent order 
requires Armco to pay a 

                                      10
<PAGE>


penalty of $100,000 and to expend $200,000 on a study to reduce the 
environmental effects of pickling with nitric acid.  If Armco does not 
implement the results of the study an additional payment up to $100,000 may be 
required.

     Armco is one of four companies that are identified by the USEPA as PRPs 
at the Fultz Landfill Superfund site in Byesville, Ohio.  Armco received the 
initial CERCLA information request about this site in 1985.  Armco estimates 
past and future remediation costs at about $12 million.  Settlement 
discussions with USEPA were unsuccessful and on July 21, 1995, the Department 
of Justice filed a complaint alleging Armco's liability for remediation costs 
in the U.S. District Court for the Southern District of Ohio.  In February 
1996, the court granted Armco's motion to file a third-party complaint against 
other PRPs.  Armco has initiated discovery to identify additional parties who 
disposed of hazardous waste at the site.  

     On July 22, 1993, Armco received a request from the Kansas Department of 
Health and Environment ("KDHE") for information regarding a former Armco 
Construction Products Division plant located in Topeka, Kansas and now owned 
by Contech Construction Products, Inc. ("Contech").  Armco answered KDHE's 
information request in August 1993.  KDHE has indicated it will pursue Contech 
and two other parties regarding this matter.  Contech claims that Armco has an 
indemnification obligation under the agreement conveying the property to 
Contech.  Based on the type of contamination at issue and the presence of 
other PRPs, Armco does not believe its liability, if any, will be material.

     In December 1993, Armco and one other company received a notice of 
nonbinding preliminary allocation of proportionate responsibility from the 
Pennsylvania Department of Environmental Protection ("PADEP") for the William 
Taylor Estate site.  PADEP has indicated that it intends to conduct additional 
investigations at this site.  Based on current information about the type of 
contamination and the presence of other PRPs, Armco does not expect its 
liability, if any, to be material.

     On February 16, 1994, the Missouri Department of Natural Resources and 
the USEPA jointly issued a Part B permit for Armco's Kansas City facility 
under the Resource Conservation and Recovery Act.  Armco petitioned the 
Environmental Appeals Board for review of most of such permit provisions.  The 
appeal was resolved and Armco is in compliance with the permit issued in 
November 1994.  No additional legal action is anticipated regarding this 
matter.

     On September 9, 1994, four parties who signed an USEPA Administrative 
Order on Consent ("AOC") for cleanup of the Granville Solvent site in Ohio, 
initiated a contribution action in the U.S. District Court for the Southern 
District of Ohio against all PRPs, including Armco, who did not sign the AOC.  
In a March 19, 1996 decision, the court denied plaintiffs' claim for their 
costs related to litigation or negotiation of the AOC.  Based on this recent 
decision and on current information about remediation costs, Armco does not 
expect its liability, if any, to be material.  

     On  February 27, 1995, the Ohio Environmental Protection Agency issued a 
Notice of Violation ("NOV") to Armco's  Zanesville, Ohio operations alleging 
noncompliance with both a 1993 Order and various state regulations regarding 
hazardous waste management.  Armco has instituted appropriate corrective 
measures.  No proposed penalties were included in the NOV and Armco cannot 
reasonably estimate potential penalties, if any, based on current information.

     In the opinion of management, the ultimate liability, if any, resulting 
from the claims described in the preceding paragraphs in this "Legal 
Proceedings" section will not materially affect the consolidated financial 
position or liquidity of Armco and its subsidiaries; however, it is possible 
that due to fluctuations in Armco's operating results, future developments 
with respect to such matters could have a material effect on its financial 
condition, liquidity and results of operations in future interim or annual 
periods.

                                     11
<PAGE>

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of the security holders of 
Armco during the fourth quarter of the year ended December 31, 1995.

Executive Officers of Armco

     The executive officers of Armco as of March 15, 1996, were as follows:
<TABLE>
<CAPTION>
                                                                                Years
                   Age as of                                   Tenure in      of Service
Name             March 15, 1996          Office                Office (1)     with Armco
----             --------------          ------                -----------    -----------
<S>                  <C>          <C>                            <C>               <C>
James F. Will         57          Chairman, President and 
                                  Chief Executive Officer (2)    1994 (2)           4

James L. Bertsch      52          Vice President and Treasurer   1989              30

John B. Corey         52          Vice President (3)             1994 (3)          17

David G. Harmer       52          Vice President and
                                  Chief Financial Officer        1993               3

David A. Higbee       53          Vice President (4)             1994 (4)          30

Gary R. Hildreth      57          Vice President, General Counsel
                                  and Secretary                  1993              25

Peter G. Leemputte    38          Vice President and Controller  1993               3

Gary L. McDaniel      49          Vice President - Operations    1996               3

M. Dennis McGlone     46          Vice President - Commercial    1996               4

Pat J. Meneely        44          Vice President - Information
                                  and Organizational 
                                  Effectiveness                  1995               1

Daniel E. Smigielski  46          Vice President - Purchasing &
                                  Traffic                        1996               3
-------------------------

<FN>
(1)     All officers are elected annually by the Board of Directors and hold 
office until their successors are elected and qualified.  Each of the officers 
named above has held responsible positions with Armco or its subsidiaries 
during the past five years, with the exceptions of Messrs. Will, Harmer, 
Higbee, Leemputte, McDaniel, McGlone, Meneely and Smigielski.  Immediately 
prior to joining Armco, Mr. Will was President and Chief Executive Officer of 
Cyclops Industries, Inc. (a manufacturer of flat-rolled carbon and stainless 
steel products).  Mr. Harmer was Vice President and Controller of FMC 
Corporation (a broad-based chemicals and manufacturing company).  Mr. Higbee 
was President of National-Oilwell.  Mr. Leemputte was project manager for 
Gemini Consulting (specializing in the development and application of leading 
edge business concepts and practices).  Prior to that, Mr. Leemputte held 
various controlling positions at FMC Corporation.  Prior to joining Armco, Mr. 
McDaniel was Division Manager of Maintenance and Services at the Indiana 
Harbor Works of LTV Steel Company (producer of flat-rolled and tubular carbon 
steel products).  Immediately prior to joining Armco, Mr. McGlone was Vice 
President at Coshocton (an operating division of Cyclops Industries, Inc.)  
Mr. Meneely was Vice President, Information Systems and CIO at Sara Lee 
Hosiery (a

                                      12
<PAGE>

manufacturer of hosiery).  Prior to that, Mr. Meneely was Vice President, 
Administration and Vice President, Information Services at Wheeling-Pittsburgh 
Steel Corporation (a manufacturer of steel).  Mr. Smigielski was Director, 
Purchasing and Traffic at Armco's Butler Operations.  Prior to that, Mr. 
Smigielski was Project Director at Krupp GMBH (an engineering company 
specializing in steel industry equipment and processing facilities).

(2)     Effective February 1, 1996, Mr. Will was elected Chairman of the Board 
in addition to the position of President and Chief Executive Officer.

(3)     Effective January 1, 1996, Mr. Corey was named Vice President.  He had 
previously been Vice President - Asset Management and Strategic Planning since 
March 1, 1995.

(4)     Effective January 1, 1996, Mr. Higbee was named Vice President.  He 
had previously been Vice President - Diversified Businesses since March 1, 
1994.

</TABLE>


                                      PART II


ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY
            AND RELATED STOCKHOLDER MATTERS

     Armco's common stock is sold principally on the New York Stock Exchange.  
At February 29, 1996, there were 25,768 common stock shareholders of record.  
Other information required by this item is incorporated herein by reference 
from pages 41 and 46 of the Annual Report to Shareholders for the year ended 
December 31, 1995.


ITEM 6.     SELECTED FINANCIAL DATA
<TABLE>

(In millions, except per share amounts)
<CAPTION>

                                       1995      1994     1993     1992 (2)     1991
                                       ----      ----     ----     -------      ----
<S>                                 <C>        <C>       <C>       <C>        <C>
Net sales                            $1,559.9  $1,437.6  $1,664.0  $1,673.2   $1,204.0
Special charges - net (3)               --        (35.0)   (165.5)   (185.1)     (48.7)
Income (loss) from continuing 
   operations                            23.5      65.8    (247.5)   (402.2)    (147.2)
Income (loss) from continuing operations
    per common share                     0.05      0.46     (2.56)    (4.17)     (1.75)
Total assets (4)                      1,896.6   1,934.9   1,904.7   1,869.9    1,765.0
Long-term debt and lease obligations    361.6     363.8     379.7     401.0      350.7
Long-term employee benefit 
    obligations (4)                   1,165.9   1,221.9   1,249.9     541.6      362.3
Class B common stock of subsidiary (5)   --       --          9.7       9.3        --

-----------------------------------
<FN>

(1)    The information in this Item should be read in conjunction with 
Armco's financial statements and the notes thereto, which are incorporated 
by reference in Item 8.

(2)    In April 1992, Armco acquired Cyclops Industries, Inc. in a 
transaction accounted for as a purchase.

(3)    Special charges primarily relate to the shutdown, sale and/or 
rationalization of operating facilities.  

(4)      In 1993, Armco adopted SFAS Nos. 106 and 109 which increased long-
term employee benefit obligations and total assets. 

                                      13
<PAGE>


(5)     The Class B common stock was issued by Eastern Stainless prior to 
Armco's acquisition of this 84%-owned former subsidiary of Cyclops 
Industries, Inc.  In 1994, Eastern Stainless reached a decision to sell 
substantially all of its assets and, as a result, Armco stopped 
consolidating the results of Eastern Stainless.  The asset sale was 
completed on March 14, 1995.
</TABLE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

     The information required by this Item is incorporated herein by reference 
from pages 20-23, 25 and 27-29 following the caption "Management's Discussion 
and Analysis" of the Consolidated Financial Statements in the Annual Report to 
Shareholders for the year ended December 31, 1995. 


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


     The information required by this Item is incorporated herein by reference 
from pages 30-46 of the Annual Report to Shareholders for the year ended 
December 31, 1995. 


ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

     None. 

                                   PART III


ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item as to executive officers of Armco 
is contained in Part I of this report under "Executive Officers of Armco" and 
is incorporated herein by reference.  The information required as to directors 
is incorporated herein by reference from the information set forth under the 
caption "ELECTION OF DIRECTORS" in the registrant's Proxy Statement for the 
1996 Annual Meeting of Shareholders filed with the Securities and Exchange 
Commission pursuant to Rule 14a-6 of the Securities Exchange Act of 1934, as 
amended (the "Proxy Statement").


ITEM 11.     EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by reference 
from the information set forth in the Proxy Statement under the caption 
"EXECUTIVE COMPENSATION".


ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The security ownership in Armco stock of directors, certain executive 
officers and directors and executive officers as a group and of persons known 
by Armco to be the beneficial owners of more than five percent of any class of 
Armco's voting securities is incorporated herein by reference from the 
information set forth in the Proxy Statement under the caption "MISCELLANEOUS 
-- Stock Ownership".


ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.
                                      14
<PAGE>


                                     PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
             ON FORM 8-K

I.     Documents Filed as a Part of this Report


A.  Financial Statements and Financial Statement Schedules               Page

1.  Statement of Consolidated Operations for the Years Ended 
    December 31,1995, 1994 and 1993                                       *

2.  Statement of Consolidated Financial Position as of 
    December 31, 1995 and 1994                                            *

3.  Statement of Consolidated Cash Flows for the Years Ended
    December 31, 1995, 1994 and 1993                                      *

4.  Notes to Financial Statements                                         *

5.  Independent Auditors' Report                                          *

6.  Independent Auditors' Report                                         20

7.  Financial Statement Schedule for the Years Ended
    December 31, 1995, 1994 and 1993

      II-- Valuation and Qualifying Accounts                             21

8.  Responsibility for Financial Reporting                               *

9.  National-Oilwell Consolidated Financial Statements 
    and Financial Statement Schedules as of 
    December 31, 1995 and 1994 and for 
    the years ended December 31, 1995, 1994 and 1993                22 - 36


----------------------

*  Incorporated in this Annual Report on Form 10-K by reference to pages 30-46 
of the Annual Report to Shareholders for the year ended December 31, 1995.

           Financial Statements and Financial Statement Schedules Omitted

     The financial statements and financial statement schedules for Armco Inc. 
and subsidiaries and National-Oilwell, other than those listed above, are 
omitted because of the absence of conditions under which they are required, or 
because the information is set forth in the notes to financial statements.

     B.    Exhibits

     The following is an index of the exhibits included in the Annual Report 
on Form 10-K.

3(a).     Articles of Incorporation of Armco Inc., as amended as of May 12, 
1993 (1)

3(b).     Regulations of Armco Inc. (2)
                                      15
<PAGE>

4.     Armco hereby agrees to furnish to the Securities and Exchange 
Commission, upon its request, a copy of each instrument defining the rights of 
holders of long-term debt of Armco and its subsidiaries, omitted pursuant to 
Item 601(b)(4)(iii) of Regulation S-K.

10(a).     Deferred Compensation Plan for Directors*

10(b).     1993 Long-Term Incentive Plan of Armco Inc. (3)*

10(c).     Severance Agreements (4)*

10(d).     1988 Restricted Stock Plan (5)*

10(e).     Executive Supplemental Deferred Compensation Plan Trust (6)*

10(f).     Executive Supplemental Deferred Compensation Plan (7)*

10(g).     Pension Plan for Outside Directors (8)*

10(h).     Rights Agreement dated as of February 23, 1996 between Armco Inc. 
and Fifth Third Bank

10(h)      Rights Agreement dated as June 27, 1986 between Armco Inc. and 
Fifth Third Bank, as successor to Harris Trust and Savings Bank, as amended as 
of June 24, 1988 (9)

10(i).     Key Management Severance Policy (10)*

10(j).     Minimum Pension Plan (11)*

10(k).     Stainless Steel Toll Rolling Services Agreement (12)

10(l).     Equity Exchange Agreement (13)

10(m).     Stock Purchase Agreement among Armco Inc., Armco Financial Services 
Corporation and Vik Brothers Insurance, Inc. dated as of August 2, 1994. (14)

10(n).     Asset Sale Agreement By and Among Armco Inc., Eastern Stainless 
Corporation, Avesta Sheffield East, Inc. and Avesta Sheffield Holding Co. 
dated as of February 9, 1995 (15)

10(o).     Purchase Agreement, as amended, among Oilwell, Inc., National 
Supply Company, Inc., USX Corporation, Armco Inc. and NOW Holdings, Inc. (16)

10(p).     Rights Agreement dated as of February 23, 1996 between Armco Inc. 
and Fifth Third Bank

11.     Computation of Income (Loss) Per Share

13.     Annual Report to Shareholders for the year ended December 31, 1995.  
(Filed for information only, except for those portions that are specifically 
incorporated in this Form 10-K Annual Report for the year ended December 31, 
1995.)

21.     List of subsidiaries of Armco Inc.

23.     Independent Auditors' Consents

27.     Financial Data Schedule

99.     Description of Armco Capital Stock

                                      16
<PAGE>

     The annual reports (Form 11-K) for the year ended December 31, 1995 for 
the Armco Inc. Retirement and Savings Plan and the Armco Inc. Thrift Plan for 
Hourly Employees will be filed by amendment as exhibits hereto, as permitted 
under Rule 15d-21.

*     Management contract or compensatory plan or arrangement required to be 
filed as an exhibit to the Annual Report on Form 10-K pursuant to Item 14(c) 
of Form 10-K.
----------------------------

(1)     Incorporated by reference from Exhibit 4.2 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended March 31, 1993.

(2)     Incorporated by reference from Exhibit 3.2 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended March 31, 1994.

(3)     Incorporated by reference from Exhibit 10 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended March 31, 1993.

(4)     Incorporated by reference from Exhibit 10(a) to Armco's Quarterly 
Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No. 001-
00873).

(5)     Incorporated by reference from Exhibit 10(i) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1988 (SEC File No. 001-00873).

(6)     Incorporated by reference from Exhibit 10(b) to Armco's Quarterly 
Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No. 001-
00873).

(7)     Incorporated by reference from Exhibit 10(c) to Armco's Quarterly 
Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No. 001-
00873).

(8)     Incorporated by reference from Exhibit 10(p) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1989 (SEC File No. 001-00873).

(9)     Incorporated by reference from Exhibit 1 to Armco's Form 8-A dated 
July 7, 1986 and Exhibit 1.1 to Armco's Form 8 dated July 11, 1988 (SEC File 
No. 001-00873).

(10)     Incorporated by reference from Exhibit 10(p) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1990.

(11)     Incorporated by reference from Exhibit 10(r) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1991.

(12)     Incorporated by reference from Exhibit 10(s) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1993.

(13)     Incorporated by reference from Exhibit 2 to Armco's Form 8-K dated 
April 7, 1994.

(14)     Incorporated by reference from Exhibit 10 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended June 30, 1994.

(15)     Incorporated by reference from Exhibit 2 to Armco's Form 8-K dated 
March 14, 1995.

(16)     Incorporated by reference from Exhibit 2 to Armco's Form 8-K dated 
January 16, 1996.

----------------------------

                                      17
<PAGE>


II.     Reports on Form 8-K

     The following reports on Form 8-K were filed by Armco since September 30, 
1995:

        Report Date                                Description
        -----------                                -----------

     December 18, 1995                Reporting that the sale of Armco's 
                                      Greens Port Industrial Park property
                                      was terminated on December 18, 1995.

     January 16, 1996                Reporting that Armco sold its partnership
                                     interest in National-Oilwell, a joint
                                     venture engaged in the oil and gas
                                     service business that was equally
                                     owned by subsidiaries of Armco and USX
                                     Corporation.

     February 23, 1996               Reporting that Armco adopted a
                                     Stockholder Rights Plan and declared a
                                     dividend distribution of one preferred
                                     stock purchase right for each outstanding
                                     share of common stock of Armco to
                                     stockholders of record at the close of
                                     business on June 26, 1996.

                                     18
<PAGE>

                                     SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES 
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED 
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED AS OF MARCH 27, 
1996.

                                     ARMCO INC.


                                     By	JAMES F. WILL
                                     -----------------------------------------
                                          James F. Will
                                          Chairman of the Board, President and
                                          Chief Executive Officer

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS 
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE 
REGISTRANT AND IN THE CAPACITIES INDICATED AS OF MARCH 27, 1996.


By     JAMES F. WILL                         By     JOHN C. HALEY
--------------------------------------       -------------------------------
       James F. Will                               John C. Haley
Chairman of the Board, President,                     Director
      Chief Executive Officer
        and Director



By        DAVID G. HARMER                   By 
--------------------------------------       ------------------------------
          David G. Harmer                            Paul H. Henson
         Vice President and                             Director
       Chief Financial Officer



By        PETER G. LEEMPUTTE                By    BRUCE E. ROBBINS
-------------------------------------       ------------------------------
          Peter G. Leemputte                     Bruce E. Robbins
    Vice President and Controller                     Director
	


By        JOHN J. BURNS, JR.                By    BURNELL R. ROBERTS
-------------------------------------       ------------------------------
          John J. Burns, Jr.                       Burnell R. Roberts
              Director                                  Director



By     PAULA H.J. CHOLMONDELEY              By   JOHN D. TURNER
--------------------------------------      ------------------------------
       Paula H.J. Cholmondeley                    John D. Turner
              Director                               Director



By	DAVID A. DUKE	
-----------------------------------
            David A. Duke
               Director


                                     19
<PAGE>

                            INDEPENDENT AUDITORS' REPORT

Armco Inc.:

We have audited the consolidated financial statements of Armco Inc. and 
subsidiaries as of December 31, 1995 and 1994, and for each of the three years 
in the period ended December 31, 1995, and have issued our report thereon 
dated February 5, 1996, which report includes an explanatory paragraph for 
changes in Armco Inc.'s methods of accounting for postretirement benefits 
other than pensions, income taxes, certain investments in debt and equity 
securities, and postemployment benefits; such consolidated financial 
statements and report are included in your 1995 Annual Report to Shareholders 
and are incorporated herein by reference.  Our audits also included the 
consolidated financial statement schedule of Armco Inc. and subsidiaries, 
listed in Item 14.  This consolidated financial statement schedule is the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion based on our audits.  In our opinion, such consolidated financial 
statement schedule, when considered in relation to the basic consolidated 
financial statements taken as a whole, presents fairly in all material 
respects the information set forth therein.  


DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 5, 1996
                                      20
<PAGE>

<TABLE>
                                                                               SCHEDULE II
                         ARMCO INC. AND CONSOLIDATED SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                                   (Dollars in Millions)
<CAPTION>
==========================================================================================
      Column A                Column B    Column C      Column D                 Column E
------------------------------------------------------------------------------------------
                                                       Deductions
                                                      from Reserves
                                         Additions    for Purposes
                             Balance at  Charged to    for which
                             Beginning   Costs and    Reserves were   Other    Balance at
    Description               of Year     Expenses      Provided     Changes   End of Year
------------------------------------------------------------------------------------------
For the Year Ended December 31, 1993:
<S>                             <C>        <C>             <C>        <C>           <C>
Allowance for doubtful accounts $ 5.1      $0.3            $0.8       $(0.6) (B)    $ 4.0


Allowance for impairment of
  investments..................  28.3        -              0.4        (7.9) (B)     20.0

------------------------------------------------------------------------------------------
For the Year Ended December 31, 1994:

Allowance for doubtful accounts $ 4.0      $0.8            $0.4       $(0.3) (B)    $ 4.1


Allowance for impairment of
  investments..................  20.0       0.1             1.4	          -           18.7

------------------------------------------------------------------------------------------
For the Year Ended December 31, 1995:

Allowance for doubtful accounts $ 4.1      $0.3            $1.0        $0.6 (A)     $ 4.4
                                                                        0.3 (B)
                                                                        0.1 (C)

Allowance for impairment of
  investments..................  18.7        -              2.0          -           16.7

------------------------------------------------------------------------------------------
<FN>
NOTES:

(A)   Written off to the income statement.
(B)   Net balances of consolidated subsidiaries purchased (divested).
(C)   Collections on bad debt items.
</TABLE>
                                           21

<PAGE>
                                    EXHIBIT INDEX

     The following is an index of the exhibits included in the Annual Report 
on Form 10-K.

3(a).     Articles of Incorporation of Armco Inc., as amended as of May 12, 
1993 (1)

3(b).     Regulations of Armco Inc. (2)

4.     Armco hereby agrees to furnish to the Securities and Exchange 
Commission, upon its request, a copy of each instrument defining the rights of 
holders of long-term debt of Armco and its subsidiaries, omitted pursuant to 
Item 601(b)(4)(iii) of Regulation S-K.

10(a).     Deferred Compensation Plan for Directors*

10(b).     1993 Long-Term Incentive Plan of Armco Inc. (3)*

10(c).     Severance Agreements (4)*

10(d).     1988 Restricted Stock Plan (5)*

10(e).     Executive Supplemental Deferred Compensation Plan Trust (6)*

10(f).     Executive Supplemental Deferred Compensation Plan (7)*

10(g).     Pension Plan for Outside Directors (8)*

10(h).     Rights Agreement dated as of February 23, 1996 between Armco Inc. 
and Fifth Third Bank

10(h)      Rights Agreement dated as June 27, 1986 between Armco Inc. and 
Fifth Third Bank, as successor to Harris Trust and Savings Bank, as amended as 
of June 24, 1988 (9)

10(i).     Key Management Severance Policy (10)*

10(j).     Minimum Pension Plan (11)*

10(k).     Stainless Steel Toll Rolling Services Agreement (12)

10(l).     Equity Exchange Agreement (13)

10(m).     Stock Purchase Agreement among Armco Inc., Armco Financial Services 
Corporation and Vik Brothers Insurance, Inc. dated as of August 2, 1994. (14)

10(n).     Asset Sale Agreement By and Among Armco Inc., Eastern Stainless 
Corporation, Avesta Sheffield East, Inc. and Avesta Sheffield Holding Co. 
dated as of February 9, 1995 (15)

10(o).     Purchase Agreement, as amended, among Oilwell, Inc., National 
Supply Company, Inc., USX Corporation, Armco Inc. and NOW Holdings, Inc. (16)

10(p).     Rights Agreement dated as of February 23, 1996 between Armco Inc. 
and Fifth Third Bank

11.     Computation of Income (Loss) Per Share

13.     Annual Report to Shareholders for the year ended December 31, 1995.  
(Filed for information only, except for those portions that are specifically 
incorporated in this Form 10-K Annual Report for the year ended December 31, 
1995.)

<PAGE>

21.     List of subsidiaries of Armco Inc.

23.     Independent Auditors' Consents

27.     Financial Data Schedule

99.     Description of Armco Capital Stock

     The annual reports (Form 11-K) for the year ended December 31, 1995 for 
the Armco Inc. Retirement and Savings Plan and the Armco Inc. Thrift Plan for 
Hourly Employees will be filed by amendment as exhibits hereto, as permitted 
under Rule 15d-21.


*     Management contract or compensatory plan or arrangement required to be 
filed as an exhibit to the Annual Report on Form 10-K pursuant to Item 14(c) 
of Form 10-K.

----------------------------

(1)     Incorporated by reference from Exhibit 4.2 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended March 31, 1993.

(2)     Incorporated by reference from Exhibit 3.2 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended March 31, 1994.

(3)     Incorporated by reference from Exhibit 10 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended March 31, 1993.

(4)     Incorporated by reference from Exhibit 10(a) to Armco's Quarterly 
Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No. 001-
00873).

(5)     Incorporated by reference from Exhibit 10(i) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1988 (SEC File No. 001-00873).

(6)     Incorporated by reference from Exhibit 10(b) to Armco's Quarterly 
Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No. 001-
00873).

(7)     Incorporated by reference from Exhibit 10(c) to Armco's Quarterly 
Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No. 001-
00873).

(8)     Incorporated by reference from Exhibit 10(p) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1989 (SEC File No. 001-00873).

(9)     Incorporated by reference from Exhibit 1 to Armco's Form 8-A dated 
July 7, 1986 and Exhibit 1.1 to Armco's Form 8 dated July 11, 1988 (SEC File 
No. 001-00873).

(10)     Incorporated by reference from Exhibit 10(p) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1990.

(11)     Incorporated by reference from Exhibit 10(r) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1991.

(12)     Incorporated by reference from Exhibit 10(s) to Armco's Annual Report 
on Form 10-K for the year ended December 31, 1993.

(13)     Incorporated by reference from Exhibit 2 to Armco's Form 8-K dated 
April 7, 1994.

(14)     Incorporated by reference from Exhibit 10 to Armco's Quarterly Report 
on Form 10-Q for the quarter ended June 30, 1994.

<PAGE>

(15)     Incorporated by reference from Exhibit 2 to Armco's Form 8-K dated 
March 14, 1995.

(16)     Incorporated by reference from Exhibit 2 to Armco's Form 8-K dated 
January 16, 1996.

----------------------------





<PAGE>

[LOGO] Ernst & Young LLP           *One Houston Center   *Phone:  713 750 1500
                                    Suite 2400            Fax     713 750 1501
                                    1221 McKinney Street
                                    Houston, Texas 77010-2007



                                Report of Independent Auditors


Partners
National-Oilwell


We have audited the accompanying consolidated balance sheets of National-
Oilwell and subsidiaries as of December 31, 1995 and 1994, and the related 
consolidated statements of operations, partners' capital, and cash flows for 
each of the three years in the period ended December 31, 1995.  These 
financial statements are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these financial statements based on 
our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of 
material misstatement.  An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements.  An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation.  We believe that our audits provide a reasonable basis 
for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of National-Oilwell and subsidiaries at December 31, 1995 and 1994, and the 
consolidated results of their operations and their cash flows for each of the 
three years in the period ended December 31, 1995, in conformity with 
generally accepted accounting principles.

                                      /S/ ERNST & YOUNG LLP

                                          ERNST & YOUNG LLP

January 31, 1996


            Ernst & Young LLP is a member of Ernst & Young International, Ltd.

                                       22
<PAGE>
                               NATIONAL-OILWELL
                         CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                           December 31,
                                                       --------------------
                                                         1995        1994
                                                       --------    --------
                                                         ($ in thousands)
ASSETS
<S>                                                    <C>         <C>
Current assets:
   Cash and cash equivalents                           $ 65,452    $  9,418 
   Trade receivables, less allowance for doubtful 
      accounts of $ 4,015 for 1995 and $1,023 for 1994   73,257      97,425 
   Inventories (Note 3)                                 120,686     124,096 
   Receivable from owners, net (Note 11)                    -           847 
   Other receivables                                      1,729       4,096 
   Prepaid expenses                                       2,322       2,444 
   Assets held for sale, net                              2,221       1,675 
                                                       --------    --------
Total current assets                                    265,667     240,001 

Property, plant and equipment, net (Note 4)              18,877      22,397 

Deferred taxes (Note 9)                                   1,450       1,959 

Other assets                                              2,584       3,947 
                                                       --------    --------
Total assets                                           $288,578    $268,304 
                                                       ========    ========

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities: 
   Cash overdrafts                                     $  3,350    $  9,846 
   Notes payable (Note 5)                                 9,128         -
   Accounts payable-trade                                60,423      50,494 
   Accounts payable to owners, net (Note 11)              2,892         -
   Deferred credits                                       7,500       1,506 
   Accrued salaries and wages                             3,071       4,492 
   Other accrued liabilities                             11,066      21,853 
                                                       --------    --------
              Total current liabilities                  97,430      88,191 

Employee benefit obligations                              4,529       4,958 
Insurance accruals                                        6,201       8,524 
Other liabilities                                         2,406       4,743 
                                                       --------    --------
              Total liabilities                         110,566     106,416 

Commitments and contingencies (Note 6) 

Partners' capital: 
   Owners capital                                       185,506     169,784 
   Cumulative foreign currency translation adjustment    (7,494)     (7,896)
                                                       --------    --------
              Total partners' capital                   178,012     161,888 
                                                       --------    --------
Total liabilities and partners' capital                $288,578    $268,304 
<FN>
       The accompanying notes are an integral part of these statements.
</TABLE>
                                      23
<PAGE>

<TABLE>
                                    NATIONAL-OILWELL
                        CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                   Year Ended December 31,
                                                 ----------------------------
                                                   1995      1994      1993
                                                 --------  --------  --------
                                                      ($ in thousands)
<S>                                              <C>       <C>       <C>
Revenues                                         $545,803  $562,053  $627,281

Cost of revenues                                  474,791   482,423   547,401
                                                 --------  --------  --------
Gross Profit                                       71,012    79,630    79,880

Selling, general, and administrative expenses      51,198    55,109    66,021
Other operating expenses                            6,033     9,313    13,370
Special charges/(credits) (Note 10)                (8,458)  (13,916)    8,565
                                                 --------  --------  --------
Operating Income/(Loss)                            22,239    29,124    (8,076)

Interest expense and other financial costs         (2,358)   (5,777)   (8,277)
Interest income                                     1,097     1,046     1,001
Other - income (expense)                           (1,401)      528      (240)
                                                 --------  --------  --------
Income/(Loss) Before Foreign Income Taxes          19,577    24,921   (15,592)

Foreign income taxes (Note 9)
   Current                                            568       132       978
   Deferred                                         1,369       909       893
                                                 --------  --------  --------
      Provision For Foreign Income Taxes            1,937     1,041     1,871
                                                 --------  --------  --------

Net Income/(Loss)                                 $17,640   $23,880  $(17,463)
                                                 ========  ========  ========
<FN>
       The accompanying notes are an integral part of these statements.
</TABLE>
                                           24
<PAGE>

<TABLE>
                                      NATIONAL-OILWELL
                      CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL


<CAPTION>
                                                      Cumulative
                                                        Foreign
                                                       Currency       Total
                                           Partners'  Translation   Partners'
                                            Capital    Adjustment    Capital
                                            ---------  -----------  ----------
                                                  ($ in thousands)
<S>                                         <C>           <C>        <C>
Balance at December 31, 1992                $194,367      $(1,821)   $192,546
   Net loss                                  (17,463)         -       (17,463)
   Translation adjustment                        -         (4,407)     (4,407)
                                            ---------  -----------  ----------

Balance at December 31, 1993                 176,904       (6,228)    170,676
   Net income                                 23,880          -        23,880
   Translation adjustment                        -         (1,668)     (1,668)
   Distribution                              (31,000)         -       (31,000)
                                            ---------  -----------  ----------

Balance at December 31, 1994                 169,784       (7,896)    161,888
   Net income                                 17,640          -        17,640
   Translation adjustment                        -            402         402
   Distribution                               (1,918)         -        (1,918)
                                            ---------  -----------  ----------

Balance at December 31, 1995                $185,506      $(7,494)   $178,012


<FN>
           The accompanying notes are an integral part of these statements.

</TABLE>
                                              25
<PAGE>

                              NATIONAL-OILWELL
                   CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                         December 31, 
                                                 ----------------------------
                                                   1995      1994      1993
                                                 --------  --------  --------

<S>                                              <C>       <C>       <C>
Cash flow from operating activities:
   Net income (loss)                             $ 17,640  $ 23,880  ($17,463)
   Adjustments to reconcile net income/(loss) to 
    net cash provided (used) by operating 
    activities:
       Depreciation and amortization                3,595     6,027    10,721 
       Provision for losses on accounts receivable  2,855       545     1,237 
       Provision for deferred income taxes          1,369       909       893 
       Gain on ordinary sale of property, 
         plant, and equipment                        (662)     (910)     (867)
       Foreign currency transaction (gain) loss     1,170        54       160 
       Special charges/(credits)                   (8,458)  (13,916)    8,565 
   Changes in operating assets and liabilities:
       Decrease (increase) in receivables          24,583       491    (5,245)
       Decrease in inventories                      2,205    12,483    19,558 
       Decrease (increase) in other assets         (4,730)    4,287    (3,453)
       Increase (decrease) in accounts payable      6,959     7,614   (21,423)
       Decrease in other liabilities               (4,856)   (3,913)   (7,172)
                                                 --------  --------  --------
            Net cash provided (used) by operating 
              activities                           41,670    37,551   (14,489)
                                                 --------  --------  --------
Cash flow from investing activities: 
    Purchases of property, plant and equipment     (4,764)   (3,604)   (1,967)
    Proceeds from sales of property, plant and 
      equipment                                     6,865     1,731     4,947 
    Proceeds from sales of product lines            6,944    69,821       -
    Other                                            (218)      251      (108)
                                                 --------  --------  --------
            Net cash provided (used) by investing 
              activities                            8,827    68,199     2,872 
                                                 --------  --------  --------
Cash flow from financing activities: 
    Proceeds from revolving lines of credit and 
      long-term debt                               53,172    54,503    64,386 
    Principal payments on revolving lines of 
      credit and long-term debt                   (44,044) (124,345)  (51,052)
    Principal payments under capital lease 
      obligations                                     -        (911)     (996)
    Cash distribution to partners                  (1,918)  (31,000)      -
                                                 --------  --------  --------
            Net cash provided (used) by financing 
              activities                            7,210  (101,753)   12,338 
                                                 --------  --------  --------
Effect of exchange rate losses on cash             (1,673)     (595)     (154)

Increase in cash and equivalents                   56,034     3,402       567 

Cash and cash equivalents at beginning of year      9,418     6,016     5,449 
                                                 --------  --------  --------
Cash and cash equivalents at end of year          $65,452    $9,418    $6,016 
                                                 ========  ========  ========
<FN>
       The accompanying notes are an integral part of these statements.
</TABLE>
                                         26
<PAGE>

                               NATIONAL-OILWELL

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              DECEMBER 31, 1995


1.  Organization and Basis of Presentation

As of December 31, 1995, National-Oilwell ("Company") was a general 
partnership organized under the laws of Delaware between National Supply 
Company, Inc. ("NSC") and Oilwell, Inc. ("OI").  Each of the partners held a 
50% interest in the partnership.  All references to the Company in these 
financial statements are synonymous with National-Oilwell as previously 
described.  Effective January 9, 1996, the Company converted from a general 
partnership to a Delaware limited partnership, and on January 17, 1996, NSC 
and OI sold their interest in the Company to NOW Holdings, Inc. (See Note 13).

The Company is a distributor and manufacturer of products for the oilfield 
services industry.  The Company distributes an extensive line of oilfield 
supplies, oilfield equipment and tubular products, and designs and 
manufactures a variety of oilfield equipment, for use in oil and gas drilling, 
completion and production activities.  The Distribution segment is comprised 
of the Distribution Services and Tubular Distribution business units.  This 
segment distributes standardized oilfield products through its 116 
distribution service centers located throughout oil and gas producing regions 
in North America, and is also one of the largest distributors of oil country 
tubular goods ("OCTG") to oil and gas operators and drilling contractors in 
North America.  In addition, the Company conducts distribution activities in 
certain major oil and gas producing regions outside of North America, 
including the United Kingdom, South America, the Middle East and the Pacific 
Rim, through six international distribution facilities.  

The Equipment segment consists of the Drilling Systems & Equipment and Pumping 
Systems business units.  This segment is a leader in the design, manufacture 
and sale of certain drilling rig components and is a major designer and 
manufacturer of other drilling equipment items used in the assembly of new 
drilling rigs.  Additionally, this segment designs and manufactures an 
extensive line of centrifugal and reciprocating pumps used in a variety of 
oilfield applications.  Under its Mission-Fluid King ("MFK") brand name, it 
also supplies a wide variety of fluid end accessories and expendable pump 
parts serving the oil and gas drilling market.

2.  Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and 
its wholly owned subsidiaries. All of the Company's subsidiaries have elected 
a December 31 year-end.  All significant intercompany transactions and 
balances have been eliminated in consolidation.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost.  Expenditures for major 
improvements which extend the lives of property and equipment are capitalized 
while minor replacements, maintenance and repairs are charged to operations as 
incurred.  Disposals are removed at cost less accumulated depreciation with 
any resulting gain or loss reflected in operations.  Depreciation is provided 
using the straight-line method over the estimated useful lives of individual 
items.

Inventories

Inventories consist of (a) standardized oilfield products and oil country 
tubular goods, (b) manufactured equipment and (c) spare parts for the 
manufactured equipment.  Inventories are stated at the lower of cost or market 
using the first-in, first-out (FIFO) or average cost methods.

                                      27
<PAGE>

                               NATIONAL-OILWELL

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Foreign Currency

The functional currency for the Company's Canadian, United Kingdom and 
Australian subsidiaries is the local currency.  The cumulative effects of 
translating the balance sheet accounts from the functional currency into the 
U.S. dollar at current exchange rates are included in cumulative foreign 
currency translation adjustment in partners' capital.  The U.S. dollar is used 
as the functional currency for the Singapore and Venezuelan subsidiaries.  For 
all operations, gains or losses from remeasuring foreign currency transactions 
into the functional currency are included in income.

Concentration of Credit Risk

The Company grants credit to its customers which are primarily in the oil and 
gas industry.  The Company performs periodic credit evaluations of its 
customers' financial condition and generally does not require collateral.  
Receivables are generally due within 30 days.  The Company maintains reserves 
for potential losses and such losses have consistently been within 
management's expectations.

Income Taxes

The Company has provided for income taxes under the liability method pursuant 
to Statement of Financial Accounting Standards No. 109, "Accounting for Income 
Taxes."  Under this method, deferred tax assets and liabilities are determined 
based on differences between financial reporting and tax reporting basis of 
assets and liabilities and are measured using the enacted tax rates and laws 
that will be in effect when the differences are expected to reverse.  The 
Company made income tax payments of $332,000, $557,000 and $392,000 during the 
years ended December 31, 1995, 1994 and 1993, respectively.

As a partnership, the Company was not subject to U.S. federal or state taxes 
on its income.  The general partners included in their federal and state tax 
returns the partnership's results of operations during 1995.  Accordingly, no 
provision for U.S. federal or state income taxes was made by the Company for 
1995.

Revenue Recognition

Revenue from the sale of products is recognized upon passage of title to the 
customer, which in most cases coincides with shipment of the related products.

Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash and cash 
equivalents, receivables, payables, and debt instruments.  Cash equivalents 
include only those investments having a maturity of three months or less at 
the time of purchase.  The book values of these financial instruments are 
considered to be representative of their respective fair values.  (See Note 
5).

Research and Development Costs

Research and development costs are expensed as incurred.  During 1995, 1994 
and 1993, research and development costs were $417,000, $579,000 and 
$1,115,000, respectively.

Use of Estimates

Management is required to make estimates and assumptions that affect the 
amounts reported in the financial statements and accompanying notes.  Actual 
results could differ from those estimates.

Reclassifications

Certain amounts from the prior year financial statements have been 
reclassified to conform with the 1995 presentation.

                                      28
<PAGE>

                               NATIONAL-OILWELL

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

3.  Inventories
<TABLE>
Inventories consist of:
<CAPTION>
                                               December 31,
                                         -----------------------
                                           1995           1994
                                         --------       --------
                                            (In thousands)
   <S>                                  <C>            <C>
   Raw materials and supplies           $ 11,528       $ 12,486
   Work in process                         4,842          5,112
   Finished goods                        104,316        106,498
                                         --------       --------
   Total                                $120,686       $124,096
                                         ========       ========
</TABLE>
Foreign inventories are approximately 21% and 20% of total inventories at 
December 31, 1995 and 1994, respectively.

4.  Property, Plant and Equipment
<TABLE>
Property, plant and equipment consist of:
<CAPTION>
                                               December 31,
                                         -----------------------
                                           1995           1994
                                         --------       --------
                                             (In thousands)
   <S>                                  <C>            <C>
   Land and improvements                $  2,509       $  5,718
   Buildings                              10,404         10,772
   Machinery and equipment                31,139         53,886
   Other, including computer equipment
      and furniture and fixtures          19,079         21,366
                                         --------       --------
                   Total                  63,131         91,742
      Less accumulated depreciation 
         and amortization                (44,254)       (69,345)
                                         --------       --------
                Net                     $ 18,877       $ 22,397
                                         ========       ========
</TABLE>

5.  Notes Payable

At December 31, 1995, the Company had bank lines of credit totaling 
$60,000,000, of which $13,075,000 had been utilized for letters of credit with 
an additional $9,128,000 in loans outstanding.  The primary revolving credit 
agreement (Credit Agreement) was renewed in February, 1995 for three years, 
and was secured by inventory, receivables and the stock of the Company's 
subsidiaries.  The Credit Agreement contained certain financial covenants 
relative to net worth, leverage ratio, capital spending, interest coverage and 
fixed charges.  The Company had complied with all covenants while that credit 
agreement was in effect.  A monthly borrowing base formula was used to 
determine credit availability.  The interest rate in the Credit Agreement 
fluctuated with short-term interest rates.  The interest rate in effect at 
December 31, 1995 was 9 1/8%.  A commitment fee of 1/2% per annum was charged 
on the unused portion of the Credit Agreement.  The weighted average interest 
rate was approximately 9.0% and 8.5% for 1995 and 1994, respectively.  
Interest paid was $144,000 during 1995, $3,444,000 in 1994 and $3,693,000 
during 1993.

During the year, consent agreements were executed to allow for Canadian 
preference share redemptions, sale of certain Wilson-Snyder assets, 
reallocation of the US and Canadian facility, security filings and certain 
intercompany debt cancellations.

A new credit agreement, contingent upon the change in ownership, was executed 
as of December 29, 1995, and was funded on January 17, 1996.  (See Note 13).

                                      29
<PAGE>

                               NATIONAL-OILWELL

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

6.  Commitments and Contingencies

Commitments

The Company leases land, buildings and storage facilities, vehicles, and data 
processing equipment under operating leases extending through various dates up 
to the year 2015.  The Company's annual lease commitments for operating leases 
at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
                                                    Operating
                                                      Leases
                                                     ---------
                                                   (In thousands)
  <S>                                                <C>
  1996                                               $ 6,372
  1997                                                 4,046
  1998                                                 1,796
  1999                                                 1,312
  2000                                                 1,159
  Thereafter                                           6,096
                                                     ---------

      Total                                          $20,781
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 was 
$9,714,000, $8,691,000 and $10,372,000, respectively.

Contingencies

The Company is the subject of, or a party to, various claims, regulatory 
agency audits, and pending or threatened legal actions involving a variety of 
matters.  The total liability on these matters at December 31, 1995 cannot be 
determined; however, in the opinion of management, any ultimate liability, to 
the extent not otherwise provided for, should not materially affect the 
financial position, liquidity or results of operations of the Company.

Environmental

The Company's business is affected both directly and indirectly by 
governmental laws and regulations relating to the oilfield service industry in 
general, as well as by environmental and safety regulations that specifically 
apply to the Company's business.  Laws and regulations protecting the 
environment have generally become more stringent in recent years and the 
Company believes the trend of more expansive and stricter environmental laws 
will continue.  Although the Company has not incurred material costs in 
connection with its compliance with such laws, there can be no assurance that 
other developments, such as stricter environmental laws, regulations and 
enforcement policies thereunder, could not result in additional, presently 
unquantifiable, costs or liabilities to the Company.

7.  Pension Plans

The Company and its consolidated subsidiaries have several pension plans 
covering substantially all of its employees.  The defined-contribution pension 
plans cover most of the domestic employees and employees of the Canadian 
subsidiary.  Contributions to the plans are based on employees' years of  
service  equating to a percentage  of current earnings.   For the years  ended  
December 31, 1995, 1994 and 1993, domestic pension expense for the defined-
contribution plan was $1,332,000, $1,745,000 and $1,812,000, respectively, and 
the funding is current.  Pension expense of the foreign operations for the 
defined-contribution plan totaled $180,000 for 1995, $169,000 for 1994 and 
$193,000 for 1993.

The Company's UK subsidiary has a defined-benefit pension plan whose 
participants are primarily retired and terminated employees who are no longer 
accruing benefits.  The UK pension plan assets are invested primarily in UK 
and overseas equity securities, UK government securities, overseas bonds and 
cash deposits.

                                      30
<PAGE>

                               NATIONAL-OILWELL

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


The plan assets at fair market value were $32,104,000 at December 31, 1995 and 
$27,389,000 at December 31, 1994.  The projected benefit obligation was 
$23,131,000 at December 31, 1995 and $20,630,000 at December 31, 1994.  Net 
periodic pension cost/(benefit) recognized as expense/(income) for the years 
ended December 31, 1995, 1994 and 1993 was $379,000, ($69,000) and $699,000, 
respectively.

8.  Other Postretirement Benefit Plans

In addition to the Company's defined-contribution and defined-benefit pension 
plans, the Company has defined-benefit postretirement plans covering most of 
the domestic employees.  One plan provides life insurance benefits for most 
domestic employees.  The other plan provides medical and life benefits for 
former hourly employees associated with a discontinued  manufacturing facility 
and medical benefits for their spouses.  The medical plan allows for basic or 
optional coverage.  The basic component is noncontributory and the optional 
coverage rates are based upon pro rata level of cost sharing between the 
Company and its retirees.  The life insurance plans are noncontributory.  The 
Company's policy is to fund the cost of postretirement health care and life 
benefits as they are incurred.

The following table shows the plans' combined funded status reconciled with 
amounts recognized in the Company's Consolidated Balance Sheets at December 
31, 1995 and 1994:
<TABLE>
<CAPTION>
                                                   Medical/Life Plans
                                                  --------------------
                                                    1995        1994
                                                  --------    --------
                                                     (In thousands)
<S>                                                <C>         <C>
Accumulated postretirement benefit obligation:
   Retirees                                        $2,204      $  786
   Fully eligible active plan participants             91       1,244
   Other active plan participants                     130         129
                                                  --------    --------
Accumulated postretirement benefit cost             2,425       2,159

Unrecognized net gain                              $1,284      $1,702
                                                  --------    --------

Benefit obligation recorded on the balance sheet   $3,709      $3,861
                                                  ========    ========
</TABLE>

The recorded benefit obligation in excess of the accumulated postretirement 
benefit obligation represents unrecognized gains which are being amortized 
over the average remaining service period of active plan participants.
<TABLE>
Net periodic retirement benefit cost includes the following components:
<CAPTION>
                                                Medical/Life Plans
                                           ----------------------------
                                             1995      1994      1993
                                           --------  --------  --------
                                                  (In thousands)
   <S>                                        <C>       <C>       <C>
   Service cost                               $  8      $ 15      $ 13
   Interest cost                               164       161       240
   Amortization of cumulative unrecognized
          net (gain)/loss                      (58)      (37)       -
                                           --------  --------  --------
   Net periodic postretirement benefit cost   $114      $139      $253
                                           ========  ========  ========
</TABLE>
The annual assumed rate of increase in the per capita cost of covered benefits 
(i.e., health care cost trend rate) for the medical plan is 9.5% for 1996, 
9.0% for 1997, decreasing by 0.5% per year to 5.5% by 2005, and 5.5% per year 
thereafter.  Increasing the assumed health care cost trend rates by one 
percentage point in each year would increase the accumulated postretirement 
benefit obligation for the medical plan as of December 31, 1995 by $273,000, 
and the aggregate of the service and interest cost components of net periodic 
postretirement benefit cost for 1995 by $17,000.

                                      31
<PAGE>

                               NATIONAL-OILWELL

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


9.  Income Taxes
<TABLE>
Significant components of the Company's deferred tax assets and liabilities 
were as follows:
<CAPTION>
                                                       December 31
                                                  --------------------
                                                    1995        1994
                                                  --------    --------
                                                     (In thousands)
<S>                                                <C>        <C>
Deferred tax assets:
   Book over tax depreciation                      $1,153      $1,729
   Product warranty accruals                        1,205	  2,887
   Net operating loss carryforwards                 6,780       7,268
   Other                                            1,070         508
                                                  --------    --------

      Total deferred tax assets                    10,208      12,392
      Valuation allowance for deferred tax assets  (8,310)     (9,887)
                                                  --------    --------
                                                    1,898       2,505
Deferred tax liabilities:
   Tax over book depreciation                         448         346
   Other                                              -           200
                                                  --------    --------
      Total deferred tax liabilities                  448         546
                                                  --------    --------
      Net deferred tax assets                      $1,450      $1,959
                                                  ========    ========
</TABLE>
The income tax liability of the Company's foreign and domestic subsidiaries is 
reflected in the Company's financial statements.  Deferred income taxes, 
attributable to the foreign subsidiaries, result primarily from temporary 
differences in depreciation and other expenses for tax and financial statement 
purposes.

10.  Special Charges/(Credits)
<TABLE>
Special charges/(credits) consist of the following:
<CAPTION>
                                             1995      1994      1993
                                           --------  --------  --------
<S>                                        <C>      <C>        <C>
Sales of product lines                     $(5,491) $(15,648)  $10,000
Sale of property, plant, and equipment      (3,726)      -         -
Employee termination benefits                  495     3,207       -
Exit costs                                     264       610       365
Reversal of prior year reserves                -      (2,085)   (1,800)
                                           --------  --------  --------
   Total                                   $(8,458) $(13,916)  $ 8,565
                                           ========  ========  ========
</TABLE>

Sales of Product Lines

1995
----
The Company completed the sale of the Wilson-Snyder centrifugal pump and 
switch valve business in the second quarter of 1995.  Proceeds of 
approximately $6.9 million from that sale resulted in a gain of $5.5 million.  
The Company retained the Wilson-Snyder reciprocal pump business for industrial 
and slurry pump market applications.

1994
----
The Company completed the sales of certain production equipment product lines 
not considered part of its core businesses under asset sales agreements during 
1994.  Sale of the fluid control systems, rod pump,

                                      32
<PAGE>

                               NATIONAL-OILWELL

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


sucker rod and hydraulic product lines resulted in a gain of $15.6 million.  
Proceeds received in 1994 totaled approximately $41.0 million and were used to 
reduce debt.  As a result of the sales, the Company will no longer manufacture 
these products but will continue as a distributor.

1993
----
During 1993, the Company implemented a business strategy to focus on its core 
businesses and divest marginal  or  unprofitable  product lines.   In  the  
fourth quarter  of  1993,  the  Company  recorded  a  $10.0 million charge for 
the estimated loss on the sale of its wellhead business under an asset sales 
agreement signed in December 1993.  This charge included an $8.5 million 
writedown of inventories and property, plant and equipment to estimated net 
realizable values and $1.5 million for transition and other direct costs of 
disposal.  Proceeds from the wellhead business sale of $28.7 million, which 
closed in January 1994, were used to reduce debt.

Sale of Property, Plant and Equipment

1995
----
The Company completed the sale of certain property, plant and equipment from 
the Stockport, England and Red Deer, Alberta, Canada plant closures.  Sale of 
the Red Deer plant facility, which ceased operations in 1992, was completed in 
the second quarter of 1995 with a gain of approximately $0.3 million.  The 
Stockport East Works property sale in the second quarter of 1995 and the 
Stockport machine tool sale in the fourth quarter of 1995 resulted in gains of 
approximately $1.8 million and $1.6 million, respectively.

Employee Termination Benefits

1995
----
The Stockport, England plant shutdown resulted in an additional $0.5 million 
in employee termination expense in 1995.  Most of this expense was to pay for 
services which extended beyond the anticipated closure of the facility.

1994
----
In conjunction with the formal announced shutdown of the Stockport, England 
plant on January 9, 1995, the Company expensed approximately $3.2 million in 
1994 relating to employee termination benefits.  These benefits are calculated 
pursuant to the terms of the United Kingdom preexisting employee benefit plan.  
Benefit payments of $1.2 million were paid in the fourth quarter of 1994 
related to the termination of 77 employees.  Approximately $0.5 million of 
these benefit payments were accrued in 1992.  The remaining reserve of $2.5 
million was for 115 employees and was paid in 1995.

Exit Costs

1995
----
Most of these exit costs resulted from the 1994 sale of the production 
equipment product lines.  The costs were primarily due to relocation of 
machine tools, inventory and manufacturing processes which were retained from 
the production equipment product line facilities that had been sold.

1994
----
The consolidation of the Company's Houston, Texas manufacturing operations 
resulted in exit costs of $0.6 million in 1994.  These costs primarily 
included equipment relocation costs and lease termination costs.  The 
remaining liability at December 31, 1994 represents $0.2 million for lease 
termination costs related to abandoned facilities.

1993
----
The 1992 decision to close the Company's New Iberia, Louisiana oilfield 
equipment manufacturing facility resulted in exit costs of approximately $0.9 
million which primarily consisted of inventory writedowns and 

                                      33
<PAGE>

                               NATIONAL-OILWELL

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


relocation of machinery and equipment.  The plant closure was completed in 
1993 for a total cost of approximately $1.3 million.  Accordingly, no reserve 
for this plant closure existed at December 31, 1993.

Reversal of Reserves

The reversal of reserves in 1994 and 1993 were recorded as credits to special 
charges/(credits).  These items primarily relate to an $18.5 million reserve 
initially recorded in 1991 to accrue for the estimated loss on the shutdown  
and disposition  of the plant  and  related machinery  and  equipment at 
Garland, Texas.  The $1.8 million reversal primarily related to excess 
machinery, equipment and inventory relocation accruals no longer needed after 
movement to the Company's other facilities was completed in 1993.  The $2.1 
million reversal primarily related to excess accruals for potential demolition 
and environmental cleanup no longer needed when the facility was finally sold 
in 1994.

11.  Related Party Transactions

The Company maintains ongoing business relationships with Armco Inc. and USX 
Corporation, the parent companies of NSC and OI, and their subsidiaries.  
Significant related party transactions with these companies included:
<TABLE>
<CAPTION>
                                                   December 31,
                                           ----------------------------
                                             1995      1994      1993
                                           --------  --------  --------
                                                  (In thousands)
<S>                                        <C>       <C>       <C>
Revenues                                   $ 9,084   $10,495   $14,361
Purchases                                   36,414    30,704    39,000
Receivables                                  3,478     4,578     4,400
Payables                                     6,370     3,731     3,637
</TABLE>

At December 31, 1995, the Company leased office space for its headquarters 
facility, as well as other operating locations, from the parent companies or 
their subsidiaries.  Future minimum lease payments applicable to these leasing 
agreements total $3,322,000.  Rental expense to related parties totaled 
$1,184,000, $1,342,000 and $1,165,000 for 1995, 1994 and 1993, respectively, 
and is excluded from purchases.

Cash distributions of $1.9 million and $31.0 million were made to the owners 
in 1995 and 1994, respectively.

12.  Business Segments and Geographic Areas

The Company's operations consist of two segments, the Distribution segment and 
the Equipment segment.  The Distribution segment distributes an extensive line 
of oilfield supplies, oilfield equipment and tubular products.  The Equipment 
segment designs and manufactures a variety of oilfield equipment for use in 
oil and gas drilling, completion and production activities.  Intersegment 
sales and transfers are accounted for at commercial prices.

For the year ended December 31, 1995, one major oil company accounted for 
12.5% of consolidated revenues.  Except for 1995 revenues from that customer, 
no single customer accounted for 10% or more of consolidated revenues during 
the years ended December 31, 1995, 1994 and 1993.


                                      34
<PAGE>

                               NATIONAL-OILWELL

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

<TABLE>
Summarized financial information with respect to business segments and 
geographic areas is as follows:

Business Segments (in thousands)
<CAPTION>
                          Distribution   Equipment (1) Corporate (2)  Elimination     Total
                          ------------   ------------  ------------  ------------  ------------
1995
----
<S>                          <C>            <C>           <C>           <C>           <C>
Revenues from:
   Unaffiliated customers    $432,292       $113,511          ---           ---       $545,803
   Intersegment sales            ---          33,006          ---       $(33,006)         ---
                          ------------   ------------  ------------  ------------  ------------
       Total revenues         432,292        146,517          ---        (33,006)      545,803
                          ------------   ------------  ------------  ------------  ------------
Operating income (loss)         9,435         15,670        (2,866)         ---         22,239
Capital expenditures            1,157          3,540            67          ---          4,764
Depreciation and amortization   1,662          1,899            34          ---          3,595
Identifiable assets           128,321         93,287        69,761        (2,791)      288,578

1994
----
Revenues from:
   Unaffiliated customers    $431,047       $131,006          ---           ---       $562,053
   Intersegment sales            ---          77,321          ---       $(77,321)         ---
                          ------------   ------------  ------------  ------------  ------------
       Total revenues         431,047        208,327          ---        (77,321)      562,053
                          ------------   ------------  ------------  ------------  ------------
Operating income (loss)        12,101         19,921       $(2,898)         ---         29,124
Capital expenditures            1,832          1,728            44          ---          3,604
Depreciation and amortization   2,564          3,455             8          ---          6,027
Identifiable assets           162,170         99,298        12,150        (5,314)      268,304


1993
----
Revenues from:
   Unaffiliated customers    $475,311       $151,970          ---           ---       $627,281
   Intersegment sales            ---          93,700          ---       $(93,700)         ---
                          ------------   ------------  ------------  ------------  ------------
       Total revenues         475,311        245,670          ---        (93,700)      627,281
                          ------------   ------------  ------------  ------------  ------------
Operating income (loss)        18,926        (24,694)      $(2,308)         ---         (8,076)
Capital expenditures              455          1,491            21          ---          1,967
Depreciation and amortization   2,370          8,349             2          ---         10,721
Identifiable assets           188,312        153,030        12,402       (10,265)      343,479
<FN>
(1) Operating income/(loss) of the oilfield equipment segment includes special 
charges/(credits) of $(8,458), $(13,916) and $8,565 for 1995, 1994 and 1993, 
respectively.
(2) Corporate identifiable assets in 1995 included $65.5 million of cash and 
cash equivalents.
</TABLE>
                                      35
<PAGE>

                               NATIONAL-OILWELL

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

<TABLE>
Geographic Areas (in thousands)
<CAPTION>
                                 United                United                Elim-
                                 States     Canada     Kingdom     Other    ination     Total
                                --------   --------   --------   --------   --------   --------
1995
----
<S>                             <C>         <C>       <C>         <C>       <C>        <C>
Revenues from:
   Unaffiliated customers       $430,671    $59,390    $35,776    $19,966       ---    $545,803
   Interarea sales                34,416        878     16,285        233   $(51,812)      ---
                                --------   --------   --------   --------   --------   --------
       Total revenues            465,087     60,268     52,061     20,199    (51,812)   545,803
                                --------   --------   --------   --------   --------   --------
Operating income (loss)           18,707      2,003     (1,383)     2,912       ---      22,239
Export sales of U.S.                ---       1,700      1,539     80,075       ---      83,314
Identifiable assets              228,817     23,851     17,789     18,121       ---     288,578

1994
----
Revenues from:
   Unaffiliated customers       $442,555    $73,052    $29,708    $16,738       ---    $562,053
   Interarea sales                26,144        579      9,726        106   $(36,555)      ---
                                --------   --------   --------   --------   --------   --------
       Total revenues            468,699     73,631     39,434     16,844    (36,555)   562,053
                                --------   --------   --------   --------   --------   --------
Operating income (loss)           27,166      1,872       (314)       400       ---      29,124
Export sales of U.S.                ---       1,436        635    102,265       ---     104,336
Identifiable assets              186,634     34,567     32,136     14,967       ---     268,304


1993
----
Revenues from:
   Unaffiliated customers       $485,988    $68,766    $49,419    $23,108       ---    $627,281
   Interarea sales                33,750        552      8,395        961   $(43,658)      ---
                                --------   --------   --------   --------   --------   --------
       Total revenues            519,738     69,318     57,814     24,069    (43,658)   627,281
                                --------   --------   --------   --------   --------   --------
Operating income (loss)           (4,865)      (321)    (3,980)     1,090       ---      (8,076)
Export sales of U.S.                ---       1,386        389    115,464       ---     117,239
Identifiable assets              257,597     29,662     39,391     16,829       ---     343,479
</TABLE>

Corporate general and administrative expense related to worldwide 
manufacturing and other support functions benefit both United States and 
international operations.  An allocation has been made to each business 
segment and geographic area based on an estimate of the corporate effort 
attributable to the respective business segment or geographic area.  The 
expenses allocated totaled approximately $12,000, $18,000 and $21,700 for the 
years ended December 31, 1995, 1994 and 1993, respectively.

13.  Subsequent Event

On January 16, 1996, the Company was sold to a group of private investors on a 
leveraged buyout basis.  The purchase price of $180 million was financed by 
existing Company cash and a new debt arrangement.  As a result of this 
ownership change, a new credit agreement became effective on January 17, 1996, 
consisting of a revolving credit line totaling $120 million and term debt of 
$55 million.  The sellers have retained $20 million of the term debt.  
Approximately $67 million of the revolving credit line was utilized to 
consummate the transaction.  The new company, NOW Holdings, Inc., is a 
Delaware corporation.

                                      36