<PAGE>
                                                                    EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Three Years Ended December 31, 1997
(Dollars in millions, except per share data)
----------------------------------------------------------------------
GENERAL

This discussion and analysis of Armco's financial results should be read 
together with the Consolidated Financial Statements and Notes on pages 25 
through 38.
Operating Results
-----------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------
                                      1997         1996        1995
----------------------------------------------------------------------
<S>                                 <C>          <C>         <C>
Net sales                           $1,829.3     $1,724.0    $1,559.9
Special charges                         --           (8.8)       --
Operating profit                       105.4         74.7        69.0
Gain on sale of AK Steel stock          --           --          27.2
Sundry other - net                      (1.1)       (21.1)      (49.6)
Income from continuing operations       77.1         26.0        23.5
Income from discontinued operations      2.7          6.5         6.3
Extraordinary loss on retirement
  of debt                               (3.0)        --          --
Net income                              76.8         32.5        29.8
Net income per common share*            0.55         0.14        0.11
----------------------------------------------------------------------
<FN>
*  Basic and diluted earnings per share are equal.
</TABLE>

1997 vs. 1996: Armco's 1997 net sales increased 6% over 1996 primarily as a 
result of higher shipments of specialty steels and tubular products. Partially 
offsetting the higher shipments of specialty steel products was a decline in 
prices across the stainless and electrical steel product lines, primarily due 
to intense global competition.

Operating profit increased 41% in 1997 primarily as a result of lower costs in 
the manufacturing operations, the consolidation of Greens Port Industrial 
Park, which in the prior year was an investment held for sale, and lower 
employee benefit expenses. Benefit expenses were lower as a result of 
favorable investment returns on pension plan assets and lower than expected 
increases in medical benefit costs.

Included in the 1996 operating profit were special charges totaling $8.8 for a 
loss on the sale of Armco's nonresidential construction business and a 
decision to exit a line of light truck equipment manufactured by Douglas 
Dynamics LLC, Armco's snowplow and ice control products manufacturer. 
Operating profit in 1996 also included nonrecurring income of $8.6 from claim 
settlements, including a business interruption insurance claim. 

Income from continuing operations in 1997 included a $4.0 gain on the 
settlement of certain partially impaired long-term receivables. Included in 
Income from continuing operations for 1996 were the above-mentioned special 
charges and claim settlements and a $6.3 gain, which resulted from the 
recognition of gains in connection with asset sales at Greens Port. 
18  Armco Annual Report
<PAGE>

Sundry other - net expense decreased in 1997 as a result of lower expenses 
related to long-term benefit obligations for former employees of Armco 
facilities that have been shut down or divested. The reductions were a result 
of favorable investment returns on pension plan assets and lower than expected 
increases in medical benefit costs.

Income from discontinued operations consisted of additional gains on the sale 
of Armco's Aerospace and Strategic Materials business segment of $2.7 in 1997 
and $6.5 in 1996 related to tax settlements subsequent to the sale of the 
business. 

During 1997, Armco issued $150.0 of 9% Senior Notes due 2007, using the 
proceeds to retire several existing debt issues. Armco recorded a $3.0 
extraordinary loss upon retiring certain of this outstanding debt.

1996 vs. 1995: Net sales in 1996 were 11% higher than in 1995, primarily due 
to higher shipments of automotive exhaust stainless, electrical and carbon 
steels in the Specialty Flat-Rolled Steels segment. Higher sales were also 
achieved by Douglas Dynamics.

Operating profit increased 8% in 1996 due to a reduction in losses at Armco's 
Mansfield and Dover Operations in the Specialty Flat-Rolled Steels segment, an 
increase in profits from Douglas Dynamics and lower employee benefit expenses. 
These improvements were offset, in part, by lower profits in the remainder of 
the Specialty Flat-Rolled Steels segment, due to higher imports and weak 
pricing in certain chrome nickel products. The decrease in Mansfield and Dover 
operating losses reflected improved operating practices and higher levels of 
production compared with 1995, which was a ramp-up period following a year-
long idling of these facilities. Employee benefit expenses were lower in 1996 
primarily as a result of increased funding of the pension plans during 1995 
and 1996 and lower interest rates on Armco's liability for retiree health care 
and life insurance benefits.

In 1995, Armco sold all of the shares of AK Steel Holding Corporation it had 
received in the initial public offering and recapitalization of Armco Steel 
Company, LP, recognizing a gain of $27.2.

Sundry other - net expense decreased in 1996 from 1995 as a result of lower 
employee benefit expenses related to facilities that have been divested or 
shut down and the $6.3 gain related to Greens Port asset sales.  Employee 
benefit expenses were lower primarily due to increased funding of the pension 
plans during 1995 and 1996 and lower interest rates on Armco's accrued other 
postretirement benefit liabilities.

In 1995, Armco recognized, in income from discontinued operations, equity 
income of $6.3 from National-Oilwell, a joint venture divested in January 
1996.
                                                       Armco Annual Report  19
<PAGE>

Outlook for 1998:  Armco expects modest volume increases and further cost 
reductions in the Specialty Flat-Rolled Steels segment, but anticipates no 
immediate relief from import-driven competitive pricing. Overall results for 
the Fabricated Products segment are expected to be somewhat lower in 1998 
compared to 1997. Favorable trends with respect to lower employee benefit 
expenses should continue in 1998.


BUSINESS SEGMENT RESULTS

Specialty Flat-Rolled Steels
----------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------
                                      1997        1996        1995
----------------------------------------------------------------------
<S>                                 <C>         <C>         <C>
Customer sales                      $1,497.0    $1,421.2    $1,277.0
Operating profit                        88.6        72.9        76.0
----------------------------------------------------------------------
</TABLE>
Armco's Specialty Flat-Rolled Steels businesses produce and finish flat-rolled 
stainless, electrical and carbon steels at plants in Butler, Pennsylvania, and 
Coshocton, Dover, Mansfield and Zanesville, Ohio. The segment also includes 
the results of international trading companies that buy and sell steel and 
manufactured steel products.

Customer sales and shipments by major product line and annual production were:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                 1997              1996              1995 
------------------------------------------------------------------------------
(tons in thousands)          Sales   Tons      Sales   Tons      Sales   Tons
------------------------------------------------------------------------------
<S>                       <C>       <C>     <C>       <C>     <C>       <C>
Specialty flat-rolled*    $1,103.0    757   $1,108.0    739   $1,013.3    647
Specialty semi-finished      198.8    168      133.9     97      130.5     78
Galvanized and other carbon  165.1    306      144.2    304       94.1    214
Other                         30.1     --       35.1     --       39.1     --
------------------------------------------------------------------------------
    Total                 $1,497.0  1,231   $1,421.2  1,140   $1,277.0    939
------------------------------------------------------------------------------
Cast production                     1,448             1,439             1,153
------------------------------------------------------------------------------
<FN>
*  The Specialty flat-rolled product line consists of automotive exhaust 
stainless, specialty sheet and strip, and electrical steels.
</TABLE>
1997 vs. 1996: Customer sales in 1997 were 5% higher than in 1996 on an 8% 
increase in tons shipped. A decrease in the segment's overall average sales 
per ton resulted from increased shipments of lower priced specialty semi-
finished steels, partially offset by a change in the mix of carbon steel 
shipments from hot bands to higher priced galvanized steel products. 

A 3% reduction in average sales per ton of specialty flat-rolled products 
reflected increased import competition on certain grades of chrome nickel 
stainless and cold rolled non-oriented electrical steels and elimination of 
most of the remaining surcharges on stainless steel. Armco and other specialty 
steel producers add raw material surcharges to the price of their product to 
compensate for higher costs incurred when the price of key raw materials such 
as nickel, chromium or molybdenum rises above certain levels. Such surcharges 
were minimal in 1997 and the second half of 1996.

Specialty semi-finished shipments increased substantially in 1997 over 1996, 
primarily as a result of increased sales of chrome nickel hot bands. However, 
a 14% reduction in average sales per ton reflected worldwide overcapacity.

Shipments of galvanized carbon steel increased in 1997, but the increased tons 
were offset by the elimination of carbon hot band shipments. In the first half 
of 1996, Armco exited the lower priced hot band market, shifting to higher 
priced galvanized steel products and thus increasing average sales per ton by 
14% in the year-to-year comparison.

Specialty Flat-Rolled Steels' 1996 operating profit included $8.6 of income 
from various claim settlements, including a business interruption insurance 
claim. Excluding the claim settlements, operating profit increased in 1997 
primarily as a result of lower costs due to facilities upgrades, more stable 
operating conditions and lower employee benefit expenses. Costs in 1996 were 
adversely affected by several planned outages, including outages necessary to 
upgrade Armco's finishing facilities as part of the strategic facilities plan. 
The outages and the subsequent process of restarting and returning these 
facilities to full capability contributed to higher costs and lower yields. To 
meet demand during this period, Armco substantially increased its use of 
outside processors to finish some of its stainless steels, resulting in higher 
costs.

1996 vs. 1995:  Customer sales in 1996 exceeded 1995 levels primarily due to 
higher sales of automotive exhaust stainless, electrical and galvanized 
steels. A 21% increase in shipped tons was made possible by higher operating 
levels at Mansfield compared with 1995, which was a ramp-up period following a 
year-long idling for installation of new equipment. The higher operating 
levels were achieved despite several planned outages necessary to complete 
additional equipment upgrades.

Shipments of specialty flat-rolled steel products increased 14% in 1996 over 
1995 driven by strong production of North American vehicles and housing 
starts. Partially offsetting the stronger demand for automotive exhaust 
stainless and grain oriented electrical steels were lower shipments of non-
oriented electrical steel and specialty sheet and strip, which were both 
adversely affected by import competition. Specialty semi-finished shipments 
also increased in 1996, primarily in export sales. However, prices for most 
stainless steel products, including semi-finished, fell in 1996 primarily due 
to pressure from imported steel and reductions in raw material surcharges.

Armco's carbon steel shipments increased in 1996 compared to 1995. In the 
first half of 1996, Armco exited the lower-priced carbon hot band market, 
shifting the carbon steel product mix to more galvanized steel, thereby 
increasing average sales per ton in the year-to-year comparison. 

During 1996, operating profit for this segment was lower than in 1995 due to 
price erosion on specialty stainless steels and semi-finished products and 
several planned outages necessary to complete equipment upgrades.

Outlook for 1998:  Armco anticipates modest increases in volume and further 
cost reductions for most product lines during the next twelve months. However, 
during that period, excess global capacity and higher levels of import 
penetration are expected to have a continued adverse effect on pricing. 

Automotive exhaust stainless shipments are expected to remain strong supported 
by North American vehicle sales and increased export sales. Stable housing 
starts are expected to continue to stimulate demand for oriented electrical 
steels, while high levels of lower-priced imports continue to adversely affect 
non-oriented electrical steel product sales.
<TABLE>
[A THREE-BAR CHART APPEARS HERE]
SPECIALTY FLAT-ROLLED STEELS 
SALES BY MARKET
<CAPTION>
----------------------------------------------------------------------
                                             97        96        95
----------------------------------------------------------------------

<S>                                          <C>       <C>       <C>
AUTOMOTIVE                                   39%       44%       40%
INDUSTRIAL & ELECTRICAL EQUIPEMENT           27%       28%       32%
SERVICE CENTERS                              12%       12%        9%
OTHER/CONVERSION                             22%       16%       19%
----------------------------------------------------------------------
</TABLE>
20  Armco Annual Report
<PAGE>
In late 1997, Armco management decided to eliminate production of carbon steel 
products at its Mansfield Operations and concentrate on producing the more 
profitable stainless steel products. Armco's Dover Operations, which 
galvanizes carbon steel formerly produced at Mansfield, will purchase carbon 
steel from other sources for galvanizing.

Low-priced foreign imports of specialty steels remained high in 1997, 
adversely affecting volume and pricing experienced by domestic companies like 
Armco. As a result, industry trade groups are gathering data to determine 
whether there are grounds for trade cases against some foreign producers. 
However, no trade cases have been filed to date and there can be no assurance 
of the outcome if cases are filed.

Fabricated Products
-------------------
<TABLE>
<CAPTION
----------------------------------------------------------------------
                                     1997        1996        1995
----------------------------------------------------------------------
<S>                                 <C>         <C>         <C>
Customer sales                      $332.3      $302.8      $282.9
Special charges                       --          (8.8)       --
Operating profit                      41.9        22.8        22.0
----------------------------------------------------------------------
</TABLE>
The Fabricated Products business segment includes the results of Sawhill 
Tubular, a manufacturer of steel pipe and tubing; Douglas Dynamics, a 
manufacturer of snowplows and ice control products; and, effective January 1, 
1997, Greens Port Industrial Park, which leases land, buildings and rail car 
storage facilities and operates a deep water loading dock on the Houston Ship 
Channel.

1997 vs. 1996: Customer sales increased in 1997 primarily due to higher 
shipments at Sawhill Tubular and the consolidation of Greens Port. Higher 
sales at Sawhill were a result of volume increases along most major product 
lines.

Douglas Dynamics' and Sawhill's operating profit improved in 1997. Douglas 
Dynamics' results improved due to manufacturing efficiencies achieved during 
the year and reduced operating expenses following the decision in 1996 to exit 
certain unprofitable product lines. The increase in Sawhill's profits was 
driven by higher volume as well as lower costs.

In 1996, Armco recorded a special charge of $5.9 for an estimated loss on the 
sale of its nonresidential construction business. In 1996, Armco negotiated an 
agreement to sell the business and the sale was effective January 1, 1997. The 
charge primarily relates to the writedown of assets and recognition of 
additional employee benefit liabilities.

Also in 1996, Armco recorded a $2.9 special charge primarily for the writedown 
of assets and severance costs related to the decision to discontinue a line of 
light truck equipment manufactured by Douglas Dynamics. 

1996 vs. 1995: Customer sales in 1996 were 7% above 1995 levels, largely due 
to higher sales at Douglas Dynamics. Snowplow shipments in 1996 were the 
second highest achieved in Douglas Dynamics' history, due to near record 
snowfalls and strong light truck sales. Although Sawhill Tubular's shipment 
volumes increased in the year-to-year comparison, this was offset by lower 
sales prices caused by increased domestic competitive pressures and a high 
level of imports.

Excluding the special charge in 1996, Douglas Dynamics' operating profit was 
substantially higher than in 1995 due to increased sales and cost reductions. 
Sawhill Tubular's operating profits decreased primarily as a result of higher 
costs for steel hot bands. 

Outlook for 1998: Douglas Dynamics' snowplow shipments are expected to be 
somewhat lower in 1998. However, the actual level of sales will depend on the 
level of four-wheel drive light truck sales and snowfalls in the markets 
Douglas Dynamics serves.

Sawhill Tubular's sales and profitability are expected to exceed 1997's levels 
due to anticipated continued higher volumes and lower costs. 


DISCONTINUED OPERATIONS

Aerospace and Strategic Materials
---------------------------------
Armco sold its Aerospace and Strategic Materials business segment in 1985. 
Pursuant to the sales agreement, Armco retained the benefit of its share of 
any net proceeds of certain tax refund claims it had filed prior to the sale. 
In 1996, Armco received a federal tax refund and recorded a $6.5 increase to 
its gain on the sale of the segment. In 1997, Armco recognized another $2.7 
gain for state and federal tax refunds.

Armco Financial Services Group (AFSG)
-------------------------------------
AFSG consists of insurance companies that have stopped writing new business 
and are being liquidated. These companies have not written any new business 
for retention since 1986 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 870 at 
December 31, 1996 and 713 at December 31, 1997.

In March 1997, a group of international insurance companies, previously 
affiliated with AFSG and sold in 1991, filed an application for voluntary 
liquidation in the United Kingdom. Northwestern National Insurance Company, 
one of the AFSG companies, is currently investigating its exposure with 
respect to transactions entered into with these companies. Armco believes that 
its investment in AFSG will not be materially affected as a result of pending 
claims or contingent liabilities related to this matter.

Liquidity and Financial Resources: Claims are paid from AFSG's investment 
portfolio and the related investment income from such portfolio. The portfolio 
had a market value of $174.9 at December 31, 1997. AFSG believes the existing 
invested assets, related future income and other assets will provide 
sufficient funds to meet all future claims payments. 

AFSG's loss reserves net of reinsurance recoverables decreased to $88.1 at 
December 31, 1997 from $102.2 at December 31, 1996. AFSG estimates that 67% of 
the 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 an annual 
review of loss reserves performed by AFSG's independent and consulting 
actuaries.

Outlook: Armco management continues to believe, based on current facts and 
circumstances and the opinions of outside counsel and advisors, that future 
charges, if any, resulting from the liquidation of AFSG will not be material 
to Armco's financial condition or liquidity. However, it is possible that, due 
to fluctuations in Armco's operating results, future developments could have a 
material effect on the results of one or more future interim or annual 
periods.
                                                       Armco Annual Report  21
<PAGE>

POSTRETIREMENT EMPLOYEE BENEFIT LIABILITIES

Armco maintains pension and other postretirement benefit plans for employees 
and retirees of its current operating locations as well as for retirees of 
businesses that have been shut down or divested. Each year, Armco commissions 
its outside actuary to calculate the present value of future obligations 
associated with these plans. With this information, and following the guidance 
in Statement of Financial Accounting Standards (SFAS) No. 87, Employers' 
Accounting for Pensions, and SFAS No. 106, Employers' Accounting for 
Postretirement Benefits Other Than Pensions, Armco records the expenses and 
liabilities of its retirement benefit plans. The following compares the most 
current actuarially determined obligations, net of plan assets, with the 
accrued liabilities recorded in Employment-related liabilities and Long-term 
employee benefit liabilities in the Consolidated Balance Sheets at December 
31, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------
                                           Other Postretirement
                               Pensions         Benefits
---------------------------------------------------------------
<S>                            <C>              <C>
Projected benefit obligations  $2,099.0         $  755.2
Plan assets                     2,106.4             --
---------------------------------------------------------------
Obligations greater (less)
 than plan assets                  (7.4)           755.2

Accrued liabilities               189.4          1,037.7
---------------------------------------------------------------
Accrued liabilities in excess
 of obligations                $  196.8         $  282.5
---------------------------------------------------------------
</TABLE>
The total accrued liabilities in excess of current estimated obligations was 
$479.3 for 1997. Of this amount, $419.3 relates to unrecognized net gains 
which arose primarily as a result of favorable investment returns on pension 
plan assets and lower than expected increases in medical benefit costs. 
Unrecognized net gains to the extent they exceed 10% of the larger of the 
benefit obligations or plan assets are amortized into income over the average 
remaining service life of active participants, which at Armco is currently 
about 15 years. The majority of the remaining difference relates to 
unrecognized negative prior service costs and an unrecognized transition 
obligation, which are also amortized over a long period of time. These amounts 
and their effect on consolidated income are more fully described in Note 2, 
Pension and Other Employee Benefits, in the Notes to the Consolidated 
Financial Statements


LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, Armco had $194.9 of cash, cash equivalents and short-
term liquid investments, compared to $169.2 at December 31, 1996. Cash, cash 
equivalents and short-term liquid investments increased $25.7 during 1997, 
primarily as a result of $90.8 of cash generated from operations and proceeds 
from the sale of businesses, assets and investments of $22.8, partially offset 
by cash payments including $41.9 for capital expenditures, $26.6 for net debt 
retirement and $17.9 for preferred stock dividends.

In September 1997, Armco issued $150.0 of 9% Senior Notes due 2007, using the 
proceeds to retire $100.0 of 11-3/8% Senior Notes due 1999, $20.0 of 9.2% 
Sinking Fund Debentures due 2000 and $28.5 of 8.5% Sinking Fund Debentures due 
2001. Following the refinancing of its long-term debt, Armco has debt 
maturities of $38.2, $7.0 and $132.2 in 1998, 1999 and 2000, respectively. 
Debt maturing in 1998 includes prepayment of $22.3 of variable rate private 
placement notes, and debt maturing in 2000 includes $125.0 of 9-3/8% Senior 
Notes, which are callable in November 1998.

At December 31, 1997, Armco had in place two bank credit facilities, totaling 
$170.0. Under a receivables facility, Armco sells substantially all its trade 
receivables to a wholly owned subsidiary, Armco Funding Corporation (AFC). In 
January 1996, AFC entered into a five-year revolving credit agreement with a 
group of banks providing up to $120.0 for revolving credit loans and letters 
of credit secured by an available borrowing base of AFC's receivables. At 
December 31, 1997, there were no outstanding borrowings under this credit 
facility. However, $56.8 of the facility was used as support for letters of 
credit and $26.6 was available for borrowing.

In January 1996, Armco entered into a three-year revolving credit agreement 
with a group of banks providing up to $50.0 for revolving credit loans secured 
by Armco's inventories. The credit agreement subjects Armco to certain 
restrictions and covenants related to, among other things, minimum working 
capital, minimum net income, current ratio and interest coverage ratio 
requirements. At December 31, 1997, there were no outstanding borrowings under 
this credit facility. Armco expects to enter into a new revolving credit 
agreement to replace this facility when it expires at the end of 1998. Under 
both bank credit facilities, a total of $76.6 was available for borrowing at 
December 31, 1997.

Inventories increased 9% during 1997, reflecting increased production levels 
at Douglas Dynamics and Sawhill Tubular. Trade receivables and payables, 
primarily in the Specialty Flat-Rolled Steels segment, increased 7% and 9%, 
respectively. These increases were the result of higher operating levels.

Armco anticipates that its capital expenditures for 1998 will total 
approximately $60.0 to $70.0. Armco expects that its 1998 cash requirements, 
including amounts for capital expenditures, debt service and preferred stock 
dividends will be paid out of existing cash balances and cash generated from 
operations.

On January 23, 1998, Armco's Board of Directors declared the regular quarterly 
dividends of $.525 per share on the $2.10 cumulative convertible preferred 
stock, Class A, and $.90625 per share on the $3.625 cumulative convertible 
preferred stock, Class A, each payable March 31, 1998 to shareholders of 
record on February 27, 1998. The Board of Directors also declared the regular 
quarterly dividend of $1.125 per share on the $4.50 cumulative convertible 
preferred stock, Class B, payable April 1, 1998, to shareholders of record on 
February 27, 1998. Payment of dividends on Armco's common stock is currently 
prohibited under the terms of certain of Armco's debt instruments and under 
the terms of its inventory credit facility. Armco does not anticipate paying a 
common stock dividend in the near term.
<TABLE>
[A BAR GRAPH APPEARS HERE]
CASH, CASH EQUIVALENTS AND
SHORT-TERM LIQUID INVESTMENTS
$ MILLIONS
<CAPTION>
---------------------------------------------------------------
                                         95      96      97
---------------------------------------------------------------
                                       <C>     <C>     <C>
                                       $137    $169    $195
---------------------------------------------------------------
<FN>
Armco's cash position grew by 15% in 1997.  Armco ended the year with $195 
million in cash, cash equivalents and short-term liquid investments.
</TABLE>
22  Armco Annual Report
<PAGE>

ENVIRONMENTAL MATTERS

Armco, as a U. S. manufacturer, is subject to various federal, state and local 
environmental requirements. Armco estimates capital expenditures for pollution 
control in its manufacturing operations will be about $30.0 for the years 
1998-2002, with the largest expenditures being made in the Specialty Flat-
Rolled Steels segment. Approximately $8.0 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 analysis of current laws and regulations. The type 
and magnitude of these projected expenditures can change based on changes in 
applicable laws and regulations, such as recent proposals to modify air 
requirements, and availability of new technologies. 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. During the period 1993 through 1997, Armco's capital 
expenditures for pollution control projects amounted to approximately $36.1, 
including $2.2 in 1997.

Armco has been named as a defendant, or identified as a potentially 
responsible party in various pending claims regarding past waste disposal 
sites. Joint and several liability could be imposed on Armco or other parties 
for some of these matters; thus, theoretically, one party could be held liable 
for all costs related to a site. However, while the outcome of these matters 
cannot be predicted with assurance, Armco's experience has been that in most 
cases, ultimate liability is apportioned among Armco and other financially 
viable parties. 

Armco has been and may in the future be subject to other types of 
environmental claims.  These claims included contractual indemnification 
related to previously divested properties. If Armco disposes of additional 
properties, it may incur additional environmental exit costs. Armco accrues 
such costs when a decision is made to dispose of a property or a sale is 
recorded.  In addition, costs may be incurred for penalties or other 
requirements as a result of administrative actions by government agencies.  
Periodically, there are also claims alleging property damage or personal 
injury in conjunction with waste disposal sites. Armco accrues for these 
matters when it is probable that a liability has been incurred and it is 
possible to reasonably estimate the amount or range.

While the outcome of environmental matters cannot be predicted with assurance, 
Armco believes that the ultimate liability for such matters, identified to 
date, will not materially affect its consolidated financial condition or 
liquidity. This belief is based on current facts and circumstances known to 
Armco, including current laws and regulations as well as Armco's experience 
with site redemption. However, it is possible that due to fluctuations in 
Armco's operating results or changes in the facts or circumstances of these 
matters, future developments with respect to such matters could have a 
material effect on the results of operations of future interim or annual 
periods. It is not possible to determine whether additional loss will occur or 
to reasonably estimate the amount or range of any such loss.


THE YEAR 2000 ISSUE

Many financial, information and operational computer systems in use today may 
not be able to appropriately interpret dates after December 31, 1999, because 
such systems allow only two digits to indicate the year in a date. This could 
have adverse consequences on the operations and integrity of information 
processing, causing safety, operational and financial problems. Armco is in 
the process of determining the extent to which its systems are year 2000 
compliant. In 1997, Armco began to update or replace non-compliant systems and 
anticipates that it will be able to complete this process before the year 
2000. Armco also is reviewing whether its suppliers expect to be in 
compliance. The financial impact of making the required changes is not 
expected to be material to Armco's consolidated financial condition, liquidity 
or results of operations.


FORWARD-LOOKING STATEMENTS 

Certain statements made in this Management's Discussion & Analysis, in the 
Notes to Consolidated Financial Statements and in the Letter to Shareholders 
contained in this Annual Report, reflect management's estimates and beliefs 
and are intended to be, and are hereby identified as, "forward-looking 
statements" for purposes of the safe harbor provisions of the Private 
Securities Litigation Reform Act of 1995. These include statements in the 
foregoing paragraphs entitled Outlook for 1998, Armco Financial Services Group 
(AFSG), Liquidity and Capital Resources, Environmental Matters and The Year 
2000 Issue; and in Note 1, Summary of Significant Accounting Policies, 
relating to Concentration of Credit Risk; Note 9, Litigation and Environmental 
Matters; and Note 11, Discontinued Operations, relating to AFSG.

Armco cautions readers that such forward-looking statements involve risks and 
uncertainties that could cause actual results to differ materially from those 
expected by management. These factors include, but are not limited to, the 
following:  risks of a downturn in the general economy or in the highly 
cyclical steel industry; changes in demand for Armco's products; unplanned 
plant outages, equipment failures or labor difficulties; actions by Armco's 
foreign and domestic competitors; unexpected outcomes of major litigation and 
contingencies; changes in U.S. trade policy and actions respecting imports; 
disruptions in the supply of raw materials, actions by reinsurance companies 
with which AFSG does business or foreign or domestic insurance regulators, and 
changes in application or scope of environmental regulations applicable to 
Armco. 


NEW ACCOUNTING STANDARDS

During 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 
130, Reporting Comprehensive Income. SFAS No. 130 requires the display of a 
new expanded measure of income with the same prominence as net income. Armco 
will adopt SFAS No. 130 in 1998, but anticipates that the difference between 
its reported net income and the new measure of income will be minor.

Also during 1997, the FASB issued SFAS No. 131, Disclosures about Segments of 
an Enterprise and Related Information, which establishes standards for 
determining reportable operating segments and the information about segments 
to be reported. Armco will adopt SFAS No. 131 when required in 1998. While 
Armco anticipates no material change in the composition of its Specialty Flat-
Rolled Steels segment, adoption of this standard will likely result in changes 
to the Fabricated Products segment and to the discussion and disclosures for 
all segments.
                                                       Armco Annual Report  23
<PAGE>
RESPONSIBILITY FOR FINANCIAL REPORTING


Armco's management prepared the financial statements presented in this Annual 
Report in accordance with generally accepted accounting principles in the 
United States. These principles require choices among alternatives and 
numerous estimates of financial matters. Armco believes the accounting 
principles chosen are appropriate in the circumstances, and the estimates and 
judgments involved in Armco's financial reporting are reasonable and 
conservative.

Armco's management is responsible for the integrity and objectivity of the 
financial information presented in this Annual Report. Armco maintains a 
system of internal accounting control and a program of internal audits. They 
are designed to provide reasonable assurance that the financial reports are 
fairly presented and that Armco employees comply with stated policies and 
procedures, including policies on the ethical conduct of business. Armco 
continually reviews and updates its policies and system of internal accounting 
control as businesses and business conditions change.

Management and the Audit Review Committee of the Board of Directors 
recommended, and the Board of Directors approved, the hiring of Deloitte & 
Touche LLP as independent auditors for Armco. Deloitte & Touche LLP expresses 
an informed professional opinion on Armco's financial statements.

The Audit Review Committee, composed solely of independent outside directors, 
oversees Armco's public financial reporting. The Audit Review Committee meets 
periodically with management, Deloitte & Touche LLP and Armco's internal 
auditors, both individually and jointly, to discuss internal accounting 
control and financial reporting matters. Deloitte & Touche LLP and Armco's 
internal auditors have free access to the Audit Review Committee to discuss 
any matters.

We believe Armco's internal control system, combined with the activities of 
the internal and independent auditors and the Audit Review Committee, provides 
you reasonable assurance of the integrity of our financial reporting.



/s/  James F. Will 

James F. Will 
Chairman, President and 
Chief Executive Officer 



/s/  Jerry W. Albright

Jerry W. Albright
Vice President and
Chief Financial Officer









INDEPENDENT AUDITORS' REPORT


Deloitte &                          2500 One PPG Place
   Touche LLP                       Pittsburgh, PA 15222
--------------
          [D&T LOGO] 



Armco, Its Shareholders and Directors:

We have audited the accompanying consolidated balance sheets of Armco Inc. and 
subsidiaries as of December 31, 1997 and 1996, and the related consolidated 
statements of income and cash flows for each of the three years in the period 
ended December 31, 1997. 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, such consolidated financial statements present fairly, in all 
material respects, the financial position of Armco Inc. and subsidiaries at 
December 31, 1997 and 1996, and the results of their operations and their cash 
flows for each of the three years in the period ended December 31, 1997, in 
conformity with generally accepted accounting principles.



/s/  Deloitte & Touche LLP


February 9, 1998

24  Armco Annual Report
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME  
 For the years ended December 31, 1997, 1996 and 1995  
<CAPTION>
------------------------------------------------------------------------
(Dollars in millions, except
  per share amounts)  
                                            1997       1996        1995 
------------------------------------------------------------------------
<S>                                    <C>         <C>         <C>
 Net sales                             $1,829.3    $1,724.0    $1,559.9 

 Cost of products sold                 (1,623.9)   (1,548.4)   (1,392.7)
 Selling and administrative expenses     (100.0)      (92.1)      (98.2)
 Special charges (Note 7)                   -          (8.8)        -  
------------------------------------------------------------------------
  Operating profit                        105.4        74.7        69.0 
 
 Interest income                           10.6        10.1        11.8 
 Interest expense                         (35.5)      (36.3)      (32.9)
 Gain on sale of AK Steel stock 
  (Note 10)                                 -           -          27.2 
 Sundry other - net (Note 2)               (1.1)      (21.1)      (49.6)
------------------------------------------------------------------------
  Income before income taxes               79.4        27.4        25.5 
 
 Provision for income taxes (Note 3)       (2.3)       (1.4)       (2.0)
------------------------------------------------------------------------
  Income from continuing operations        77.1        26.0        23.5 
 
 Discontinued operations (Note 11) 
    Aerospace and Strategic Materials  
      Gain on disposal of business          2.7         6.5         -- 
    National-Oilwell   
      Income from operations                -           --          6.3 
------------------------------------------------------------------------
  Income before extraordinary loss         79.8        32.5        29.8 
 
 Extraordinary loss on retirement
    of debt (Note 4)                       (3.0)        -           --
------------------------------------------------------------------------
 Net income                               $76.8       $32.5       $29.8 
------------------------------------------------------------------------
 
 Basic and diluted earnings
    per share (Note 1)  
    Income from continuing operations     $0.55       $0.08       $0.05 
    Income from discontinued operations    0.03        0.06        0.06 
    Extraordinary loss on retirement
    of debt                               (0.03)        --          -- 
------------------------------------------------------------------------
 Net income                               $0.55       $0.14       $0.11 
------------------------------------------------------------------------
 
 Cash dividends per share (Note 5)  
    $2.10 Class A                         $2.10        $2.10      $2.10 
    $3.625 Class A                         3.625        3.625      3.625 
    $4.50 Class B                          4.50         4.50       4.50 
------------------------------------------------------------------------
<FN>
 See Notes to Consolidated Financial Statements on pages 28 through 38.  
</TABLE>
                                                 Armco Annual Report  25
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS  
 December 31, 1997 and 1996  
------------------------------------------------------------------------
<CAPTION>
 (Dollars in millions, except per share amounts)       1997        1996 
------------------------------------------------------------------------
 ASSETS  
<S>                                                 <C>        <C>
  Current assets  
    Cash and cash equivalents (Note 1)              $  189.9   $  168.9 
    Short-term liquid investments                        5.0        0.3 
    Accounts and notes receivable  
      Trade (less allowance for doubtful accounts 
        of $4.0 in 1997 and $3.8 in 1996)              147.0      137.4 
      Other                                              9.6       12.2 
    Inventories (Note 1)                               268.0      246.9 
    Other current assets                                17.9        6.1 
------------------------------------------------------------------------
  Total current assets                                 637.4      571.8 
------------------------------------------------------------------------
 
  Investments  
     Investment in Armco Financial Services Group
       (Note 11)                                        85.6       85.6 
     Other (less allowance for impairment of
        $8.1 in 1997 and $12.7 in 1996)                 30.3       52.4 
 
  Property, plant and equipment (net of accumulated
    depreciation of $653.0 in 1997 and $597.6 in 1996)
    (Note 1)                                           652.5      670.1 
 
  Deferred tax asset (Note 3)                          319.3      325.8 
  Goodwill and other intangible assets (Note 1)        137.4      144.8 
  Other assets                                          18.8       17.3 
------------------------------------------------------------------------
 Total assets                                       $1,881.3   $1,867.8 
------------------------------------------------------------------------
 
 LIABILITIES  
  Current liabilities  
     Trade accounts and notes payable                 $148.9     $136.3 
     Employment-related liabilities (Note 2)           126.4      115.1 
     Other current liabilities                          72.8       79.6 
     Current portion of long-term debt (Note 4)         38.2       27.2 
------------------------------------------------------------------------
  Total current liabilities                            386.3      358.2 
------------------------------------------------------------------------
 
  Long-term debt (Note 4)                              306.9      344.3 
  Long-term employee benefit liabilities (Note 2)    1,178.1    1,200.2 
  Other long-term liabilities                          162.5      177.1 
  Commitments and contingencies (Notes 1, 9 and 11)  

 SHAREHOLDERS' DEFICIT (Note 5)  
  Preferred stock - Class A                           137.6       137.6 
  Preferred stock - Class B                            48.3        48.3 
  Common stock (authorized 150,000,000 shares of
     $0.01 par value; issued and outstanding
     107,129,561 in 1997 and 106,457,166 in 1996)       1.1         1.1 
  Additional paid-in capital                          967.7       965.0 
  Accumulated deficit                              (1,305.0)   (1,363.9)
  Other                                                (2.2)       (0.1)
------------------------------------------------------------------------
  Total shareholders' deficit                        (152.5)     (212.0)
------------------------------------------------------------------------
 Total liabilities and shareholders' deficit       $1,881.3    $1,867.8 
------------------------------------------------------------------------
<FN>
 See Notes to Consolidated Financial Statements on pages 28 through 38.  
</TABLE>
26  Armco Annual Report
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS 
For the years ended December 31, 1997, 1996 and 1995
<CAPTION>
------------------------------------------------------------------------------
(Dollars in millions)                               1997      1996      1995
------------------------------------------------------------------------------
Cash flows from operating activities: 
<S>                                               <C>       <C>       <C>
  Net income                                      $  76.8   $  32.5  $  29.8 
  Adjustments to reconcile net income to
    net cash provided 
    by operating activities: 
    Depreciation expense                             61.3      58.7     52.8 
    Undistributed earnings from
      discontinued operations                         --        --      (6.3)
    Net gain on sales of investments and assets      (4.5)     (8.9)   (28.4)
    Extraordinary loss on retirement of debt          3.0       --       --  
    Special charges                                   --        8.8      --  
    Other                                             6.4       6.3     10.9 
  Change in assets and liabilities: 
    Trade accounts and notes receivable              (9.1)     22.8      6.1 
    Inventories                                     (21.4)    (33.3)   (50.8)
    Payables and accrued operating expenses          22.1     (13.2)    34.4 
    Employee benefit liabilities                    (13.5)    (17.4)   (26.4)
    Other assets and liabilities - net              (30.3)    (13.7)    (6.6)
------------------------------------------------------------------------------
  Net cash provided by operating activities          90.8      42.6     15.5 
------------------------------------------------------------------------------
Cash flows from investing activities: 
    Net proceeds from the sale of businesses
      and assets                                      7.7      14.0     31.5 
    Proceeds from the sale and maturity of
      liquid investments                              0.3       --      29.7 
    Proceeds from the sale of investments            15.1      78.7     30.0 
    Purchase of liquid investments                   (5.0)     (0.3)    (6.0)
    Contributions to investees                        -        (3.0)    (2.0)
    Capital expenditures                            (41.9)    (59.8)  (143.3)
    Other                                            (0.2)     (2.7)     0.2 
------------------------------------------------------------------------------
  Net cash (used in) provided by investing
    activities                                      (24.0)     26.9    (59.9)
------------------------------------------------------------------------------
Cash flows from financing activities: 
    Proceeds from issuance of debt                  151.1       5.5      5.0 
    Payments on debt                               (177.7)    (24.3)    (8.1)
    Dividends paid on preferred stock               (17.9)    (17.9)   (20.9)
    Proceeds from issuance of common stock            0.1       --       2.4 
    Other                                            (1.4)     (0.7)     --  
------------------------------------------------------------------------------
  Net cash used in financing activities             (45.8)    (37.4)   (21.6)
------------------------------------------------------------------------------
Net change in cash and cash equivalents              21.0      32.1    (66.0)
  Cash and cash equivalents:  
    Beginning of year                               168.9     136.8    202.8 
------------------------------------------------------------------------------
    End of year                                   $ 189.9   $ 168.9  $ 136.8 
------------------------------------------------------------------------------
 
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest                                       $ 34.7   $  35.1  $  31.2 
    Income taxes                                      2.8       0.1      0.7 
 
Supplemental schedule of noncash investing
  and financing activities: 
    Debt incurred or assets exchanged directly
      for property                                    --       --       16.2 
    Issuance of restricted stock                      2.6       2.1      4.7 
    Notes receivable and stock in partial
      payment for asset sales                         0.3      10.6      --  
------------------------------------------------------------------------------
<FN> 
See Notes to Consolidated Financial Statements on pages 28 through 38. 
</TABLE>
                                                       Armco Annual Report  27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)

---------------------------------------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------------------------
GENERAL
The accompanying financial statements consolidate the accounts of Armco and 
all subsidiaries in which Armco has a controlling interest.

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities and the disclosure 
of contingent assets and liabilities at the date of the financial statements 
and the reported amounts of revenues and expenses during the reporting period. 
Actual results could differ from those estimates.

INVESTMENTS
Armco considers all highly liquid investments purchased with a maturity of 
three months or less to be cash equivalents. Cash equivalents consist of 
commercial paper, repurchase agreements, Eurodollar time deposits and other 
money market instruments, including mutual funds.

Under the definitions provided in Statement of Financial Accounting Standards 
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity 
Securities, Armco has securities which have been classified as held to 
maturity and are, therefore, recorded at amortized cost. The carrying amounts 
for these securities approximate fair value due to the short maturities of the 
instruments. At December 31, 1997 and 1996, these securities were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                      1997        1996
---------------------------------------------------------------------------
   <S>                                               <C>         <C>
   Cash equivalents                                  $180.4      $139.5
   Short-term liquid investments                        5.0         0.3
   Restricted collateral deposits                      15.5        15.2
---------------------------------------------------------------------------
   Total securities                                  $200.9      $155.0
---------------------------------------------------------------------------
</TABLE>
The restricted collateral deposits are primarily invested in certificates of 
deposit which mature within one year and are principally used as security for 
equipment financing, self-insurance programs, and environmental and litigation 
bonds. These securities are reported in Other current assets or Other 
investments. The classification is determined based on the expected term of 
the collateral requirement and not necessarily the maturity date of the 
underlying securities. 

At December 31, 1997 and 1996, Other investments also included $11.2 for 
Armco's limited partnership interest in North American Stainless. It is not 
practicable to estimate the fair value of this closely held limited 
partnership, in which Armco's ownership interest is less than 5%. Included in 
Other investments at December 31, 1996 were receivables from the sale of 
National-Oilwell, recorded at a discounted value of $10.6, which approximated 
fair value (Note 11). These receivables were collected by Armco during 1997. 
At December 31, 1997 and 1996, Armco had no material investments in derivative 
financial instruments. 

INVENTORIES
Inventories are valued at the lower of cost or market. Cost of inventories at 
most domestic operations is measured on the LIFO -- Last In, First Out -- 
method. Other inventories are measured principally at average cost. Inventory 
balances as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                   1997       1996
---------------------------------------------------------------------------
<S>                                               <C>        <C>
Inventories on LIFO:
Finished and semi-finished                        $271.2     $259.0
Raw materials and supplies                          25.8       21.4
Adjustment to state inventories at LIFO value      (54.0)     (52.8)
---------------------------------------------------------------------------
Total                                              243.0      227.6
---------------------------------------------------------------------------
Inventories on average cost:
Finished and semi-finished                          19.9       11.9
Raw materials and supplies                           5.1        7.4
---------------------------------------------------------------------------
Total                                               25.0       19.3
---------------------------------------------------------------------------
Total inventories                                 $268.0     $246.9
---------------------------------------------------------------------------
</TABLE>
RESEARCH AND DEVELOPMENT COSTS
Armco conducts a broad range of research and development activities. These 
activities are aimed at improving existing products and manufacturing 
processes and developing new products and processes. Research and development 
costs are recorded as expense when incurred. The amounts incurred in 1997, 
1996 and 1995 were $15.3, $13.1 and $14.0, respectively.

PROPERTY PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method based on the estimated 
useful lives of the related assets. Leasehold improvements are depreciated 
over the shorter of the life of the related asset or the life of the lease. 
Generally, Armco depreciates its property, plant and equipment at annual rates 
of 5% for land improvements, 3% to 5% for buildings and 5% to 33% for 
machinery and equipment.
28  Armco Annual Report
<PAGE>

Armco's property, plant and equipment balances as of December 31, 1997 and 
1996 were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                1997        1996
---------------------------------------------------------------------------
<S>                                          <C>         <C>
Land                                         $   28.1    $   26.6
Buildings                                        93.2        90.8
Machinery and equipment                       1,156.9     1,117.5
Construction in progress                         27.3        32.8
---------------------------------------------------------------------------
Total property, plant and equipment           1,305.5     1,267.7
Accumulated depreciation                       (653.0)     (597.6)
---------------------------------------------------------------------------
Property, plant and equipment-net            $  652.5    $  670.1
---------------------------------------------------------------------------
</TABLE>
Armco had commitments to purchase property, plant and equipment (including 
unexpended amounts relating to projects substantially underway) totaling 
approximately $19.0 at December 31, 1997. 

GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets primarily include goodwill recorded in 
connection with the acquisition of Cyclops Industries, Inc. on April 24, 1992. 
This goodwill is being amortized using the straight-line method over 40 years. 
Also included are goodwill and intangible assets acquired in the purchase of 
Douglas Dynamics, LLC on July 2, 1991. These assets are being amortized over 
their estimated useful lives, the majority of which do not exceed 17 years. 
Annual amortization expense for 1997, 1996 and 1995 was $6.5, $6.9 and $6.9, 
respectively. At December 31, 1997 and 1996, accumulated amortization of 
goodwill and other intangible assets was $36.5 and $35.3, respectively.

Armco assesses whether its goodwill and other intangible assets are impaired 
as required by SFAS No. 121, Accounting for the Impairment of Long-Lived 
Assets and for Long-Lived Assets to be Disposed Of, based on an evaluation of 
undiscounted projected cash flows through the remaining amortization period. 
If an impairment exists, the amount of such impairment is calculated based on 
the estimated fair value of the asset. 

EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to 
common shareholders by the weighted-average number of common shares 
outstanding for the year. In arriving at income available to common 
shareholders, preferred stock dividends of $17.9 were deducted in each year 
presented. Diluted EPS reflects the potential dilution that could occur if 
dilutive securities and other contracts to issue common stock were exercised 
or converted into common stock or resulted in the issuance of common stock 
that then shared in the earnings of Armco. 

Average shares outstanding for basic EPS was 107 million in 1997. The 
calculation of diluted EPS in 1997 included the assumed conversion of the 
$3.625 Class A preferred stock into common stock, the effect of which would be 
to decrease preferred dividends by $9.8 and increase average shares 
outstanding by 18.3 million shares. This change had no effect on the 
calculated EPS amount. Average shares outstanding for both basic and diluted 
EPS was 106.6 million for 1996 and 106 million for 1995.

At December 31, 1997, 1996 and 1995, 5.4 million shares of preferred stock, 
which were convertible into 22.7 million common shares, were outstanding. All 
of these potential common shares were excluded from the computation of diluted 
EPS for 1996 and 1995, and approximately 4.4 million of the potential common 
shares were excluded for 1997 because their inclusion would have had an 
antidilutive effect on EPS. At December 31, 1997, 1996 and 1995 substantially 
all of the 2.2 million, 1.7 million and 1.5 million, respectively, of the 
exercisable stock options and stock appreciation rights were excluded from the 
computation of diluted EPS because the options' exercise prices were greater 
than the average market price of the common shares. 

ENVIRONMENTAL LIABILITIES 
Armco has participated in or funded various cleanup efforts at sites where its 
facilities have disposed of wastes, including sites located on its own 
properties. Costs related to these efforts are accrued when it is probable 
that a liability has been incurred and the amount of that liability can be 
reasonably estimated. It is Armco's policy not to accrue environmental exit 
costs with respect to ongoing businesses until a decision is made to dispose 
of the property.

CONCENTRATION OF CREDIT RISK
Armco is primarily a producer of stainless, electrical and galvanized carbon 
steels and steel products, which are sold to a number of markets, including 
automotive, industrial machinery and equipment, construction, power 
distribution and appliances. Armco sells domestically to customers primarily 
in the Midwestern and Eastern United States, while approximately 10% of sales 
are to foreign customers, primarily in Canada, Mexico and Western Europe. 
Approximately 21% of trade receivables outstanding at December 31, 1997 are 
due from businesses that supply the U.S. automotive industry. Except in a few 
situations where the risk warrants it, Armco does not require collateral on 
trade receivables; and while it believes its trade receivables will be 
collected, Armco anticipates that in the event of default it would follow 
normal collection procedures. Overall, credit risk related to Armco's trade 
receivables is limited due to the large number of customers in differing 
industries and geographic areas.

RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to 
conform to the 1997 presentation. 
                                                       Armco Annual Report  29
<PAGE>

---------------------------------------------------------------------------
NOTE 2 PENSION AND OTHER EMPLOYEE BENEFITS
---------------------------------------------------------------------------
PENSION PLANS
Armco provides noncontributory pension benefits to most employees. The 
qualified plans have been funded to meet the minimum funding requirements of 
the Employee Retirement Income Security Act of 1974. During 1996 and 1995, 
contributions of $41.2 and $54.8, respectively, which exceeded the minimum 
funding requirements, were made to the plans. As of December 31, 1997, funding 
credits of $52.8 were available to offset future minimum funding requirements. 

The components of net periodic pension cost, including amounts related to 
divested units, and assumptions used to determine such expenses are as 
follows: 
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                             1997       1996       1995 
---------------------------------------------------------------------------
<S>                                        <C>        <C>       <C>
Cost of benefits earned during the year    $  15.4    $  15.6   $  13.7
Interest cost on the projected
  benefit obligation                         147.8      141.0     153.1 
Return on plan assets
  Actual                                    (300.6)    (252.1)   (354.0) 
  Deferral                                   133.1      104.8     197.8 
Net amortization                               5.2        7.2       6.5
---------------------------------------------------------------------------
Net periodic pension cost                  $   0.9    $  16.5   $  17.1 
---------------------------------------------------------------------------

Weighted average discount rate                7.75%      7.00%     8.50% 
Weighted average expected long-term rate
  of return on assets                         8.75%      8.00%     9.50% 
Rate of future compensation increases         4.00%      4.00%     4.00% 
---------------------------------------------------------------------------
</TABLE>
Net periodic pension cost decreased in 1997 primarily due to continued 
favorable returns on pension plan assets. 

The following table presents the funded status of pension plans using discount 
rates of 7% and 7.75% for 1997 and 1996, respectively. The assumed rate of 
future compensation increases was 4% in both years. 
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                    Plans for which  Plans for which
                                     Assets Exceed    Accumulated
                                      Accumulated       Benefits      Total
  1997                                  Benefits     Exceed Assets  All Plans
-----------------------------------------------------------------------------
<S>                                    <C>                <C>        <C>
Actuarial present value of 
  benefit obligations:
Vested benefits                        $2,034.5           $ 15.6     $2,050.1
Nonvested benefits                         28.8              0.6         29.4
-----------------------------------------------------------------------------
Accumulated benefit obligation         $2,063.3            $16.2     $2,079.5
-----------------------------------------------------------------------------

Projected benefit obligation           $2,079.7            $19.3     $2,099.0
Plan assets at fair value               2,105.2              1.2      2,106.4
-----------------------------------------------------------------------------
Projected benefit obligation greater
  (less) than plan assets                 (25.5)            18.1         (7.4)
Reconciliation of funded status to
  recorded amounts:
Unrecognized negative prior
  service (cost)                            2.3             (6.5)        (4.2)
Unrecognized net gain (loss)              224.3             (0.6)       223.7
Unrecognized transition obligation        (27.1)            (0.3)       (27.4)
Amount required to recognize
  minimum liability                        --                4.7          4.7
-----------------------------------------------------------------------------
Accrued pension liability              $  174.0           $ 15.4     $  189.4
-----------------------------------------------------------------------------

  1996
-----------------------------------------------------------------------------
Actuarial present value of
  benefit obligations:
Vested benefits                        $1,242.3           $705.6     $1,947.9
Nonvested benefits                         33.2              8.2         41.4
-----------------------------------------------------------------------------
Accumulated benefit obligation         $1,275.5           $713.8     $1,989.3
-----------------------------------------------------------------------------

Projected benefit obligation           $1,283.5           $716.8     $2,000.3
Plan assets at fair value               1,316.1            691.4      2,007.5
-----------------------------------------------------------------------------
Projected benefit obligation greater
  (less) than plan assets                 (32.6)            25.4         (7.2)

Reconciliation of funded status to
  recorded amounts:
Unrecognized negative prior service (cost)  4.0             (8.5)        (4.5)
Unrecognized net gain                     148.6             82.3        230.9
Unrecognized transition obligation        (29.7)            (4.0)       (33.7)
Amount required to recognize
  minimum liability                         --               8.2          8.2
-----------------------------------------------------------------------------
Accrued pension liability              $   90.3           $103.4     $  193.7
-----------------------------------------------------------------------------
</TABLE>
30  Armco Annual Report
<PAGE>

Plan assets are primarily invested in U.S. and foreign equities and debt 
securities issued by the U.S. government, U.S. corporations and foreign 
entities.

In addition to the defined benefit pension plans, most employees are eligible 
to participate in various defined contribution plans. Total company expense 
related to these plans was $6.7, $2.9 and $4.4 for 1997, 1996 and 1995, 
respectively. A portion of the expense of these plans varies based on Armco's 
profitability.

RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to providing pension benefits, Armco provides various health care 
and life insurance benefits to most retirees. Retiree health and life 
insurance benefits are funded as claims are paid. 

The components of the net periodic postretirement benefit cost and assumptions 
used to determine such expenses are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                                     1997     1996     1995
-----------------------------------------------------------------------------
<S>                                                 <C>      <C>      <C>
Cost of benefits earned during the year             $  4.1   $  4.9   $  5.6
Interest cost on accumulated postretirement
  benefit obligation                                  58.3     61.8     74.7
Amortization of deferred gains and plan changes      (15.0)    (3.8)    (3.7)
-----------------------------------------------------------------------------
Net periodic postretirement benefit cost             $47.4    $62.9    $76.6
-----------------------------------------------------------------------------

  Weighted average discount rate                      7.75%    7.00%    8.50%
  Current year health care trend rate - Pre-age 65    8.25%    9.25%   10.25%
  Current year health care trend rate - Post-age 64   6.25%    7.25%    8.25%
  Ultimate health care trend rate                     5.75%    5.00%    6.50%
  Weighted average trend rate                         6.00%    5.60%    7.30%
-----------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost decreased in 1997 primarily due to 
the decrease in the accumulated postretirement benefit obligation at the end 
of 1996 resulting primarily from favorable claims experience.

Net curtailment gains of $10.2 in 1995 were not included in net periodic 
postretirement benefit cost. 

Total claims paid were approximately $60.0 in 1997, $55.2 in 1996 and $64.0 in 
1995.

The following table presents the funded status of the postretirement benefit 
plans for 1997 and 1996:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                                  1997           1996
-----------------------------------------------------------------------------
<S>                                             <C>            <C>
Accumulated postretirement benefit obligation:
Retirees                                        $  643.7       $  672.0
Fully eligible active plan participants             48.7           59.7
Other active plan participants                      62.8           51.5
-----------------------------------------------------------------------------
Total                                              755.2          783.2
Plan assets at fair value                            --             --
-----------------------------------------------------------------------------
Accumulated postretirement benefit obligation 
in excess of plan assets                           755.2          783.2

Reconciliation of obligation to recorded amounts:
Unrecognized negative prior service                 86.9           76.7 
Unrecognized net gains                             195.6          190.3
-----------------------------------------------------------------------------
Accrued postretirement benefit liability        $1,037.7       $1,050.2
-----------------------------------------------------------------------------

Assumptions used to determine obligation:
Discount rate                                       7.00%          7.75%
Current year health care trend rate - Pre-age 65    7.25%          8.25%
Current year health care trend rate - Post-age 64   5.25%          6.25%
Ultimate health care trend rate                     5.00%          5.75%
Weighted average trend rate                         5.10%          6.00%
-----------------------------------------------------------------------------
</TABLE>
The current year health care trend rates are assumed to decrease one 
percentage point per year until they reach the ultimate rate. A one percentage 
point increase in the assumed health care trend rate would increase the 
accumulated postretirement benefit obligation for 1997 by approximately $66.0, 
and increase the annual net periodic postretirement benefit cost by 
approximately $5.6. 

EMPLOYEE BENEFIT OBLIGATIONS OF FORMER BUSINESS UNITS
Included in employee benefit liabilities is the present value of estimated 
pension and health care benefits for former employees associated with 
facilities that have been divested. Sundry other-net includes costs of $2.0, 
$22.1 and $38.5 in 1997, 1996 and 1995, respectively, related to these 
liabilities. The decrease in costs in 1997 was primarily due to continuing 
favorable investment returns on pension plan assets and favorable experience 
on health care claims. 
                                                       Armco Annual Report  31
<PAGE>

---------------------------------------------------------------------------
NOTE 3 INCOME TAXES
---------------------------------------------------------------------------
Armco files a consolidated U. S. federal income tax return. This return 
includes all domestic companies 80% or more owned by Armco and the 
proportionate share of Armco's interest in partnership investments. State tax 
returns are filed on a consolidated, combined or separate basis depending on 
the applicable laws relating to Armco and its domestic subsidiaries.

The United States and foreign components of Income before income taxes consist 
of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                       1997        1996        1995
-----------------------------------------------------------------------------
<S>                                   <C>         <C>         <C>
United States                         $ 77.8      $ 24.4      $ 22.8
Foreign                                  1.6         3.0         2.7
-----------------------------------------------------------------------------
Total                                 $ 79.4      $ 27.4      $ 25.5
-----------------------------------------------------------------------------
</TABLE>
Provisions for current income taxes for Armco and consolidated subsidiaries 
are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                       1997        1996        1995
-----------------------------------------------------------------------------
<S>                                   <C>         <C>         <C>
U. S. federal                         $  1.2      $  --       $  --
U. S. state                              0.3         --          0.8
Foreign                                  0.8         1.4         1.2
-----------------------------------------------------------------------------
Total                                 $  2.3      $  1.4      $  2.0
-----------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the statutory federal income tax rate 
applied to Income before income taxes with the provision for income taxes:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                       1997        1996        1995
-----------------------------------------------------------------------------
<S>                                   <C>         <C>         <C>
Federal taxes at statutory rate       $ 27.8      $  9.6      $  8.9
State taxes, net of federal benefit      4.0         1.6         1.5
Change in deferred 
  tax valuation allowance              (29.5)       (9.8)       (8.4)
-----------------------------------------------------------------------------
Total                                 $  2.3       $ 1.4      $  2.0
-----------------------------------------------------------------------------
</TABLE>
During 1997, Armco's net operating loss carryforwards decreased by 
approximately $19.0 due to taxable income generated in the year, and by $17.4 
due to the elimination of loss carryforwards which were related to companies 
leaving the consolidated group. Armco's capital loss carryforward decreased by 
approximately $6.0 of taxable capital gains generated in the year. The 
difference between pretax book income of $79.4 and 1997 taxable income is 
primarily due to costs associated with employee benefits and restructuring 
actions, which had been accrued for financial accounting purposes in prior 
years, but actually paid in 1997; and tax basis depreciation, which exceeded 
depreciation expense recorded in the financial statements.

At December 31, 1997, Armco had capital loss and net operating loss (NOL) 
carryforwards for federal tax purposes expiring as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                Year                    Capital 
              expiring                   loss              NOL
-----------------------------------------------------------------------------
    <S>                                 <C>             <C>
                1998                    $ 52.4          $   40.7
                1999                       --              106.7
                2000                     117.4               --
                2001                      43.6             123.3
                2004                       --                9.1
                2005                       --              130.3
                2006                       --              239.3
                2007                       --              186.9
                2008                       --              128.8
                2009                       --               31.1
                2010                       --               46.3
                2011                       --               34.6
-----------------------------------------------------------------------------
    Total loss carryforwards            $213.4          $1,077.1
-----------------------------------------------------------------------------
</TABLE>
Armco has $731.4 in U.S. alternative minimum tax net operating losses. 
Additionally, Armco has $12.7 of alternative minimum tax credits that have no 
expiration. 

Deferred income taxes reflect the net tax effects of (a) temporary differences 
between the carrying amounts of assets and liabilities for financial reporting 
purposes and the amounts used for income tax purposes and (b) operating loss 
and tax credit carryforwards. At December 31, 1997 and 1996, the net deferred 
tax asset, included on the Consolidated Balance Sheets, was as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                                    1997        1996
-----------------------------------------------------------------------------
<S>                                               <C>         <C>
Other current assets                              $  9.2      $  2.7
Deferred tax asset                                 319.3       325.8
-----------------------------------------------------------------------------
Net deferred tax asset                            $328.5      $328.5
-----------------------------------------------------------------------------
</TABLE>
Major components of Armco's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                                    1997        1996
-----------------------------------------------------------------------------
Tax effects of:
<S>                                             <C>         <C>
Operating loss and tax credit carryforwards     $  522.2    $  539.5
Employee benefits                                  556.4       565.4
Other assets (including contingencies
  and accruals)                                    133.5       159.0
-----------------------------------------------------------------------------
Gross deferred tax asset                         1,212.1     1,263.9

Valuation allowance                               (593.0)     (644.4)
-----------------------------------------------------------------------------
Deferred tax asset                                 619.1       619.5

Property, plant and equipment                     (148.8)     (138.4)
Other liabilities                                 (141.8)     (152.6)
-----------------------------------------------------------------------------
Deferred tax liability                            (290.6)     (291.0)
-----------------------------------------------------------------------------
Net deferred tax asset                          $  328.5    $  328.5
-----------------------------------------------------------------------------
</TABLE>
32  Armco Annual Report
<PAGE>

Management believes it is more likely than not that Armco will generate future 
taxable income sufficient to realize that portion of the tax benefit 
associated with future deductible temporary differences and NOL carryforwards, 
represented by the $328.5, above. Armco prepares a calculation in which it 
estimates future income and schedules the future effects of temporary 
differences and NOL carryforwards. Because any forecast has inherent 
uncertainties and because of the structural changes Armco has undergone over 
the last eight years, Armco uses what it believes to be conservative estimates 
and assumptions. Considering all available evidence, both positive and 
negative, Armco periodically determines if there has been a significant change 
in the net deferred tax asset. During the last several years, based on 
forecasts and consideration of available evidence, Armco believes that there 
has been no significant change in the amount of its net deferred tax asset. 
Therefore, amounts that would otherwise have been recognized as a provision 
for income taxes have been offset by a change in the valuation allowance.

Armco's belief that realization of its net deferred tax asset is more likely 
than not is based on, among other factors, changes in operations that have 
occurred during the 1990s, as well as consideration of available tax planning 
strategies. Specifically, cost savings resulting from new capital investments 
are being realized and are expected to continue to improve operating results. 
Armco has operated in a highly cyclical industry and, consequently, has had a 
history of generating and then utilizing significant amounts of NOL 
carryforwards. In 1997, Armco utilized approximately $19.0 of the NOL 
carryforwards. This represents the first year of taxable income in the last 
eight years. However, if Armco is unable to generate sufficient taxable income 
in the future through operating results, increases in the valuation allowance 
may be required through a charge to income. On the other hand, if Armco 
achieves sufficient profitability to utilize a greater portion of the deferred 
tax asset, the valuation allowance will be reduced through a credit to income.

United States income tax returns of Armco for 1993 and prior years have been 
subject to examination by the Internal Revenue Service and are closed to 
assessments. However, the NOL carryforwards from some of these years remain 
open to adjustment. Armco has been in a cumulative NOL carryforward position 
since 1983 and believes that it has sufficient loss carryforwards in excess of 
any potential audit adjustments that might be made by the Internal Revenue 
Service for any open years.


---------------------------------------------------------------------------
NOTE 4 LONG-TERM DEBT AND OTHER FINANCING
---------------------------------------------------------------------------
LONG-TERM DEBT
At December 31, 1997 and 1996, Armco's long-term debt was as follows: 
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                       1997        1996
---------------------------------------------------------------------------
<S>                                                   <C>        <C>
Sinking fund debentures:
  8.5% due 2001                                       $ --       $ 35.0
  9.2% due 2000                                         --         25.0

Notes payable:
  9% due 2007                                         150.0         --
  9-3/8% due 2000                                     125.0       125.0
  11-3/8% due 1999                                      --        100.0
  Variable rate (LIBOR plus 2.75%) due 2001            31.2        40.1
  5% due 2000                                          15.3        20.4
 
Pollution control revenue bonds due 2005 - 8-1/8%      12.1        13.2
Variable rate economic development revenue bonds 
   due 2020 (1997 average 3.88%)                        8.5         8.5
Other                                                   3.0         4.3
---------------------------------------------------------------------------
Total debt                                            345.1       371.5

Less current maturities                               (38.2)      (27.2)
---------------------------------------------------------------------------
Long-term debt                                       $306.9      $344.3
---------------------------------------------------------------------------
</TABLE>
Maturities of existing long-term debt during the five years ending December 
31, 2002, are as follows: 1998, $38.2; 1999, $7.0; 2000, $132.2; 2001, $2.2 
and 2002, $2.3. The 1998 maturities include prepayment of $22.3 of variable 
rate private placement notes payable.

At December 31, 1997, the fair value of Armco's long-term debt, including 
current maturities, was approximately $347.4. This amount was determined by 
calculating a value based on cash flow yield to maturity and comparing that 
amount to market information where possible. The fair value estimate was based 
on pertinent information available to management as of December 31, 1997. 
Management is not aware of any significant factors that would materially alter 
this estimate since that date. The fair value of Armco's long-term debt, 
including current maturities, at December 31, 1996 was approximately $369.0.
                                                       Armco Annual Report  33
<PAGE>

In September 1997, Armco issued $150.0 of 9% Senior Notes due 2007, using the 
proceeds to retire $100.0 of 11-3/8% Senior Notes due 1999, $20.0 of 9.2% 
Sinking Fund Debentures due 2000 and $28.5 of 8.5% Sinking Fund Debentures due 
2001. Armco recorded a $3.0 extraordinary loss upon retiring certain of its 
outstanding debt.

At December 31, 1997 and 1996, $50.2 and $64.9, respectively, of long-term 
debt, including current maturities, represented financing utilized to 
construct certain of Armco's fixed assets, which are pledged as collateral on 
these loans.

BANK CREDIT AGREEMENTS
At December 31, 1997, Armco had in place two bank credit facilities, totaling 
$170.0. Under a receivables facility, Armco sells substantially all its trade 
receivables to a wholly owned subsidiary, Armco Funding Corporation (AFC). In 
January 1996, AFC entered into a five-year revolving credit agreement with a 
group of banks providing up to $120.0 for revolving credit loans and letters 
of credit secured by AFC's receivables. At December 31, 1997, there were no 
outstanding borrowings under this credit facility; however, $56.8 of the 
facility was used as support for letters of credit and $26.6 was available for 
borrowing.

In January 1996, Armco entered into a three-year revolving credit agreement 
with a group of banks providing $50.0 for revolving credit loans secured by 
Armco's inventories. This credit agreement subjects Armco to certain 
restrictions and covenants related to, among other things, minimum working 
capital, minimum net income, current ratio and interest coverage ratio 
requirements. At December 31, 1997, there were no outstanding borrowings under 
this credit facility. Armco expects to enter into a new revolving credit 
agreement to replace this facility when it expires at the end of 1998. Under 
both bank credit facilities, a total of $76.6 was available for borrowing at 
December 31, 1997.

CAPITALIZED INTEREST
Armco capitalized interest on projects during construction of $0.4, $0.8 and 
$5.1 in 1997, 1996 and 1995, respectively. Capitalized interest for 1995 
primarily relates to the construction of the thin-slab caster in Mansfield, 
Ohio.

LONG-TERM LEASES
Rental expense under operating leases was $6.9 in 1997, $7.7 in 1996 and $7.7 
in 1995. At December 31, 1997, commitments to make future minimum lease 
payments for operating leases are $5.7 in 1998, $3.9 in 1999, $2.4 in 2000, 
$1.8 in 2001, $2.2 in 2002 and $0.6 thereafter.


---------------------------------------------------------------------------
NOTE 5 SHAREHOLDERS' DEFICIT
---------------------------------------------------------------------------
PREFERRED STOCK
Armco has outstanding two classes of preferred stock. The two classes rank 
equally with respect to dividend payments, redemption and liquidation rights. 
The preferred stock ranks senior to Armco's common stock with respect to 
dividends and upon liquidation. At December 31, 1997 and 1996, there were 
authorized and issuable in series, 6,697,231 shares of Class A preferred stock 
with no par value and 5,000,000 shares of $1 par value Class B preferred 
stock.

Armco has two series of Class A preferred stock outstanding. The $2.10 Class A 
preferred stock pays cumulative dividends at the annual rate of $2.10 per 
share. Shareholders of the $2.10 Class A preferred stock have one vote per 
share and each share is convertible into 1.27 shares of Armco's common stock. 
This series of Class A preferred stock may be redeemed at Armco's option for 
$40 per share, plus accrued but unpaid dividends. The $2.10 Class A preferred 
stock had a total involuntary liquidation value of $25.5 at December 31, 1997 
and 1996.

The $3.625 Class A preferred stock pays cumulative dividends at the annual 
rate of $3.625 per share. Shareholders of this series of Class A preferred 
stock are entitled to one vote per share and each share is convertible into 
6.78 shares of Armco's common stock. The $3.625 Class A preferred stock may be 
redeemed at Armco's option at a current price of $51.8125 per share, plus 
accrued but unpaid dividends. This price declines at 12-month intervals, to 
$50 per share on and after October 15, 2002. The $3.625 preferred Class A 
stock had a total involuntary liquidation value of $135.0 at December 31, 1997 
and 1996.

Armco's outstanding series of Class B preferred stock is nonvoting and pays 
cumulative dividends at the annual rate of $4.50 per share. Each share is 
convertible into 2.22 shares of Armco's common stock. The Class B preferred 
stock may be redeemed at Armco's option for $50 per share, plus accrued but 
unpaid dividends. The Class B preferred stock had a total involuntary 
liquidation value of $50.0 at December 31, 1997 and 1996.

At December 31, 1997, 1996 and 1995 the number of shares outstanding and book 
value of Class A preferred stock were 4,397,231 and $137.6. At December 31, 
1997, 1996 and 1995, Armco had outstanding 999,900 shares of Class B preferred 
stock with a book value of $48.3.

COMMON STOCK
At December 31, 1997, 22,681,261 unissued shares of Armco's common stock were 
reserved for the conversion of preferred stock and 3,510,134 unissued shares 
of common stock were reserved for the exercise of stock options (Note 6).

Activity for the years 1995, 1996 and 1997 related to Armco's common stock was 
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                             Additional
                                                                Paid-in
                                       Shares     Par Value     Capital
---------------------------------------------------------------------------
<S>                               <C>                <C>         <C>
Balance, December 31, 1994        105,089,146        $1.1        $956.3
Exercise of options                   108,962          --           0.5
Restricted stock issued -  
  net of cancellations                587,596          --           4.1
Issued for employee savings plan      314,544          --           2.1
Directors' stock purchase plan          2,312          --           --
---------------------------------------------------------------------------
Balance, December 31, 1995        106,102,560          1.1        963.0
Exercise of options                     3,100          --           -- 
Restricted stock issued - 
  net of cancellations                347,313          --          2.0 
Directors' stock purchase plan          4,193          --          --
---------------------------------------------------------------------------
Balance, December 31, 1996        106,457,166          1.1        965.0
Exercise of options                    25,500          --           -- 
Restricted stock issued - 
  net of cancellations                643,013          --           2.7
Directors' stock purchase plan          3,882          --           --
---------------------------------------------------------------------------
Balance, December 31, 1997        107,129,561         $1.1       $967.7
---------------------------------------------------------------------------
</TABLE>
SHAREHOLDER RIGHTS PLAN
In 1996, Armco adopted a Shareholder Rights Plan designed to deter coercive 
takeover tactics and prevent an acquirer from gaining control of Armco without 
offering a fair price to all of Armco's shareholders. Under the terms of the 
plan, preferred stock purchase rights were distributed as a dividend at the 
rate of one right for each share of common stock held as of the close of 
business on June 26, 1996. Until the rights become exercisable, common stock 
issued will also have one right attached. Each right will entitle shareholders 
to buy one two-hundredth of a share of a currently unissued series of Class A 
participating preferred stock of Armco at an exercise price of $20. Each right 
will thereafter entitle the holder to receive upon exercise, common stock or, 
in certain circumstances, preferred stock or other securities or assets of the 
company having a value of $40. The rights will be exercisable only if a person 
or group acquires beneficial ownership of 20% or more of Armco's common stock 
or announces a tender or exchange offer, after which such person or group 
would beneficially 
34  Armco Annual Report
<PAGE>

own 20% or more of the common stock or if the Board of Directors declares any 
person to be an "adverse person" as defined in the plan. A total of 750,000 
shares of Class A participating preferred stock have been reserved for 
issuance upon exercise of the rights.

Armco, except as otherwise provided in the plan, will generally be able to 
redeem the rights at $0.0025 per right at any time during a ten-day period 
following public announcement that a 20% position in Armco has been acquired 
or after the effective date the Board of Directors declares any person to be 
an "adverse person." During this ten-day period, Armco may also extend the 
time during which it may redeem the rights. The rights are not exercisable 
until the expiration of the redemption period. The rights will expire on 
June 26, 2006. 

DIVIDENDS
Under the terms of the inventory credit facility (Note 4), Armco cannot pay 
cash dividends on its common stock. In addition, under the terms of indentures 
for Armco's 9-3/8% Senior Notes due 2000, Armco can pay a dividend on its 
common stock only if it meets certain financial tests described in the 
indentures. Armco does not currently satisfy these tests. The payment of 
preferred stock dividends is prohibited if Armco is in default under the 
credit facility. 

At December 31, 1997, the surplus from which Armco is permitted to pay 
dividends under Ohio law was $118.3. Under the terms of Ohio law, Armco is 
currently not permitted to purchase shares of its capital stock.

The Board of Directors at its January 1998 meeting declared the regular 
quarterly dividends payable on both series of Armco's Class A preferred stock 
and on its Class B preferred stock. 

ACCUMULATED DEFICIT AND OTHER SHAREHOLDERS' EQUITY (DEFICIT)
Activity for the years 1995, 1996 and 1997 related to Armco's accumulated 
deficit and other shareholders' equity (deficit) was as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                 Net Unrealized
                                    Accumulated     Gains on
                                      Deficit   Equity Securities  Other
---------------------------------------------------------------------------
<S>                                  <C>            <C>           <C>
Balance, December 31, 1994           $(1,390.4)     $ 31.6        $(3.0)
Net income                                29.8         --           --
Preferred stock dividends declared       (17.9)        --           --
Sale of equity securities                  --        (31.6)         --
Foreign currency translation adjustment    --          --           1.1
Amortization and cancellation of 
  deferred compensation                    --          --           2.1
Deferred compensation on restricted
  stock issued                             --          --          (2.1)
---------------------------------------------------------------------------
Balance, December 31, 1995            (1,378.5)        --          (1.9)
Net income                                32.5         --           --
Preferred stock dividends declared       (17.9)        --           --
National-Oilwell foreign currency
  translation (Note 11)                    --          --           1.4
Foreign currency translation adjustment    --          --          (0.4)
Amortization and cancellation of 
  deferred compensation                    --          --           2.0
Deferred compensation on restricted
  stock issued                             --          --          (1.2)
---------------------------------------------------------------------------
Balance, December 31, 1996            (1,363.9)        --          (0.1)
Net income                                76.8         --           --
Preferred stock dividends declared       (17.9)        --           --
Foreign currency translation adjustment    --          --          (1.4)
Amortization and cancellation of 
  deferred compensation                    --          --           1.7
Deferred compensation on restricted
  stock issued                             --          --          (2.4)
---------------------------------------------------------------------------
Balance, December 31, 1997           $(1,305.0)     $  --         $(2.2)
---------------------------------------------------------------------------
</TABLE>

---------------------------------------------------------------------------
NOTE 6 COMMON STOCK OPTIONS
---------------------------------------------------------------------------
Armco shareholders adopted a common stock option plan in 1988 and a long-term 
incentive plan in 1993. In addition, stock options may be granted under a 1996 
long-term incentive plan. These plans provide for granting options to purchase 
common stock for not less than 100% of the market price on the date the option 
is granted. The 1988 plan has expired as to new stock option grants. For 
outstanding options containing stock appreciation rights, the excess of the 
market price of the stock over the option price is accrued. The vesting period 
for stock options granted under the long-term incentive plans is two years 
from the date of grant and, although they may terminate earlier under certain 
conditions, stock options generally expire 10 years after the grant date. A 
1988 restricted stock plan and the long-term incentive plans also provide for 
issuing stock, subject to restrictions as to sale and forfeiture over a three- 
to five-year period. At December 31, 1997, 2,273,884 shares of common stock 
were available for granting of awards under these plans.

During 1995, 1996 and 1997, stock option activity was as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                           Weighted Average
1995                                              Shares     Exercise Price
---------------------------------------------------------------------------
<S>                                             <C>                <C>
Outstanding at January 1                        3,097,496          $ 8.05
Granted                                         1,019,333            6.58
Exercised                                        (347,646)           5.06
Forfeited                                         (56,566)           6.23
Expired                                          (519,100)          10.20
---------------------------------------------------------------------------
Outstanding at December 31                      3,193,517            7.58
---------------------------------------------------------------------------
Exercisable at December 31                      1,524,536            9.10
---------------------------------------------------------------------------

1996 
---------------------------------------------------------------------------
Outstanding at January 1                        3,193,517          $ 7.58
Granted                                           947,158            5.24
Exercised                                          (3,100)           4.94
Forfeited                                        (159,645)           6.15
Expired                                          (441,672)           9.38
---------------------------------------------------------------------------
Outstanding at December 31                      3,536,258            6.80
---------------------------------------------------------------------------
Exercisable at December 31                      1,741,811            7.66
---------------------------------------------------------------------------

1997 
---------------------------------------------------------------------------
Outstanding at January 1                        3,536,258          $ 6.80
Granted                                           472,201            4.13
Exercised                                         (25,500)           4.76
Forfeited                                          (8,700)           6.39
Expired                                          (464,125)          10.27
---------------------------------------------------------------------------
Outstanding at December 31                      3,510,134            6.00
---------------------------------------------------------------------------
Exercisable at December 31                      2,161,324            6.72
---------------------------------------------------------------------------
</TABLE>
The following relates to the options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Exercise Price Ranges                       $4.09 - $7.56   $10.13 - $12.06
---------------------------------------------------------------------------
<S>                                           <C>               <C>
Options outstanding:
Number of shares                              3,271,034         239,100
Weighted average exercise price                  $5.62           $11.22
Average remaining contractual life              7 years          1 year 
Options exercisable:
Number of shares                              1,922,224         239,100
Weighted average exercise price                  $6.16           $11.22 
---------------------------------------------------------------------------
</TABLE>
                                                       Armco Annual Report  35
<PAGE>

In 1996, Armco adopted SFAS No. 123, Accounting for Stock-Based Compensation. 
SFAS No. 123 provides that companies may change their method of accounting for 
stock options to a fair value method using an option pricing model. Armco uses 
the intrinsic value approach specified in Accounting Principle Board Opinion 
No. 25 in accounting for stock options and did not change from this method 
upon adoption of the new standard. Had Armco changed its accounting method, 
its net income for 1997 would have been reduced by $1.2 to $75.6, or $.54 per 
share. Net income for 1996 would have been reduced by $1.7 to $30.8, or $.12 
per share and net income for 1995 would have been reduced by $1.3 to $28.5, or 
$.10 per share. These pro forma adjustments were calculated using the Black-
Scholes option pricing model to value all stock options granted since January 
1, 1995, under the following assumptions in each year:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                     1997       1996       1995
---------------------------------------------------------------------------
      <S>                         <C>        <C>        <C>
      Risk free interest rate       6.25%       5.5%      7.75%
      Expected volatility             35%        30%        35%
      Expected life of options    5 years    5 years    5 years
      Expected dividends             none       none       none
---------------------------------------------------------------------------
</TABLE>
Based on the option pricing model, options granted during 1997, 1996 and 1995 
had fair values of $1.72, $1.90 and $2.91 per share, respectively. 

During 1997, 1996 and 1995, Armco issued to certain employees 646,013, 570,158 
and 660,762 shares of common stock, subject to restrictions, with weighted-
average grant-date fair values of $4.07, $5.69 and $6.63 per share, 
respectively. Total compensation cost recognized in income for stock-based 
employee compensation awards was $1.6 in 1997, $1.1 in 1996 and $2.2 in 1995.


---------------------------------------------------------------------------
NOTE 7 SPECIAL CHARGES
---------------------------------------------------------------------------
In 1996, Armco recognized a special charge of $5.9 to record a change in the 
estimated loss on the sale of its nonresidential construction business. In 
1993, Armco decided to exit this business, along with several other 
operations. Armco continued to operate the construction business while 
attempting to complete a sale. In 1996, Armco negotiated a sale agreement and 
the business was sold effective January 1, 1997. Based on the agreement, the 
1996 charge primarily relates to the writedown of certain assets and 
recognition of additional employee benefit liabilities.

Also in 1996, Armco recorded a $2.9 special charge primarily for the writedown 
of assets and severance costs related to its decision to discontinue a line of 
light truck equipment manufactured by Armco's snowplow and ice control 
equipment business.


---------------------------------------------------------------------------
NOTE 8 SEGMENT INFORMATION
---------------------------------------------------------------------------
The following are Armco's business segments: (1) Specialty Flat-Rolled Steels, 
consisting of plants in Butler, Pennsylvania and Coshocton, Dover, Mansfield 
and Zanesville, Ohio that produce and finish flat-rolled stainless, electrical 
and carbon steels for the automotive, industrial machinery and equipment, 
construction and service center markets and international trading companies, 
that buy and sell steel and manufactured steel products; and (2) Fabricated 
Products, consisting of operations in Sharon and Wheatland, Pennsylvania and 
Warren, Ohio that produce steel pipe and tubular products for the industrial 
machinery, construction and appliance markets, plants in Milwaukee, Wisconsin, 
Rockland, Maine and Johnson City, Tennessee, that manufacture snowplows and 
ice control equipment for light trucks, including four-wheel drive pickup 
trucks and, effective January 1, 1997, Greens Port Industrial Park, which 
leases land, buildings and rail car storage facilities and operates a deep 
water loading dock on a ship channel in Houston, Texas.

Armco's industry segment information is as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                              1997        1996        1995
---------------------------------------------------------------------------
<S>                                       <C>         <C>        <C>
Customer sales:
Specialty Flat-Rolled Steels              $1,497.0    $1,421.2    $1,277.0
Fabricated Products                          332.3       302.8       282.9
---------------------------------------------------------------------------
Total                                     $1,829.3    $1,724.0    $1,559.9
---------------------------------------------------------------------------

Operating profit: (1)
Specialty Flat-Rolled Steels              $   88.6    $   72.9    $   76.0
Fabricated Products                           41.9        22.8        22.0
Corporate general                            (25.1)      (21.0)      (29.0)
---------------------------------------------------------------------------
Total                                     $  105.4    $   74.7    $   69.0
---------------------------------------------------------------------------

Capital expenditures:
Specialty Flat-Rolled Steels              $   31.4    $   55.9    $  153.6
Fabricated Products                            8.1         3.1         5.3
Corporate general                              2.4         0.8         0.6
---------------------------------------------------------------------------
Total                                     $   41.9    $   59.8    $  159.5
---------------------------------------------------------------------------

Depreciation:
Specialty Flat-Rolled Steels              $   52.6    $   50.4    $   43.4
Fabricated Products                            7.2         6.7         7.6
Corporate general                              1.5         1.6         1.8
---------------------------------------------------------------------------
Total                                     $   61.3    $   58.7    $   52.8
---------------------------------------------------------------------------

Identifiable assets:
Specialty Flat-Rolled Steels              $1,038.3    $1,052.1    $1,034.8
Fabricated Products                          179.1       163.2       173.0
Corporate general (2)                        578.3       566.9       517.7
Discontinued operations                       85.6        85.6       171.1
---------------------------------------------------------------------------
Total                                     $1,881.3    $1,867.8    $1,896.6
---------------------------------------------------------------------------
<FN>
(1) In 1996, operating profit for the Fabricated Products segment includes 
special charges totaling $8.8 (See Note 7).

(2) Corporate general identifiable assets at December 31, 1997 includes $187.0 
of cash and cash equivalents and net deferred tax assets of $328.5 (See Note 
3). 
</TABLE>
36  Armco Annual Report
<PAGE>

---------------------------------------------------------------------------
NOTE 9 LITIGATION AND ENVIRONMENTAL MATTERS
---------------------------------------------------------------------------
Armco and its subsidiaries are involved in various pending claims regarding 
product liability, patent, employee benefits, environmental matters, 
reinsurance and insurance arrangements, and other matters arising out of the 
conduct of Armco's business. The actual liability for legal claims against 
Armco at December 31, 1997 cannot be determined; but in Armco's opinion, based 
on current facts and circumstances, the ultimate liability resulting from such 
claims will not materially affect its consolidated financial position or 
liquidity. 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 the results of operations in future interim or annual 
periods. 

Like other manufacturers, Armco is subject to various environmental laws. 
These laws necessitate expenditures to meet environmental compliance 
requirements at Armco's facilities and to remediate sites where contamination 
has occurred. Compliance costs are either expensed as they are incurred or, 
when appropriate, are recorded as capital expenditures. Environmental exit 
costs are accrued when a decision is made to dispose of a property or a sale 
is recorded.

Armco is a defendant or a potentially responsible party in proceedings 
alleging liability for remediation, property damage or personal injury related 
to certain past waste disposal sites. Armco has also received claims for 
indemnification for some properties it has previously owned or leased. In most 
cases involving past waste disposal sites, Armco is one of many potentially 
responsible parties. In these cases, joint and several liability could be 
imposed on Armco or other parties; thus, theoretically, one party could be 
held liable for all costs related to a site. However, based on its experience 
and a review of current claims, Armco believes that any ultimate liability 
will be apportioned among Armco and other financially viable parties. Armco 
accrues its estimate of remediation and other costs for sites where it is 
probable that a liability has been incurred and the amount can be reasonably 
estimated.

In establishing reserves, Armco assesses the range of reasonably estimated 
outcomes and determines the most likely outcome for its liabilities within the 
range. Costs are estimated based on 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). These liabilities are not discounted. The cost estimates are 
reviewed quarterly to assess changed conditions, including current 
interpretation of environmental laws and regulations. Adjustments are made if 
changed conditions have a significant effect on cost estimates. Reserves have 
not been adjusted for expected recoveries from insurers or other parties. 

The recorded amounts are currently believed by management to be sufficient. 
However, such estimates could significantly change in future periods to 
reflect new laws or regulations, advances in technologies, additional sites 
requiring remediation, new requirements at existing sites and Armco's share of 
liability at multi-party sites. It is not possible to determine whether 
additional loss, due to such changed circumstances, will occur or to 
reasonably estimate the amount or range of any potential additional loss.

At December 31, 1997, Armco had recorded on its Consolidated Balance Sheets, 
$18.8 in Other current liabilities and $53.6 in Other long-term liabilities 
for estimated probable costs relating to legal and environmental matters.


---------------------------------------------------------------------------
NOTE 10 OTHER INVESTMENTS
---------------------------------------------------------------------------
In 1995, Armco sold the 1,023,987 shares of AK Steel Holding Corporation 
common stock it had received as a result of an initial public offering and 
recapitalization of its former joint venture, Armco Steel Company, LP. The 
stock was sold for a total of $27.2 and Armco recognized a gain of the same 
amount. 

Under a toll-rolling agreement that is in effect through the year 2002, AK 
Steel hot rolls stainless steel for Armco. 


---------------------------------------------------------------------------
NOTE 11 DISCONTINUED OPERATIONS 
---------------------------------------------------------------------------
AEROSPACE AND STRATEGIC MATERIALS
Oregon Metallurgical Corporation (Oremet), formerly 80% owned by Armco, was 
part of the Aerospace and Strategic Materials business segment that Armco sold 
in 1985. Prior to the sale, Armco filed a suit on behalf of Oremet in the U.S. 
Claims Court, claiming refunds and interest on federal and state taxes. 
Pursuant to the sales agreement, Armco retained the benefit of its share of 
any proceeds of this action, net of taxes imposed on Oremet and the buyer. In 
1996, Armco and Oremet reached agreement with the Internal Revenue Service 
that a previous refund of taxes and interest should not itself have been 
taxable to Oremet, further increasing the net proceeds, which resulted in 
Armco recording an additional $6.5 gain on the sale. In 1997, Armco received 
an additional $2.7 in state and federal tax refunds.

NATIONAL-OILWELL
National-Oilwell was a joint venture equally owned by subsidiaries of Armco 
and USX Corporation. Armco and USX reached a definitive agreement, dated 
September 22, 1995, to sell their respective partnership interests in 
National-Oilwell. The sale was completed on January 16, 1996. Armco recognized 
equity income from National-Oilwell until September 22, 1995, when the 
definitive agreement was signed. After that date, Armco's investment in 
National-Oilwell equaled its estimated net realizable value and no additional 
equity income or gain or loss was recorded on the sale. The results of 
National-Oilwell are reported as discontinued operations in the Consolidated 
Statements of Income. 
                                                       Armco Annual Report  37
<PAGE>
ARMCO FINANCIAL SERVICES GROUP (AFSG)
AFSG consists of insurance companies that have stopped writing new business 
and are being liquidated. These companies are accounted for as discontinued 
operations under the liquidation basis of accounting, whereby all future cash 
inflows and outflows are considered. Armco believes, based on current facts 
and circumstances, including the opinion of outside actuaries, that future 
changes in estimates of net losses relating to the ultimate liquidation of 
AFSG will not be material to Armco's financial position or liquidity. The 
following sets forth AFSG's summarized financial information at December 31, 
1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
<S>                                                    <C>
Assets:
Invested assets                                        $174.9
Reinsurance recoverable                                  96.9
Other                                                    19.4
---------------------------------------------------------------------------
Total assets                                            291.2
---------------------------------------------------------------------------
Liabilities:
Losses and loss reserves (net of future investment 
  income of $37.3)                                      185.0
Other                                                    20.6
---------------------------------------------------------------------------
Total liabilities                                       205.6
---------------------------------------------------------------------------
Net assets                                             $ 85.6
---------------------------------------------------------------------------
</TABLE>
At December 31, 1997, AFSG's invested assets included $10.0 each of Armco's 9% 
Senior Notes due 2007 and 9-3/8% Senior Notes due 2000 (Note 4).

Currently, insurance regulators having supervisory authority over the AFSG 
companies retain substantial control over certain transactions, including the 
payment of dividends to Armco. 

In March 1997, a group of international insurance companies, previously 
affiliated with AFSG and sold in 1991, filed an application for voluntary 
liquidation in the United Kingdom. Northwestern National Insurance Company, 
one of the AFSG runoff companies, is currently investigating its exposure with 
respect to transactions entered into with these companies. Armco believes that 
its investment in AFSG will not be materially affected as a result of pending 
claims or contingent liabilities related to this matter.

There are various pending matters relating to litigation, arbitration and 
regulatory affairs, including the above mentioned voluntary liquidation. The 
ultimate liability from such matters at December 31, 1997 cannot be determined 
but, in Armco's opinion, based on current facts and circumstances and the 
views of outside counsel and advisors, any liability resulting will not 
materially affect Armco's financial position or liquidity. However, it is 
possible that due to fluctuations in Armco's results, future developments with 
respect to changes in the ultimate liability could have a material effect on 
future interim or annual results of operations.


---------------------------------------------------------------------------
NOTE 12 QUARTERLY INFORMATION (UNAUDITED)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                           4th      3rd      2nd      1st
1997                             Year      Qtr.     Qtr.     Qtr.     Qtr.
---------------------------------------------------------------------------
<S>                         <C>          <C>      <C>      <C>      <C>
Net sales                   $ 1,829.3    $ 436.4  $ 461.3  $ 490.3  $ 441.3
Cost of products sold        (1,623.9)    (387.4)  (402.9)  (436.1)  (397.5)
Income from discontinued
  operation (1)                   2.7        1.4      --       1.3      --
Income before 
  extraordinary loss             79.8       19.2     29.7     21.5      9.4
Extraordinary loss (2)           (3.0)       --      (3.0)     --       --
Net income                       76.8       19.2     26.7     21.5      9.4

Basic earnings per share:
  Income from discontinued
    operation                    0.03       0.01      --      0.01      --
  Income before 
    extraordinary loss           0.58       0.14     0.24     0.16     0.05
  Extraordinary loss            (0.03)       --     (0.03)     --       --
  Net income                     0.55       0.14     0.21     0.16     0.05

Diluted earnings per share:
  Income from discontinued
    operation                    0.03       0.01      --      0.01      --
  Income before 
    extraordinary loss           0.58       0.14     0.22     0.16     0.05
  Extraordinary loss            (0.03)       --     (0.02)     --       --
  Net income                     0.55       0.14     0.20     0.16     0.05


1996
---------------------------------------------------------------------------
Net sales                   $ 1,724.0    $ 413.6  $ 429.2  $ 450.8  $ 430.4
Cost of products sold        (1,548.4)    (360.0)  (382.8)  (414.3)  (391.3)
Special charges (3)              (8.8)      (8.8)     --       --       --
Income from discontinued
  operation (1)                   6.5        --       6.5      --       --
Net income (loss)                32.5       13.2     16.4     (4.0)     6.9

Basic earnings per share:
  Income from discontinued 
    operation                    0.06        --      0.06      --       --
  Net income (loss)              0.14       0.08     0.11    (0.08)    0.02

Diluted earnings per share:
  Income from discontinued 
    operation                    0.06        --      0.06      --       --
  Net income (loss)              0.14       0.08     0.11    (0.08)    0.02
---------------------------------------------------------------------------
<FN>
(1) See Note 11.
(2) See Note 4.
(3) See Note 7. 
</TABLE>
38  Armco Annual Report
<PAGE>
<TABLE>
PRICE RANGE AND DIVIDENDS OF ARMCO STOCK (UNAUDITED)
<CAPTION>
                               1997                                1996
---------------------------------------------------------------------------------------
                  4th      3rd      2nd      1st      4th      3rd      2nd      1st 
                  Qtr.     Qtr.     Qtr.     Qtr.     Qtr.     Qtr.     Qtr.     Qtr.
---------------------------------------------------------------------------------------
<S>             <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Common Stock:
Price per share:
   High        $ 6 3/16 $ 6 3/8  $ 4 1/8  $ 4 7/8  $ 4 5/8  $ 5 1/8  $ 6      $ 6 1/2
   Low           4 1/2    3 13/16  3 3/8    3 3/8    3 5/8    4 1/8    4 3/4    5 1/4

PREFERRED STOCK
  CLASS A $2.10:
Quarterly dividend
  per share: $.525
Price per share:
   High         26 3/16  26       23 7/8   24       24       23 5/8   24 1/4   24 1/2
   Low          24 1/4   23 1/2   21 1/4   21       22 1/8   22       22 3/4   23 1/2

PREFERRED STOCK
  CLASS A $3.625:
Quarterly dividend
  per share: $.90625
Price per share:
   High         51 3/4   52 1/8   42 7/8   43 1/4   45 1/4   47 3/8   51 1/4   52
   Low          46 3/8   42 7/8   41 1/4   39       42 3/8   44 1/4   47       49 5/8

PREFERRED STOCK
  CLASS B $4.50:
Quarterly dividend
  per share: $1.125
Price per share:
   High         51 3/16  51 3/4   49       49 1/2   47 1/2   47 5/8   49 3/4   49 3/8
   Low          49 5/8   48 9/16  47       46 1/4   45 3/8   45 3/4   46 3/4   47 1/2 
--------------------------------------------------------------------------------------
</TABLE>
                                                    Armco Annual Report 39