ARMCO INC, 10-K, 1994-03-31

ARMCO INC
10-K, 1994-03-31
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
-----------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _________________

Commission file number 1-873-2
-------

Armco Inc.
----------
(Exact name of registrant as specified in its charter)

Ohio 31-0200500
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

One Oxford Centre, 301 Grant Street,
Pittsburgh, Pennsylvania 15219-1415
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------

Class A Preferred Stock, without par value New York Stock Exchange
Class B Preferred Stock, $1 par value each New York Stock Exchange
Common Stock, $.01 par value each New York Stock Exchange
Rights to Purchase Participating Preferred
Stock of Class A Preferred Stock New York Stock Exchange
Sinking Fund Debentures: New York Stock Exchange
8.70%, due 1995
9.20%, due 2000
8.50%, due 2001
11.375% Notes, due 1999 New York Stock Exchange

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((Section) 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of voting stock held by nonaffiliates of Armco
Inc. (assuming solely for purposes of this Form, that all members of
registrant's Board of Directors are "affiliates") was approximately $778,557,626
as of February 28, 1994.

As of the close of business on February 28, 1994, there were 104,103,174
shares of Common Stock outstanding. Documents incorporated by reference herein
include:

Annual Report to Shareholders for the year ended December 31, 1993 --
Parts I, II, and IV of this report.

Proxy Statement for the 1994 Annual Meeting of Shareholders filed with
the Commission under Rule 14a-6 of the Securities Exchange Act of 1934 in
connection with the Company's 1994 Annual Meeting of Shareholders -- Part III of
this report.
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PART I

ITEM 1. BUSINESS

General

Armco Inc. ("Armco" or the "Company") was incorporated as an Ohio
corporation in 1917 as a successor to a New Jersey corporation incorporated in
1899. Armco is the second largest domestic producer of stainless flat-rolled
steels and is the largest domestic producer of electrical steels in terms of
sales revenues. The Company also produces carbon steels and steel products and
tubular steel goods. The Company is a partner in Armco Steel Company, L.P.
("ASC"), a 50%-owned joint venture with Kawasaki Steel Corporation ("Kawasaki")
that produces primarily high-strength, low-carbon flat-rolled steel products.
Armco is also a partner in North American Stainless ("NAS"), a 50%-owned joint
venture with Acerinox S.A. that finishes chrome nickel flat-rolled stainless
steel. The Company owns a 50% partnership interest in National-Oilwell, a
distributor of oil country tubular goods and a manufacturer of drilling,
production and other oil and gas equipment that operates a network of oil field
supply stores throughout North America. Armco also provides insurance services
through businesses it intends to sell or liquidate.

As part of its strategy to focus on Specialty Flat-Rolled Steel, Armco
has continued to evaluate the growth potential and profitability of its
businesses and investments, and to rationalize or divest those that do not
represent a strategic fit or offer growth potential or positive cash flow. In
1992 and 1993, Armco divested or otherwise rationalized several unprofitable or
non-strategic operations.

In September 1993, Armco sold its joint venture interest in several
wire-drawing operations in its Worldwide Grinding Systems segment, and in
November 1993, Armco sold the balance of its Worldwide Grinding Systems
business. Also in September 1993, Armco sold Armco do Brasil S.A., its
Brazilian sheet and strip business, and made a decision to dispose of several
other businesses in its Other Steel and Fabricated Products segment, including
Miami Industries (which was sold in October 1993), its Tex-Tube Division, its
conversion services businesses and Flour City Architectural Metals.

On January 28, 1994, Armco signed a letter of intent to sell its ongoing
insurance operations to Vik Brothers Insurance, Inc., a privately owned property
and casualty insurance holding company. Under the terms of the letter of intent,
approximately $70 million would be received at closing and approximately $15
million would be received in three years, the latter payment being subject to a
reserve analysis and potential adjustment at that time. As a result of
restructuring certain obligations arising from the 1992 merger plan for the
runoff companies, the proceeds from the sale have been pledged as security for
certain note obligations due to the runoff insurance companies and will be
retained in the investment portfolio of the Armco Financial Services Group
runoff companies. The transaction is subject to a number of conditions,
including a definitive purchase agreement, approval by regulatory authorities
and approval of the boards of directors of Armco and the purchaser.

In connection with the foregoing actions, Armco recorded in 1993 charges
totaling $250.5 million, which included special charges of $165.5 million
reflected in operating losses, and an $85.0 million charge reflected as loss on
disposal of discontinued operations, which included a $45.0 million charge for
expenses and losses in connection with the proposed sale of the ongoing
insurance companies and $40.0 million in connection with the sale of the
Worldwide Grindings Systems segment.

The previously reported initial public offerings of equity and debt,
through which ASC would implement its plan to restructure and recapitalize
itself, commenced on March 30, 1994, with the underwritten public offerings by
the corporate successor to ASC of approximately 17.6 million shares of common
stock, at $23.50 per share, and $325 million of senior notes. The sales of the
securities and the restructure and recapitalization are scheduled to be
completed on April 7, 1994. Under the terms of the plan, the proceeds from the
offerings will be used by ASC primarily to reduce its debt and unfunded pension
liability, Armco's obligations to make certain cash payments to ASC will be
eliminated and Armco will receive approximately 1 million shares, or
approximately 4.2%, of the successor corporation's common stock.

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Business Segments

Following the sale in the fourth quarter of 1993 of the business of
Armco's former Worldwide Grinding Systems segment, Armco will report its
businesses in two segments -- Specialty Flat-Rolled Steel and Other Steel and
Fabricated Products.

The information on the amounts of revenue, operating results and
identifiable assets attributable to each of Armco's business segments set out
in Note 9 of the Notes to Financial Statements in Armco's Annual Report to
Shareholders for the year ended December 31, 1993, is incorporated by reference
herein.

Additional information about Armco's business segments and equity
investments is set forth in Management's Discussion and Analysis in Armco's
Annual Report to Shareholders for the year ended December 31, 1993, which is
incorporated by reference herein.

Specialty Flat-Rolled Steel

Armco's Specialty Flat-Rolled Steel businesses produce and finish
stainless and electrical steel sheet and strip and stainless plate. The
Specialty Flat-Rolled Steel group is headquartered in Butler, Pennsylvania,
with its principal manufacturing plants in Butler and Zanesville, Ohio, where
Armco produces flat-rolled stainless and electrical steel sheet and strip
products, and in Coshocton, Ohio, where Armco finishes premium quality
flat-rolled stainless steel in strip and sheet form. The segment also
includes Eastern Stainless Corporation ("Eastern"), an 84%-owned subsidiary
located in Baltimore, Maryland, which is a leading domestic producer of
stainless steel plate as well as the results of European trading companies
that buy and sell steel and manufactured steel products. Armco has a 50%
interest in NAS, located in Carrollton, Kentucky, which began customer
shipments in mid-1993 and can finish flat-rolled stainless steel in widths up
to 60 inches. The NAS interest is accounted for as an equity investment.

The specialty steel industry is a relatively small but distinct segment
of the overall steel industry that represented approximately 2% of domestic
steel tonnage but accounted for approximately 17% of domestic steel revenues
in 1993. Specialty steels refer to alloy tool steel, electrical steel and
stainless sheet, strip, plate, bar, rod and wire products. Specialty steels
differ from basic carbon steel by their metallurgical composition. They are
made with a high alloy content, which enables their use in environments that
demand exceptional hardness, toughness, strength and resistance to heat,
corrosion or abrasion or combinations thereof. Unlike high-volume carbon
steel, specialty steel is generally produced in relatively small quantities
utilizing special processing techniques designed to meet more exacting
specifications and tolerances.

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

Since 1975, usage of stainless steel in the United States has more than
doubled. Armco expects that the demand for stainless steel will continue to
be positively affected by increasing use in the manufacture of consumer
durable goods and industrial applications. Per capita stainless steel usage in
many highly developed countries significantly exceeds usage per capita in the
United States and Armco believes that this is an indication of the growth
potential of demand for stainless steel in the United States. In addition,
the 1990 amendments to the Clean Air Act have resulted in the

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

Armco produces flat-rolled stainless steel and alloy electrical steel
sheet and strip products that are used in a diverse range of consumer durables
and industrial applications. Since the acquisition of Cyclops, approximately
70% of Armco's sales of Specialty Flat-Rolled Steel has been stainless steel
and 30% has been electrical steel. Major markets served are industrial
machinery and electrical equipment, automotive, construction and service
centers.

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

Other Armco stainless products include functional stainless steel
manufactured for automotive, agricultural, heating, air conditioning and other
manufacturing uses and Eastern's stainless steel plate, principally in flat
plate form, for use in industrial applications where high resistance to heat,
stress or corrosion is required. Typical users of stainless steel plate
include the chemical processing, pulp and paper, food and beverage, waste
treatment, environmental control and textile industries for applications such
as tanks, piping and tubing, flue gas scrubbers and heat exchangers. Eastern
is also the only domestic producer of diamond-patterned stainless floor plate
that is used primarily in decking for ships and chemical plant construction.

Armco is the only United States manufacturer of a complete line of
flat-rolled electrical steel sheet and strip products and is the sole domestic
producer of certain high permeability oriented electrical steels. It is also
the only domestic manufacturer utilizing laser scribing technology. In this
process, the surface of electrical steel is etched with high-technology lasers
which refine the magnetic domains of the steel resulting in superior
electrical efficiency. Major electrical product categories are: Regular
Grain Oriented ("RGO"), used in the cores of energy-efficient power and
distribution transformers; Cold Rolled Non-Oriented ("CRNO"), used for
electrical motors and lighting ballasts; and TRAN COR(R)H, which is used in
power transformers and is the only high permeability electrical steel made
domestically. In 1993, Armco exported approximately 18.7% of its RGO product
to Mexico, South America and other international markets.

Armco had trade orders in hand for its Specialty Flat-Rolled Steel
segment of $154.8 million at December 31, 1993, and $132.7 million at December
31, 1992. The backlog increased in 1993 due to stronger demand and an
improving economy. While substantially all of the orders in hand at year-end
1993 are expected to be shipped in 1994, such orders, as is customary in the
industry, are subject to modification, extension and cancellation.

Armco's specialty steelmaking operations are concentrated in the four
contiguous states of Pennsylvania, Ohio, Kentucky and Maryland, which permits
cost-efficient materials flow between plants. Armco's Butler, Pennsylvania
facility, which is situated on 1,300 acres with 3.2 million square feet of
buildings, continuously casts 100% of its steel. At Butler, melting takes
place in three 165-ton electric arc furnaces that feed the world's largest
(175-ton) argon-oxygen decarburization unit for refining molten metal that, in
turn, feeds two double strand continuous casters. The melt capacity at

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Butler was approximately 850,000 tons by year-end 1993. Butler also operates a
hot-strip mill, anneal and pickle units and a fully-automated tandem
cold-rolling mill. It also has various intermediate and finishing operations
for both stainless and electrical steels.

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

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

Armco's joint venture, NAS, which began customer shipments in mid-1993,
is a state-of-the-art stainless steel finishing facility in Carrollton,
Kentucky. NAS produces high volume grades of flat-rolled chrome nickel
stainless in coils up to 30 tons and in widths up to 60 inches, a product that
offers cost and handling savings to customers. The new plant is highly
automated, featuring anneal and pickle lines, a Sendzimer cold-rolling mill,
and other related equipment using world-class technology.

Since Eastern discontinued its melt operations on July 22, 1993,
Eastern's operations consist primarily of a hot plate rolling mill and
finishing facility in Baltimore, Maryland, with its slab requirements largely
being supplied by Armco's Butler facility.

Other Steel and Fabricated Products

The Other Steel and Fabricated Products segment includes steelmaking,
fabricating and processing plants in Pennsylvania and Ohio; a nonresidential
construction company; a steel tubing company; and a snowplow manufacturer.
The businesses in this segment currently include:

-- Carbon steel operations at Mansfield, Ohio, which produce
commodity grades of carbon steel sheet, much of which is coated at a dedicated
galvanizing facility at Dover, Ohio. Under a plan to spend approximately $100
million at Mansfield to enhance its steel production capability and improve the
operating performance of both the Mansfield and Dover, Ohio operations, Armco
has begun installing a thin-slab caster and related plant modifications at
Mansfield. Installation is expected to be completed in 1995. The caster is
designed to produce carbon steels, functional grades of chrome stainless steels
and nonoriented grades of electrical steels. The Mansfield plant currently
consists of a 1.4 million square-foot facility, with a melt shop with two
electric arc furnaces (170-ton and 100-ton), a 100-ton argon-oxygen
decarburization unit, a six-stand hot strip mill, a five-stand tandem cold
rolling mill and a newly retrofitted Z-mill for chrome stainless finishing.
On March 28, 1994, Armco announced its intention to idle the production
facilities at its Empire-Detroit carbon steel plant in Mansfield, Ohio and the
Dover, Ohio galvanizing plant. The plants are expected to remain idle until the
previously announced construction of a $100 million thin-slab caster is
completed, which is scheduled for mid-1995. Armco expects to recognize a
special charge of up to $20 million in the first quarter of 1994 for the cost
of benefits to employees on layoff and other costs of idling the facilities,
as well as costs associated with planned permanent work force reductions.

-- Douglas Dynamics, which is the largest North American
manufacturer of snowplows for four-wheel drive pick-up trucks and utility
vehicles. Douglas Dynamics is headquartered in Milwaukee, Wisconsin, has
snowplow manufacturing plants in Rockland, Maine and Milwaukee, Wisconsin and
sells its snowplows through independent distributors throughout the United
States and Canada.

-- Sawhill Tubular, which produces steel pipe and tubing, electric
welded and mandrel-drawn steel tubing and electric-resistance welded steel
pipe at its plant in Pennsylvania.

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During 1993, Armco divested or decided to dispose of various businesses
previously in this segment:

-- Armco sold Miami Industries, a steel tubing company, in October
1993, and has also decided to dispose of Tex-Tube, another steel tubing
business. As of September 30, 1993, results for both Miami Industries and
Tex-Tube are no longer reported as part of the Other Steel and Fabricated
Products segment.

-- Flour City Architectural Metals, headquartered in Glen Cove,
New York, which designs, fabricates and installs custom curtain wall systems
in nonresidential commercial and institutional construction. In February
1993, Armco sold part of its nonresidential construction business. As of
September 30, 1993, Armco decided to dispose of the remainder of this business
and no longer reports the results of its nonresidential construction
businesses as part of the Other Steel and Fabricated Products segment.

-- Conversion services (remelting, forging, blooming, anneal and
pickling and heat treating) provided in plants in Baltimore, Maryland and
Bridgeville, Pennsylvania. As of September 30, 1993, Armco decided to dispose
of these businesses and no longer reports their results as part of the Other
Steel and Fabricated Products segment.

This segment also included the business of Armco do Brasil S.A., a
fabricating and processing plant in Brazil that processed semi-finished steel.
Armco sold this business in September 1993.

Armco had trade orders in hand for its Other Steel and Fabricated
Products segment of $73.0 million at December 31, 1993. The segment's backlog
decreased in 1993 primarily as a result of the 1993 sale or planned
divestiture of a number of businesses. While substantially all of the orders
in hand at year-end 1993 are expected to be shipped in 1994, such orders, as
is customary in these industries, are subject to modification, extension and
cancellation.

Employees

At December 31, 1993, Armco had approximately 6,600 employees in its
continuing operations and approximately 2,300 employees in its insurance and
discontinued operations. Most of Armco's domestic production and maintenance
employees are represented by international, national or independent local
unions, although some operations are not unionized.

Eastern recently completed two-year agreements with the United
Steelworkers of America ("USWA"), the union that represents employees at the
Eastern plant in Baltimore, Maryland. Armco also recently completed 36-month
and 33-month agreements, respectively, with the local unions at the specialty
steel plants in Butler, Pennsylvania and Zanesville, Ohio. In late June, the
USWA employees at Armco's Mansfield and Dover, Ohio plants ratified new
six-year contracts, which became effective September 1, 1993.

Competition

Armco's steel products are subject to wide variations in demand because
of changes in business conditions. Armco faces intense competition within the
domestic steel industry, from foreign steel producers, from manufacturers of
products other than steel, including aluminum, ceramics, plastics and glass,
and from foreign producers of steel components and products that typically have
lower labor costs. In addition, many foreign steel producers are owned,
controlled or subsidized by their governments and their decisions with respect
to production and sales may be influenced more by political and economic
policy considerations than by prevailing market conditions. Some foreign
producers of steel and products made of steel have continued to ship into the
United States market despite decreasing profit margins or losses. If certain
pending trade proceedings ultimately do not provide relief from unfairly
traded imports, if other relevant U.S. trade

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laws are weakened, if world demand for steel declines or if the U.S. dollars
strengthens, an increase in the market share of imports may occur and the
pricing of the Company's products could be adversely affected. Competition is
based primarily on price, with factors such as reliability of supply, service
and quality also being important in certain segments.

In addition to the other integrated steel producers, competition is
presented by the so-called "mini-mills," which generally have smaller,
non-unionized work-forces and are free of many of the employer, environmental
and other obligations that traditionally have burdened integrated steel
producers. Mini-mills also derive certain competitive advantages by utilizing
less capital intensive sources of steel production. At least one of these
mini-mills is already producing flat-rolled carbon steel products while others
have considered doing the same. In future years, mini-mills may provide
increased competition in the higher quality, value added product lines now
dominated by the integrated carbon steel producers and stainless steel
producers.

Import penetration for stainless sheet and strip in 1993 and 1992 was
25.2% and 17.8%, respectively, and for stainless plate was 16.0% and 14.5%,
respectively. Import penetration of electrical steel was 22.7% and 17.5%,
respectively, during such periods. Voluntary steel import restraint
agreements ("VRAs"), intended to achieve certain disciplines over
market-distortive trade practices in the carbon and specialty steel
industries, expired on March 31, 1992. With the expiration of the VRAs, Armco
is unable to predict the level of future steel imports. Existing trade laws or
current regulations may not be adequate to prevent unfair trading practices
and imports may pose increasingly serious problems for the domestic specialty
steel industry. This is particularly so if United States trade laws are
weakened in the ongoing General Agreement on Tariffs and Trade Uruguay Round or
the Multilateral Steel Agreement trade negotiations. At this time, it cannot
be predicted with any degree of certainty what the outcome of such
negotiations will be. Armco's carbon steel operations at Mansfield, Ohio,
may also be adversely affected by the outcome of recent International Trade
Commission ("ITC") and United States Department of Commerce ("Commerce
Department") rulings on trade cases. On June 30, 1992, the major carbon
steelmakers filed 84 trade cases against foreign producers of carbon steel
from 21 countries charging them with selling steel below their home market
prices and receiving unfair trade subsidies that are illegal under United
States trade laws. On August 21, 1992, the ITC made affirmative preliminary
determinations in 72 of the cases (affecting 95% of the volume of imports
alleged to have been unfairly traded), finding that there was a reasonable
indication that the domestic steel industry had been materially injured or was
threatened with material injury by the imports in question. On June 22, 1993,
the Commerce Department reached a final determination that foreign producers
from 12 countries had unfairly benefited from government subsidies and that
certain steel producers from 19 countries had unlawfully dumped steel and
steel products in the U.S. market. On July 27, 1993, the ITC ruled that
foreign producers had not caused injury to the domestic producers of
hot-rolled carbon steel, although about one-third of the claims were upheld
against foreign cold-rolled producers, and generally all claims against
foreign coated carbon steel producers were upheld. This ruling was generally
unfavorable for the domestic carbon steel industry, since it partially reversed
previously assessed duties on foreign producers. It is too early to assess the
effect, if any, that the rulings will have upon future pricing and demand for
domestically produced products. The rulings, however, were generally
favorable for coated carbon steel products, one of Mansfield's major product
lines. Anti-dumping and countervailing duties might be imposed against those
imports for which the ITC made a final affirmative injury determination.
These duties are designed to offset "dumping" and the advantages of foreign
subsidies and create a "level playing field" for domestic producers in the U.S.
market. The Company and other U.S. steel producers have appealed certain of
the ITC's determinations to the United States Court of International Trade,
and foreign steel producers have appealed certain other of the ITC's
determinations, as well as certain of the Commerce Department's determinations.

During 1993, steel imports increased to 19.5 million tons, versus 17.1
million tons in 1992, an increase of 14.2%. In 1993, imports accounted for
18.8% of U.S apparent steel supply, versus 18.0% in 1992.

Armco, Allegheny Ludlum Corporation, the USWA and the independent
unions at Armco's plants in Butler, Pennsylvania and Zanesville, Ohio have
filed a petition requesting that the U.S.

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government impose both antidumping and countervailing duties on imports of
grain-oriented electrical steel from Italy. In addition, Allegheny Ludlum
Corporation and the USWA petitioned the U.S. government to assess antidumping
duties on imports of grain-oriented electrical steel from Japan. In October
1993, the ITC issued a preliminary determination of material injury due to
subsidized and dumped grain-oriented electrical steel from Italy and dumped
grain-oriented electrical steel from Japan. The Commerce Department announced
on January 25, 1994, a preliminary CVD (subsidy) margin of 23.14% against
Italy. On February 3, 1994, the Commerce Department announced preliminary
anti-dumping margins of 5.62% against Italy and 31.08% against Japan. A final
ruling by the ITC is anticipated in June of 1994.

Specialty steel (stainless sheet and strip, plate, bar, rod and wire,
and electrical steels) imports accounted for approximately 26.5% of the
domestic market in 1993, 20.8% in 1992, and 18.1% in 1991.

Raw Materials and Energy Sources

Raw material prices represent a major component of per ton production
costs in the specialty steel industry. The principal raw materials used by
Armco in the production of specialty steels are iron and steel scrap, chrome
and nickel and their ferroalloys, stainless steel scrap, silicon and zinc.
These materials are purchased in the open market from various outside sources.
Since much of this purchased raw material is not covered by long-term
contracts, availability and price are subject to world market conditions.
Chrome and nickel and certain other materials in mined alloy form can be
acquired only from foreign sources, many of them located in developing
countries that may be subject to unstable political and economic conditions
that might disrupt supplies or affect the price of these materials. A
significant portion of the chrome and nickel requirements, however, is obtained
from stainless steel scrap rather than mined alloys. While certain raw
materials have been in short supply from time to time, Armco currently is not
experiencing and does not anticipate any problems obtaining appropriate
materials in amounts sufficient to meet its production needs. Armco also uses
large amounts of electricity and natural gas in the manufacture of its
products. It is expected that such energy sources will continue to be
reasonably available in the foreseeable future. Compliance with amendments to
the Clean Air Act, enacted in November 1990, may increase the operating costs
of the utilities providing services to Armco's facilities, and in turn may
result in increased costs to Armco for utility services.

Environmental Matters

Armco, in common with other United States manufacturers, is subject to
various federal, state and local requirements for environmental controls
relating to its operations. Armco has spent substantial amounts in recent
years to control air and water pollution to achieve and maintain compliance
with applicable environmental requirements. Armco also has spent and will
continue to spend substantial amounts for proper waste disposal and for the
investigation and cleanup of properties that require remediation as a result
of past waste disposal. Statutory and regulatory requirements in this area
are continuing to evolve and, accordingly, it is not possible to predict with
certainty the type and magnitude of expenditures that will be required in the
future. However, Armco has estimated aggregate expenditures of approximately
$30.0 million during the three-year period 1993-1995, of which approximately
$20.0 million is related to control of air pollution as required by amendments
to the Clean Air Act (enacted in November 1990), corresponding state laws and
implementing regulations (which amount does not include approximately $7.0
million in estimated capital expenditures related to Armco Worldwide Grindings
Systems segment, the business of which was sold in 1993) for capital projects
for pollution control in all its domestic and international operations, with
the largest expenditures being made in the Specialty Flat-Rolled Steel
segment. This projection has been prepared internally and without independent
engineering or other assistance and reflects Armco's current analysis of
probable required capital projects for pollution control. Expenditures
associated with remediation matters for which Armco is one of a number of
potentially responsible parties are generally not included. In addition to
the direct impact on Armco, the Clean Air Act amendments are expected to
increase the operating cost of electrical utilities which rely on

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fossil fuels and this, in turn, could result in increased costs for utility
services of which certain operations of Armco are significant customers.
Armco's capital expenditures for pollution control projects amounted to
approximately $4.1 million in 1993. During the period 1982 through 1992,
Armco's capital expenditures for pollution control projects amounted to
approximately $72.6 million (which amounts do not include such expenditures
related to Armco Worldwide Grinding Systems segment, the business of which has
been reclassified as a discontinued operation).

Armco also is a party to a number of administrative proceedings and
negotiations with environmental regulatory authorities. Armco believes that
the ultimate liability from environmental-related liabilities will not
materially affect the consolidated financial position or liquidity of Armco;
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 future operations or liquidity in interim or annual periods.

Under the federal Comprehensive Environmental Response, Compensation
and Liability Act, certain analogous state laws, and the federal Resource
Conservation and Recovery Act, past disposal of wastes, whether on-site or at
other locations, may result in the imposition of cleanup obligations by
federal or state regulatory authorities or other potentially responsible
parties, even when the wastes were disposed of in accordance with applicable
laws and requirements in existence at the time of the disposal. The federal
government has asserted that joint and several liability applies to hazardous
waste litigation and courts have held that, absent proof that damages are
allocable or subject to allocation, joint and several liability will be
applied. Armco has been named as a defendant, or identified as a potentially
responsible party, in various proceedings wherein the state or federal
government or another potentially responsible party seeks reimbursement for or
to compel clean-up of hazardous waste sites. Armco has been required to
perform or fund such cleanup or participate in cleanup with others at a number
of sites at which its facilities or facilities formerly owned by Armco
disposed of wastes in the past and may, from time to time, be required to
remediate or join with others in the remediation of other locations as these
sites are identified by federal and state authorities. Armco and its
subsidiaries are also parties to some lawsuits with respect to alleged
property damage and personal injury from waste disposal sites. In addition,
environmental exit costs with respect to Armco's ongoing businesses (which
costs it is Armco's policy not to accrue until a decision is made to dispose
of a property) may be incurred if Armco makes a decision to dispose of
additional properties. These costs include remediation and closure costs of
clean-up such as for soil contamination, closure of waste treatment facilities
and monitoring commitments. While Armco believes that the ultimate liability
for the environmental remediation matters identified to date, including the
clean-up, closure and monitoring of waste sites, will not materially affect
its consolidated financial condition or liquidity, the identification of
additional sites, increases in remediation costs with respect to identified
sites, the failure of other potentially responsible parties to contribute
their share of remediation costs, decisions to dispose of additional
properties and other changed circumstances may result in increased costs to
Armco, which could have a material effect on its financial condition,
liquidity and results of operations.

Research and Development

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

Armco spent $12.9 million, $24.0 million and $23.6 million,
respectively, on research in each of the three years ended December 31, 1993,
1992 and 1991 (including $3.9 million, $9.4 million and $11.8 million,
respectively, funded by affiliates, primarily ASC, in each of such years).

8
<PAGE>

Equity and Other Investments

Armco's equity and other investments include ASC, NAS (discussed above
under "Specialty Flat-Rolled Steel"), Armco Financial Services Group ("AFSG")
and National-Oilwell.

Armco Steel Company, L.P.

ASC is a joint venture limited partnership formed in 1989 by Armco and
Kawasaki. With plants located in Middletown, Ohio and Ashland, Kentucky, ASC
produces primarily high strength, low carbon flat-rolled steel. These
products are supplied to the automotive, appliance and manufacturing markets,
as well as to the construction industry and independent steel distributors and
service centers. Effective May 13, 1989, substantially all of the assets,
properties, business and liabilities of Armco's former Eastern Steel Division
were transferred to, or assumed by, ASC, a Delaware limited partnership managed
by a general partner corporation equally owned by subsidiaries of Armco and
Kawasaki.

The domestic steel industry is highly competitive. Despite significant
reductions in raw steel producing capability by major domestic producers over
the last decade, the domestic industry continues to be adversely affected by
excess world capacity. Over the last decade, extensive downsizings have
necessitated costly restructuring charges that, when combined with highly
competitive market conditions, have resulted in substantial losses for most
domestic integrated steel producers.

Carbon steel consumption in the United States has not grown with the
overall economy in recent years. Producers of steel products face substantial
competition from manufacturers of plastics, aluminum, ceramics, glass,
concrete and other materials. While domestic carbon steel producers have
taken action to scale back their operations through corporate reorganizations
or as a result of bankruptcy proceedings, which actions have resulted in the
closing of numerous production facilities, there still exists significant
excess capacity in the domestic carbon steel industry. Overall, domestic
steel capability utilization (including specialty steels) was approximately 87%
during 1993. From time to time industry overcapacity has created an operating
environment in which competing producers engaged in significant price
discounting in order to maintain or gain market share. A number of major
domestic steelmakers now operate under, or have emerged from, bankruptcy
protection and have lower operating costs, which permit them to sell their
products at lower prices.

Further, domestic integrated carbon steel producers (including ASC)
have lost market share to domestic mini-mills and low-cost reconstituted mills
in recent years as these mills have expanded their product lines to include
large-size structural products and certain carbon steel flat-rolled products,
including thin cast slabs. Management believes that, before the cost
reductions that have been effected in the last six months, ASC's cost per ton
of steel was significantly higher than experienced by its domestic and foreign
competitors and that its cost per ton is still higher than those of a number of
its competitors, particularly the mini-mills.

Imports of carbon steel and steel products have had a particularly
adverse impact on domestic carbon steel shipments and pricing. High labor
costs, including pension, health and other employee benefit obligations, and
restrictive work practices are likely to continue to be competitive
disadvantages for ASC and other domestic producers. Furthermore, foreign
producers frequently have received subsidized financing and many are owned or
controlled by foreign governments and base their decisions with respect to
steel production and pricing on political and economic policy

9
<PAGE>

considerations as well as business factors. As a result of voluntary steel
import restraint arrangements negotiated in 1985 between the United States and
certain other steel-producing nations, steel imports declined from the levels
of the mid-1980's. However, such arrangements expired in March 1992 without
being extended or replaced with other import restrictions. Existing trade
laws or trade negotiations may not be adequate to prevent unfair trading
practices. On June 30, 1992, the major carbon steelmakers filed 84 trade
cases against foreign producers of carbon steel from 21 countries charging them
with selling steel below their home market prices and receiving unfair trade
subsidies that are illegal under United States trade laws. On August 21,
1992, the ITC made affirmative preliminary determinations in 72 of the cases
(affecting 95% of the volume of imports alleged to have been unfairly traded),
finding that there was a reasonable indication that the domestic steel
industry had been materially injured or was threatened with material injury by
the imports in question. On June 22, 1993, the Commerce Department reached a
final determination that foreign producers from 12 countries had unfairly
benefited from government subsidies and that certain steel producers from 19
countries had unlawfully dumped steel and steel products in the U.S. market.
On July 27, 1993, the ITC ruled that foreign producers had not caused injury
to the domestic producers of hot-rolled carbon steel, although about one-third
of the claims were upheld against foreign cold-rolled producers, and generally
all claims against foreign coated carbon steel producers were upheld. On
November 30, 1992, and January 27, 1993, the Commerce Department assigned
preliminary duties on subsidy and dumping cases, respectively. However, on
July 27, 1993, the ITC ruled that foreign producers had not caused injury to
the domestic producers of hot-rolled carbon steel, although about one-third of
the claims were upheld against foreign cold-rolled producers, and generally
all claims against foreign coated carbon steel producers were upheld. This
ruling was generally unfavorable for the domestic carbon steel industry, since
it partially reversed previously assessed duties on foreign producers. It is
too early to assess the effect, if any, that the rulings will have upon future
pricing and demand for domestically produced products.

The automotive industry, directly or indirectly, comprises the most
substantial portion of the total sales of ASC. Significant downturns in the
domestic automotive industry have had and likely would have a material adverse
effect on ASC's profitability.

At December 31, 1993, ASC had approximately 6,400 active employees.
Most of the production and maintenance employees are represented by national
or independent local unions. ASC steelmaking employees at its Ashland,
Kentucky, facility are covered under an agreement with the USWA. The
contract, which was originally scheduled to expire on July 31, 1993, has been
extended to June 1, 1994. ASC coke-making employees at the Ashland facility
are covered under an agreement with the Oil, Chemical & Atomic Workers union,
which was scheduled to expire on October 1, 1993, but has been extended to May
1, 1994. No predictions can be made as to the results of the renegotiations of
these agreements or the possible effects of the renegotiations upon ASC,
although the agreement with the USWA covering hourly employees at the Ashland
facility establishes procedures for revising its economic terms upon their
expiration and contains no-strike clauses that are effective during the
negotiation period.

The terms of the agreement with the Armco Employees Independent
Federation ("AEIF") covering ASC's hourly employees at its Middletown, Ohio
facility have been settled though March 1, 1997 pursuant to an arbitrator's
decision. On February 15, 1994, the USWA filed a petition with the National
Labor Relations Board seeking to represent the hourly employees at the
Middletown facility currently represented by the AEIF. If the USWA is elected
as the bargaining representative for those employees, it may seek to
renegotiate the terms of the existing AEIF agreement covering those employees
prior to March 1, 1997.

Armco Financial Services Group

AFSG currently consists primarily of insurance companies that Armco
intends to sell (the "AFSG companies to be sold") and companies that have
ceased writing new business and are being liquidated (the "runoff companies").

10
<PAGE>

The AFSG companies to be sold provide multiple-line casualty insurance,
including personal and commercial automobile, workers' compensation,
homeowners, multiperil, personal and commercial property and general liability
insurance and consist primarily of Northwestern National Casualty Company
("NNCC"), Pacific National Insurance Company ("PNIC") and Statesman Insurance
Company ("Statesman"). Armco wrote off, in the fourth quarter of 1991, its
advances to the AFSG companies to be sold of $170.3 million.

Armco estimates that 61% of future claims against the runoff companies
will be paid during the period 1993-1997 and that substantially all remaining
claims will be paid by the year 2017. While there have been no charges
recorded with respect to the runoff companies since 1990, in the future there
may be further adverse developments with respect to the runoff companies,
which, if not otherwise offset through favorable commutations or other
actions, will require additional charges to income.

On January 28, 1994, Armco signed a letter of intent to sell its
ongoing insurance operations to Vik Brothers Insurance, Inc., a privately
owned property and casualty insurance holding company. Under the terms of the
letter of intent, approximately $70 million would be received at closing and
approximately $15 million would be received in three years, the latter payment
being subject to a reserve analysis and potential adjustment at that time. As
a result of restructuring certain obligations arising from the 1992 merger
plan for the runoff companies, the proceeds from the sale have been pledged as
security for certain note obligations due to the runoff insurance companies and
will be retained in the investment portfolio of the Armco Financial Services
Group runoff companies. The transaction is subject to a number of conditions,
including a definitive purchase agreement, approval by regulatory authorities
and approval of the boards of directors of Armco and the purchaser.

The insurance business is highly competitive. Many of the competitors
of the AFSG companies to be sold offer more diversified lines of insurance and
have substantially greater financial resources. In addition, the insurance
regulators having supervisory authority over Armco's insurance operations
retain substantial control over certain corporate transactions, including the
sale of the AFSG companies to be sold and the liquidation of the runoff
companies. They also have broad powers to interpret statutory accounting
requirements and to initiate rehabilitation and liquidation proceedings.

The liability for unpaid losses and loss adjustment expenses includes
an amount determined from loss reports and individual cases and an amount,
based on past experience, for losses incurred but not reported. Such
liability is necessarily based on estimates and, while management believes that
the amount is fairly stated, the ultimate liability may be in excess of or
less than the amount provided. The methods for making such estimates and for
establishing the resulting liability are continually reviewed and any
adjustments resulting therefrom are reflected in earnings currently. The
Company does not discount the liability for unpaid losses and loss adjustment
expenses.

The AFSG companies to be sold estimate losses for reported claims on an
individual case basis. Case reserves are based on experience with a
particular type of risk and the available information surrounding each
individual claim. Case reserves are reviewed on a regular basis. As
additional facts become available, the case reserves are adjusted as
necessary. The stability of the case reserving process is monitored through
comparison with ultimate settlement.

The estimates of losses for incurred but not reported claims (IBNR), as
well as additive reserves for reported claims, are developed primarily from an
analysis of historical patterns of the development of paid and incurred losses
(dollars and claim counts) by accident year for each line of business. Salvage
and subrogation estimates are developed from patterns of actual recoveries.

Allocated loss adjustment expense reserves are developed from an
analysis of historical patterns of the development of paid allocated loss
adjustment expenses to incurred losses, by accident year, by line of business.
These historical patterns are then applied to projected ultimate losses for
each line of business.

11
<PAGE>

Unallocated loss adjustment expense reserves are developed utilizing a
cost accounting system. The cost accounting system is based on historical
costs modified for anticipated changes in operations and selections of
alternative costs.

Loss and loss adjustment expense reserves are stated at management's
estimate of the ultimate cost of settling all incurred but unpaid claims.
Loss and loss adjustment expense reserves are not discounted.

On October 25, 1990, Northwestern National Holding Company ("NNHC")
purchased Statesman. NNHC has accounted for the Statesman acquisition as a
purchase and accordingly, the original purchase price was allocated to assets
and liabilities based upon their fair value at the date of acquisition.

During 1986, Northwestern National Insurance Company was restructured
and its principal book of business was transferred to NNCC. As provided by
the agreement, NNCC assumed certain liabilities in connection with this book
of business. Additionally, NNCC received securities and cash in connection
with the transfer.

Activity with respect to loss and loss adjustment expense reserves for
the last three years is as follows:

<TABLE>
<CAPTION>
RECONCILIATION OF LIABILITY FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

(Dollars in Thousands) 1993 1992 1991
-------- -------- ---------
<S> <C> <C> <C>
Liability for losses and LAE at beginning of year $284,309 $276,251 $250,249
-------- -------- --------
Provision for losses and LAE for claims occurring in the
current year 179,183 192,428 206,535
Increase (decrease) in estimated losses and LAE for claims
occurring in prior years 11,632 15,373 14,899
-------- -------- --------
Total 190,815 207,801 221,434
-------- -------- --------
Losses and LAE payments for claims occurring during:
Current year 75,189 85,384 86,873
Prior years 102,382 114,359 108,559
-------- -------- --------
Total 177,571 199,743 195,432
-------- -------- --------
Liability for losses and LAE at end of year
$297,553 $284,309 $276,251
======== ======== ========
</TABLE>
A reconciliation of the liability for losses and loss adjustment
expenses as reported to net of ceded reinsurance follows:

<TABLE>
<CAPTION>
(Dollars in Thousands) 1993 1992 1991
-------- -------- ---------
<S> <C> <C> <C>
Liability for losses and LAE at end of year - as reported $297,553 $284,309 $276,251

Reinsurance receivables on ceded unpaid losses and LAE 26,643 18,352 16,975
-------- -------- --------
Liability for losses and LAE at end of year - net of ceded
reinsurance $270,910 $265,957 $259,276
======== ======== ========
</TABLE>

12
<PAGE>

The following table reconciles reserves determined in accordance with
accounting principles and practices prescribed or permitted by insurance
statutory authorities (Statutory reserve) to reserves determined in accordance
with generally accepted accounting principles (GAAP reserve) at December 31, as
follows:

(Dollars in Thousands) 1993 1992 1991
-------- -------- ---------
<S> <C> <C> <C>
Statutory reserve for losses and loss expenses $297,930 $291,832 $283,750

Salvage and subrogation - (7,523) (7,499)

Postretirement and postemployment benefits (377) - -
-------- -------- --------

GAAP reserve for losses and loss expenses $297,553 $284,309 $276,251
======== ======== ========
</TABLE>

Effective on January 1, 1993 the AFSG companies to be sold adopted a
new statutory accounting principle allowing the recognition of salvage and
subrogation recoverable in the determination of the statutory reserve for
losses and loss expenses. Prior year financial statements have not been
restated for the change in accounting principle.

Effective on January 1, 1993 the AFSG companies to be sold adopted
Statement of Financial Accounting Standards ("SFAS"), SFAS No. 106 and SFAS No.
112 pertaining to postretirement and postemployment benefits. The new
accounting principles were adopted for both statutory and GAAP reporting
purposes. However, certain differences exist between statutory and GAAP
accounting principles that resulted in larger unallocated loss adjustment
expense reserves for statutory reporting.

The following table presents a calendar year runoff of the reserve for
losses and loss adjustment expenses for the years 1984 through 1993. The top
line of the table shows the reserve for losses and loss adjustment expenses
recorded as of December 31 for each of the indicated years. This reserve
represents the estimated amount of losses and loss expenses for claims arising
in all years that are unpaid at the balance sheet date, including losses and
loss adjustment expenses that had been incurred but not yet reported. Each
column shows the reserve amount at the indicated calendar year end and
cumulative data on payments and the re-estimated reserves for all accident years
making up that calendar year end reserve. The last entry for each calendar
year in the lower section of the table represents the incurred loss and loss
expense developed, subsequent to the balance sheet date, through 1993. The
estimates are increased or decreased as more information concerning the
frequency and severity of claims becomes available. The deficiency depicted
for a given year is cumulative for that year and all prior years.

The following table shows a $40 million deficiency in 1990 and a $29
million deficiency in 1991. The AFSG companies to be sold experienced a
significant number of large losses in 1991 and 1990, predominantly in
multi-peril and commercial auto. The deficiencies that occurred in 1991 and
1990 are a result of additional unprecedented developments on these large
losses. In addition, approximately $17 million of the deficiency for 1990
pertains to additional development and reserve strengthening that occurred on
the 1990 and prior accident year loss and loss expense reserves of Statesman
Insurance Company, a company acquired in October 1990. The AFSG companies to
be sold implemented new reserving procedures to improve the future adequacy of
reserve levels. The table reflects the (deficiency) redundancy on loss and
loss expense reserves before the impact of the (deficiency) redundancy on loss
and loss expense reserves ceded to unaffiliated insurers.

13
<PAGE>

<TABLE>
<CAPTION>
(Dollars in Millions)
Year Ended 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve for losses
and loss expenses $36 $37 $172 $179 $198 $215 $250 $276 $284 $298
Cumulative amount paid
as of:

One year later 17 19 63 61 60 79 109 114 102
Two years later 30 30 100 91 98 127 169 176
Three years later 38 37 119 114 124 157 209
Four years later 42 38 132 129 139 178
Five years later 42 40 142 138 153
Six years later 43 41 149 148
Seven years later 44 42 154
Eight years later 45 43
Nine years later 46
Ten years later

Reserve re-estimated as
of:

End of Year 36 37 172 179 198 215 250 276 284 298
One year later 40 45 176 179 176 209 265 292 296
Two years later 49 47 181 160 175 215 278 305
Three years later 50 50 164 163 177 219 290
Four years later 50 45 168 165 180 226
Five years later 46 46 169 168 187
Six years later 48 45 170 173
Seven years later 48 45 175
Eight years later 48 48
Nine years later 51
Ten years later

Cumulative Redundancy
(Deficiency) ($15) ($11) ($3) $6 $11 ($11) ($40) ($29) ($12)
--- --- -- -- --- --- --- --- ---

</TABLE>

The AFSG companies to be sold limits the maximum net loss which can
arise from large risks by reinsuring (ceding) certain levels of risks with other
reinsurers. The following table shows the deficiency on net loss and loss
expense reserves, which is significantly lower than the deficiency in the table
above. Significant development on large losses exceeding the AFSG companies to
be sold net retention during 1990 and 1991 resulted in a smaller impact on
reserve adequacy on a net of reinsurance basis

14
<PAGE>

The (deficiency) redundancy computed net of ceded reinsurance is as
follows:

<TABLE>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Deficiency) redundancy
on reserve for losses and
loss expenses ($15) ($11) ($3) $ 6 $11 ($11) ($40) ($29) ($12) -

(Deficiency) redundancy
on ceded unpaid losses
and loss expenses (4) (4) (8) (4) (4) (5) (13) (11) (7) -
----- ----- ---- ---- --- ----- ----- ----- ----

(Deficiency) redundancy
net of ceded reinsurance ($11) ($7) $ 5 $10 $15 ($ 6) ($27) ($18) ($ 5) -
===== ===== ==== ==== === ===== ===== ===== ===== =====
</TABLE>

The tables do not present accident or policy year development data which
readers may be more accustomed to analyzing; therefore, analysis of the effect
of loss and loss expense reserving on any particular accident year cannot be
discerned. The table reflects adjustments to income in each year for all prior
years. Conditions and trends that have affected development of the reserve in
the past may not occur in the future. Accordingly, it may not be appropriate
to extrapolate future redundancies or deficiencies based on this table.

National-Oilwell

Armco, through a wholly owned subsidiary, has a 50% partnership interest
in National-Oilwell, which was formed in 1987 when Armco and USX Corporation
each contributed their oilfield equipment operations to National-Oilwell in
exchange for equal interests in the new partnership. National-Oilwell is a
distributor of oil country tubular goods and a manufacturer of drilling,
production and other oil and gas equipment, and operates a network of oil field
supply stores throughout North America through which it distributes products to
the oil and gas industries worldwide. National-Oilwell operates in a highly
competitive environment.

ITEM 2. PROPERTIES

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

All of Armco's principal plants and properties are held in fee.
Portions of the Houston plant, shut down in 1983, are leased from the Gulf
Coast Waste Disposal Authority (Texas). In most instances, Armco has an option
to purchase the leased facilities at the end of the lease period.

ITEM 3. LEGAL PROCEEDINGS

There are various claims pending against Armco and its subsidiaries
involving product liability, patent, insurance arrangements, environmental,
antitrust, hazardous waste, employee benefits and other matters arising out of
the conduct of the business of Armco.

Reserve Mining Litigation. On July 17, 1992, Armco was sued in the
--------------------------
United States District Court, District of Minnesota, Fifth Division, by a group
of former salaried employees of Reserve Mining Company ("Reserve"), a joint
venture between a subsidiary of Armco and LTV Corporation that produced iron
ore pellets. The complaint alleges that Armco is liable for certain unpaid
welfare benefits, including vacation, severance, supplemental layoff, life
insurance and health insurance

15
<PAGE>

benefits. While Armco cannot determine the possible exposure, if any, from this
lawsuit, plaintiffs preliminarily calculated the benefits at about $12 million.
On February 17, 1993, the Court dismissed state law, ERISA and fiduciary claims
with prejudice and plaintiffs' independent fiduciary claims without prejudice.
Plaintiffs filed an amended complaint, in response to which Armco filed a motion
to dismiss. On October 22, 1993, the Court granted Armco's motion to dismiss in
its entirety. On November 22, 1993, plaintiffs filed a notice of appeal on the
February 17 and October 22 decisions. The appeal is currently pending.

In August 1992, Armco was sued in the U.S. District Court, District
of Minnesota by members of the USWA who declined to participate in the
USWA v. Armco settlement. The complaint alleges breaches of the Basic Labor
- --------------
Agreement, Supplemental Unemployment Benefit Plan, Insurance Agreement,
Pension Agreement and Program of Hospital-Medical Benefits for Pensioners and
Surviving Spouses and seeks an unspecified amount of damages. On February 17,
1993, the Court granted Armco's motion to dismiss plaintiffs' state law
claims. Plaintiffs' claims based on the labor agreements remain pending.
Plaintiffs filed an amended complaint, in response to which Armco filed a
motion to dismiss certain claims therein. On October 22, 1993, the Court
granted Armco's motion. On November 8, 1993, Armco filed an answer to the
allegations in the amended complaint not subject to the motion to dismiss.

On May 14, 1993, Armco received a letter from the Pension Benefit
Guaranty Corporation ("PBGC") asserting that Armco is liable for certain
pension plan obligations of Reserve, a Minnesota general partnership between a
subsidiary of Armco and a subsidiary of LTV Corporation. Reserve filed for
reorganization under the U.S. Bankruptcy Code on July 16, 1986. In the letter,
the PBGC demands payment by Armco of $42.8 million. On May 23, 1993, Armco and
the PBGC entered into an agreement, tolling until December 31, 1993 the running
of the statute of limitations with respect to the PBGC's claim against Armco
and also with respect to any claims Armco may have against the PBGC. The
original tolling agreement has been extended to April 29, 1994.

While Armco's management believes that it has substantial defenses
against these Reserve-related claims, if these creditors and other Reserve
creditors are successful in such claims, Armco could become liable for these
and other Reserve nondebt obligations in an amount which could be substantial.

CRS Litigation. On October 31, 1990, a third-party complaint was served
---------------
on Armco in the Circuit Court of Montgomery County, Maryland by the owner of a
6.3 mile potable water tunnel designed by defendant, CRS Sirrine ("CRS") and
its predecessor companies, and constructed by Armco and Clevecon Inc. Armco
built 3.4 miles of the tunnel; Clevecon built the remaining 2.9 miles. No
portion of the tunnel, which was completed in early 1984, has ever been
functional. Washington Suburban Sanitary Commission filed suit against CRS
seeking damages in the amount of $200 million. CRS filed third-party
complaints against Armco and Clevecon seeking damages to the extent of any
liability of CRS attributable to Armco's or Clevecon's negligence or negligent
misrepresentation in connection with the installation of the potable water
tunnel and the third party defendants' alleged defective workmanship in
connection with the same. Armco's motion to dismiss or, in the alternative,
for summary judgment was denied by the Court. CRS subsequently settled the
claims against it by Washington Suburban Sanitary Commission and continued to
prosecute its third-party claims against Armco and Clevecon. Oral argument on
Armco's re-filed summary judgment motion was held on January 3, 1994. The
circuit court denied Armco's summary judgment motion and the case proceeded to
trial. On January 28, 1994, a directed verdict was entered by the court in
favor of Armco. CRS has filed a notice of appeal of the judgment entered in
favor of Armco.

Cornerstones Litigation. An action was filed by Cornerstones Municipal
------------------------
Utility District ("Cornerstones") and William St. John, as representative of a
class of owners of real property situated within Cornerstones, in the District
Court of Harris County, Texas, in July 1989, alleging that Armco Construction
Products supplied defective pipe for a sanitary sewer system in three
residential subdivisions. The petition sought in excess of $40 million in
damages. On May 29, 1991, plaintiffs filed a Third Amended Petition adding
Kingsbridge Municipal Utility District ("Kingsbridge") and John Keplinger, as
representative of a class of owners of real property situated within
Kingsbridge, as additional plaintiffs. The residents of Kingsbridge made
similar allegations, sought certification of

16
<PAGE>

the class of Kingsbridge homeowners and seek to recover damages for an
allegedly faulty sanitary sewer system in four residential subdivisions. The
amended petition seeks in excess of $40 million in damages, on behalf of the
Kingsbridge and the Cornerstones plaintiffs, which is in excess of the court's
jurisdictional limits. On January 13, 1992, the Court granted Armco's Motion
for Summary Judgment and dismissed all of the Cornerstones plaintiffs' claims
against the defendants on the basis of the statute of limitations. The
Cornerstones plaintiffs appealed the decision and, in January 1993, the
Appellate Court reversed the dismissal of the Cornerstones action and remanded
it to the trial court. In May 1993, the Texas Supreme Court granted Armco's
application for leave to appeal the appellate court's decision and heard
argument on the matter on September 14, 1993. On November 24, 1993, the Texas
Supreme Court reversed the appellate court in favor of Armco, awarding Armco
its costs and remanding the case to the appellate court for disposition of
unaddressed issues. The Kingsbridge action remains pending and is in discovery.

On or about April 3, 1992, Vincent and Linda Adduci and 71 other
plaintiffs, owners of real property situated within Cornerstones, filed suit in
the District Court of Harris County, Texas, against multiple defendants,
including Armco. The suit, similar to the action filed by Cornerstones and
William St. John discussed above, alleges damages were sustained as a result of
improper design and installation of the sanitary sewer system servicing the
subdivision, as well as certain manufacturing and/or design defects of the pipe
utilized to construct the sanitary system. The complaint seeks an unspecified
amount of damages.

On or about September 11, 1992, Harris W. Arthur and other plaintiffs,
owners of real property situated within Cornerstones, filed suit in the
District Court of Harris County, Texas, against multiple defendants, including
Armco. The suit, similar to the action filed by Cornerstones and William St.
John and the action filed by Vincent and Linda Adduci and other plaintiffs,
alleges damages were sustained as a result of improper design and installation
of the sanitary sewer system servicing the subdivision, as well as certain
manufacturing and/or design defects of the pipe utilized to construct the
sanitary sewer system. The complaint also asserts legal malpractice theories
against various counsel for the Municipal Utility District. The complaint
seeks an unspecified amount of damages.

On March 22, 1993, an action captioned William C. Irons, et al. v.
---------------------------
Turner, Collie & Braden, et al. was filed in the District Court of Harris
- -------------------------------
County, Texas. This action, which involves approximately 100 additional owners
of real property situated within Cornerstones, names multiple defendants,
including Armco, and alleges theories of damages similar to those in the
Arthur and Adduci matters. The complaint seeks an unspecified amount of
- ------- ------
damages.

Armco Chile Prodein, S.A. Litigation. On or about November 15, 1991,
-------------------------------------
Armco and Armco Chile Prodein, S.A. were sued for damages in the United States
District Court for the Southern District of Alabama by a maritime cargo
carrier. Plaintiff's claims are based upon allegations of fraud, negligent
misrepresentation, negligent interference with contractual relations and
wrongful arrest. Plaintiff's allegations arise out of a series of
transactions in which it was engaged by Armco Chile Prodein to transport
fiberglass reinforced pipe from Jacksonville, Florida to Talcahuano, Chile.
Plaintiff made three such shipments of pipe. After discovering damage to the
first and second shipments of pipe, which defendants contend was due to
negligence by plaintiff, Armco Chile Prodein arrested, pursuant to Chilean
law, the vessel which plaintiff utilized to carry the third shipment of pipe.
Plaintiff alleges, among other things, that this arrest was wrongful and that
the alleged wrongful arrest resulted in such severe damage to plaintiff's
business interests and reputation that plaintiff went out of business.
Plaintiff's experts claim that the damages suffered by plaintiff range from $38
million to $47 million. Both Armco and Armco Chile Prodein filed motions for
summary judgment. On January 25, 1993, the court granted summary judgment
discharging Armco and subsequently denied plaintiff's motions for
reconsideration of the summary judgment granted to Armco. On April 30, 1993, a
jury verdict on plaintiff's wrongful arrest and lost profits claims was
rendered in favor of the plaintiff and against Armco Chile Prodein in the
amount of $10,500,000. Judgment on the verdict was entered by the Court on
May 7, 1993. Thereafter, Armco Chile Prodein filed a motion seeking judgment
as a matter of law or, alternatively, for a new trial. On October 12, 1993,
finding that the jury's verdict on liability and damages was against the
weight of the evidence, the trial court granted the defendant's post-trial
motion, entering judgment in favor of Armco Chile

17
<PAGE>

Prodein against plaintiff. The court also granted Armco's motion for a
conditional new trial in the event the judgment is overturned on appeal. The
plaintiff has appealed this ruling to the Federal Circuit Court.

Environmental Proceedings. Armco's steelmaking operations have been
--------------------------
involved in or subject to a number of consent orders or judgments under local,
state or federal environmental laws and regulations which generally require
Armco to comply with certain discharge standards and to add certain pollution
abatement equipment. Armco continues to be subject to such orders or
settlements to the extent that such standards have not been met or the
equipment is not installed. In addition, Armco participates directly or
indirectly in a number of proceedings challenging various regulations or
procedures relating to environmental compliance. Armco becomes involved in
such actions when it perceives that the ultimate application of such
regulations or procedures could involve significant capital expenditures by
Armco or subject Armco to penalties without obtaining a material environmental
benefit.

In addition, Armco has been named as a defendant in certain litigation
wherein the state or federal government or other potentially responsible
parties seek reimbursement for or to compel cleanup of hazardous waste sites.
Armco has provided information on materials it has deposited at other
hazardous waste sites and may be named as a defendant if litigation is
commenced with respect to such sites. The federal government has asserted
that joint and several liability applies in hazardous waste litigation and
courts have held that, absent proof that damages are allocable or subject to
allocation, joint and several liability will be applied.

The following paragraphs provide information on certain suits and
proceedings in which Armco is a participant.

On July 31, 1989, the United States filed a civil action in the United
States District Court for the Southern District of Texas, Houston Division,
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") for cost recovery and injunctive relief associated with the French
Limited Superfund site (the "French Limited Site") near Crosby, Texas. Armco
and 84 other defendants were named in the action. Concurrently, the United
States government filed a Consent Decree requiring the defendants to reimburse
the United States in the amount of $1.3 million, to pay certain future
oversight costs and to undertake remedial action at the French Limited Site.
The Decree was approved and entered by the court. The defendants estimated
that the remedy outlined in the Decree would cost approximately $81 million
over a five- to eight-year period. Armco's remaining share of costs, which is
fully accrued, is approximately $1.6 million.

Armco has been one of four remaining defendants in three class actions filed in
the 157th Judicial District, District Court of Harris County, Texas on behalf
of about 750 residents near the French Limited Site. These cases were Avalos
------
v. Atlantic Richfield Company, ("ARCO") et al., Curette v. ARCO and Adolph
- --------------------------------------------------------------- ------
v. ARCO. In December 1992, the Avalos, Curette, and Adolph plaintiffs accepted
- --------
a $1.1 million settlement offer made by Armco and two other defendants, of which
Armco's share was $549,270.56. The settlement funds were paid out in 1993 and
the court dismissed the action with prejudice.

As a condition to settlement, about 300 individuals who were not
represented by counsel or who had only recently had counsel appear on their
behalf and who did not wish to settle their claims were severed from the
Avalos action and transferred to a separate action styled Rosa Ann Barrett, et
- ------ --------------------
al. v. ARCO, et al., in the United States District Court for the Southern
- ---------------------
District of Texas, Houston Division. On December 13, 1993, Rhonda Sills, on
behalf of herself and two of her children, sued the same defendants as in the
Avalos case. In February, a suit on behalf of Rod Luke Chambers and about 30
- ------
other plaintiffs was filed against the ARCO defendants. These suits are based
on the same theories as those asserted in the Avalos case and seek an
------
unspecified amount of damages. Armco believes the Barrett, Sills & Chambers
-------------------------
lawsuits are not well-founded and, accordingly, no liability has been recorded
at this time.

An action styled The United States of America, State of Maryland v.
--------------------------------------------------
Azrael, et al. v. Armco Steel Corporation, et al. was filed in the United
- -------------------------------------------------
States District Court for the District of Maryland

18
<PAGE>

pursuant to Section 107 of CERCLA to recover monies expended by the United
States and the State of Maryland in response to a release and threatened
release (federal allegation) and an imminent and substantial danger to the
public health or welfare presented by the release or substantial threat of
release (state allegation) of hazardous substances from a waste disposal site
at the intersection of Kane and Lombard Streets in Baltimore, Maryland. Armco
was served with a third-party complaint on April 19, 1991. The third-party
complaint alleges that Armco arranged for the disposal and/or treatment or
arranged with a transporter for transport for disposal or treatment of
hazardous waste to the Kane and Lombard site. A determination has not been
made as to how much waste, if any, Armco sent to the site. To date,
settlement discussions with the third-party plaintiffs have been unsuccessful.

On or about September 29, 1989, the United States filed a civil action
in the United States District Court for the District of Minnesota under CERCLA
for declaratory relief and cost recovery associated with the Arrowhead
Refining Superfund site (the "Arrowhead Site") in Hermantown, Minnesota.
Armco, Reserve and 13 other defendants are named in the action. The United
States Environmental Protection Agency's ("USEPA") current estimated cost to
clean up the Arrowhead Site is about $30 million. Armco has joined in the
filing of a third-party complaint against approximately 300 third-party
defendants. Discovery is in progress. During 1990, USEPA and the State of
Minnesota issued several orders directing Armco and several other parties to
undertake certain remedial actions or risk substantial penalties for not doing
so. In early 1991, Armco joined the Minnesota Arrowhead Site Committee
("MASC"), a group of potentially responsible parties ("PRPs"), and has
participated in MASC's implementation of the orders. In addition to its
compliance activities, MASC also commissioned studies of alternative
technologies to remedy sludge and soil contamination at the Arrowhead Site.
USEPA is in the process of amending its Record of Decision to include a more
cost effective remedy identified by these studies. Armco will be responsible
for about 65% of the MASC groups cleanup costs at the site.

On or about October 12, 1989, the United States filed a civil action in
the United States District Court of Pennsylvania, Western District, against
Armco and ten other defendants under CERCLA for cost recovery associated with
the Malitovsky Drum Superfund site in Pittsburgh, Pennsylvania. Armco and the
other defendants are alleged to have sent materials to the site. The complaint
alleges that costs in excess of $1 million have been expended, and additional
costs are being incurred through efforts of the United States to recover
monies expended in connection with its response actions. Late in 1992, USEPA
and the defendants reached an agreement in principle, under which Armco will
pay $118,333.33. A definitive settlement agreement has been negotiated,
pending final approval by USEPA.

In December 1989, Traverse Bay Area Intermediate School District
("TBA") filed suit in the United States District Court for the Western
District of Michigan alleging that Parsons Corporation, the predecessor in
interest of Hitco, a former subsidiary of Armco, released hazardous substances
which contaminated the plaintiff's property. Armco assumed the defense of
Hitco pursuant to the terms of the sale of Hitco. The TBA litigation was
dismissed with prejudice on January 4, 1993. Armco and TBA jointly performed
a remedial investigation, focused feasibility study and risk assessment on
TBA's property and submitted the reports to the Michigan Department of Natural
Resources ("MDNR"). On March 24, 1993, MDNR sent Armco and TBA a "Notice of
Demand for Payment and Response Action", claiming reimbursement of
approximately $1.3 million in past costs plus statutory interest and demanding
performance of additional investigation and response activities at the site
which are estimated to cost about $600,000. Armco's costs are not expected to
exceed $1.45 million in resolving Hitco's share of liability at the site.
Armco and TBA are working cooperatively with MDNR to settle the matter.

On or about June 29, 1992, Armco was served with a complaint, styled as
a class action, filed in the Superior Court of California, County of Los
Angeles, by Scott Liuzza and approximately 80 named plaintiffs against Armco
and a number of other companies, relating to, among other things, a land
reclamation site owned by Armco and recently closed under the supervision and
with the approval of the appropriate environmental agencies. The plaintiffs
are seeking a recovery in an unstated amount for alleged personal and property
damages plus injunctive relief. The court sustained Armco's demurrer to the
class action counts of the complaint and in March 1994 dismissed plaintiff's
claims for the diminution of property values and personal injury. Discovery
is in progress with a cutoff date of April 19, 1994.

19
<PAGE>

On July 19, 1993, Armco's subsidiary Flour City Architectural Metals,
Inc. (formerly E.G. Smith Construction Products, Inc.) ("Flour City") received
a request from USEPA under Section 3007 of the Resource Conservation and
Recovery Act ("RCRA") for information as part of an ongoing investigation into
Flour City's compliance with a Consent Agreement and Final Order dated October
27, 1988 (the "Consent Order") relating to two inactive waste surface
impoundments located at the former E.G. Smith plant in Cambridge, Ohio. On
February 11, 1993, Armco sold the Flour City Cambridge, Ohio plant, but
retained title to 21.5 acres of the Cambridge facility, including the surface
impoundments, and responsibility for compliance with the terms of the Consent
Order. Armco has established reserves which it believes will be adequate to
cover the required remediation. Armco believes that it is in compliance with
the Consent Order. Armco submitted a revised closure plan for this site in
September, 1993.

On or about July 31, 1990, the State of Connecticut filed an action
entitled Leslie Carothers, Commissioner of Environmental Protection v. Cyclops
----------------------------------------------------------------------
Corporation, Detroit Strip Division in the Connecticut State Superior Court,
- -----------------------------------
Judicial District of Hartford/New Britain at Hartford, seeking certain
penalties and a permanent injunction against Cyclops Corporation to restrain it
from discharging wastewater into the waters of the State of Connecticut
without a permit. The claim involves a closed facility in Hamden,
Connecticut. Although Armco, as successor to Cyclops Corporation, and the
State of Connecticut have signed a Consent Order by which Armco agreed to
perform certain remedial investigations and activities, the penalty claim in
the litigation is still outstanding. Settlement discussions are expected to
resolve this matter trial which is scheduled for April 16, 1994.

An action styled Tammy Fisher Whalen v. AES, Inc., et al. was filed on
----------------------------------------
March 17, 1993 in the 10th Judicial District, District Court of Galveston
County, Texas by Tammy Fisher Whalen on behalf of herself and several other
plaintiffs against AES, Inc. and approximately 40 other defendants, including
Armco and a number of other major corporations, relating to the McGinnis Waste
Disposal Site. Substantially identical actions entitled Elizabeth Ewell, et
-------------------
al v. AES, Inc., et al. and Bonnie R. Cannon, et al. v. AES, Inc., et al.
- ----------------------- ---------------------------------------------
were filed in the same court on May 4, 1993 and June 10, 1993, respectively. In
each case, the plaintiffs sought $1 billion in alleged actual damages and
$4 billion in punitive damages. Based on Armco's demonstration that no Armco
materials went to the McGinnis Site, plaintiffs have moved to dismiss these
actions. Whalen and Ewell were dismissed on June 21 and June 25, 1993
------ -----
respectively. The judge is expected to sign the Cannon dismissal shortly.
------

In September 1992, National Supply Company, Inc., a wholly owned
subsidiary of Armco ("National Supply") and a 50% general partner in
National-Oilwell, received a letter from USEPA, which asserted that National
Supply and/or National-Oilwell is a PRP under CERCLA with respect to the
Odessa Drum Company, Inc. Superfund site (the "Odessa Site") located in Odessa,
Ector County, Texas. Armco has joined a de minimis PRP group to negotiate a
settlement for its liability at this site. Armco believes that any response
costs National Supply may bear in connection with the Odessa Site will not be
material to Armco.

In August 1992, Eastern received a letter from USEPA, which asserted
that Eastern is a PRP under CERCLA with respect to the Moyer Landfill
Superfund site (the "Moyer Landfill Site") in Collegeville, Pennsylvania.
Eastern has responded that it did not send waste or other materials to the
Moyer Landfill Site. Eastern understands that a cost recovery action has been
instituted in the United States District Court, Eastern District of
Pennsylvania, against a substantial number of parties, not including Eastern,
which are asserted to have potential liability under CERCLA with respect to
the Moyer Landfill Site. No claims against Armco are anticipated.

E. G. Smith Construction Products, Inc. ("E. G. Smith"), a subsidiary
of Armco, is one of four companies that have been identified by USEPA as PRPs
at the Fultz Landfill Superfund site in Byesville, Ohio. USEPA's preliminary
estimates for remediation cost is $22 million on a present value basis. The
USEPA did not provide an estimate of the waste volume at the site alleged to be
that of E. G. Smith. The operators of the landfill have stated that any of E.
G. Smith's industrial wastes that are of concern to USEPA were not deposited
in the landfill but were transported to another site. USEPA is undertaking
cleanup at the site, with the expectation that they can recover such costs from
the PRP's.

20
<PAGE>

Cyclops received a notice from USEPA that it may be a PRP with respect
to the anticipated remediation of contaminated soil on certain property in New
Boston, Ohio sold by Cyclops to a third party several years ago. No amount
was estimated by USEPA as to the cost of such remediation. Prior to such
sale, the salvage contractor hired by the current owner (which was then
occupying the property as a tenant of Cyclops) engaged in intentional conduct
which directly resulted in contamination. As a part of the sentence imposed
upon the contractor in response to his guilty plea to the resulting criminal
charges, the contractor agreed to remediate the contaminated condition. Armco
currently is reviewing its legal position as to the notice, including the
defenses which it may have on the basis of the circumstances of the
contamination. The current owner of the property and the contractor have also
been notified by USEPA that they may be PRPs. Armco and the current owner have
collected $825,000 on a $1 million performance bond which had been obtained to
secure the contractor's performance. These funds are being used for
remediation and oversight of the clean-up.

In July of 1990, Eastern entered into a Consent Order with the Maryland
Department of Environment to resolve a complaint alleging various violations
of environmental requirements. This Order was followed by a voluntary Consent
Judgment on April 17, 1992 and an amendment of the Consent Judgment in August
of 1993. Pursuant to the Order and Judgment, Eastern spent a total of $4.5
million in 1991, 1992 and 1993 on various pollution prevention projects. In
addition, Eastern paid a $0.3 million penalty and agreed to expend an
additional $0.9 million on projects in 1994. Additional expenditures of about
$1 million will be necessary if Eastern restarts its melting, grinding and coil
processing operations.

On July 22, 1993, Armco received a request from the Kansas Department
of Health and Environment ("KDHE") for information regarding a former Armco
Construction Products Division plant located in Topeka, Kansas and now owned
by Contech Construction Products, Inc. ("Contech"). Contech and Armco had
previously tried to resolve a claim by Contech concerning all environmental
contamination at the Topeka plant. The claim arises under indemnity provisions
contained in an agreement dated June 30, 1986 between Armco and Contech,
formerly a subsidiary of Armco, under which Armco conveyed the property and
other assets to Contech pursuant to a management buyout of Contech. The
request was issued pursuant to a Kansas law that has liability provisions
similar to CERCLA. Despite several meetings among Armco, Contech and other
former owners of allegedly contaminated portions of the plant, the parties
have been unable to resolve the dispute. Armco answered KDHE's information
request in August 1993. The amount, if any, of potential liability cannot be
reasonably estimated.

In December 1993, Armco and one other company received a notice of
nonbinding preliminary allocation of proportionate responsibility from the
Pennsylvania Department of Environmental Resources ("PADER") for the William
Taylor Estate site. PADER is seeking a voluntary settlement for the recovery
of past and future response costs at the site. The notice alleges disposal of
material from three facilities operated by the Sawhill Tubular Division.
While cleanup costs cannot be estimated, Armco believes, based on information
to date, that the response costs will not be material.

On February 2, 1994, the Missouri Department of Natural Resources,
("Missouri DNR") issued a Notice of Violation to GS Technologies, Inc. ("GS
Technologies") for failure to obtain permits prior to the
construction/modification of ten processes or pieces of equipment. These changes
were made before the Kansas City facility was sold to GS Technologies as part of
its sale of its Worldwide Grinding Systems in late 1993. Armco is taking the
lead in working with Missouri DNR to resolve this issue. It is not expected that
any penalties will be material.

On February 16, 1994, Missouri DNR and the USEPA jointly issued a Part
B permit to the Kansas City facility under RCRA. This permit seeks to
require "interim measures" including investigation and potentially,
remediation at several areas of the facility. Armco has petitioned for review
of most of such permit provisions to the Environmental Appeals Board. These
provisions are stayed during pendancy of the appeal. It is expected that
preliminary investigation costs may reach $1 million; however, other costs
cannot be determined until there is more certainty as to the extent of actual
permit requirements.

On January 18, 1994, Armco received a 104(e) request for information
under CERCLA from USEPA regarding shipments from the former E. G. Smith
Division of Cyclops to the Granville

21
<PAGE>

Solvents site in Ohio. Armco has responded to the request. Cleanup costs and any
Armco liability therefor cannot be determined based on available information.

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

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

There were no matters submitted to a vote of the security holders of
Armco during the fourth quarter of the year ended December 31, 1993.

Executive Officers of Armco

The executive officers of Armco as of March 1, 1994, were as follows:
<TABLE>
<CAPTION>
Years
Age as of Tenure in of Service
Name March 1, 1994 Office Office (8) with Armco
- ---- ------------- -------- ---------- -----------
<S> <C> <C> <C> <C>
James F. Will 55 President and 1994 2
Chief Executive Officer (1)

James L. Bertsch 50 Vice President and Treasurer 1989 28

John B. Corey 50 Vice President, 1994 15
Asset Management and
Business Development (2)

David G. Harmer 50 Vice President and 1993 11 months
Chief Financial Officer (3)

David A. Higbee 51 Vice President, Diversified 1994 28
Businesses (4)

Gary R. Hildreth 55 Vice President, General Counsel 1993 23
and Secretary (5)

Peter G. Leemputte 36 Controller (6) 1993 7 months

Robert M. Visokey 51 Executive Vice President- 1994 1
Steel Operations (7)

</TABLE>
________________________

(1) Effective January 1, 1994, Mr. Will was elected Chief Executive
Officer. He had previously been President and Chief Operating Officer.

(2) Effective March 1, 1994.

(3) Effective April 1, 1993.

(4) Effective as of March 1, 1994.

22
<PAGE>

(5) Effective September 1, 1993, Mr. Hildreth was elected Vice President
and Secretary. He had previously been General Counsel since February
1, 1993.

(6) Effective September 1, 1993.

(7) Effective March 1, 1994.

(8) All officers are elected annually by the Board of Directors and hold
office until their successors are elected and qualified. Each of the
officers named above has held responsible positions with Armco or its
subsidiaries during the past five years, with the exceptions of Messrs.
Will, Harmer, Leemputte, Visokey and Higbee. Immediately prior to
joining Armco, Mr. Will was President and Chief Executive Officer of
Cyclops Industries, Inc. (a manufacturer of flat-rolled carbon and
stainless steel products). Mr. Harmer was Vice President and
Controller of FMC Corporation (a broad-based chemicals and
manufacturing company). Mr. Leemputte was project manager for Gemini
Consulting (specializing in the development and application of leading
edge business concepts and practices). Prior to that, Mr. Leemputte
held various accounting positions at FMC Corporation. Mr. Visokey was
Vice President, Purchasing and Traffic for LTV Steel Company. Mr.
Higbee was President of National-Oilwell.

PART II

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

The information required by this item is incorporated herein by
reference from page 57 of the Annual Report to Shareholders for the year ended
December 31, 1993.

ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $1,664.0 $1,673.2 $1,204.0 $1,342.3 $2,044.1
Special credits (charges) (165.5) (185.1) (48.7) -- 84.0
Income (loss) from continuing operations (256.2) (419.3) (160.6) (75.8) 188.5
Income (loss) from continuing operations
per common share (2.64) (4.35) (1.91) (0.95) 2.04
Total assets 1,904.7 1,869.9 1,765.0 2,182.6 2,413.1
Long-term debt and lease obligations 379.7 401.0 350.7 354.2 416.4
Long-term employee benefit obligations 1,270.9 541.6 362.3 352.3 376.1
Class B common stock of subsidiary 9.7 9.3 -- -- --
</TABLE>
_______________________________

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

(2) In 1993, Armco adopted SFAS 106 and 109 which increased long-term
employee benefits and total assets.

(3) In April 1992, Armco acquired Cyclops Industries, Inc.

(4) Special credits (charges) for the years 1991 through 1993 primarily
relate to the shutdown and rationalization of operating facilities. The
credit in 1989 is primarily a result of a $109.4 gain on the formation
of Armco Steel Company, L.P. from the assets, liabilities and

23
<PAGE>

business of the Eastern Steel Division, and a credit for a favorable
ruling on certain export commitments, partially offset by corporate
restructuring charges.

(5) The Class B common stock was issued by Eastern Stainless Corporation
prior to Armco's acquisition of this 84%-owned former subsidiary of
Cyclops Industries, Inc.

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

The information required by this item is incorporated herein by
reference from pages 19-31 following the caption "Management's Discussion and
Analysis" of the Consolidated Financial Statements in the Annual Report to
Shareholders for the year ended December 31, 1993.

Subsequent Developments

On March 28, 1994, Armco announced its intention to idle the production
facilities at its Empire-Detroit carbon steel plant in Mansfield, Ohio and the
Dover, Ohio galvanizing plant. The plants are expected to remain idle until the
previously announced construction of a $100 million thin-slab caster is
completed, which is scheduled for mid-1995. Armco expects to recognize a special
charge of up to $20 million in the first quarter of 1994 for the cost of
benefits to employees on layoff and other costs of idling the facilities, as
well as costs associated with planned permanent work force reductions.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated herein by
reference from pages 32-56 of the Annual Report to Shareholders for the year
ended December 31, 1993.

(Unaudited)

Subsequent Developments

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item as to executive officers of Armco
is contained in Part I of this report under "Executive Officers of Armco" and is
incorporated herein by reference. The information required as to directors is
incorporated herein by reference from the information set

24
<PAGE>

forth under the caption "ELECTION OF DIRECTORS" in the registrant's Proxy
Statement for the 1994 Annual Meeting of Shareholders filed with the Securities
and Exchange Commission pursuant to Rule 14a-6 of the Securities Exchange Act of
1934, as amended (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

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

I. Documents Filed as a Part of this Report
<TABLE>
<CAPTION>
A. Financial Statements Page
----
<S> <C> <C>
1. Statement of Consolidated Operations for the Years Ended
December 31, 1993, 1992 and 1991 *

2. Statement of Consolidated Financial Position as of
December 31, 1993 and 1992 *

3. Statement of Consolidated Cash Flows for the Years ended
December 31, 1993, 1992 and 1991 *

4. Statement of Consolidated Shareholders' Equity (Deficit) for
the Years Ended December 31, 1991, 1992 and 1993 *

5. Notes to Financial Statements *

6. Independent Auditors' Report *

7. Independent Auditors' Report 31

8. Financial Statement Schedules for the Years Ended 32-35
December 31, 1993, 1992 and 1991

I -- Marketable Securities - Other Security Investments
</TABLE>

25
<PAGE>

<TABLE>
<S> <C> <C>
V -- Property, Plant and Equipment
VI -- Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
VIII -- Valuation and Qualifying Accounts and Reserves

9. Responsibility for Financial Reporting *

10. Armco Steel Company, L. P. Consolidated Financial 36-59
Statements and Financial Statement Schedules
as of December 31, 1991, 1992 and 1993 and for the four
years in the period ended December 31, 1993

11. Armco Financial Services Group - companies to be sold 60-87
Consolidated Financial Statements and Financial Statement
Schedules as of December 31, 1993 and 1992 and for
the years ended December 31, 1993, 1992 and 1991
</TABLE>

________________

*Incorporated in this annual report on Form 10-K by reference to pages 32-56 of
the Annual Report to Shareholders for the year ended December 31, 1993.

Financial Statements and Financial Statement Schedules Omitted

The financial statements and financial statement schedules for Armco
Inc. and Consolidated Subsidiaries, and for Armco Financial Services Group and
Armco Steel Company, L.P., other than those listed above, are omitted because of
the absence of conditions under which they are required, or because the
information is set forth in the notes to financial statements.

B. Exhibits

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

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

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

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

10(a). Incentive Compensation Plan (3)*

10(b). Deferred Compensation Plan for Directors (4)*

10(c). 1983 Stock Option Plan (5)*

10(d). Incentive Compensation Plan (6)*

10(e). 1993 Long-Term Incentive Plan of Armco Inc.* (7)

10(f). Severance Agreements (8)*

10(g). 1988 Stock Option Plan (9)*

10(h). 1988 Restricted Stock Plan (9)*

26
<PAGE>

10(i). Executive Supplemental Deferred Compensation Plan Trust (10)*

10(j). Executive Supplemental Deferred Compensation Plan (11)*

10(k). Rights Agreement dated as of June 27, 1986 between Armco Inc.
and Harris Trust and Savings Bank, as amended as of June 24,
1988 (13)

10(l). Joint Venture Formation Agreement dated March 24, 1989 (14)

10(m). Incentive Compensation Plan for Key Management (12)*

10(n). Pension Plan for Outside Directors (12)*

10(o). Key Management Severance Policy (15)*

10(p). Armco Inc. 1991 Long-Term Incentive Plan (Armco Inc. Long-Term
Incentive Plan Performance Share Plan) (16)*

10(q). Profit Sharing Plan for Armco Advanced Materials Company (17)*

10(r). Minimum Pension Plan (18)*

10(s). Stainless Steel Toll Rolling Services Agreement

10(t). Armco Inc. Noncontributory Pension Plan As Amended and Restated
(Effective As of January 1, 1989.)*

10(u). Armco Inc. Retirement and Savings Plan.*

11. Computation of Income (Loss) Per Share

13. Annual Report to Shareholders for the year ended December 31,
1993. (Filed for information only, except for those portions
that are specifically incorporated in this Form 10-K Annual
Report for the year ended December 31, 1993.)

21. List of subsidiaries of Armco Inc.

23. Independent Auditors' Consent

28. Schedule P - Analysis of Losses and Loss Expenses

99. Description of Armco Capital Stock

The annual reports (Form 11-K) for the year ended December 31, 1993 for
the Armco Inc. Retirement and Savings Plan and the Armco Inc. Thrift Plan for
Hourly Employees will be filed by amendment as exhibits hereto, as permitted
under Rule 15d-21.

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

______________________

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

(2) Incorporated by reference from Exhibit 3(b) to Armco's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1987.

(3) Incorporated by reference from Exhibits 10(a) and 10(c) to Armco's
Annual Report on Form 10-K for the year ended December 31, 1980.

(4) Incorporated by reference from Exhibit 10(f) to Armco's Annual Report on
Form 10-K for the year ended December 31, 1981.

27
<PAGE>

(5) Incorporated by reference from Exhibit 19 to Armco's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1983.

(6) Incorporated by reference from Exhibit 10(g) to Armco's Annual Report on
Form 10-K for the year ended December 31, 1983.

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

(8) Incorporated by reference from Exhibit 10(a) to Armco's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1988.

(9) Incorporated by reference from Exhibits 10(h) and 10(i) to Armco's
Annual Report on Form 10-K for the year ended December 31, 1988.

(10) Incorporated by reference from Exhibit 10(b) to Armco's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1988.

(11) Incorporated by reference from Exhibit 10(c) to Armco's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1988.

(12) Incorporated by reference from Exhibit 10(l) to Armco's Annual Report on
Form 10-K for the year ended December 31, 1989.

(13) Incorporated by reference from Exhibit 1 to Armco's Form 8-A dated July
7, 1986 and Exhibit 1.1 to Armco's Form 8 dated July 11, 1988.

(14) Incorporated by reference from Exhibit 10 to Armco's Form 8-K dated
March 27, 1989.

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

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

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

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

______________________

II. Reports on Form 8-K

The following reports on Form 8-K were filed by Armco since the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 was
filed:

<TABLE>
<CAPTION>
Report Date Description
----------- ------------
<S> <C>
October 28, 1993 Reporting the sale of Miami Industries, a
producer of welded carbon steel tubing, to
Copperweld Corporation.

November 12, 1993 Reporting the sale of Armco's Worldwide Grinding
Systems segment.

January 26, 1994 Reporting the proposed recapitalization of ASC
and Armco's signing of a letter of intent to
sell its ongoing insurance operations to Vik
Brothers Insurance, Inc.
</TABLE>

28
<PAGE>

<TABLE>
<S> <C>
March 10, 1994 Reporting that Armco would receive approximately
1 million shares, or an approximately 4.2%
interest in the proposed recapitalization of
ASC, if successfully implemented, rather than
the "less than 1%" to have been received by
Armco as originally proposed.
</TABLE>

29
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 31, 1994.

ARMCO INC.

JAMES F. WILL
By________________________________
James F. Will
President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 31, 1994.

JAMES F. WILL OWEN B. BUTLER
By ___________________________________ By _______________________________
James F. Will Owen B. Butler
President, Director
Chief Executive Officer
and Director

ROBERT L. PURDUM DAVID A. DUKE
By ___________________________________ By _______________________________
Robert L. Purdum David A. Duke
Director Director

DAVID G. HARMER JOHN C. HALEY
By ___________________________________ By _______________________________
David G. Harmer John C. Haley
Vice President and Director
Chief Financial Officer

PETER G. LEEMPUTTE PAUL H. HENSON
By ___________________________________ By _______________________________
Peter G. Leemputte Paul H. Henson
Controller Director

WILLIAM B. BOYD JOHN H. LADISH
By ___________________________________ By _______________________________
William B. Boyd John H. Ladish
Director Director

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

30
<PAGE>

INDEPENDENT AUDITORS' REPORT

Armco Inc.:

We have audited the consolidated financial statements of Armco Inc. and
consolidated subsidiaries as of December 31, 1993 and 1992, and for each
of the three years in the period ended December 31, 1993, and have issued
our report thereon dated February 9, 1994, which report includes an explanatory
paragraph for changes in Armco Inc.'s methods of accounting for postretirement
benefits other than pensions, income taxes, certain investments in debt
and equity securities, and postemployment benefits; such consolidated financial
statements and report are included in your 1993 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also included the
consolidated financial statement schedules of Armco Inc. and consolidated
subsidiaries, listed in Item 14. These consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE

Pittsburgh, Pennsylvania
February 9, 1994

31
<PAGE>

SCHEDULE I
ARMCO INC. AND CONSOLIDATED SUBSIDIARIES

MARKETABLE SECURITIES--OTHER SECURITY INVESTMENTS

(Dollars in Millions)
<TABLE>
<CAPTION>
===================================================================================================================================
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------

Amount at which each
portfolio of equity
Number of shares or Market value of security issues and each
Name of issuer and units--principal amount Cost of each issue at other security issue carried
title of each issue of bonds and notes each issue balance sheet date in the balance sheet
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
National-Oilwell (1) $ 83.9 (4) $ 83.9

North American
Stainless (1) 43.8 (4) 43.8

Armco Financial
Services Group (2) 97.1 (4) 97.1

Short-term Liquid
Investments and
Marketable Securities 5.0 5.0 5.3 5.0

Other Equity Companies (3) 2.7 (4) 2.7

Other Cost Investments -- 36.6 (4) 36.6
------ --- -------
Total $269.1 N/A $269.1

</TABLE>
(1) Joint venture partnerships. The investment represents 50% ownership in
these businesses.
(2) Discontinued business, 100% owned by Armco.
(3) Companies accounted for by the equity method; presented at cost plus equity.
(4) Investments represent joint venture ownership and/or investments in
restricted deposits, advances or assets held for sale, for which there are
no quoted market prices.

32
<PAGE>

SCHEDULE V
ARMCO INC.
PROPERTY, PLANT AND EQUIPMENT
(Dollars in Millions)
<TABLE>
<CAPTION>
============================================================================================================
Column A Column B Column C Column D Column E Column F
- ------------------------------------------------------------------------------------------------------------
Balance at
Beginning Additions Other Balance at
Classification of Period at Cost Retirements Changes End of Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year ended
December 31, 1991:
Land, land improvements and
leaseholds................. $ 17.2 $ 0.1 $ -- $ (0.2) (A) $ 16.9
1.3 (B)
(1.5) (C)
Buildings.................... 84.9 2.2 0.9 (0.9) (A) 80.1
4.3 (B)
(9.5) (C)
Machinery and equipment...... 686.1 67.2 8.8 (1.6) (A) 721.1
9.9 (B)
(31.7) (C)
Construction in progress..... 55.9 (40.6) -- (1.7) (C) 13.6
-------- ------ ----- ------- --------
TOTAL $ 844.1 $ 28.9 $ 9.7 $ (31.6) $ 831.7
======== ====== ===== ======= ========
- ------------------------------------------------------------------------------------------------------------
For the Year ended
December 31, 1992:
Land, land improvements and
leaseholds................. $ 16.9 $ 0.8 $ 0.2 $ (0.4) (A) $ 28.3
13.7 (B)
(2.5) (C)
Buildings.................... 80.1 6.7 1.5 (2.7) (A) 96.7
31.1 (B)
(17.0) (C)
Machinery and equipment...... 721.1 40.5 4.1 (10.5) (A) 924.5
266.9 (B)
(89.4) (C)
Construction in progress..... 13.6 12.0 -- (0.2) (A) 38.7
15.7 (B)
(2.4) (C)
-------- ------ ----- ------- --------
TOTAL $ 831.7 $ 60.0 $ 5.8 $ 202.3 $1,088.2
======== ====== ===== ======= ========
- ------------------------------------------------------------------------------------------------------------
For the Year Ended
December 31, 1993:
Land, land improvements and
leaseholds................. $ 28.3 $ 0.1 $ 0.5 $ (0.1) (A) $ 26.0
(1.8) (C)
Buildings.................... 96.7 2.6 0.7 3.9 (A) 78.8
(23.7) (C)
Machinery and equipment...... 924.5 49.9 35.9 5.7 (A) 843.1
(101.1) (C)
Construction in progress..... 38.7 1.3 -- 0.8 (A) 35.1
(5.7) (C)
-------- ------ ----- ------- --------
TOTAL $1,088.2 $ 53.9 $37.1 $(122.0) $ 983.0
======== ====== ===== ======= ========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(A) Represents foreign currency translation adjustment and reclassifications.
(B) Fair market value of assets of purchased businesses.
(C) Recorded value of assets of divested businesses.
(D) Prior period amounts above have been restated to reflect the assets and
accounts of Armco's Worldwide Grinding Systems businesses as discontinued
operations.

33
<PAGE>

SCHEDULE VI
ARMCO INC.
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(Dollars in Millions)
<TABLE>
<CAPTION>
============================================================================================================
Column A Column B Column C Column D Column E Column F
- ------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged
Beginning to Costs & Other Balance at
Classification of Period Expenses Retirements Changes End of Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year ended
December 31, 1991:
Land, land improvements and
leaseholds................. $ 9.6 $ 0.4 $ -- $ (0.1) (A) $ 9.9
Buildings.................... 41.2 2.5 0.4 (0.2) (A) 39.1
(4.0) (B)
Machinery and equipment........ 422.4 31.3 6.7 (0.7) (A) 426.2
(20.1) (B)
------ ----- ----- ------ ------
TOTAL....... $473.2 $34.2 $ 7.1 $(25.1) $475.2
====== ===== ===== ====== ======
------------------------------------------------------------------------------------------------------------
For the Year ended
December 31, 1992:
Land, land improvements and
leaseholds................. $ 9.9 $ 0.4 $ -- $ (0.3) (B) $ 10.0
Buildings.................... 39.1 4.9 0.1 (0.3) (A) 35.8
(7.8) (B)
Machinery and equipment...... 426.2 41.8 3.4 (1.2) (A) 419.3
(44.1) (B)
------ ----- ----- ------ ------

TOTAL....... $475.2 $47.1 $ 3.5 $(53.7) $465.1
====== ===== ===== ====== ======
------------------------------------------------------------------------------------------------------------
For the Year ended
December 31, 1993:
Land, land improvements and
leaseholds................. $ 10.0 $ 0.5 $ -- $ (0.1) (B) $ 10.4
Buildings.................... 35.8 6.0 0.1 0.4 (A) 37.8
(4.3) (B)
Machinery and equipment...... 419.3 46.7 11.0 0.4 (A) 407.0
(48.4) (B)
------ ----- ----- ------ ------
TOTAL....... $465.1 $53.2 $11.1 $(52.0) $455.2
====== ===== ===== ====== ======
------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(A) Represents foreign currency translation adjustment and reclassifications.
(B) Recorded value of assets of divested businesses.
(C) The rates of depreciation are: land improvements 5%, buildings 2%--5%, and
machinery and equipment 5%--33%.
(D) Prior period amounts above have been restated to reflect the assets and
accounts of Armco's Worldwide Grinding Systems businesses as discontinued
operations.

34
<PAGE>

SCHEDULE VIII
ARMCO INC. AND CONSOLIDATED SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(Dollars in Millions)
<TABLE>
<CAPTION>
======================================================================================================
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------
Deductions
from Reserves
Additions for Purposes
Balance at Charged to for which
Beginning Costs and Reserves were Other Balance at
Description of Year Expenses Provided Changes End of Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1991:

Allowance for doubtful accounts........ $14.2 $1.2 $ 2.4 $(0.9) (A) $11.9
(0.2) (B)

Allowance for impairment of
investments.......................... 33.9 1.7 3.9 - 31.7

- ------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1992:

Allowance for doubtful accounts ...... $11.9 $0.8 $10.6 $(0.1) (A) $ 5.1
3.1 (B)

Allowance for impairment of
investments.......................... 31.7 0.6 5.0 1.0 28.3

- ------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1993:

Allowance for doubtful accounts ...... $ 5.1 $0.3 $ 0.8 $(0.6) (B) $ 4.0

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

- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:

(A) Represents foreign currency translation adjustment and reclassifications.
(B) Net balances of consolidated subsidiaries purchased (divested).

35
<PAGE>

INDEPENDENT AUDITORS' REPORT

Armco Inc.:

We have audited the accompanying consolidated balance sheets of Armco Steel
Company, L.P. and Subsidiaries (an Investee of Armco Inc.) as of December 31,
1991, 1992 and 1993, and the related consolidated statements of operations and
partners' capital (deficit) and cash flows for each of the four years in the
period ended December 31, 1993. Our audits also included Financial Statement
Schedule V, Property, Plant and Equipment; Schedule VI, Accumulated
Depreciation, Depletion and Amortization of Property, Plant and Equipment;
Schedule VIII, Valuation and Qualifying Accounts and Reserves; Schedule IX,
Short-term Borrowings; and Schedule X, Supplementary Income Statement
Information, of Armco Steel Company, L.P. and subsidiaries (an Investee of Armco
Inc.), all for each of the four years in the period ended December 31, 1993.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 the Armco Steel Company, L.P.
and subsidiaries (an Investee of Armco Inc.) at December 31, 1991, 1992 and
1993, and the results of its operations and its cash flows for each of the four
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

As discussed in Note 5 to the consolidated financial statements, in 1993
the Company changed its method of accounting for retiree health care and life
insurance benefits to conform with Statement of Financial Accounting Standards
No. 106 and, retroactively, restated its 1990, 1991 and 1992 financial
statements for the change.

/s/ Deloitte & Touche

Cincinnati, Ohio
January 26, 1994

36
<PAGE>

ARMCO STEEL COMPANY, L.P.

CONSOLIDATED BALANCE SHEETS
December 31, 1991, 1992 and 1993
(dollars in millions)

ASSETS

<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1)............................... $ 13.8 $ 1.2 $ 144.2
Accounts and notes receivable (Note 3):
Trade (less allowance for doubtful accounts of $2.5,
$2.7 and $4.5 for 1991, 1992 and 1993, respectively)......... 101.1 125.4 137.3
Other receivables.............................................. 26.7 13.0 14.1
-------- -------- --------
Total accounts and notes receivable.............................. 127.8 138.4 151.4
Inventories (Notes 1 and 3)...................................... 324.0 276.6 255.1
Other current assets............................................. 2.1 1.2 3.3
-------- -------- --------
Total Current Assets............................................... 467.7 417.4 554.0
-------- -------- --------
Investments (Note 1):
Investment in Eveleth (net of impairment of $46.6 for 1992 and
1993--Notes 7 and 8)........................................... 49.2 -- --
Investment in SOS (Notes 1 and 11) -- 20.1 22.7
Other............................................................ 10.5 36.2 22.1
-------- -------- --------
Total investments.................................................. 59.7 56.3 44.8
-------- -------- --------
Property, plant and equipment (Notes 1 and 3):
Land, land improvements and leaseholds........................... 45.4 42.0 40.4
Buildings........................................................ 92.6 80.6 80.1
Machinery and equipment.......................................... 1,039.6 1,033.1 1,059.5
Construction in progress......................................... 82.1 25.7 37.1
-------- -------- --------
Total.............................................................. 1,259.7 1,181.4 1,217.1
Less accumulated depreciation...................................... 199.8 272.6 344.9
-------- -------- --------
Property, plant and equipment--Net................................. 1,059.9 908.8 872.2
Other (Note 5)..................................................... 45.5 42.5 47.7
-------- -------- --------
TOTAL ASSETS................................................. $1,632.8 $1,425.0 $1,518.7
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

37
<PAGE>

ARMCO STEEL COMPANY, L.P.

CONSOLIDATED BALANCE SHEETS
December 31, 1991, 1992 and 1993
(dollars in millions)

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Current Liabilities:
Notes payable (Note 3)........................................... $ 58.0 -- --
Overdrafts payable............................................... 6.6 $ 54.3 $ 52.8
Accounts payable:
Trade.......................................................... 90.8 82.8 101.8
Other.......................................................... 18.8 24.6 17.9
-------- -------- --------
Total accounts payable........................................... 109.6 107.4 119.7
Accrued salaries, wages and commissions.......................... 40.4 32.5 35.5
Other accruals (Notes 2, 5, and 9)............................... 132.8 133.5 159.3
Current portion of long-term debt (Note 3)....................... 44.2 104.6 130.8
-------- -------- --------
Total Current Liabilities.......................................... 391.6 432.3 498.1
-------- -------- --------
Long-term debt (Note 3)............................................ 497.9 563.3 598.6
Deferred income taxes (Note 2)..................................... 10.9 0.1 0.2
Other liabilities (Notes 5 and 9).................................. 659.1 879.0 1,008.0
Commitments and contingencies (Notes 3, 7 and 10).................. -- -- --
-------- -------- --------
Total Liabilities.................................................. 1,559.5 1,874.7 2,104.9
Partners' Capital (Deficit) (less receivables from affiliates of
$17.6, $16.5 and $16.5 for 1991, 1992 and 1993, respectively)
(Notes 1, 5 and 6)............................................... 73.3 (449.7) (586.2)
-------- -------- --------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT).......................................... $1,632.8 $1,425.0 $1,518.7
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

38
<PAGE>

ARMCO STEEL COMPANY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL (DEFICIT)
For the Years Ended December 31, 1990, 1991, 1992 and 1993
(dollars in millions)

<TABLE>
<CAPTION>
1990 1991 1992 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
Customers................................................ $1,315.6 $1,211.6 $1,292.6 $1,458.3
Affiliates (Note 6)...................................... 101.2 89.8 111.9 136.2
-------- -------- -------- --------
Total Net Sales............................................ 1,416.8 1,301.4 1,404.5 1,594.5
Operating Costs:
Cost of products sold (Notes 1 and 10)................... 1,284.5 1,303.4 1,318.6 1,380.3
Selling and administrative expenses (Note 6)............. 133.8 134.4 118.6 111.2
Depreciation and amortization (Note 1)................... 72.8 82.6 87.3 73.5
Special charges and unusual items (Note 8)............... -- -- 379.3 17.6
-------- -------- -------- --------
Total Operating Costs...................................... 1,491.1 1,520.4 1,903.8 1,582.6
-------- -------- -------- --------
Operating Profit (Loss).................................... (74.3) (219.0) (499.3) 11.9
Other (Income) Expense:
Interest expense (Note 3)................................ 24.3 40.8 46.4 58.1
Royalty income........................................... (3.9) (4.6) (5.0) (3.8)
Miscellaneous other--net................................. (1.1) 1.4 1.9 0.3
-------- -------- -------- --------
Total Other Expense........................................ 19.3 37.6 43.3 54.6
-------- -------- -------- --------
Loss Before Income Taxes, Extraordinary Item and
Accounting Change........................................ (93.6) (256.6) (542.6) (42.7)
Benefit for Income Taxes (Note 2) (3.5) (5.5) (10.6) --
-------- -------- -------- --------
Net Loss before Extraordinary Item and Accounting Change... (90.1) (251.1) (532.0) (42.7)
Extraordinary Item (Note 9)................................ -- -- (12.1) --
Cumulative Effect of Change in Accounting for Certain
Postretirement Benefits (Note 5)......................... (491.6) -- -- --
-------- -------- -------- --------
Net Loss................................................... (581.7) (251.1) (544.1) (42.7)
Partners' Capital (Deficit), Beginning Balance............. 700.7 189.4 73.3 (449.7)
Distribution to partners................................... (14.8) (1.5) -- --
Additional capital contributions........................... 70.0 115.1 21.1 19.4
Asset adjustment due to ownership change................... 15.2 21.4 -- --
Charge to record a minimum Accumulated Benefit
Obligation (Note 5)...................................... -- -- -- (113.2)
-------- -------- -------- --------
Partners' Capital (Deficit), Ending Balance................ $ 189.4 $ 73.3 $ (449.7) $ (586.2)
======== ======== ======== ========
</TABLE>

See notes to consolidated financial statements.

39
<PAGE>

ARMCO STEEL COMPANY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1990, 1991, 1992 and 1993
(dollars in millions)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss................................................... $(581.7) $(251.1) $(544.1) $ (42.7)
------- ------- ------- -------
Adjustments to reconcile net loss to cash flows from
operating activities:
Depreciation and amortization............................ 72.8 82.6 87.3 73.5
Blast furnace reline amortization........................ 6.4 4.8 4.3 4.5
Special charges and unusual items........................ -- -- 379.3 17.6
Other--net............................................... 19.6 26.0 35.4 47.1
Changes in Assets and Liabilities:
Accounts receivable.................................... 21.3 4.0 (22.6) (14.7)
Inventories............................................ (99.9) 59.0 47.4 18.4
Current liabilities.................................... 43.6 27.7 (40.7) 36.9
Other assets........................................... (5.9) 1.8 (1.5) (6.8)
Deferred taxes......................................... (3.1) (5.5) (10.7) 0.1
Other liabilities...................................... 465.7 1.9 23.4 (35.1)
------- ------- ------- -------
Total Adjustments.......................................... 520.5 202.3 501.6 141.5
------- ------- ------- -------
NET CASH FLOWS FROM OPERATING
ACTIVITIES............................................... (61.2) (48.8) (42.5) 98.8
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (211.8) (163.1) (86.2) (40.2)
Proceeds from Sale of Plant, Property and Equipment........ 1.2 0.5 0.4 7.3
Proceeds from Sale of Investments.......................... 2.4 -- 6.8 --
Proceeds from Sale of Eveleth Notes........................ 7.7 7.7 7.7 7.7
Advances to Investees...................................... (15.8) (25.5) (25.6) (23.0)
Returns of Advances........................................ 7.8 8.9 8.5 --
Collection on Loans........................................ 4.2 23.9 1.1 --
Loans Made................................................. (0.1) -- -- --
Purchase of Investments.................................... -- (4.6) (14.9) (2.8)
Proceeds--Assets Held for Sale............................. -- -- -- 18.2
------- ------- ------- -------
NET CASH FLOWS FROM INVESTING ACTIVITIES................... (204.4) (152.2) (102.2) (32.8)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt....................... (34.9) (38.0) (44.2) (104.6)
Proceeds from issuance of long-term debt 119.6 208.2 170.0 166.0
Changes in notes payable................................... 123.0 (65.0) (58.0) --
Change in overdrafts payable............................... (13.2) (3.1) 47.6 (1.4)
Partners' contributions--net............................... 55.2 105.5 19.0 19.4
Other--net................................................. (1.9) (2.3) (2.3) (2.4)
------- ------- ------- -------
NET CASH FLOWS FROM FINANCING
ACTIVITIES............................................... 247.8 205.3 132.1 77.0
------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS......................................... (17.8) 4.3 (12.6) 143.0
Cash and cash equivalents, beginning of period............. 27.3 9.5 13.8 1.2
------- ------- ------- -------
Cash and cash equivalents, end of period................... $ 9.5 $ 13.8 $ 1.2 $ 144.2
======= ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)..................... $ 21.5 $ 38.3 $ 44.7 $ 52.8
Income taxes............................................. 0.5 0.1 0.1 0.1
</TABLE>

See notes to consolidated financial statements.

40
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--Armco Steel Company, L.P. (the "Company") is a
limited partnership formed pursuant to an agreement dated March 24, 1989 (the
"Joint Venture Agreement") between Armco Inc. ("Armco") and Kawasaki Steel
Corporation ("Kawasaki"). The general partner of the Company is AK Steel
Corporation (the "General Partner"), formerly AK Management Corporation, a
Delaware corporation owned one-half by each of AJV Investments Corp., a
Delaware corporation and wholly-owned subsidiary of Armco and KSCA,
Incorporated, a Delaware corporation and indirect wholly-owned subsidiary of
Kawasaki. The limited partners of the Company are Armco and Kawasaki Steel
Investments, Inc., a Delaware corporation and indirect wholly-owned subsidiary
of Kawasaki ("KSI").

Under the Joint Venture Agreement, on May 13, 1989, Armco sold certain
assets, properties and business of its Eastern Steel Division ("Predecessor")
to KSI for $350.0. Simultaneously, KSI contributed the purchased assets,
properties and business to the Company in exchange for a 39.5% limited
partnership interest. Armco transferred to the Company substantially all of
the remaining assets, properties and business of Predecessor and the Company
also assumed certain of Armco's liabilities and obligations related to or
arising out of Predecessor and its properties, assets and the conduct of
Predecessor business for a 59.5% limited partnership interest. On May 14,
1990, KSI made a cash contribution to the Company of $70.0. On May 13, 1991
and October 4, 1991, KSI contributed another $70.0 and $33.8, respectively.
The latter contribution was in satisfaction of its obligation to make an
additional $35.0 capital contribution on March 15, 1992, without any change in
its limited partnership interest. As a result of these contributions, on May
14, 1990, KSI's limited partnership interest increased to 44.5% with a
corresponding reduction in Armco's interest and on May 13, 1991, KSI's limited
partnership interest increased, and Armco's limited partnership interest
decreased, to 49.5%. The General Partner has a 1.0% general partnership
interest in the Company.

The accompanying consolidated financial statements of the Company include
the net assets acquired at formation from Armco and Kawasaki on the basis of
Armco's and Kawasaki's historical cost, and the changes in the net assets of
the Company subsequent to the formation, and the results of operations,
partners' capital (deficit) and the cash flows for the periods since inception
on such historical cost basis. Kawasaki's historical cost was based on the
purchase price paid on May 13, 1989 by Kawasaki for its 40% interest in the
net assets of the Company. Armco's historical cost is based on the book value
of net assets contributed on May 13, 1989 by Armco for its 60% interest in the
Company, adjusted for changes resulting from the 5% reductions in limited
partnership interest effective May 14, 1990 and May 13, 1991.

The Company consists of the operations and accounts of the Middletown
Works, Ashland Works, Headquarters and ASC Investments, Inc. and its group of
wholly-owned subsidiaries, (the "ASCII group"). With plants in Middletown,
Ohio, and Ashland, Kentucky, the Company provides coated, high strength, low
carbon flat-rolled steels to the automotive, appliance, construction and
service center markets primarily in the Midwest. The Company had one major
customer that accounted for 23.0%, 27.9%, 23.0% and 22.5% of its net sales in
1990, 1991, 1992 and 1993, respectively.

Armco and Kawasaki agreed to share a portion of the 1992 Special Charges
and Unusual Items (see Note 8) unequally with Armco being allocated 74.5%,
Kawasaki 24.5% and the General Partner 1.0%.

On August 31, 1992, the Company acquired a 50% ownership interest in
Southwestern Ohio Steel, L.P. (SOS), a joint venture to which substantially all
of the businesses of Southwestern Ohio Steel, Inc. and SOS Leveling Company,
Inc. were transferred by Armco. The Company's interest in SOS was funded
through capital contributions from Kawasaki, in the form of cash of $11.1, and
from Armco, in the form of a 25% ownership interest in SOS with an estimated
fair value of $11.1.

41
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

Inventories--Inventories are valued at the lower of cost or market. The
cost of the majority of inventories is measured on the last in, first out (LIFO)
method. Other inventories are measured principally at average cost.

<TABLE>
<CAPTION>
December 31, December 31, December 31,
1991 1992 1993
------------ ------------ ------------
<S> <C> <C> <C>
Inventories on LIFO:
Finished and semifinished....................... $251.6 $210.4 $191.7
Raw materials and supplies...................... 103.3 103.5 80.5
Adjustment to state inventories at LIFO value... (41.3) (46.3) (23.7)
------ ------ ------
Total........................................... 313.6 267.6 248.5
Other inventories............................... 10.4 9.0 6.6
------ ------ ------
Total inventories........................... $324.0 $276.6 $255.1
====== ====== ======
</TABLE>

Liquidation of LIFO inventory layers caused by certain inventory
reductions reduced the net losses in 1992 and 1993 by $2.6 and $10.4,
respectively.

Investments--The Company has investments in associated companies (joint
ventures and an entity that the Company does not control). These investments
are accounted for under the equity method. Because these companies are directly
integrated in the basic steelmaking facilities, the Company includes its
proportionate share of the income (loss) of these associated companies in cost
of products sold.

Virginia Horn Taconite Company, a member of the ASCII group ("Virginia
Horn"), owns a 56% share of Eveleth Expansion Company ("Eveleth"), a company
which produces iron ore pellets, which equates to a 35% interest in Eveleth
Mines. In connection with such investment, Virginia Horn has certain commitments
to Eveleth. Because Virginia Horn does not control Eveleth, the investment is
accounted for under the equity method (see Note 7).

42
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

The following are condensed balance sheets of Eveleth at December 31, 1992
and 1993 and condensed statements of Eveleth's operations for the three years in
the period ended December 31, 1993. The financial statements are presented on
an historical basis and as adjusted to reflect the Company's estimate of net
realizable value of the fixed assets of Eveleth.

Eveleth Expansion Company
(a partnership)

Condensed Balance Sheets
December 31, 1992 and 1993
(dollars in millions)

<TABLE>
<CAPTION>
Assets

1992 1993
---------------------- ----------------------
Historical- Historical-
Historical Adjusted Historical Adjusted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash........................ $ 0.1 $ 0.1 -- --
Accounts receivable......... 0.3 0.3 $ 0.4 $ 0.4
Due from affiliates......... 20.9 20.9 15.3 15.3
Inventories................. 7.5 7.5 5.4 5.4
------ ----- ------ -----
Total Current Assets.......... 28.8 28.8 21.1 21.1
Property, plant and
equipment--net.............. 138.9 6.4 128.9 6.9
Other assets.................. 5.1 5.1 2.5 2.5
------ ----- ------ -----
TOTAL ASSETS................ $172.8 $40.3 $152.4 $30.5
====== ===== ====== =====
<CAPTION>
Liabilities and Partners' Capital (Deficit)

<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $ 0.6 $ 0.6 $ 0.6 $ 0.6
Due to affiliates........... 4.8 4.8 1.5 1.5
Accrued liabilities......... 4.5 4.5 2.4 2.4
Current portion of
long-term debt........... 13.7 13.7 13.7 13.7
------ ----- ------ -----
Total current liabilities..... 23.6 23.6 18.2 18.2
Long-term debt................ 27.4 27.4 13.7 13.7
Other liabilities............. -- -- 2.6 2.6
------ ----- ------ -----
Partners' Capital (Deficit)... 121.8 (10.7) 117.9 (4.0)
------ ----- ------ -----
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $172.8 $40.3 $152.4 $30.5
(DEFICIT) ====== ===== ====== =====
</TABLE>

43
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

Eveleth Expansion Company
(a partnership)

Condensed Statements of Operations
For the Years Ended December 31, 1991, 1992 and 1993
(dollars in millions)

<TABLE>
<CAPTION>
1991 1992 1993
------- -------- --------
<S> <C> <C> <C>
Pellet sales to partners.............. $ 36.2 $ 32.5 --
Cost of pellets sold.................. 36.2 35.5 --
Operating expenses.................... 23.9 23.0 $ 30.8
Write-off of deferred charges......... -- -- 2.3
------ ------ ------
Operating loss........................ (23.9) (26.0) (33.1)
Interest expense, net................. 5.7 4.4 3.1
------ ------ ------
Net Loss -- historical................ (29.6) (30.4) (36.2)
Adjustment recorded by the Company to
reduce depreciation expense for the
previously recognized impairment of
fixed assets....................... 5.8 6.1 10.6.
Adjustment recorded by the Company
for the additional impairment of
fixed assets........................ -- (42.0) --
------ ------ ------
Net loss--adjusted $(23.8) $(66.3) $25.6)
====== ====== ======
</TABLE>

Notes

General -- Eveleth, a partnership, is in the business of mining taconite
and producing iron ore pellets for its partners. The partners of Eveleth, and
their respective percentage equity interests in Eveleth, are Virginia Horn
(56%), Onco Eveleth Company, a wholly-owned subsidiary of Oglebay Norton Company
(ONCO) (20.5%) and Ontario Eveleth Company, a wholly-owned subsidiary of Stelco,
Inc. (Stelco) (23.5%). Pellet production is allocated for sale to the partners
based upon annual agreements.

Partnership Funding -- Under the terms of agreements with Eveleth's
lenders and among the partners, each partner is obligated to advance a portion
of Eveleth's required operating funds, whether or not pellets are produced.
Operating advances by each partner are made pursuant to a formula which
allocates certain variable costs based on each partner's share of annually
agreed-upon pellet production and certain fixed costs based on each partner's
percentage interest in Eveleth. Eveleth is dependent for its continued
existence upon the annual pellet purchases and ongoing financial support of its
partners.

Property, Plant and Equipment--Property, plant and equipment and the
related depreciation expense included in the Historical--Adjusted amounts are
based on the Company's estimate of the net realizable value of such fixed
assets. The Historical--Adjusted amounts reflect amounts recorded by the
Company for the impairment of fixed assets of $94.2 recorded prior to 1991 and
an additional impairment of $42.0 recorded in 1992. The Historical--Adjusted
depreciation amounts recorded by the Company represent reductions of
depreciation expense for the previously recognized impairment of fixed assets in
the Historical--Adjusted financial statements.

Debt--Evelth's debt bears inerest of 9.5-10% and matures in 1995.

44
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

The Company records its proportionate share of the losses of Eveleth based
on Historical--Adjusted amounts. These losses, which are included in the
Company's cost of products sold, were $6.5, $16.1, $17.4 and $14.0 in 1990,
1991, 1992 and 1993, respectively. In addition, in 1992 the Company fully
impaired its investment in Eveleth to recognize the Company's estimate of the
net realizable value of the fixed assets of Eveleth.

The Company's recorded share of Eveleth's losses in 1991 and 1992 exceeded
its proportionate percentage interest in Eveleth because the Company purchased a
larger percentage of Eveleth's annual pellet production relative to its
percentage interest and, therefore, under the cost-allocation formula described
above, the Company absorbed a higher percentage of the Eveleth costs. The
Company's annual cash funding of Eveleth's fixed costs is appproximately $12.0
per year. See Notes 7 and 8.

The following is a summary of the net assets of SOS at December 31, 1992
and 1993 and its operating results for the four months ended December 31, 1992
and the year ended December 31, 1993.

<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
Curent assets.................................. $56.7 $ 70.9
Noncurrent assets.............................. 26.1 28.5
Current liabilities............................ 21.1 29.0
Noncurrent liabilities......................... 17.6 21.8
Net sales...................................... 65.2 253.6
Gross margin................................... -- 59.0
Net income..................................... 1.0 8.8
</TABLE>

Property, Plant and Equipment--Steelmaking plant and equipment are
depreciated under the straight line method over their estimated lives ranging
from 2 to 31 years. Maintenance and repair expenses for 1990, 1991, 1992 and
1993 were $278.5, $267.1, $265.5 and $261.3, respectively.

Financial Instruments--The carrying value of the Company's financial
instruments does not differ materially from their estimated fair value.

Cash Equivalents--Cash equivalents include short-term, highly liquid
investments that are readily convertible to known amounts of cash and are of an
original maturity of three months or less.

2. INCOME TAXES

The ASCII group will file a consolidated federal income tax return for the
year ended December 31, 1993. No federal tax will be due for 1993 due to the
incurrence of a consolidated 1993 loss.

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

Deferred federal income taxes in the accompanying Consolidated Balance
Sheets relate to temporary differences of the ASCII group, primarily differences
between book and tax carrying values of the group's investments in joint
ventures. The ASCII group recorded a consolidated deferred tax benefit of $10.8
in 1992 which represents the net reduction during the year of the group's
consolidated deferred tax liability. No deferred tax charge or benefit was
recorded in 1993.

The ASCII group has consolidated net operating loss (NOL) carryforwards
into 1994 of $34.3 under the "regular" tax system ($32.5 under the alternative
minimum tax (AMT) system). These NOL's, if unused to offset future consolidated
taxable income of the ASCII group, will expire in 2006, 2007 and 2008. In
addition, Virginia Horn, one of ASCII's wholly-owned subsidiaries, has
available an NOL carryforward into 1994 of $1.5 under the "regular" tax system
($1.7 under the AMT system). This carryforward, if unused to offset future
Virginia Horn taxable income, will expire in 2001. However, for federal income
tax purposes, the amount of NOL carryforwards arising prior to the
Recapitalization (see Note 11) which will annually be

45
<PAGE>

available to offset taxable income following the Recapitalization may be
restricted by Section 382 of the Internal Revenue Code. As a result, the use of
all or a significant portion of these NOL carryforwards may be deferred or
disallowed.

The ASCII group adopted Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes, effective January 1, 1993. The
effect of this standard was not material.

Other than for the ASCII group, the financial statements do not reflect
U.S. federal income tax liabilities because each of the partners' U.S. federal
income tax returns will include their appropriate share of the Company's taxable
income or loss.

3. NOTES PAYABLE AND LONG-TERM DEBT

At December 31, 1993, the Company had agreements that provide credit
facilities for borrowings up to $50.0 with a group of banks on a revolving
credit basis until May, 1994. At December 31, 1993, $3.8 letters of credit were
issued under these facilities. Under the terms of a Security Agreement between
the Company and its lenders, these credit facilities and the majority of the
Company's long-term debt are secured by a pool of Company assets which includes
accounts receivable, inventories, and property, plant and equipment. The terms
of the Security Agreement will permit additional financings, which are yet to be
negotiated, of up to $254.0 through 1995 to be secured by the pledged assets.

At December 31, 1993, the Company also had a $100.0 unsecured term loan,
maturing in 1996, with an affiliate of Kawasaki. The Company has incurred
interest expense and commitment fees to an affiliate of Kawasaki of $2.1, $2.4,
$1.3 and $4.2 during 1990, 1991, 1992 and 1993, respectively, relating to
borrowings under the revolving credit agreement and the unsecured term loan.

On January 18, 1994, the Company's various lenders signed amendments to the
revolving credit agreements and long-term debt agreements to revise certain
financial covenants effective as of December 31, 1993. The Company is required
to maintain as of December 31, 1993 a minimum tangible net worth of $650.0, a
minimum current ratio of 1.0 and a maximum leverage ratio of 1.0, as defined in
the agreements. At December 31, 1993, the Company's actual measures under these
financial covenants were a tangible net worth of $742.1, a current ratio of 1.76
and a leverage ratio of 0.85.

In addition, on January 18, 1994 the Company entered into an agreement
with certain of its lenders whereby the maturity of a portion of its debt will
be extended to May 31, 1995 in the event that the proposed recapitalization
described in Note 11 is not completed by May 1994 (the original maturity date
of the debt). Management believes that the Recapitalization will be completed
before that date. As a result, $80.0 of debt has been classified as long-term
at December 31, 1993.

46
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

At December 31, 1991, 1992 and 1993, the Company's long-term debt,
less current maturities, was as follows:

6.62% to 6.67% due 1994-1997(a).......... $160.0 $240.0 $180.0
7.27% to 7.37% due 1994-2002(a).......... 84.0 84.0 78.8
9.23% to 9.38% due 1994-1997............. 73.6 57.3 40.9
9.52% to 9.57% due 1994-1999............. 65.0 55.0 45.0
10.55% to 11.1% due 1994-1996............ 51.8 37.8 23.8
9.26% to 9.38% due 1994-2003............. 36.0 36.0 32.4
11.50% due 1994-1996(b).................. 17.8 14.3 9.4
6.42% due 1994-2003...................... 9.6 8.9 8.3
Floating rate due 1995(c)................ -- -- 80.0
Floating rate due 1996(d)................ -- 30.0 100.0
Other.................................... 0.1 -- --
------ ------ ------
Total.................................. $497.9 $563.3 $598.6
====== ====== ======
</TABLE>
- ----------------
(a) Rate fixed in 1992.
(b) Debt secured by the No. 1 Electrogalvanizing Line and a $15.0 letter
of credit.
(c) Debt with extended maturity to May 31, 1995.
(d) Unsecured subordinated term loan with an affiliate of Kawasaki.

At December 31, 1993, the maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
<S> <C>
1994............................... $130.8
1995............................... 200.8
1996............................... 215.0
1997............................... 93.2
1998............................... 25.0
1999 and thereafter................ 64.6
------
Total............................. $729.4
======
</TABLE>

The Company capitalized interest on projects under construction of $12.6,
$7.1, $3.5 and $1.2 during 1990, 1991, 1992 and 1993, respectively.

4. OPERATING LEASES

Rental expense was $9.7, $11.2, $14.6 and $10.1 for 1990, 1991, 1992 and
1993, respectively.

At December 31, 1993, obligations to make future minimum lease payments
were as follows:

<TABLE>
<CAPTION>
<S> <C>
1994.................................... $3.1
1995.................................... 2.2
1996.................................... 1.9
1997.................................... 0.2
1998.................................... --
----
Total lease obligations................ $7.4
====
</TABLE>

5. EMPLOYEE AND RETIREE BENEFIT PLANS

Pension Plans--The Company provides noncontributory pension benefits to
virtually all employees. Benefits are based on years of service and earnings in
the highest 60 consecutive months in the last 120 months prior to retirement or
a minimum amount per year of service, whichever is higher. The qualified plans
are funded in accordance with the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, as amended.

47
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

The details of the net periodic pension expense for 1990, 1991, 1992
and 1993 are as follows:

<TABLE>
<CAPTION>
1990 1991 1992 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Economic Assumptions:
Discount rate.......................................... 8.5% 9.0% 8.25% 8.5%
Expected long-term rate of return on assets............ 9.25% 9.75% 9.0% 9.25%
Rate of future compensation increases.................. 5.0% 5.0% 5.0% 5.0%
Cost of benefits earned during the period................ $ 18.1 $ 15.8 $ 15.2 $ 12.3
Interest cost on the projected benefit obligation........ 62.6 67.1 69.6 80.7
Actual return on plan assets............................. (8.0) (144.6) (36.3) (83.6)
Net amortization and deferral............................ (35.4) 97.6 (19.4) 26.2
------ ------- ------ ------
Net periodic pension expense....................... $ 37.3 $ 35.9 $ 29.1 $ 35.6
====== ======= ====== ======
</TABLE>

The funded status of the plans at December 31, 1991, 1992 and 1993,
using the assumptions stated below for each period, was as follows:

1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Economic Assumptions:
Discount rate............................................. 8.25% 8.5% 7.5%*
Rate of future compensation increases..................... 5.0% 5.0% 4.0%
Actuarial present value of benefit obligations:
Vested benefits........................................... $744.8 $861.7 $1,029.9
Nonvested benefits........................................ 60.6 45.6 54.1
------ ------ --------
Accumulated benefits...................................... 805.4 907.3 1,084.0
------ ------ --------
Projected benefit obligation.............................. 879.2 987.1 1,118.4
Plan assets at fair value................................. 671.8 688.4 726.3
------ ------ --------
Reconciliation of funded status to recorded amounts:
Unfunded projected benefit obligation..................... 207.4 298.7 392.1
Unrecognized prior service................................ (60.4) (38.7) (35.4)
Unrecognized net loss..................................... (36.5) (58.5) (147.4)
====== ====== ========
Accrued pension cost.................................... $110.5 $201.5 $ 209.3
====== ====== ========
</TABLE>
- -----------------
* The change in the discount rate is expected to increase pension expense by
$9.1 annually and to have no material effect on funding requirements.

The mix of pension assets held at December 31, 1993 was as follows:

<TABLE>
<CAPTION>
<S> <C>
Equities.............................. 65%
Fixed income securities............... 34%
Short-term securities................. 1%
</TABLE>

Of the total accrued pension cost of $110.5, $201.5 and $209.3 at
December 31, 1991, 1992, and 1993, respectively, $45.4, $24.9 and $56.6
are included in Other accruals, and $65.1, $176.6 and $152.7 are included
in Other liabilities in the accompanying Consolidated Balance Sheets.

The 1992 pension disclosures above include the effects on the Company's
pension plans of the Special Charges and Unusual Items described in Note 8.
The total loss resulting from the related curtailment and special and
contractual termination benefits amounted to $105.9.

A minimum liability and corresponding intangible asset of $23.2, $25.9
and $35.2 at December 31, 1991, 1992 and 1993, respectively, was recognized for
the excess of the accumulated benefit obligation over the total

48
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

of plan assets and the accrued pension liability. These balances are included
in Other liabilities and Other assets, respectively, in the accompanying
Consolidated Balance Sheets. In addition, a direct charge to equity of $113.2
was recorded in 1993 primarily as a result of the reduction in the discount rate
for pension liabilities from 8.5% to 7.5%. The corresponding credit is included
in Other liabilities.

Retiree Health Care and Life Insurance Benefits -- In addition to providing
pension benefits, the Company provides certain health and life insurance
benefits for retirees. Most employees become eligible for these benefits at
retirement. The retiree health and life insurance benefits are funded as claims
are paid and for 1990, 1991, 1992 and 1993 the Company paid benefits totalling
$24.2, $28.1, $29.7 and $32.2, respectively.

In December 1993, the Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions", retroactive to January 1, 1990.
SFAS 106 requires the Company to accrue the estimated cost of retiree benefit
payments during the years the employee provides services. The Company previously
expensed the cost of these benefits, which are principally health care, as
claims were incurred. SFAS No. 106 allows recognition of the cumulative effect
of this obligation in the year of the adoption or the amortization of the
obligation over a period of up to twenty years. The Company elected to recognize
this obligation immediately effective January 1, 1990 and recorded $491.6 as the
cumulative effect of this charge. The Company's cash flows are not affected by
implementation of this statement, but implementation increased the operating
loss by $23.8, $22.2, and $22.9 in 1990, 1991 and 1992, respectively, and
decreased the operating profit by $27.0 in 1993.

The Company is presently paying for these plans from its general assets as
the benefits become payable. The Company does not anticipate funding these
benefits in the foreseeable future. In 1990, 1991, 1992 and 1993, the Company
recognized $48.0 $50.3, $52.6 and $59.2, respectively, as an expense for
postretirement health care and life insurance benefits. A special charge of
$56.5 for retiree health care benefits associated with restructuring and a
voluntary salary reduction program was taken in the fourth quarter of 1992. (see
Note 8).

The following table sets forth the plans' funded status, reconciled with amounts
recognized in the Company's statement of financial position at December 31,
1991, 1992 and 1993.

<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
Accumulated postretirement benefit obligation:
<S> <C> <C> <C>
Retirees.................................................................... $359.1 $410.8 $442.4
Fully eligible active plan participants..................................... 65.2 74.6 74.1
Other active plan participants.............................................. 127.3 145.6 154.1
------ ------ ------
Total................................................................... 551.6 631.0 670.6
Fair value of plan assets..................................................... -- -- --
------ ------ ------
Accumulated postretirement benefit obligations in excess of plan assets....... 551.6 631.0 670.6
Prior service cost not yet recognized in net periodic postretirement
benefit cost................................................................ -- -- --
Unrecognized transition obligation............................................ -- -- --
Unrecognized net loss......................................................... -- -- (11.3)
------ ------ ------
Accrued postretirement benefit cost........................................... $551.6 $631.0 $659.3

</TABLE>

49
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)
<TABLE>
<CAPTION>
1990 1991 1992 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net periodic postretirement benefit cost for 1990, 1991, 1992 and 1993
included the following components:
Service cost -- benefits attributed to service during the period........ $ 6.0 $ 6.5 $ 6.9 $ 6.9
Interest cost on accumulated postretirement benefit obligations......... 42.0 43.8 45.7 52.3
Actual return on assets................................................. -- -- -- --
Amortization of transition obligation................................... -- -- -- --
</TABLE>

For measurement purposes, health care costs are assumed to increase 10% in
1994 grading down by 1% per year to a constant level of 4.5% annual increase for
pre-65 benefits and 7% in 1994 grading down by 1% per year to a constant level
of 4.5% annual increase for post-65 benefits. In concluding that health care
trend rates will decrease at a rate of 1% per year, the Company has considered
future rates of inflation, recent movements toward managed health care programs
in negotiated contracts and the trend among larger companies toward the
formation of coalitions in an effort to reduce health care costs. The Company is
currently finalizing negotiations with health care providers in the Cincinnati-
Dayton corridor, a region that includes a significant number of the Company's
retirees. In addition, the Company intends to implement similar managed health
care programs in other geographic regions containing a concentration of its
retirees, and is developing a managed care network for all active and retired
salaried and union employees in Ohio. These programs will be in effect in
January 1995. The Company has also considered the recent political environment
and activities geared towards reducing health care costs and has taken into
consideration the level of health care costs in relation to the U.S. Gross
National Product (GNP). Despite the assumption that health care trend rates will
decrease 1% per year, the combination of assumptions used in the SFAS 106
valuation results in approximately 18% of GNP for health care costs by the year
2000 compared to 14% currently. A one (1) percentage point increase in the
assumed health care cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of January 1, 1994 by $75.7 and the
aggregate of the service cost and interest cost components of net period benefit
cost for the year then ended by $6.8. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% for 1993
and 8.5% for prior years. This 1% reduction in the discount rate associated with
a 1% reduction in the ultimate health care trend rate will increase OPEB expense
by $0.1.

The Company will adopt SFAS 112, Employers' Accounting for Postemployment
Benefits, effective January 1, 1993. Adoption of this standard did not have a
material effect on the accompanying consolidated financial statements.

6. RELATED PARTY TRANSACTIONS

During 1990, 1991, 1992 and 1993, the Company was party to certain
transactions with Armco, Kawasaki, and their affiliates. These transactions
consisted of charges to and from the Company for various services rendered and
received, and are reflected primarily in Selling and administrative expenses in
1990, 1991 and 1992, and in Cost of products sold in 1993 in the accompanying
Consolidated Statements of Operations. The following is a summary of such
related party services for the periods:

Services provided to Armco and affiliates by the Company:

Data processing......................................... $ 4.9 $ 3.6 $ 3.1 $ 1.4
Administrative and accounting........................... 2.4 1.9 0.9 0.7
Processing services and other materials................. 2.9 3.9 2.0 --
Processing and conversion............................... 0.6 0.9 4.6 13.3
Purchasing and selling.................................. 0.3 0.2 0.1 --
----- ----- ----- -----
Total............................................... $11.1 $10.5 $10.7 $15.4
===== ===== ===== =====
</TABLE>
50
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

Services provided to the Company by Armco, Kawasaki and their affiliates
and inventory purchases from Armco:

<TABLE>
<S> <C> <C> <C> <C>
Stainless purchases............................................. $ 7.5 $ 8.7 $15.3 $20.2
Research and engineering........................................ 11.1 11.6 9.8 4.0
Other........................................................... 1.8 2.5 0.3 0.8
----- ----- ----- -----
Total....................................................... $20.4 $22.8 $25.4 $25.0
===== ===== ===== =====
</TABLE>

Processing and conversion increased during 1992 and 1993 as the Company
provided services to Armco under a long-term toll rolling agreement, which will
continue in effect after completion of the proposed Recapitalization (see Note
11).

Research and engineering decreased in 1993 due to Armco transferring a
portion of their research staff to the Company on April 1, 1993. The cost of
this research staff for the nine-months ended December 31, 1993 was $3.8 and was
included in Selling and administrative expenses in the Consolidated Statements
of Operations and Partners' Capital (Deficit).

In 1993, the Company purchased processing services and other materials of
$3.6 from SOS. The Company acquired a 50% ownership interest in SOS to which
substantially all of the businesses of Southwestern Ohio Steel, Inc. and SOS
Leveling Company, Inc. were transferred by Armco.

Sales to Armco, Kawasaki and their affiliates were $101.2, $89.8, $85.9 and
$36.7 during 1990, 1991, 1992 and 1993, respectively, and sales to SOS were
$26.0 for the four months ended December 31, 1992 and $99.5 for 1993. All of
these amounts are included in Total Net Sales in the accompanying Consolidated
Statements of Operations. Other miscellaneous sales to Armco, Kawasaki and their
affiliates were $5.0, $2.5, $1.7 and $0.7 during 1990, 1991, 1992 and 1993,
respectively.

Under the Joint Venture Agreement, Armco is obligated to indemnify the
Company for certain supplemental unemployment benefit payments up to a maximum
of $20.0. As a result, the related receivables are included as reductions in
Partners' Capital (Deficit) in the accompanying Consolidated Balance Sheets.

7. COMMITMENTS

Virginia Horn is committed to fund its percentage share of certain defined
fixed costs of Eveleth. Through an agreement with Armco the Company has assumed
Armco's obligations relating to Virginia Horn which include a guarantee of
Virginia Horn's performance to the other participants of Eveleth Mines. Under
agreement with another owner of Eveleth, the Company purchased 300,000 tons of
iron ore from this Eveleth partner in 1993 and is expected to purchase at least
250,000 tons per year through 1996. Beginning in the fourth quarter of 1992,
Virginia Horn elected not to nominate to purchase equity iron ore pellets from
Eveleth. As a result of that decision together with doubts regarding the
continued level of support by the Eveleth Mines partners, in light of worldwide
excess iron ore capacity and Eveleth Mines' position as a high cost producer,
the Company concluded that its ability to recover its investment was doubtful
and therefore impaired its investment in Eveleth Mines (see Note 8). However,
the Company continues to record its proportionate share of Eveleth's losses, of
which approximately $12.0 per year is funded with cash. See Note 10.

As of December 31, 1993, the Company had agreed to purchase a total of 1.6
million tons of iron ore pellets from a Brazilian iron ore company through 1998.
Under this contract, the Company also has agreed to purchase sinter feed ore
requirements. In addition, the Company has agreed to purchase at least 6.5
million tons through 1997 from a North American pellet producer.

In June 1993, the Company and Peabody Coal Company ("Peabody") entered
into a six-year agreement that superseded a 1984 agreement. The new agreement
provides for a fixed market price from February 1994 through February 1996,
after which annual price adjustments will be made based on market prices. In
addition, Peabody agreed to a price reduction for the remainder of 1993.

51
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

The Company has committed to purchase property, plant and equipment
(including unexpended amounts relating to projects substantially under way)
amounting to approximately $74.8 (including $38.9 of environmental costs of
which $24.2 and $14.7 will be spent in 1994 and 1995 respectively) at
December 31, 1993.

8. SPECIAL CHARGES AND UNUSUAL ITEMS

The special charges and unusual items recorded in 1992 and 1993 are:

1992 1993
---- ----
<S> <C> <C>
Shutdown of Ashland Hot Strip Mill:
Disposal of assets(a)..................................... $ 2.3
Employee and retiree benefits including pensions.......... 13.7
------
Subtotal -- Shutdown of Ashland Hot Strip Mill....... 16.0
Reduction of Salaried Workforce............................. 39.0
Restructuring of Facilities:
Disposal and write-off of certain steelmaking assets(a)... 117.2 $ 7.6
Employee and retiree benefits including pensions.......... 144.5 5.0
Environmental liabilities................................. 11.0 --
Impairment of investment in Eveleth....................... 46.6 --
Other..................................................... 5.0 --
------ ------
Subtotal -- Restructuring of Facilities............. 324.3 12.6
Legal, litigation and other............................... -- 5.0
------ ------
TOTAL.............................................. $379.3 $ 17.6
====== ======
</TABLE>
- --------------
(a) Net of estimated realizable values.

In 1992, the Company recorded charges totalling $379.3 relating to
restructuring of facilities, workforce reductions and the impairment of its
investment in Eveleth. Restructuring of the facilities and workforce reductions
resulted from the determination that the Company had redundant assets, excess
capacity and excessive operating costs. The impairment of Eveleth followed the
Company's conclusion as to its inability to recover its investment (see Note
7). Most of these actions, which were intended to reduce future operating
costs, took place following an operations review conducted by the Company's
newly appointed management team and were completed in the fourth quarter of
1992.

In 1993, the Company continued to review its operations for the purpose
of reducing operating costs. In connection with this review, the Company
recorded additional charges of $12.6 for restructuring of facilities, and $5.0
for certain legal, litigation and other unusual items which consist of $3.0
that is reserved for litigation payments resulting from the aborted
outsourcing of operations in Ashland that were shut down as part of the
Ashland restructuring and $2.0 for legal expenses in connection with defending
the Company for existing and potential lawsuits relating to the workforce
terminations. See Note 10.

9. EXTRAORDINARY ITEM

The extraordinary item recorded in 1992 represents the following:

"The Coal Industry Retiree Health Benefit Act" requires that health
benefits for any pre-1976 retirees who were previously covered by one of two
insolvent United Mineworkers multi-employer welfare funds revert to their
former employers. Retirees of employers that no longer exist are also assigned
to surviving companies using a formula included in the legislation. The
Company was required to assume a portion of their benefits and recorded an
extraordinary loss of $12.1 of which $1.2 and $0.9 are included in Other
accruals and $10.9 and $11.9 in Other liabilities in the accompanying
Consolidated Balance Sheets as of December 31, 1992 and 1993, respectively.

52
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

10. LEGAL, ENVIRONMENTAL MATTERS AND CONTINGENCIES

Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment. The Company has expended, and can be
expected to expend in the future, substantial amounts for compliance with
these environmental laws and regulations. Capital expenditures for
environmental remediation and protection for 1993 totalled $16.4. In addition,
the Company made payments for environmental compliance of approximately $38.3
for 1993.

The Clean Air Act Amendments of 1990 (the "CAAA" or "Amendments") impose
new standards designed to reduce air emissions. The Amendments will directly
affect many of the Company's ongoing operations, particularly its coke oven
batteries. The Company believes that the costs of complying with the
Amendments will not have a material adverse effect on its financial condition,
results of operations or cash flows.

Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various
constitutions in coke plant wastewaters prior to discharge into publicly
owned treatment works ("POTW"). Due to concentrations of ammonia and phenol
in excess of these limits at the Middletown Works, the Company, through the
Middletown POTW, petitioned the United States Environmental Protection Agency
(the "EPA") for "removal credits," a type of compliance exemption, based on
the Middletown POTW's satisfactory treatment of the Company's wastewater for
ammonia and phenol. The EPA declined to review the Company's application on
the grounds that the EPA had failed to promulgate new sludge management
rules. As a result of the EPA's refusal, the Company sought and obtained from
the Federal District Court for the Southern District of Ohio an injunction
prohibiting the EPA from instituting enforcement action against the Company for
noncompliance with the pretreatment limitations, pending the EPA's
promulgation of the applicable sludge management regulations. Although the
Company is unable to predict the outcome of this matter, if the EPA eventually
refuses to grant the Company's request for removal credits, the Company could
incur additional costs to construct pretreatment facilities at the Middletown
Works. The estimated cost of such a facility is in the range of $2.0 to $4.0.
The Company believes those costs would not have a material adverse effect on
its financial condition, results of operations or cash flows.

The Company operates an on-site landfill for the disposal of various
sludges and dusts, principally resulting from air and water pollution
treatment systems at the Middletown Works. These materials are currently
considered non-hazardous wastes. The Company currently intends, subject to
approval by the Ohio Environmental Protection Agency (the "Ohio EPA"), to
expand the present landfill, which is expected to reach capacity in the next
eight to nine years. Based on current projections, the Company estimates that
the design and construction of the expansion, which is slated to begin in
mid-1994 with an anticipated completion date of January 1, 1996, will cost
approximately $6.2 million. If the expansion is not approved by the Ohio EPA,
the Company may incur increased disposal costs due to the need for off-site
disposal. The Company believes these costs would not have a material adverse
effect on its financial condition, results of operations or cash flows.

On December 5, 1986, Armco received notification from the EPA advising
that it was being considered as a PRP at the Maxey Flats Nuclear Disposal Site
near Morehead, Kentucky. Records from the landfill indicated that the Ashland
Works had sent approximately 120 cubic feet of material to the site. The
Company has been identified as de minimis contributor to the Maxey Flats site,
and as a result, anticipates that it will be able to resolve its liability for
a nominal amount.

53
<PAGE>

ARMCO STEEL COMPANY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in millions)

The Company will continue to review its businesses to determine if
additional facilities should be closed, written down or otherwise restructured
or if its workforce should be further reduced. In this regard, the Company is
negotiating with the Eveleth partners concerning the potential closure of, or
the Company's exit from, Eveleth. If these negotiations are successfully
completed, the closure of, or exit from, Eveleth would be subject to other
events, including the approval by the Company's Board of Directors, and could
result in a charge of approximately $30.0 million. This amount approximates
the Company's proportionate share of the potential shutdown costs arising from
the potential closure, which costs primarily represent employee and retiree
benefits and contract termination fees. In addition, in the second quarter of
1994 the Company may incur a charge of approximately $65.0 million relating to
further reductions of its workforce, subject to approval by the Company's
Board of Directors. This charge is expected to be comprised of approximately
$50.0 million for pension-related curtailments and $15.0 million for health
care related curtailments. Although it is not possible at this time for the
Company to determine accurately the amounts of any other special charges that
may result from the closure, write down or restructuring of other facilities
or from additional workforce reductions, additional special charges could be
incurred and may be substantial.

The company is also involved in routine litigation, other environmental
proceedings, and claims pending with respect to matters arising out of the
normal conduct of the business. In management's opinion, the ultimate
liability resulting from such claims, individually or in the aggregate, will
not materially affect the Company's consolidated financial position, results
of operations or cash flows.

In June 1990, the Company filed an antitrust action against several
companies. Effective February 25, 1992, the Company reached a confidential
settlement with three of the four remaining defendants. The settlement reduced
1992 Cost of products sold in the accompanying Consolidated Statements of
Operations. The Company is continuing to pursue the claim against the
remaining defendant.

11. SUBSEQUENT EVENTS

On January 13, 1994, the General Partner approved the filing with the
Securities and Exchange Commission of registration statements in connection
with a proposed Recapitalization of the Company (the "Recapitalization").

The Company is currently negotiating for the sale of its ownership
interest in SOS and another subsidiary of ASCII. No prediction can be made
concerning the ultimate outcome of such negotiations which, if successful,
would be subject to other events including the approval by the Company's Board
of Directors. However, the ultimate sale, if any, will not result in a loss.

54
<PAGE>

SCHEDULE V

ARMCO STEEL COMPANY, L.P.

PROPERTY, PLANT AND EQUIPMENT
(Dollars in Millions)
<TABLE>
<CAPTION>

Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance Balance
Beginning Additions Other at End
Classification of Period at Cost Retirements Changes of Period
-------------- --------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
For the Year ended December 31, 1990:
Land, land improvements and
leaseholds............................ $ 42.3 $ 1.3 $ 0.2 $ 0.3 (B) $ 43.7
Buildings.............................. 68.0 11.0 0.3 6.9 (B) 85.6
Machinery and equipment................ 569.9 165.3 0.8 13.7 (A) 767.5
19.2 (B)
0.2 (C)
Construction in progress............... 193.4 35.4 -- (26.4) (B) 202.4
-------- ------- -------- ------- --------
TOTAL.............................. $ 873.6 $ 213.0 $ 1.3 $ 13.9 $1,099.2
======== ======= ======== ======= ========

For the Year ended December 31, 1991:
Land, land improvements and
leaseholds............................ $ 43.7 $ 1.7 $ -- $ -- $ 45.4
Buildings.............................. 85.6 7.0 -- -- 92.6
Machinery and equipment................ 767.5 274.7 2.6 -- 1,039.6
Construction in progress............... 202.4 (120.3) -- -- 82.1
-------- ------- -------- ------- --------
TOTAL.............................. $1,099.2 $ 163.1 $ 2.6 $ -- $1,259.7
======== ======= ======== ======= ========

For the Year ended December 31, 1992:
Land, land improvements and
leaseholds............................ $ 45.4 $ 3.1 $ 0.8 $ (5.7) (D) $ 42.0
Buildings.............................. 92.6 1.3 -- (13.3) (D) 80.6
Machinery and equipment................ 1,039.6 115.6 1.6 (120.5) (D) 1,033.1
Construction in progress............... 82.1 (33.8) -- (22.6) (D) 25.7
-------- ------- -------- ------- --------
TOTAL.............................. $1,259.7 $ 86.2 $ 2.4 $(162.1) $1,181.4
======== ======= ======== ======= ========

For the Year ended December 31, 1993:
Land, land improvements and
leaseholds............................ $ 42.0 $ 0.1 $ 1.6 $ (0.1) (D) $ 40.4
Buildings.............................. 80.6 -- 0.5 -- 80.1
Machinery and equipment................ 1,033.1 28.5 4.8 2.7 (D) 1,059.5
Construction in progress............... 25.7 11.6 0.2 -- 37.1
-------- ------- -------- ------- --------
TOTAL.............................. $1,181.4 $ 40.2 $ 7.1 $ 2.6 $1,217.1
======== ======= ======== ======= ========
</TABLE>
- --------------
NOTES:
(A) Reclass from Lease-rights to Property upon payment of leases.

(B) Reclass additional portions of Caster undergoing modification to
construction in progress.

(D) Impair and reclass to investments, assets which are to be idled and sold as
part of the Company's restructuring plan.

55
<PAGE>

SCHEDULE VI

ARMCO STEEL COMPANY, L.P.

ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(Dollars in Millions)
<TABLE>
<CAPTION>

Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Additions
Balance Charged Balance
Beginning to Costs & Other at End
Classification of Period Expenses Retirements Changes of Period
-------------- --------- -------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>

For the Year ended December 31, 1990:
Land, land improvements and
leaseholds............................ $ 1.2 $ 1.8 $ -- $ -- $ 3.0
Buildings.............................. 4.7 5.0 -- -- 9.7
Machinery and equipment................ 36.7 66.0 0.2 0.8 (A) 105.6
2.3 (B)
------ ------ ------ ------ ------
TOTAL.............................. $ 42.6 $ 72.8 $ 0.2 $ 3.1 $118.3
====== ====== ====== ====== ======

For the Year ended December 31, 1991:
Land, land improvements and
leaseholds............................ $ 3.0 $ 1.6 $ -- $ (0.1)(C) $ 4.5
Buildings.............................. 9.7 5.4 -- (1.7)(C) 13.4
Machinery and equipment................ 105.6 75.6 2.0 0.9 (B) 181.9
1.8 (C)
------ ------ ------ ------ ------
TOTAL.............................. $118.3 $ 82.6 $ 2.0 $ 0.9 $199.8
====== ====== ====== ====== ======

For the Year ended December 31, 1992:
Land, land improvements and
leaseholds............................ $ 4.5 $ 1.4 $ 0.1 $ (0.2)(D) $ 5.6
Buildings.............................. 13.4 5.2 -- (4.4)(D) 14.2
Machinery and equipment................ 181.9 80.7 1.1 (8.7)(D) 252.8
------ ------ ------ ------ ------
TOTAL.............................. $199.8 $ 87.3 $ 1.2 $(13.3) $272.6
====== ====== ====== ====== ======

For the Year ended December 31, 1993:
Land, land improvements and
leaseholds............................ $ 5.6 $ 1.3 $ 0.5 $ 1.1 (B) $ 7.5
Buildings.............................. 14.2 4.0 0.1 0.2 (B) 18.3
Machinery and equipment................ 252.8 68.2 2.8 0.9 (D) 319.1
------ ------ ------ ------ ------
TOTAL.............................. $272.6 $ 73.5 $ 3.4 $ 2.2 $344.9
====== ====== ====== ====== ======
</TABLE>
- ----------
NOTES:
(A) Reclass from Lease-rights to Property upon payment of leases.

(B) Impairment of a blast furnace and other equipment.

(D) Impairment and reclassification to investments, assets which are to be
idled and sold as part of the Company's restructuring plan.

(E) Generally, depreciation rates on assets are 5% for land improvements and
leaseholds, 3-4% for Buildings and 5% for Machinery and equipment.

56
<PAGE>

SCHEDULE VIII

ARMCO STEEL COMPANY, L.P.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in Millions)

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------------------- ----------- ----------- ------------ -------------
Deductions
from
Reserves for
Additions Purposes for
Balance at Charged which
Beginning to Costs & Reserves were Balance at
Description of Period Expenses Provided End of Period
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
For the Year Ended December 31, 1990:
Allowance for doubtful accounts................. $ 2.7 $ 0.3 $ -- $ 3.0
Allowance for impairment of investments......... 0.1 -- -- 0.1
For the Year Ended December 31, 1991:
Allowance for doubtful accounts................. 3.0 1.5 2.0 2.5
Allowance for impairment of investments......... 0.1 -- -- 0.1
For the Year Ended December 31, 1992:
Allowance for doubtful accounts................. 2.5 1.0 0.8 2.7
Allowance for impairment of investments......... 0.1 46.6(A) -- 46.7
For the Year Ended December 31, 1993:
Allowance for doubtful accounts................. 2.7 1.8 -- 4.5
Allowance for impairment of investments......... 46.7 -- -- 46.7
</TABLE>
- --------------
NOTES:
(A) Represents impairment of Virginia Horn Taconite Company's investment in
Eveleth Expansion Company.

57
<PAGE>

SCHEDULE IX

ARMCO STEEL COMPANY, L.P.
SHORT-TERM BORROWINGS
(Dollars in Millions)

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
--------------------- ----------- ----------- ----------- ----------- -----------
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
Category of Aggregate at End Interest During the During the During the
Short-Term Borrowings of Period Rate Period(B) Period(B) Period(B)
--------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1990:
Payable to banks...................... $40.0 8.8% $40.0 $ 3.9 8.8%
Other(A).............................. 83.0 9.8 (C) 83.0 22.2 8.9
----- ----- ----- ----- -----

For the Year Ended December 31, 1991:
Payable to banks...................... $30.0 6.3% $68.0 $20.5 7.0%
Other(A).............................. 28.0 5.9 92.0 33.3 6.5
----- ----- ----- ----- -----

For the Year Ended December 31, 1992:
Payable to banks...................... $ -- --% $30.0 $ 4.8 5.5%
Other(A).............................. -- -- 55.0 26.6 4.2
----- ----- ----- ----- -----

For the Year Ended December 31, 1993:
Payable to banks...................... $ -- --% $ -- $ -- --%
Other(A).............................. -- -- -- -- --
----- ----- ----- ----- -----
</TABLE>
- --------------
NOTES:
(A) Borrowings from an affiliate, which are payable within one year.
(B) Based on daily balances.
(C) Based on average rates for two weeks preceding and following year-end.

58
<PAGE>

SCHEDULE X

ARMCO STEEL COMPANY, L.P.
SUPPLEMENTARY INCOME STATEMENT INFORMATION

<TABLE>
<CAPTION>
Column B
--------
Column A Charged to Costs and Expenses
-------- --------------------------------------------
Item 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Maintenance and repairs........ $278.5 $267.1 $265.5 $261.3

</TABLE>

59
<PAGE>

INDEPENDENT AUDITORS' REPORT
- ----------------------------

Armco Inc.:

We have audited the statement of consolidated net assets of Armco Financial
Services Group - Companies to be Sold as of December 31, 1993 and 1992 and the
related consolidated statements of operations and cash flows for each of the
three years in the period ended December 31, 1993. Our audits also included
Financial Statement Schedule I, Summary of Investments - Other than Investments
in Related Parties; Schedule III, Condensed Financial Information; Schedule VI,
Reinsurance; Schedule VIII, Valuation and Qualifying Accounts; and Schedule X,
Supplemental Information Concerning Property-Casualty Insurance Operations.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Armco Financial Services Group -
Companies to be Sold at December 31, 1993 and 1992 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

As discussed in Notes 3 and 6 to the consolidated financial statements,
effective January 1, 1993 the Company changed its method of accounting for
reinsurance contracts and postretirement benefits other than pensions. As
discussed in Note 1 to the consolidated financial statements, effective December
31, 1993 the Company changed its method of accounting for investments in debt
securities.

DELOITTE & TOUCHE

Milwaukee, Wisconsin
February 25, 1994

60
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD

STATEMENT OF CONSOLIDATED NET ASSETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in thousands)

ASSETS:
1993 1992
-------- --------
<S> <C> <C>
Investments (Notes 1, 2):
Fixed Maturity Investments:
Held to maturity at amortized cost
(market $38,879 and $162,819) $ 38,077 $156,657
Available for sale at market 1993 and
amortized cost 1992 (amortized cost
$366,528 in 1993 and market $253,758
in 1992) 379,849 248,684
Equity securities, at market value
(cost $1) 1 1
Cash equivalents 21,953 7,573
-------- --------

Total Investments 439,880 412,915
-------- --------

Cash 826 4,495
Accrued investment income 5,988 6,536
Premium balances receivable less
allowance for doubtful accounts of
$1,757 and $1,790 53,707 58,860
Prepaid reinsurance premiums 3,118 3,051
Reinsurance receivable (Note 3) 28,038 20,378
Deferred policy acquisition costs (Note 1) 19,712 19,727
Property and equipment net of
accumulated depreciation of $7,914 and
$6,577 7,299 7,942
Due from affiliates (Note 4) 803 -
Goodwill net of amortization of $549
and $366 (Note 1) 6,762 6,945
Other assets (Note 6) 5,267 4,822
-------- --------

TOTAL ASSETS $571,400 $545,671
======== ========

LIABILITIES AND NET ASSETS:
LIABILITIES:
Reserve for losses and loss
adjustment expenses (Note 3) $297,553 $284,309
Unearned premiums (Note 3) 95,992 101,528
Dividends to policyholders 4,755 5,659
Reinsurance premiums payable 1,247 2,171
Accrued expenses 8,580 9,158
Due to affiliates (Note 4) - 36
Postretirement and postemployment
benefits (Note 6) 15,347 -
Other liabilities 9,234 10,969
Note payable (Note 7) 2,800 5,600
-------- --------

TOTAL LIABILITIES 435,508 419,430
-------- --------

NET ASSETS (NOTE 8) 135,892 126,241
-------- --------

TOTAL LIABILITIES AND NET ASSETS $571,400 $545,671
======== ========
</TABLE>

See notes to consolidated financial statements.

61
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD

STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands)

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
REVENUES:

Net premiums earned (Note 3) $227,693 $239,886 $250,862
Net investment income (Note 2) 32,543 34,057 35,294
Net realized gain on investments (Note 2) 11,150 10,082 2,529
-------- -------- --------

TOTAL REVENUES 271,386 284,025 288,685
-------- -------- --------
EXPENSES:

Losses and loss adjustment expenses
(Note 3) 177,128 196,077 208,988
Policyholder dividends 2,414 2,966 5,170
Policy acquisition costs (Note 1) 46,456 49,912 56,256
Other expenses (Notes 4, 6) 34,814 37,853 32,380
-------- -------- --------

TOTAL EXPENSES 260,812 286,808 302,794
-------- -------- --------

INCOME (LOSS) FROM OPERATIONS 10,574 (2,783) (14,109)
INCOME TAX (BENEFIT) PROVISION (NOTE 5) 223 (166) 246
-------- -------- --------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 10,351 (2,617) (14,355)
-------- -------- --------

Cumulative effect on prior years of a
change in accounting principle for
postretirement benefits, (Note 6) (14,000) - -
-------- -------- --------

NET LOSS $ (3,649) $ (2,617) $(14,355)
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

62
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD

STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands)

1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ (3,649) $ (2,617) $ (14,355)
--------- --------- ---------
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 2,063 1,507 1,561
Gain on sale of fixed maturity
investments, net (11,150) (9,816) (3,385)
(Gain) loss on sale of
stock, net - (266) 855
Loss on sale of property and equipment 35 - -
Changes in:
Accrued investment income 548 (452) 482
Premium balances receivable 5,153 (906) 7,221
Reinsurance recoverable on paid losses - (495) (592)
Reinsurance receivable (7,660) (4,100) (3,652)
Deferred policy acquisition costs 15 2,381 3,275
Due to/from affiliates (839) 207 1,193
Prepaid reinsurance premiums (67) 38 608
Other assets (466) 384 2,016
Insurance reserves 7,708 8,740 17,251
Policyholder dividends payable (905) (330) 981
Reinsurance premiums payable (924) (228) (1,488)
Accrued expenses (578) 46 (3,308)
Postretirement and postemployment
benefits 15,347 - -
Other liabilities (1,755) 609 4,385
--------- --------- ---------
Total adjustments 6,525 (2,681) 27,403
--------- --------- ---------

NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,876 (5,298) 13,048
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of fixed maturity
investments:
Held to maturity 57,733 - -
Available for sale 212,834 - -
All other - 195,154 194,043
Proceeds from maturities of fixed
maturity investments:
Held to maturity - - -
Available for sale 7,318 - -
All other - 71,422 36,115
Proceeds from sales of equity securities - 454 506
Purchase of fixed maturity investments:
Held to maturity (40,674) - -
Available for sale (225,852) - -
All other - (269,216) (230,607)
Purchase of property and equipment (737) (1,184) (1,549)
Proceeds from sales of property and
equipment 13 - -
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 10,635 (3,370) (1,492)
--------- --------- ---------
</TABLE>

(continued)

63
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands)

<TABLE>
<CAPTION>
1993 1992 1991
------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable (2,800) (5,600) (2,800)
------- -------- -------

NET CASH USED IN FINANCING ACTIVITIES (2,800) (5,600) (2,800)
------- -------- -------

CHANGE IN CASH AND CASH EQUIVALENTS $10,711 $(14,268) $ 8,756

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 12,068 26,336 17,580
------- -------- -------

CASH AND CASH EQUIVALENTS AT END OF YEAR $22,779 $ 12,068 $26,336
======= ======== =======

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for income taxes $ 150 $ 58 $ 342
Cash paid for interest 408 831 1,010
</TABLE>

See notes to consolidated financial statements.
- ------------------------------------------------------------------------------

64
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
- ----------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Armco Financial Services Group - Companies to be Sold (AFSG - Companies to be
Sold or the Company) consists of the net assets of Armco Inc.'s (Armco)
insurance companies which Armco intends to sell and which continue
underwriting activities. These activities principally represent the
transactions of Northwestern National Holding Company, Inc. (NNHC), which
is a wholly owned subsidiary of Armco Financial Services Corporation
(AFSC), which is a wholly owned subsidiary of Armco and is accounted for by
Armco as an investment in net assets using the cost recovery method.

NNHC owns 100% of the common and preferred stock of Northwestern National
Casualty Company and its wholly owned subsidiary, NN Insurance Company
(collectively, NNCC), Pacific National Insurance Company and its wholly owned
subsidiary, Pacific Automobile Insurance Company (collectively, PNIC), SICO,
Inc. and its wholly owned subsidiary, Statesman Insurance Company and
Statesman's wholly owned subsidiary Timeco, Inc. (collectively, SICO) and
Certified Finance Corporation (CFC). CFC had not commenced operations as of
December 31, 1993.

Principles of Consolidation - The consolidated financial statements include
---------------------------
the accounts of NNHC and its subsidiaries NNCC, PNIC, SICO and CFC.
Significant intercompany accounts and transactions have been eliminated.

Business Segment - The Company operates in a single business segment,
----------------
property and casualty insurance.

Basis of Presentation - The accompanying financial statements have been
---------------------
prepared on the basis of generally accepted accounting principles (GAAP)
which vary from statutory reporting practices prescribed or permitted for
insurance companies by regulatory authorities (see Note 8).

Investments - In May 1993, the Financial Accounting Standards Board (FASB)
-----------
issued Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
statement requires fixed maturity investments which are available for sale
to be recorded at market value. The Company adopted SFAS No. 115 on
December 31, 1993 and reclassified certain investments from the "held to
maturity class" into the "available for sale" class on the same date. The
financial statement effect of adopting the statement was to increase
investments by $13,321,000 and net assets by $13,321,000. Amounts reported
in the Statement of Consolidated Cash Flows for 1993 are based on the
classification of securities prior to the adoption of SFAS No. 115.

Fixed maturity investments include bonds and mortgage-backed securities.
Fixed maturity investments which the Company has the positive intent and
ability to hold to maturity ("held to maturity") are reported at amortized
cost. Fixed maturity investments which are available for sale ("available
for sale") are reported at market value as of December 31, 1993 and at the
lower of amortized cost or market, determined in the aggregate, as of
December 31, 1992. Equity securities are common stocks which are reported
at market value. The difference between cost and market value of common
stocks, and investments available for sale at December 31, 1993, is
reflected as a component of net assets. Short-term investments (cash
equivalents) are reported at cost which approximates market value.

During 1992, the Company re-evaluated its intentions to hold to maturity all
of its bonds and reclassified certain investments as available for sale.
Investments classified as available for sale are expected to be held for an
indefinite period and may be sold depending on interest rates, cash
requirements and other considerations. Because the aggregate market value of
these investments exceeded the amortized cost, there was no financial
statement effect of this reclassification as of December 31, 1992.

65
<PAGE>

Investment income consists primarily of interest which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined
on the effective yield method based on scheduled principal payments.
Realized capital gains and losses, calculated as the difference between
proceeds and book value, are determined by specific identification of the
investments sold.

Recognition of Premium Revenues - Premiums, net of reinsurance ceded, are
-------------------------------
earned on a pro rata basis over the term of the policy.

Deferred Policy Acquisition Costs - Policy acquisition costs that vary with
---------------------------------
and are directly related to the production of premiums are deferred and
amortized over the terms of the policies to which they relate. Amortization
for the years ended December 31, 1993, 1992 and 1991 was $46,456,000,
$49,912,000 and $56,256,000, respectively.

Depreciation - Depreciation on property and equipment is provided primarily
------------
on the straight-line basis over the estimated useful lives of the
respective assets.

Goodwill - Goodwill, which represents the excess of cost over the fair value
--------
of net assets of acquired subsidiaries is amortized on a straight-line basis
over periods not exceeding 40 years.

Cash Flow - For purposes of reporting cash flows, the Company considers all
---------
highly liquid short-term investments purchased with maturities of three
months or less to be cash equivalents.

Insurance Liabilities - The liability for losses and loss adjustment expenses
---------------------
is reported net of a receivable for salvage and subrogation of $7,746,000,
$7,523,000 and $7,499,000 at December 31, 1993, 1992 and 1991, respectively.

Participating Policy Contracts - Participating business represents
------------------------------
approximately 14%, 13% and 11% of total premiums in force at December 31,
1993, 1992 and 1991, respectively. Participating business is composed
entirely of workers' compensation policies. The amount of dividends to be
paid on these policies is determined based on the provisions of the
individual policies. Dividend expense for the years ended December 31,
1993, 1992 and 1991, was $2,414,000, $2,966,000 and $5,170,000, respectively.

66
<PAGE>

2. INVESTMENTS

The amortized cost and market value of the Company's fixed maturity
investments as of December 31, 1993 that are designated as held to maturity
are as follows:

<TABLE>
<CAPTION>
GROSS GROSS
1993 AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in Thousands) COST GAINS LOSSES VALUE
--------- ---------- ----------- -------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US government
corporations and agencies $33,100 $1,091 $(240) $33,951

Corporate securities 1,000 1 - 1,001

Mortgage-backed securities 3,977 40 (90) 3,927
------- ------ ----- -------

Total fixed maturity investments
held to maturity $38,077 $1,132 $(330) $38,879
======= ====== ===== =======
</TABLE>

67
<PAGE>

The amortized cost and market value of the Company's fixed maturity investments
as of December 31, 1993 that are designated as available for sale are as
follows:

Gross Gross
1993 Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
US Treasury securities and obligations
of US government corporations and
agencies $ 48,399 $ 2,204 $ (452) $ 50,151

Corporate securities 189,579 7,273 (1,604) 195,248

Mortgage-backed securities 110,933 6,432 (450) 116,915

Other debt securities 17,617 436 (518) 17,535
-------- ------- ------- --------

Total fixed maturity investments
available for sale $366,528 $16,345 $(3,024) $379,849
======== ======= ======= ========
</TABLE>

The amortized cost and market value of the Company's fixed maturity
investments as of December 31, 1992 that are designated as held to maturity
are as follows:

<TABLE>
<CAPTION>
GROSS GROSS
1992 AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in Thousands) COST GAINS LOSSES VALUE
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US government
corporations and agencies $ 23,300 $1,018 $ (1) $ 24,317

Corporate securities 65,076 2,241 (51) 67,266

Mortgage-backed securities 67,152 3,190 (290) 70,052

Other debt securities 1,129 55 - 1,184
-------- ------ ----- --------

Total fixed maturity investments
held to maturity $156,657 $6,504 $(342) $162,819
======== ====== ===== ========
</TABLE>

68
<PAGE>

The amortized cost and market value of the Company's fixed maturity investments
as of December 31, 1992 that are designated as available for sale are as
follows:

Gross Gross
1992 Amortized Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
US Treasury securities and obligations
of US government corporations and
agencies $ 34,872 $ 977 $ (4) $ 35,845

Corporate securities 133,670 2,508 (1,336) 134,842

Mortgage-backed securities 72,430 3,132 (347) 75,215

Other debt securities 7,712 145 (1) 7,856
-------- ------ ------- --------

Total fixed maturity investments
available for sale $248,684 $6,762 $(1,688) $253,758
======== ====== ======= ========
</TABLE>

The amortized cost and market value of the Company's fixed maturity
investments at December 31, 1993, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

AVAILABLE FOR HELD TO MATURITY
SALE
AMORTIZED MARKET AMORTIZED MARKET
(Dollars in Thousands) COST VALUE COST VALUE
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 737 $ 754 $ 2,577 $ 2,637
Due after one year through
five years 79,793 81,933 11,560 11,641
Due after five years through
ten years 54,874 56,728 5,942 6,137
Due after ten years 120,191 123,519 14,021 14,537
-------- -------- ------- -------
255,595 262,934 34,100 34,952

Mortgage-backed securities 110,933 116,915 3,977 3,927
-------- -------- ------- -------
$366,528 $379,849 $38,077 $38,879
======== ======== ======= =======
</TABLE>

Proceeds from fixed maturity investment sales and gross realized gains and
losses during 1993 are as follows:

PROCEEDS PROCEEDS GROSS GROSS
FROM FROM REALIZED REALIZED
(Dollars in Thousands) SALES MATURITIES GAINS LOSSES
----------- ----------- --------- --------
<S> <C> <C> <C> <C>
Available for sale $212,834 $ 7,318 $10,520 $ (498)

Held to maturity 57,733 0 1,209 (81)
-------- -------- ------- -------
$270,567 $ 7,318 $11,729 $ (579)
======== ======== ======= =======
</TABLE>

Proceeds from sales and maturities of investments during 1992 and 1991 were
$267,030,000 and $230,664,000, respectively. Gross gains of $11,060,000 and
$5,514,000 and gross losses of $978,000 and $2,985,000 were realized on those
sales.

69
<PAGE>

At December 31, 1993 and 1992, the Company's fixed maturity investments
carried at amortized cost of $52,845,000 and $44,716,000, respectively, were
on deposit with regulatory authorities.

Total investment income, investment expense and net investment income for the
years ended December 31, 1993, 1992 and 1991 were as follows:

<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
INVESTMENT INCOME:
Fixed maturity investments $32,485 $33,693 $34,561
Short-term investments 416 761 1,073
------- ------- -------

Total investment income 32,901 34,454 35,634

Investment expense (358) (397) (340)
------- ------- -------

Net investment income $32,543 $34,057 $35,294
======= ======= =======
</TABLE>

3. REINSURANCE ACTIVITY

The Company limits the maximum net loss which can arise from large risks or
risks in concentrated areas of exposure by reinsuring (ceding) certain levels
of risks with other insurers, either on an automatic basis or under general
reinsurance contracts known as "treaties" or by negotiation on substantial
individual risks. Ceded reinsurance is treated as the risk and liability of
the assuming companies.

Reinsurance contracts do not relieve the Company from its obligations to
policyholders. In the event that reinsuring companies are unable to meet
their obligations under the agreements, the Company would continue to have
primary liability to policyholders for losses incurred. The Company evaluates
the financial condition of its reinsurers and evaluates concentrations of
credit risk when determining reinsurance placements. At December 31, 1993
reinsurance receivables of $18,061,000 and prepaid reinsurance premiums of
$2,026,000 were associated with a single reinsurer. The Company has never
suffered a significant loss due to reinsurers unable to meet their
obligations.

70
<PAGE>

The following tables summarize amounts related to reinsurance assumed and ceded
as of December 31, 1993, 1992 and 1991 and for the years then ended,
respectively.

Premium Activity:
(Dollars in Thousands)
1993 1992
------------------------------ ------------------------------
WRITTEN EARNED UNEARNED WRITTEN EARNED UNEARNED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Direct $209,791 $215,075 $ 83,983 $222,541 $223,543 $89,267
Assumed:
Unaffiliated 6,786 6,173 2,042 3,855 4,156 1,429
Affiliated 20,761 21,626 9,967 24,461 25,200 10,832
Ceded:
Unaffiliated (15,241) (15,174) (3,118) (12,963) (13,002) (3,051)
Affiliated (7) (7) - (11) (11) -
-------- -------- -------- -------- -------- --------

Net $222,090 $227,693 $ 92,874 $237,883 $239,886 $98,477
======== ======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
1991
------------------------------
WRITTEN EARNED UNEARNED
-------- -------- --------
<S> <C> <C> <C>
Direct $226,834 $227,084 $ 90,269
Assumed:
Unaffiliated 5,642 5,506 1,730
Affiliated 25,527 32,794 11,571
Ceded:
Unaffiliated (13,858) (14,465) (3,090)
Affiliated (57) (57) -
-------- -------- --------

Net $244,088 $250,862 $100,480
======== ======== ========
</TABLE>

71
<PAGE>

Loss and Loss Adjustment Expense (LAE) Activity:
(Dollars in Thousands)

<TABLE>
<CAPTION>
1993 1992
------------------------- -----------------------
LIABILITY LIABILITY
INCURRED FOR INCURRED FOR
LOSS & LAE LOSS & LAE LOSS & LAE LOSS & LAE
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Direct $175,232 $262,345 $184,620 $242,866
Assumed:
Unaffiliated 4,774 12,795 3,781 12,052
Affiliated 11,137 30,993 20,280 40,681
Ceded:
Unaffiliated (13,781) (26,643) (11,590) (18,352)
Affiliated (234) (8,580) (1,014) (11,290)
-------- -------- -------- --------

Net $177,128 $270,910 $196,077 $265,957
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
1991
------------------------
LIABILITY
INCURRED FOR
LOSS & LAE LOSS & LAE
---------- -----------
<S> <C> <C>
Direct $183,060 $226,861
Assumed:
Unaffiliated 6,226 12,237
Affiliated 34,663 50,716
Ceded:
Unaffiliated (12,367) (16,977)
Affiliated (2,594) (13,561)
-------- --------

Net $208,988 $259,276
======== ========
</TABLE>

72
<PAGE>

In December 1992, the FASB issued SFAS No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts." The
statement establishes the conditions required for a contract to be
accounted for as reinsurance and prescribes accounting and reporting
standards for those contracts. The Company adopted SFAS No. 113 on January
1, 1993. Prior to the adoption of the new statement, assets and liabilities
were reported net of the effects of reinsurance. Subsequent to the adoption
of the new statement, ceded reinsurance balances due from unaffiliated
insurers are reported separately as assets. Ceded reinsurance balances due
from affiliated insurers continue to be reported in liabilities. As
permitted by the statement, prior period financial statements have been
restated.

4. TRANSACTIONS WITH AFFILIATES

The Company has entered into a number of agreements or arrangements with
affiliated companies in connection with intercompany services. The net
amounts charged (credited) to operations during 1993, 1992 and 1991, were as
follows:

<TABLE>
<CAPTION>
(Dollars in Thousands) 1993 1992 1991
----- ----- ------
<S> <C> <C> <C>
Service fees $ 32 $ 29 $ 27
Office rental - - 1,016
Other 635 737 567
----- ----- ------
$ 667 $ 766 $1,610
===== ===== ======
</TABLE>

The net amount due from affiliates at December 31, 1993, which includes fees
and assessments paid by the Company on behalf of affiliates, was $803,000. At
December 31, 1992, $36,000 was due to affiliates.

5. INCOME TAXES

Armco and the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109) effective January 1, 1993.
SFAS No. 109 requires an asset and liability approach for financial
accounting. Armco accounted for the operating results of the AFSG - Companies
to be Sold under the cost recovery method, whereby net income is not
recognized until realized through a sale of the business, while net losses
are charged against income as incurred. These businesses are now presented as
discontinued operations with a portion of the consolidated Armco federal tax
provision/benefit being allocated to the Company in accordance with the
intraperiod tax allocation provisions of SFAS No. 109. Because Armco is in a
consolidated net operating loss position for both financial reporting and
federal income tax purposes, no federal income tax provision or benefit was
allocated to the Company. Because Armco accounts for the Company as an
investment which it intends to sell, the cumulative effect of adopting SFAS
No. 109 and the deferred federal tax assets and liabilities applicable to the
Company are recorded on the books of Armco, rather than by the Company.

The Company and its subsidiaries file state income tax returns in several
states on both a separate company and combined basis. A provision (benefit)
of $223,000, $(166,000) and $246,000 is reported in the Statement of
Consolidated Operations for the years ended December 31, 1993, 1992 and 1991,
respectively. The 1993 provision includes a current year state income tax
provision of $224,000 and adjustments to prior years state income taxes of
$(1,000). The 1992 benefit includes a current year state income tax provision
of $27,000 and a refund from prior year state income taxes of $(193,000). The
1991 provision includes a current year state income tax provision of $2,000
and an adjustment to prior years state income taxes of $244,000.

73
<PAGE>

6. PENSION, PROFIT SHARING AND BENEFIT PLANS

The Company has a noncontributory, trusteed retirement plan covering
substantially all of its employees. Pension costs relating to this retirement
plan are computed based on accepted actuarial methods. It is the Company's
policy to fund pension costs as they accrue, but, in no event at less than
the amount required by, nor more than the maximum amount allowable under, the
Employee Retirement Income Security Act of 1974 (ERISA). Contributions are
intended to provide not only for benefits attributed to service to date but
also for those expected to be earned in the future.

The following table sets forth the retirement plan's funded status and
amounts recognized in the financial statements of the Company at December 31,
1993, 1992 and 1991:

(Dollars in Thousands) 1993 1992 1991
--------- --------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$28,833 for 1993, $23,148
for 1992 and $22,356 for 1991 $ 29,592 $ 23,498 $ 22,885
======== ======== ========

Projected benefit obligation for
service rendered to date $(31,761) $(26,474) $(26,006)
Plan assets at market value 36,412 33,520 33,373
-------- -------- --------
Plan assets in excess of projected
benefit obligation 4,651 7,046 7,367
Unrecognized net (gain) loss 532 (1,754) (2,102)
Unrecognized net asset at December 31,
being amortized over 15 years (2,504) (2,817) (3,130)
Unrecognized prior service cost 31 39 47
-------- -------- --------
Prepaid pension cost $ 2,710 $ 2,514 $ 2,182
======== ======== ========
</TABLE>

Net periodic pension benefit for 1993, 1992 and 1991 included the following
components:

<TABLE>
<S> <C> <C> <C>
Service cost -- benefits earned during
the period $ 825 $ 792 $ 632
Interest cost on projected benefit
obligation 2,141 2,030 1,982
Actual return on plan assets (4,735) (1,894) (7,034)
Net amortization and deferral 1,573 (1,259) 4,079
-------- -------- --------

Net periodic pension benefit $ (196) $ (331) $ (341)
======== ======== ========
</TABLE>

The following assumptions were used in determining the actuarial present
value of the projected benefit obligation as of December 31, 1993, 1992 and
1991:

<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Settlement rate 7.25% 8.00% 8.00%
Increase in future compensation levels 4.00% 5.00% 5.00%
Long-term rate of return on assets 8.25% 8.75% 8.75%
</TABLE>

74
<PAGE>

The Company, along with other affiliates, has a benefit plan which provides
medical and dental benefits for eligible retired employees. Substantially,
all employees become eligible for these benefits if they reach normal
retirement age while working for the Company. These benefits are funded as
claims are paid. In December 1990, the FASB issued SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The standard
requires the accrual of expense for these benefits during the years the
employee is actively employed. The Company adopted SFAS No. 106 on January 1,
1993. The cumulative effect of the accounting change resulted in a decrease
in 1993 income of $14,000,000.

The following table sets forth the benefit plan's funded status and amounts
recognized in the balance sheets of the companies participating in the plan as
of December 31, 1993.

(Dollars in thousands)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $12,789
Fully eligible active plan participants 876
Other active plan participants 7,637
-------
Total 21,302

Plan assets at fair value -
-------

Accumulated postretirement benefit obligation
in excess of plan assets 21,302

Unrecognized transition obligation -
Unrecognized prior service cost -
Unrecognized loss (937)
-------
Accrued postretirement benefit liability $20,365
=======
</TABLE>

The accrued postretirement benefit liability applicable solely to the Company
is $14,633,000 as of December 31, 1993.

<TABLE>
<S> <C>
Net postretirement benefit cost for 1993
includes the following components:
Service cost $ 1,007
Interest cost on accumulated postretirement
benefit obligation 1,492
Actual return on plan assets -
Net amortization and deferral -
-------
Net periodic postretirement benefit cost 2,499
Recognition of transition obligation 13,147
-------
Net postretirement benefit cost $15,646
=======

</TABLE>
Net postretirement benefit cost applicable solely to the Company for the year
ended December 31, 1993 is $15,174,000.

For measurement purposes, an 11.25% annual rate of increase in the per capita
cost of covered health care benefits for non-Medicare eligible participants
was assumed for 1994 (8.25% used for Medicare eligible participants); the rate
was assumed to decrease gradually to 5.25% for all participants by 2000 and
remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing
the assumed health care cost trend rates by one percentage point in each year
would increase the plan's accumulated postretirement benefit obligation as of
December 31, 1993 by $2,866,000, and the aggregate service cost and interest
cost components of the plan's net periodic postretirement benefit cost for the
year by $446,000. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation at December 31, 1993 was 7.25%.

The Company also has a noncontributory, trusteed profit sharing plan. Annual
contributions to the plan (limited to a maximum of 15% of participating
salaries) are based upon operating results of the Company. No expense was
recorded for the years ended December 31, 1993, 1992 and 1991.

75
<PAGE>

The Company provides medical, dental and life insurance benefits to eligible
participants on long-term disability, at no cost to the participant. Prior
to 1993, the Company expensed these benefits on a pay-as-you-go basis. In
December 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires recognition of an
employer's obligation to provide benefits to former and inactive employees
after employment but before retirement. The Company adopted SFAS No. 112 in
1993. The cumulative effect of the accounting change, reported on the
Statement of Consolidated Operations as a component of other expenses,
resulted in a decrease in 1993 income of $715,000.

7. NOTE PAYABLE

As partial financing of the SICO acquisition, the Company entered into a
$14,000,000 term loan agreement with a local bank. The Company has the
option of electing an interest rate tied to the bank's prime or Eurodollar
rate. The interest rate on the loan was 5.875%, 5.625% and 7.69% as of
December 31, 1993, 1992 and 1991, respectively. The term loan is secured by
the stock of SICO. Under the terms of the loan agreement, the Company is
required to make principal payments of $700,000 on March 31, 1994 and each
quarter end thereafter through December 31, 1994.

The loan is subject to various covenants. At December 31, 1993, the lender
waived compliance with certain existing covenants and new covenants were
negotiated effective January 1, 1994. The new covenants require the Company
to maintain tangible shareholder's equity, as defined, of $120 million
during fiscal 1994. At December 31, 1993, as defined, tangible
shareholder's equity was $138.1 million. In addition, various covenants
applicable to the Company's subsidiaries require minimum statutory surplus
levels and maximum premiums to surplus ratios.

8. NET ASSETS

NNHC depends on dividends from its subsidiaries to service debt and pay
expenses. The payment of shareholder dividends by insurance companies
without the prior approval of the state insurance regulators is limited to
formula amounts based on net investment income, and capital and surplus
determined in accordance with statutory accounting principles. At December
31, 1993, approximately $4.2 million of dividends are available without
prior regulatory approval.

NNCC paid dividends to NNHC of $3,170,000, $3,896,500 and $3,500,000 during
the years ended December 31, 1993, 1992 and 1991, respectively

In accordance with the terms of an order dated April 10, 1985 of the
Insurance Commissioner of the State of California (the Commissioner), PNIC
may not pay any dividend or other distribution unless the dividend is
approved by the Commissioner. PNIC received approval for and paid dividends
to NNHC of $1,000,000 during the year ended December 31, 1992 and $450,000
during the year ended December 31, 1991.

SICO paid dividends to NNHC of $1,500,000 during the year ended December 31,
1992.

During the year ended December 31, 1991, PNIC redeemed all 500,000 shares of
its preferred stock owned by NNHC at the $10 par value. Simultaneous with
this redemption, NNHC made a $2,000,000 capital contribution to PNIC and a
$3,500,000 contribution to NNCC. This transaction was approved by the
Commissioner.

The following information has been prepared on the basis of statutory
accounting principles which differ from GAAP. The principal differences
relate to deferred acquisition costs and assets not admitted for statutory
reporting.
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
-------- ------- --------
<S> <C> <C> <C>
Statutory net income (loss) $ 9,704 $ 245 $ (9,639)
Statutory policyholders' surplus 108,734 94,212 100,581

</TABLE>

76
<PAGE>

9. FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments. In
developing the fair value of financial instruments, the Company uses
available market quotes and data, provided by external pricing services,
as well as valuation methodologies where appropriate. As considerable
judgment is required in interpreting market data and performing valuation
methodologies, the fair value estimates presented below are not
necessarily indicative of the amounts the Company might pay or receive in
actual current market transactions. Furthermore, as a number of the
Company's significant assets and liabilities are excluded from the
provisions of SFAS No. 107, the disclosures below do not reflect the
Company's statement of net assets on a fair value basis, nor the fair
value of the Company as a whole.
<TABLE>
<CAPTION>

(Dollars in thousands) December 31, 1993 December 31, 1992
------------------- -------------------

Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial Assets:

Fixed maturity investments $417,926 $418,728 $405,341 $416,577
Equity securities 1 1 1 1
Cash and cash equivalents 22,779 22,779 12,068 12,068
Accrued investment income 5,988 5,988 6,536 6,536
Premium balances receivable 53,707 53,707 58,860 58,860

Financial Liabilities:

Other liabilities 9,234 9,234 10,969 10,969
Note payable 2,800 2,800 5,600 5,600
</TABLE>

The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:

Financial Assets
----------------

Fair values for fixed maturity investments are based on quoted
market prices.

Equity securities are valued based on quoted market prices.

Cash and cash equivalents are highly liquid investments with maturities of
less than three months; carrying value approximates fair value.

Accrued investment income is valued at carrying value as it is short-term
in nature.

Insurance premium balances receivable are generally collected on a monthly
basis. Due to the short-term nature of these receivables, their carrying
value approximates fair value.

Financial Liabilities
---------------------

The Company's insurance reserves are specifically excluded from the
provisions of SFAS No. 107.

Other financial liabilities are valued at their carrying value due to their
short-term nature. As permitted under SFAS No. 107, other financial
liabilities exclude postretirement and postemployment benefit obligations
for purposes of this disclosure.

The fair value of the Company's note payable is based on current rates
offered to the Company for debt of the same remaining maturities.

77
<PAGE>

10. COMMITMENTS

The Company leases certain office facilities and equipment under operating
leases. Minimum rental commitments under noncancelable leases are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
1994 $3,013
1995 2,288
1996 1,762
1997 1,595
1998 115
Thereafter -
------
$8,773
======
</TABLE>

Total rental expense was $2,512,000, $2,291,000 and $2,201,000 in 1993, 1992
and 1991, respectively.

11. LITIGATION

The Company is involved in various lawsuits that have arisen from the normal
conduct of business. These proceedings are handled by corporate and outside
counsel. It is the opinion of management that the outcome of these
proceedings will not have a material effect on the Company's financial
condition or liquidity; however, it is possible that due to fluctuations in
the Company'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.

12. SUBSEQUENT EVENTS

On January 31, 1994, Armco announced that it had signed a letter of intent to
sell Northwestern National Holding Company, Inc. and its subsidiaries to Vik
Brothers Insurance, Inc. (Vik), a privately held, Raleigh, North Carolina-
based property and casualty insurance holding company. In connection with the
proposed transaction, Vik would pay approximately $70 million at the closing
and approximately $15 million, reduced by a potential adjustment for adverse
experience in the insurance reserves, in three years. The final agreement is
subject to a number of conditions, including a definitive purchase agreement,
and approvals by regulatory authorities and the boards of directors of both
companies.

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

78
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD SCHEDULE I

SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1993
(Dollars in thousands)

<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
MARKET IN THE
TYPE OF INVESTMENT COST VALUE BALANCE
SHEET
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITY INVESTMENTS:
Bonds:
United States Government and government
agencies and authorities $116,058 $119,860 $119,058
Public utilities 17,617 17,535 17,535
All other corporate bonds 270,930 281,333 281,333
-------- -------- --------

TOTAL FIXED MATURITIES 404,605 418,728 417,926
-------- -------- --------

EQUITY SECURITIES:
Common stocks:
Industrial, miscellaneous
and all other 1 1 1
-------- -------- --------

TOTAL EQUITY SECURITIES 1 1 1
-------- -------- --------

SHORT-TERM INVESTMENTS 21,953 21,953 21,953
-------- -------- --------

TOTAL INVESTMENTS $426,559 $440,682 $439,880
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

79
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - SCHEDULE III
COMPANIES TO BE SOLD (PARENT ONLY)

CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF NET ASSETS AS
OF DECEMBER 31, 1993 AND 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1993 1992
ASSETS: -------- --------
<S> <C> <C>
Investments:
Equity securities at market value (cost $1) $ 1 $ 1
Investments in stock of subsidiaries
accounted for on the equity method 131,943 124,947
Cash 5 55
Other assets 6,802 7,008
-------- --------
TOTAL ASSETS $138,751 $132,011
======== ========

LIABILITIES AND NET ASSETS:
LIABILITIES:
Other liabilities $ 59 $ 170
Note payable 2,800 5,600
-------- --------

TOTAL LIABILITIES 2,859 5,770
-------- --------

NET ASSETS 135,892 126,241
-------- --------

TOTAL LIABILITIES AND NET ASSETS $138,751 $132,011
======== ========
</TABLE>

See notes to condensed financial information.

80
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - SCHEDULE III
COMPANIES TO BE SOLD (PARENT ONLY)

CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992
AND 1991
(Dollars in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
REVENUES:

Net investment income $ - $ - 18
-------- -------- --------
TOTAL REVENUES - - 18

EXPENSES:

Interest expense 299 728 1,037
Other expenses 216 230 230
-------- -------- --------

TOTAL EXPENSES 515 958 1,267

LOSS - BEFORE EQUITY IN NET INCOME
(LOSS) OF SUBSIDIARIES (515) (958) (1,249)

EQUITY IN NET INCOME (LOSS) OF 10,866 (1,659) (13,106)
SUBSIDIARIES -------- -------- --------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 10,351 (2,617) (14,355)
-------- -------- --------
Cumulative effect on prior years of a
change in accounting principle for
postretirement benefits (14,000) - -
-------- -------- --------

NET LOSS $ (3,649) $ (2,617) $(14,355)
======== ======== ========
</TABLE>

See notes to condensed financial information.

81
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - SCHEDULE III
COMPANIES TO BE SOLD (PARENT ONLY)

CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992
AND 1991
(Dollars in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
-------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,649) $(2,617) $(14,355)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Equity in net (income) loss of
subsidiaries (11,560) 1,659 13,106
Cumulative effect of accounting
changes 14,000 - -
Dividends received from subsidiaries 3,170 6,396 3,950
Amortization 183 183 183
Changes in:
Other assets 23 (7) 178
Other liabilities 583 (107) 16
-------- ------- --------
Total adjustments 6,399 8,124 17,433
-------- ------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,750 5,507 3,078
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution to subsidiaries - - (5,500)
Proceeds from redemption of preferred
stock - - 5,000
-------- ------- --------

NET CASH USED IN INVESTING ACTIVITIES - - (500)
-------- ------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable (2,800) (5,600) (2,800)
-------- ------- --------

NET CASH USED IN FINANCING
ACTIVITIES (2,800) (5,600) (2,800)
-------- ------- --------

CHANGE IN CASH AND CASH EQUIVALENTS (50) (93) (222)

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 55 148 370
-------- ------- --------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5 $ 55 $ 148
======== ======= ========

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 408 $ 831 $ 1,010
</TABLE>

See notes to condensed financial information.
- --------------------------------------------------------------------------------

82
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - SCHEDULE III
COMPANIES TO BE SOLD (PARENT ONLY)

CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993,
1992 AND 1991

1. The accompanying condensed financial information should be read in
conjunction with the consolidated financial statements of the AFSG -
Companies to be Sold.

2. Long-term debt consists of the following:
<TABLE>
<CAPTION> December 31,
1993 1992
------- -------
<S> <C> <C>
Note payable $2,800 $5,600
====== ======
</TABLE>
As partial financing of the SICO acquisition, the Company entered into a
$14,000,000 term loan agreement with a local bank. The Company has the option
of electing an interest rate tied to the bank's prime or Eurodollar rate. The
interest rate on the loan was 5.875%, 5.625% and 7.69% as of December 31,
1993, 1992 and 1991, respectively. The term loan is secured by the stock of
SICO. Under the terms of the loan agreement, the Company is required to make
principal payments of $700,000 on March 31, 1994 and each quarter end
thereafter through December 31, 1994.

The loan is subject to various covenants. At December 31, 1993, the lender
waived compliance with certain existing covenants and new covenants were
negotiated effective January 1, 1994. The new covenants require the Company
to maintain tangible shareholder's equity, as defined, of $120 million during
fiscal 1994. At December 31, 1993, as defined, tangible shareholder's equity
was $138.1 million. In addition, various covenants applicable to the
Company's subsidiaries require minimum statutory surplus levels and maximum
premiums to surplus ratios.

3. NNHC depends on dividends from its subsidiaries to service debt and pay
expenses. The payment of shareholder dividends by insurance companies
without the prior approval of the state insurance regulators is limited to
formula amounts based on net investment income, and capital and surplus
determined in accordance with statutory accounting principles. At December
31, 1993, approximately $4.2 million of dividends are available without prior
regulatory approval.

NNCC paid dividends to NNHC of $3,170,000, $3,896,500 and $3,500,000 during
the years ended December 31, 1993, 1992 and 1991 respectively.

SICO paid dividends to NNHC of $1,500,000 during the year ended December 31,
1992.

4. In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The statement requires fixed
maturity investments which are available for sale to be recorded at market
value. The Company adopted SFAS No. 115 on December 31, 1993.

83
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD SCHEDULE VI

REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
PROPERTY AND LIABILITY INSURANCE CEDED FROM OF AMOUNT
PREMIUM EARNED FOR THE YEARS ENDED DIRECT TO OTHER OTHER NET ASSUMED
DECEMBER 31, AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ------------------------------------ -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
1993 $215,075 $15,181 $27,799 $227,693 12.2%
======== ======= ======= ========

1992 $223,543 $13,013 $29,356 $239,886 12.2%
======== ======= ======= ========

1991 $227,084 $14,522 $38,300 $250,862 15.3%
======== ======= ======= ========
</TABLE>

84
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD SCHEDULE VIII

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands)
<TABLE>
<CAPTION>

AMOUNTS -
CHARGED
(CREDITED)
BALANCE AT TO BALANCE
BEGINNING COSTS AND AT END
FOR THE YEARS ENDED DECEMBER 31, OF PERIOD EXPENSE OF PERIOD
- -------------------------------- ---------- -------------- ---------
<S> <C> <C> <C>
1993:

Allowance for doubtful accounts $1,790 $ (33) $1,757
====== ====== ======
Accumulated depreciation on property &
equipment $6,577 $1,337 $7,914
====== ====== ======

Amortization of goodwill $ 366 $ 183 $ 549
====== ====== ======

1992:

Allowance for doubtful accounts $1,409 $ 381 $1,790
====== ====== ======
Accumulated depreciation on property &
equipment $5,469 $1,108 $6,577
====== ====== ======

Amortization of goodwill $ 183 $ 183 $ 366
====== ====== ======

1991:

Allowance for doubtful accounts $1,414 $ (5) $1,409
====== ====== ======
Accumulated depreciation on property &
equipment $4,144 $1,325 $5,469
====== ====== ======

Amortization of goodwill $ - $ 183 $ 183
====== ====== ======
</TABLE>

85
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD SCHEDULE X

SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 19,712 $ 19,727 $ 22,108

Reserves for losses and loss adjustment 297,553 284,309 274,224
expenses

Unearned premiums 95,992 101,528 103,569
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Earned premiums $227,693 $239,886 $250,862

Net investment income 43,693 44,139 37,823

Loss and loss adjustment expenses
incurred:
Current year 171,849 185,101 200,067

Prior years 5,279 10,976 8,921

Amortization of policy acquisition costs 46,456 49,912 56,256

Paid loss and loss adjustment expenses 172,089 189,396 188,007

Net premiums written 222,090 237,882 244,088

</TABLE>

86
<PAGE>

ARMCO FINANCIAL SERVICES GROUP - COMPANIES TO BE SOLD

DISCLOSURE OF CERTAIN DATA ON LOSS AND LOSS EXPENSE RESERVES

The liability for unpaid losses and loss adjustment expenses includes an amount
determined from loss reports and individual cases and an amount, based on past
experience, for losses incurred but not reported. Such liability is necessarily
based on estimates and, while management believes that the amount is fairly
stated, the ultimate liability may be in excess of or less than the amount
provided. The methods for making such estimates and for establishing the
resulting liability are continually reviewed and any adjustments resulting
therefrom are reflected in earnings currently. The Company does not discount
the liability for unpaid losses and loss adjustment expenses.

AFSG companies to be sold estimates losses for reported claims on an
individual case basis. Case reserves are based on experience with a particular
type of risk and the available information surrounding each individual claim.
Case reserves are reviewed on a regular basis. As additional facts become
available, the case reserves are adjusted as necessary. The stability of the
case reserving process is monitored through comparison with ultimate settlement.

The estimates of losses for incurred but not reported claims (IBNR), as well as
additive reserves for reported claims, are developed primarily from an analysis
of historical patterns of the development of paid and incurred losses (dollars
and claim counts) by accident year for each line of business. Salvage and
subrogation estimates are developed from patterns of actual recoveries.

Allocated loss adjustment expense reserves are developed from an analysis of
historical patterns of the development of paid allocated loss adjustment
expenses to incurred losses, by accident year, for each line of business. These
historical patterns are then applied to projected ultimate losses for each line
of business.

Unallocated loss adjustment expense reserves are developed utilizing a cost
accounting system. The cost accounting system is based on historical costs
modified for anticipated changes in operations and selections of alternative
costs.

In December 1992, the FASB issued SFAS No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration contracts." The statement
establishes the conditions required for a contract to be accounted for as
reinsurance and prescribes accounting and reporting standards for those
contracts. The Company adopted SFAS No. 113 in 1993. Prior to the adoption of
the new statement, assets and liabilities were reported net of the effects of
reinsurance. Subsequent to the adoption of the new statement, ceded reinsurance
balances due from unaffiliated insurers are reported separately as assets.
Ceded reinsurance balances due from affiliated insurers continue to be reported
in liabilities. As permitted by the statement, prior period financial
statements have been restated.

Loss and loss adjustment expense reserves are stated at management's estimate of
the ultimate cost of settling all incurred but unpaid claims. Loss and loss
adjustment expense reserves are not discounted.

<PAGE>
Exhibit 10(s)

SECOND

STAINLESS STEEL

TOLL ROLLING SERVICES AGREEMENT

between

ARMCO STEEL COMPANY, L.P.

and

ARMCO ADVANCED MATERIALS COMPANY
<PAGE>

SECOND
STAINLESS STEEL
TOLL ROLLING SERVICES AGREEMENT

December 21
THIS AGREEMENT, effective as of _______________________, 1993, is between
Armco Steel Company, L.P., a Delaware limited partnership, with its principal
business at 703 Curtis Street, Middletown, Ohio 45043 (hereinafter "ASC") and
Armco Advanced Materials Company, a business unit of Armco Inc., an Ohio
corporation, with its principal place of business at 101 Three Degree Road,
Butler, Pennsylvania 16003-0832 (hereinafter "AAMC").

WITNESSETH

WHEREAS, the parties entered into an Austenitic Stainless Steel Toll
Rolling Services Agreement dated March 30, 1992 (the "Initial Agreement"); and

WHEREAS, the parties now wish to terminate the Initial Agreement in its
entirety (as of the effective date of this Agreement) and substitute the Initial
Agreement with this Second Stainless Steel Toll Rolling Services Agreement.

NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, and intending to be legally bound,
the parties hereto agree as follows:

Article 1. Definitions
-----------

1.1 "Product" will mean standard stainless steel slab grade groups
---------
including 201, 301, 304, 304L, 316, 316L, Nitronic 30, 430 and
434.

1.2 "Stability" will be defined (by grade group, gage and width) to
-----------
have occurred after ASC has rolled 600 total cumulative slab tons
including a minimum of 150 slab tons during a stainless rolling
with quality levels acceptable to AAMC and without any occurrence
of the following:

- Twisting/wavy Inter-Stand Shape during rolling in the
Finishing Mill at any time from Thread to Tailout (i.e., a
loss of control in the Finishing Mill).

- A strip mill cobble

- A coiler cobble

When a new gage and width has attained Stability, then Product
<PAGE>

orders of the same grade group and gages between the new gage and
the old gage and narrower widths will also be deemed to have
attained Stability.

1.2.1 Notwithstanding the definitional attainment of Stability,
Stability for a given Product grade group, gage and width will be
deemed to have occurred for application in all other terms and
conditions of the Agreement, including Price, after ASC and AAMC
have executed a Stability Acceptance Form, depicting the stable
area, substantially similar to attached Exhibit C.

1.3 "QSOPS" means the Quality Standard Operating Practices numbered
23-0001-601 through 23-0033-601 attached hereto as Exhibit A and
any additions or amendments thereof as may be agreed to by the
parties.

Article 2. Exclusive Services
------------------

2.1 Throughout the term of this Agreement, ASC agrees to convert
Product slabs provided by AAMC to hot band coils at the pricing
set out in Exhibit B, which is based on an annual amount of
250,000 tons of incoming slabs. The annual conversion of over
250,000 tons of Product slabs will require the mutual agreement
of the parties and the price for such conversion will be
renegotiated to account for any ASC cost changes, including but
not limited to costs to cover carbon displacement and additional
capital.

2.2 Unless otherwise agreed to by the parties in writing, ASC will
provide the toll rolling services concerning the Products
discussed herein exclusively for AAMC (and not for any direct
competitor of AAMC) and AAMC will exclusively utilize ASC to
provide all of its toll rolling service requirements for the
Products covered by this Agreement.

Article 3. Duties of ASC and AAMC
----------------------

3.1 ASC will, for all services rendered under this Agreement, adhere
to the practices set out in QSOPS. The QSOPS will be established
as a performance standard only after Stability has been achieved.
Thereafter, ASC will not convert Product when non-compliance with
the QSOPS is anticipated without giving notice to AAMC.

3.2 No guarantees, express or implied, as to yield, quality, or

2
<PAGE>

performance of the converted hot band coils are made by ASC. No
damages or losses incurred by AAMC or its final customers,
either during the conversion process at ASC or shipment
thereafter, will be paid or reimbursed by ASC. Notwithstanding
the above and only after ASC has achieved Stability in an
operating window, ASC will reimburse AAMC for Product slab direct
and verifiable cost less the salvage value for any Product
rendered defective by ASC's failure to adhere to the QSOPS. AAMC
will only be entitled to such reimbursement for damaged Product
(not otherwise delivered to ASC defective) within a Stabilized
window and only to the extent that the damage exceeds 2.0%
"stable" slab weight scrapped per calendar quarter (3 months).*

"stable" slab weight scrapped
*% = __________________________________
Total "stable" slab weight charged
into furnace minus carryarounds

3.3 ASC will have no responsibility for the chemical composition or
physical properties of any material supplied by AAMC and
subsequently converted by ASC.

3.4 ASC reserves the right to refuse to process any material of
questionable quality, or that may represent a hazard to
processing equipment or to employees.

3.5 All slabs provided by AAMC for conversion will be suitable for
hot rolling to final product specifications.

3.6 AAMC will provide an annual forecast concerning its conversion
requirements, which will be updated quarterly with the most
current quarter's tonnage requirements displayed on a weekly
basis and all following quarters' tonnage requirements set out on
a monthly basis. AAMC will make best efforts to spread evenly
throughout the year all Product deliveries to comply with ASC
production scheduling.

Article 4. Pricing
-------

4.1 Pricing for toll rolling services under this Agreement through
December 31, 1994 will be as set forth in Exhibit B. The
conversion charges set forth in Exhibit B will be determined

3
<PAGE>

based on the actual scale weight of outgoing hot band coils.
For the period commencing January 1, 1995 through December
31, 1995 and for each year thereafter during the term of this
Agreement, the parties will negotiate in good faith adjustments
to pricing for toll rolling services taking into consideration
learning curve effects, carbon steel displacement costs, quality
value added considerations, cost improvements due to higher
volume, ASC capital and claim costs and the other cost
information of ASC, provided, however, that in no event shall any
price adjustment(s) result in pricing increases or decreases of
more than 6% per year or an aggregate of 40% through December 31,
2002.

4.2 If the parties fail to agree on pricing for any period after
December 31, 1994 in accordance with the procedures and criteria
set forth above, this Agreement shall continue in effect for the
full term and pricing for such unresolved period shall be settled
by final and binding arbitration before a board of arbitration
composed of three arbitrators sitting in Columbus, Ohio and in
accordance with the rules for commercial arbitration of the
American Arbitration Association, New York, New York as in effect
from time to time. Arbitrators shall be selected as follows:
each party shall choose an arbitrator familiar with steel
manufacturing and toll rolling services and a third member, also
familiar with steel manufacturing and toll rolling services shall
be chosen by the two so chosen. If either party hereto fails to
choose such an arbitrator within thirty (30) days after receipt
of notice of commencement of arbitration (or its delivery of
notice of arbitration to the other) or if such two (2)
arbitrators fail to choose a third arbitrator within thirty (30)
days after both are appointed, the party who has chosen its
arbitrator (or either party if both have chosen arbitrators) may
apply to the American Arbitration Association for appointment of
the arbitrator or arbitrators of appropriate qualifications
needed to complete the board of arbitration. Each party shall
bear its own legal and other costs of preparing its case and
one-half (1/2) the cost of the arbitration. Each party shall
present to the arbitrators a proposed price or pricing structure
and the arbitrators, notwithstanding any rule or direction of
the American Arbitration Association, must select only one of
the proposed price or pricing structures and no other price or
pricing structure. The arbitration award shall be final and
binding upon the parties, and judgment thereon may be entered in
any court of competent jurisdiction. Nothing herein shall be
deemed to give the

4
<PAGE>

arbitrators authority to add to, amend, modify, or expand the
terms of this Agreement.

4.3 Notwithstanding any provision contained herein to the contrary,
should ASC's energy costs during the term of this Agreement
increase as a result of any governmental imposed energy tax, or
any like cause, then ASC, upon giving AAMC written notice of the
cost increase on a verifiable per ton basis, will unilaterally
increase the price for all toll rolling services effected by such
increase. Price increases related to this provision will not be
incorporated into the 6% or 40% caps discussed above.

Article 5. Time of Commencement and Completion
-----------------------------------

5.1 This Agreement will be effective for calendar years 1993 through
2002 and continue thereafter unless terminated by either party as
set forth in Article 10.

5.2 AAMC will place written processing orders with ASC not less
than three (3) weeks prior to the estimated delivery date of any
Product slabs. Each purchase order will specify the quantity of
Product to be delivered to ASC and specifications for the
Services to be performed.

5.3 AAMC will deliver quantities of Product necessary for the
conversion required under each purchase order not later than
three (3) days nor earlier than two (2) weeks prior to the
scheduled rolling of such Product. Any additional costs incurred
by ASC due to late delivery by AAMC will by paid by AAMC.

Article 6. Records
-------

6.1 In accord with paragraphs 5.3 and 17.4, ASC will keep accurate
records concerning labor and equipment chargeable to AAMC, and
such records will be made available bi-annually for inspections
at reasonable times by AAMC. Such inspection will be for the
purpose of verifying the correctness of invoices rendered and
payments made or to be made under this Agreement.

Article 7. Reports
-------

7.1 General manufacturing reports concerning Services rendered
under this Agreement will be provided to AAMC as soon as
possible.

5
<PAGE>

7.2 Accurate reports concerning the quality of hot band coils
produced under this Agreement will be provided by AAMC to ASC as
soon as possible to enable ASC to take corrective action,
determine stability, and improve hot band quality.

Article 8. EEO
---

8.1 ASC will comply with all Equal Employment Opportunity
requirements.

Article 9. Insurance
---------

ASC agrees it will comply with the applicable requirements of the
Unemployment Compensation Laws of all states within which it
operates. ASC will maintain the following insurance, written on
an occurrence basis, at its sole cost and expense.

9.1 ASC will, throughout the term of this Agreement, insure ASC's
building and premises against loss for "All Risk" perils. This
insurance will include coverage for AAMC Product while in the
care, custody and control of ASC.

9.2 Workers Compensation insurance in compliance with the law or laws
of the state or states in which the employees are hired or
will work. Employer's Liability insurance with limits of not
less than $100,000 per person and $500,000 per occurrence. Where
applicable, "Stop-Gap" insurance coverage will be maintained with
limits of not less than $500,000 per occurrence.

9.3 Commercial General & Automobile Liability insurance including
Products/Completed Operations and including Contractual Liability
insurance, to cover liability assumed in this contract. Limits
of liability will not be less than the following:

1. General Liability (including Contractual Liability):
Bodily Injury and Property Damage
$1,000,000 Per Occurrence - Combined Single Limit

2. Products - Completed Operations:
Bodily Injury and Property Damage
$1,000,000 Per Occurrence - Combined Single Limit

6
<PAGE>

3. Automobile Liability:
Bodily Injury and Property Damage
$1,000,000 Per Occurrence - Combined Single Limit

9.4 Should any of the above described policies be cancelled or
materially changed before the expiration data thereof, the
issuing company will endeavor to mail thirty (30) days prior
written notice to AAMC. Certificates of insurance indicating the
aforementioned insurance is in effect will be filed with AAMC
before starting work. Limits of liability required under this
section will not be considered as a limitation of liability under
this Agreement.

Article 10. Termination
-----------

10.1 This Agreement may be terminated by either party, at any time
after December 31, 2002, upon at least twelve (12) months
written notice to the other party.

10.2 Upon termination, neither party will have any recourse against
the other except for the following obligations:

a) ASC will be responsible to provide services under accepted
purchase orders on Product shipped prior to the effective
date of termination.

b) AAMC will pay all invoices for services rendered per an
appropriate request made prior to the effective date of
termination.

c) Either party will remain responsible to the other for any
liabilities arising under this Agreement or resulting from
materials shipped for conversion services prior to the
termination effective date.

10.3 Notwithstanding any other provision in this Agreement to the
contrary, should Armco Inc. have failed to make an aggregate cash
capital contribution of $20,000,000.00 (twenty million dollars)
to ASC (to be utilized to purchase equipment and services to
enhance ASC's hot strip mill rolling capability) on or before
December 31, 1993, then this Agreement will be unilaterally
voidable by ASC upon five (5) days written notice. Upon the
expiration of the five (5) day notice period, this Agreement will
terminate.

7
<PAGE>

Article 11. Payment Terms
-------------

11.1 AAMC agrees to pay ASC for the conversion of Product slabs to
hot band coils on a net thirty (30) days from date of invoice
basis. All payments will be delivered to a lockbox designated by
ASC.

11.2 ASC will provide completed lien waivers and supplier affidavit
forms in a form satisfactory to AAMC.

Article 12. Terms and Conditions of Sale
----------------------------

12.1 The terms and conditions of sale applicable to the services
provided under this Agreement will be those stated in this
Agreement. No other terms and conditions will apply, including
without limitation, those set forth in any purchase order,
acknowledgement or delivery instruction forms of the parties.

Article 13. Licenses and Permits
--------------------

13.1 ASC will be qualified to do business in every state in which
services are performed. ASC, its employees and all others acting
under its direction or control, will comply with all laws,
ordinances and regulations of all legally constituted authorities
and the National Board of Fire Underwriters, bearing on the
conduct of the services.

Article 14. Safety Regulations
------------------

14.1 It will be the responsibility of ASC to adopt, enforce and
require all of its subcontractors to adopt and enforce accepted
safety practices.

Article 15. Ownership of Product
--------------------

15.1 It is mutually understood and agreed that any and all Product
shipped by or on behalf of AAMC to ASC under this Agreement at
any time remains the sole and exclusive property of AAMC
regardless of what type or and/or how much processing may have
been completed. In furtherance of this provision, ASC will upon
reasonable notice provide to AAMC any documentation and other
evidence and take any appropriate action that may be required to
prove or demonstrate to AAMC or any third party that title in
such Product is then in name of and remains solely with AAMC.
ASC will have no right to sell, transfer or encumber Product

8
<PAGE>

owned by AAMC.

15.2 ASC will neither take nor permit any action which will prejudice
AAMC's rights in any Product delivered under this Agreement. In
accord with this Article, AAMC will have the unrestricted right
to remove the Product, and ASC will surrender the Product to
AAMC. AAMC will have the right, with notice and legal process
to enter ASC's premises for such removal. ASC also agrees that
it will sign any necessary documents to perfect AAMC's ownership
interest in the Product.

Article 16. Salvageable Material
--------------------

16.1 All scrap generated under this Agreement will be returned to
AAMC at AAMC's sole expense.

16.2 Scrap will consist of head and tail crops and any other
unrollable Product generated in the course of rolling.

Article 17. Shipping
--------

17.1 All incoming and outgoing freight concerning the transport of
Product under this Agreement will be paid by AAMC. Incoming
freight must be prepaid and outgoing shipments will be freight
collect and invoiced to AAMC.

17.2 All Product will be shipped via truck or rail.

17.3 ASC will have the right to ship Product promptly within seventy-
two (72) hours of conversion.

17.4 ASC will observe all specified shipping instructions and, unless
otherwise requested, route to attain the lowest tariff rate at
time of shipment. All packaging instructions must be observed.
AAMC will pay for all packaging in excess of standard banding.

Article 18. Loading and Unloading of Trucks
-------------------------------

18.1 ASC will unload all and load all Product pertaining to this
Agreement unless otherwise specified. Should demurrage accrue on
trucks or rail due to the failure of ASC within the free period,
after delivery to it at its siding or site, such demurrage will
be paid by ASC.

9
<PAGE>

Article 19. Force Majeure
-------------

19.1 Neither party will be responsible for failure to perform, caused
in whole or in part by any of the following: Acts of God, wars,
riots, fires, explosions, breakdowns or accidents; strikes,
lockouts or other labor difficulties; lack or shortages of
labor, materials, utilities, energy sources, or transportation
facilities; delays of carriers, compliance with governmental
rules and regulations (including without limitation
environmental regulations); any other like causes; or any other
unlike causes beyond the control or without the fault or
negligence of AAMC or ASC. The foregoing will be in addition to
and not in limitation of any excuses for nonperformance
available to the parties, under the Uniform Commercial Code or
any other applicable law. The party so prevented from complying
will give prompt written notice to the other party of the nature
and probable duration of such force majeure and of the extent of
its effects on such party's performance hereunder. Each party
will, in the event it experiences a force majeure event, make
all reasonable efforts to remove such disability as soon as
possible, except for labor disputes which will be solely within
said party's discretion. During any period that a party is so
prevented from complying, the other party may seek to have its
needs met by or through others without liability hereunder, and
once the disability is removed this Agreement will be
reinstated.

Article 20. No Other Agreements or Arrangements in Conflict
-----------------------------------------------

20.1 The parties hereby each individually warrant that they have
the full and unencumbered right to enter into this Agreement,
and that entering this Agreement is not in contravention of any
other agreement or arrangement to which it is a party, or any
judgment or decree by which it is bound, and that it does not
require any consent from any other person or entity, or under
any other agreement to which it is a party or by which it is
bound.

Article 21. Assignment
----------

Neither party may assign this Agreement or its obligations
hereunder without the written consent of the other party.

10
<PAGE>

Article 22. Binding
-------

This Agreement is for the benefit of and is binding upon the
parties hereto, their successors, heirs and assigns.

Article 23. Amendments
----------

This Agreement cannot be modified in any way except in a
writing signed by both parties.

Article 24. Severability
------------

If any provision of this Agreement is determined to be
unenforceable or invalid, the remaining provisions of this
Agreement will not be affected thereby and will remain in full
force and effect.

Article 25. Waiver
------

No failure by either party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement,
or to exercise any right or remedy upon the breach thereof, will
constitute a waiver of any breach of this Agreement.

Article 26. Notices
-------

Any and all notices, demands or other communications required or
permitted to be given by any party to any other party under this
Agreement (collectively, "notices") will be in writing, either
delivered by hand to the other party at that party's address set
forth below, or sent by postage prepaid mail, or by telephone
facsimile transmission, to the party's address and facsimile
number.

Article 27. Governing Law
-------------

This Agreement will be governed by and construed in accordance
with the laws of the State of Ohio.

Article 28. Confidentiality
---------------

ASC and AAMC agree that the terms of this Agreement will be kept
in strict confidence and that neither party will disclose the
same to any third party, except (a) to the extent necessary for
the

11
<PAGE>

disclosing party to comply with any applicable laws, rules,
regulations, statutes or ordinances necessary to conduct its
business affairs, (b) by commission of a valid subpoena and/or
order of a court of competent jurisdiction, or (c) to a
subsidiary, parent or affiliated corporation of ASC or AAMC.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their respective officers thereunto duly authorized as of the date
first above written.

/s/ David G. Harmer
By:_______________________________
Corporate Vice Pres. & CFO
Title:____________________________
12/28/93
Date:_____________________________

ARMCO INC. ARMCO STEEL COMPANY, L.P.

/s/ R. M. Visokey /s/
By:_______________________________ By:________________________________
President President & CEO
Title:____________________________ Title:_____________________________
12/28/93 12-21-93
Date:_____________________________ Date:______________________________

12/17/93 at 4:00pm
93-paamc.jgh

<PAGE>

EXHIBIT 10(t)

ARMCO INC.

NONCONTRIBUTORY PENSION PLAN

As Amended and Restated

Effective As Of January 1, 1989
<PAGE>

TABLE OF CONTENTS
-----------------

<TABLE>
<CAPTION>
Article Page
- ------- ----
<C> <S> <C>
BACKGROUND 1

1 DEFINITIONS 2

1.1 Actuarially Equivalent............................ 2
1.2 Actuary........................................... 2
1.3 Affiliate......................................... 2
1.4 Average Monthly Earnings.......................... 2
1.5 Basic Agreement................................... 3
1.6 Board Of Directors................................ 3
1.7 BPAC.............................................. 3
1.8 BPARC............................................. 3
1.9 Break In Continuous Service....................... 4
1.10 Code.............................................. 4
1.11 Committee......................................... 4
1.12 Company........................................... 4
1.13 Continuous Service................................ 4
1.14 Divested Unit..................................... 4
1.15 Earnings.......................................... 4
1.16 Effective Date.................................... 5
1.17 Eligible For Public Pension....................... 5
1.18 Employee.......................................... 5
1.19 Employing Company................................. 5
1.20 ERISA............................................. 5
1.21 Layoff............................................ 5
1.22 Participant....................................... 5
1.23 PBGC.............................................. 6
1.24 Permanent Shutdown................................ 6
1.25 Plan.............................................. 6
1.26 Plan Year......................................... 6
1.27 Public Pension.................................... 6
1.28 Regulations....................................... 6
1.29 Retirement........................................ 7
1.30 Trust............................................. 7

2 PLAN ADMINISTRATION 8

2.1 Powers Of The Benefit Plans
Administrative Committee.......................... 8
</TABLE>

i
<PAGE>

<TABLE>
<C> <S> <C>
2.2 Powers Of The Benefit Plans
Asset Review Committee............................ 8
2.3 Powers of An Arbitrator........................... 8
2.4 Compensation And Expenses
Of Committee Members.............................. 8
2.5 Bond For Committee Members........................ 8
2.6 Composition Of Committee.......................... 9
2.7 Committee Procedures.............................. 9
2.8 Disqualified Committee Member..................... 9
2.9 Exercise Of Discretion............................ 9
2.10 Appointment Of Counsel............................ 9
2.11 Delegation Of Authority........................... 9
2.12 Local Plan Administrators......................... 10
2.13 Discharge Of Duties............................... 10
2.14 Indemnification................................... 10
2.15 Claims Procedure.................................. 10

3 ELIGIBILITY AND TYPES OF PENSIONS 13

3.1 Pension Applications............................. 13
3.2 Normal Retirement Pension........................ 13
3.3 62/15 Retirement Pension......................... 13
3.4 30-Year Retirement Pension....................... 13
3.5 Early Retirement (55/15) Pension................. 13
3.6 Permanent Incapacity Pension..................... 13
3.7 Immediate Severance (70/80)
Pension.......................................... 14
3.8 Rule-Of-65 Retirement Pension.................... 14
3.9 Deferred Vested Pension.......................... 15
3.10 Nonduplication Of Benefits....................... 15

4 SPECIAL PENSION PAYMENT 16

4.1 Eligibility...................................... 16
4.2 Amount........................................... 16
4.3 Vacation Pay Of Hourly
Participants..................................... 16
4.4 Vacation Pay Of Salaried
Participants..................................... 17
4.5 Period For Which Payable......................... 17
</TABLE>

ii
<PAGE>

<TABLE>
<C> <S> <C>
5 REGULAR PENSION 18

5.1 Basic Formula For Calculation
Of Regular Pension............................... 18
5.2 Increased Regular Pensions....................... 23
5.3 Increased Rule-Of-65 Retirement
Pensions......................................... 23
5.4 Form Of Payment Of Regular Pensions.............. 24
5.5 Commencement And Termination
Of Regular Pension Payments...................... 24

6 DEDUCTIONS FROM PENSIONS 26

6.1 Deduction For Public Pension...................... 26
6.2 Deduction For Other Pension....................... 26
6.3 Deduction For Severance Allowance................. 27
6.4 Deduction For Disability Payments................. 27

7 SURVIVOR BENEFITS 29

7.1 Pre-Pension Spouse Coverage....................... 29
7.2 Pre-Retirement Survivor Annuity
Coverage.......................................... 31
7.3 Automatic 50% Spouse Annuity...................... 35
7.4 Co-Pensioner Options.............................. 37
7.5 Election Of Co-Pensioner Options.................. 38
7.6 Commencement And Termination Of
Pensions Under Co-Pensioner Options............... 39
7.7 Death Of Participant Before
Retirement........................................ 39
7.8 Death Of Co-Pensioner After
Retirement........................................ 39
7.9 Death Of Co-Pensioner Before
Retirement........................................ 39
7.10 Post Retirement Adjustments....................... 39
7.11 Commencement Of Payments.......................... 39

8 SURVIVING SPOUSE'S BENEFIT 41

8.1 Eligibility....................................... 41
8.2 $140.00 And $90.00 Minimums....................... 41
8.3 50% Rate.......................................... 41
</TABLE>

iii
<PAGE>

<TABLE>
<C> <S> <C>
8.4 Commencement And Termination
Of Surviving Spouse's Benefit..................... 42
8.5 Determination Of Status As
Surviving Spouse.................................. 42

9 DETERMINATION OF CONTINUOUS
SERVICE 43

9.1 Definition........................................ 43
9.2 Deductions From Continuous
Service........................................... 43
9.3 Break In Continuous Service....................... 43
9.4 Other Continuous Service.......................... 45
9.5 Employment With a Divested Unit................... 46

10 REEMPLOYMENT OF RETIRED
PARTICIPANTS 47

10.1 Application....................................... 47
10.2 Effect On Pension................................. 47
10.3 Continuous Service Of
Reemployed Participant............................ 47
10.4 Termination Of Reemployment After
Original Immediate Severance
(70/80) Retirement Or Rule-Of-65
Retirement........................................ 48
10.5 When Special Pension Payment
Not Payable....................................... 48
10.6 Reinstated Immediate Severance
(70/80) Retirement Or Reinstated
Rule-Of-65 Retirement............................. 48

11 FUNDING AND CONTRIBUTIONS 49

11.1 Contributions..................................... 49
11.2 Actuarial Valuations.............................. 49
11.3 Investment Of Contributions....................... 49

12 General Provisions 50

12.1 No Employment Rights.............................. 50
12.2 Non-Assignability Of Pension
Rights............................................ 50
</TABLE>

iv
<PAGE>

<TABLE>
<C> <S> <C>
12.3 Legal, Physical Or Mental
Incapacity....................................... 50
12.4 Maximum Pensions................................. 50
12.5 Sole Source Of Benefits.......................... 51
12.6 Information From Participants.................... 51
12.7 Communications To Committees..................... 52
12.8 Communications From Committees................... 52
12.9 Lost Payee....................................... 52
12.10 Service Of Process............................... 52
12.11 Expenses......................................... 52

13 AMENDMENT OR TERMINATION 53

13.1 Right Of Amendment Or
Termination...................................... 53
13.2 Allocation Of Trust Fund
Upon Termination................................. 53
13.3 Disposition Of Allocated Funds................... 53
13.4 Conditional Limitation Of
Benefits......................................... 54
13.5 Merger, Consolidation Or Transfer
Of Assets Or Liabilities......................... 55
13.6 Corporate Mergers, Acquisitions
And Divestments.................................. 55

14 TOP HEAVY PROVISIONS 57

14.1 Determination Of Top Heavy Status................ 57
14.2 Definitions...................................... 57
14.3 Effect Of Top Heavy Status....................... 60

Exhibit A - Table Of Percentages............................. 62

Exhibit B - Actuarial Assumptions............................ 66

Exhibit C-1 Early Commencement Percentages For
QDRO's With More Than 15 Years Of
Service.......................................... 67

Exhibit C-2 Early Commencement Percentages For
QDRO's With Less Than 15 Years Of Service........ 68

Appendix 1 - Provisions Relating To Covered Employees
Of HMK Industries Of Oklahoma Inc................ 69
</TABLE>

v
<PAGE>

<TABLE>
<S> <C> <C>
Appendix 2 - Provisions Relating To Covered
Employees Of National Oilwell.................... 72

Appendix 3 - Provisions Relating To Covered Employees
Under The Armco Inc. Retirement Pension
Plan............................................. 73

Appendix 4 - Provisions Relating To Covered Employees
Of ME International.............................. 76

Appendix 5 - Provisions Relating To Covered Employees
Of Contech....................................... 78

Appendix 6 - Provisions Relating To Covered Employees
Of Atlantic Building Systems, Inc................ 80

Appendix 7 - Provisions Relating To Covered Employees
Of Permanently Shutdown Facilities............... 83

Appendix 8 - List Of Divested Units........................... 86
</TABLE>

vi
<PAGE>

BACKGROUND

Armco Inc., an Ohio corporation ("Armco") established the Armco Inc.
Noncontributory Pension Plan (the "Plan") effective as of January 1, 1950. The
Plan was amended and restated from time to time thereafter. The Internal
Revenue Service has determined that the Plan and its Trust, the Armco Master
exemption under Sections 401(a) and 501(a) of the Internal Revenue Code (the
"Code").

As a result of the formation of the Armco Steel Company, L.P., a Delaware
limited partnership between Armco and Kawasaki Steel Corporation ("KSC"), and
the decentralization of Armco, Armco has amended and restated the Plan as five
plans, one of which is the plan contained in this document which shall continue
to be known as the Armco Inc. Noncontributory Pension Plan and which is amended
and restated effective as of January 1, 1989. It is intended that the amended
and restated Plan likewise qualify for favorable federal income tax treatment
under the Code.

Unless otherwise expressly provided herein, the rights of any person whose
employment terminates or who retires on or before the effective date of this
Plan or a particular Plan amendment to this Plan, including such person's
eligibility for benefits and the time and form in which benefits, if any, will
be paid, shall be determined solely under the terms of the Plan as in effect on
the date of his termination of employment or retirement, unless such person
is thereafter reemployed and again becomes a Participant.
<PAGE>

ARTICLE 1

DEFINITIONS

The following words and phrases have the meanings indicated below, unless a
different meaning is plainly required by the context.

1.1 "Actuarially Equivalent" or "Actuarial Equivalent" means, when used with
reference to a pension, a benefit of equivalent value computed on the basis of
formulae, mortality and other tables and interest rates specified in the Plan
and as amended from time to time by BPARC based on the recommendation of the
Actuary; provided, however, that the interest rate used to determine the present
value of a Participant's benefit shall mean the interest rate or rates as of
the date distribution commences which would be used by the PBGC for purposes
of determining the present value of the Participant's benefit under the Plan if
the Plan had terminated on that date with insufficient assets to provide
benefits guaranteed by the PBGC on that date.

1.2 "Actuary" means the enrolled actuary, as defined in ERISA, engaged by
BPARC.

1.3 "Affiliate" means any corporation which is included in a controlled group
of corporations (within the meaning of Code (S) 414(b)) which includes the
Company, any trade or business (whether or not incorporated) which is under
common control with the Company (within the meaning of Code (S) 414(c)), any
organization included in the same affiliated service group as the Company
(within the meaning of Code (S) 414(m)), or any other entity required to be
aggregated with the Company pursuant to the Regulations under Code (S) 414(o);
except that for purposes of applying the provisions of Plan (S) 12.4 and Article
14 with respect to the limitation of benefits, Code (S) 415(h) shall apply.

1.4 "Average Monthly Earnings" means the average monthly Earnings of a
Participant for services rendered which are paid by one or more Employing
Companies during the Participant's last 120 full calendar months of Continuous
Service counted under this Plan prior to his Retirement determined as follows:

(a) The Participant's Earnings shall be calculated for each of the 10
calculation years during his last 120 full calendar months of Continuous Service
prior to his Retirement. The first calculation year shall be the first 12 out
of the last 120 full calendar months of Continuous Service prior to Retirement,
the second calculation year shall be the second 12 out of such 120 months and so
forth through the tenth calculation year which shall be the last 12 out of such
120 months.

(b) There shall then be selected from such 10 calculation years a
"calculation period" which shall be the 5 consecutive calculation years in which
the Participant's aggregate Earnings were the highest. Earnings shall not
include payments of any form of compensation received in such calculation period
for a period in excess of 60 months; in

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any such case the lesser of such excess payments received shall be excluded.
After the highest 5 calculation years have been selected, imputed income
relating to supplemental life insurance coverage and Company contributions to
the Armco Inc. Thrift Plan for Salaried Employees and the Armco Inc. Thrift
Plan for Hourly Employees, for such period shall be included in the
Participant's aggregate Earnings. From and after January 1, 1990, imputed
income relating to life insurance coverage shall not be included in the
Participant's aggregate Earnings.

(c) Earnings during the calculation period shall be divided by 60, except
that, if during the calculation period the Participant was absent from work
without pay because of disability or Layoff, the divisor of 60 shall be reduced
by the greater of the aggregate of the full calendar months of such absence:

(1) in excess of 3 in each separate period, or

(2) in excess of 6;

provided, however, that in the case of Permanent Incapacity Retirement, before
making the foregoing reduction, if the calculation period is the last 5
calculation years prior to the Participant's Retirement, there shall be deducted
each full calendar month that the Participant was absent without pay because of
total disability during the last 6 calendar months of such period. Months
deducted under the foregoing shall not be counted as months of absence under (1)
and (2) above.

(d) If, in the judgment of BPAC, the Average Monthly Earnings derived by the
application of this Plan (S) 1.4 does not fairly represent the normal Earnings
of the Participant, BPAC may, for the purpose of calculating the pension of such
Participant, make such adjustments in the actual Earnings of such Participant so
as to fairly represent his normal Earnings.

1.5 "Basic Agreement" means a labor agreement between an Employing Company
and a recognized collective bargaining representative covering rates of pay,
hours of work, and other basic terms and conditions of employment, which is in
effect during the term of the Plan and is applicable to bargaining unit
employees at the locations covered by a Basic Agreement, and, where used with
respect to an Employee, means the Basic Agreement applicable to such Employee.

1.6 "Board Of Directors" means the board of directors of the Company as the
same may be constituted from time to time.

1.7 "BPAC" means the Benefit Plans Administrative Committee provided for in
Plan (S) 2.1.

1.8 "BPARC" means the Benefit Plans Asset Review Committee provided for in
Plan (S) 2.2.

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1.9 "Break In Continuous Service" has the meaning set forth in Plan (S) 9.3.

1.10 "Code" means the Internal Revenue Code of 1986, as now in effect or
as hereafter amended. References to Code provisions shall be interpreted to
incorporate all lawful Regulations or rulings issued thereunder or any successor
provisions thereto.

1.11 "Committee" means BPAC and BPARC or either of them. For purposes of
ERISA, the members of BPAC and BPARC shall be named fiduciaries and
administrators of the Plan with respect to the matters for which they are
responsible in accordance with the terms of the Plan and any formal action of
the Board Of Directors establishing or modifying such responsibilities.

1.12 "Company" means Armco Inc., an Ohio corporation, or any corporation
which shall be a successor to it in ownership of substantially all of its
assets. The Company shall be the sponsor of the Plan.

1.13 "Continuous Service" means continuous service determined pursuant to
Plan Article 9.

1.14 "Divested Unit" means, except as otherwise provided in Plan (S)
1.24, a business of the Company or any Affiliate (whether organized and operated
as a division, a subsidiary or a division of a subsidiary) which has been sold
or transferred as a going business to a third party (including a partnership or
joint venture) not related to the Company or any Affiliate, or to a corporation,
partnership or joint venture partly owned by the Company or an Affiliate but
which is not itself an Affiliate, regardless of whether the sale or transfer is
accomplished by means of a sale or transfer of the stock or by means of a sale
or transfer of assets. Subject to Plan (S) 9.5, a Divested Unit shall continue
to be an Employing Company.

1.15 "Earnings" mean, for the purposes of Plan (S) 1.4, the Participant's
earnings for services rendered (excluding any amount included in base hourly
rates resulting from a Cost-of-Living Adjustment other than the first Cost-of-
Living Adjustment which was included in the base hourly rates subsequent to
April 30, 1974, and any amount of Cost-of-Living Adjustment paid to salaried
nonexempt Participants not included in base pay) calculated as if the following
had not occurred:

(a) any decreases in the standard hourly wage scale and the base scale for
incentives effective May 15, 1983 for members of the Armco Employees Independent
Federation, Inc.; June 1, 1983 for members of the Zanesville Armco Independent
Organization, Inc., including the nonexempt salaried bargaining unit employees;
or August 1, 1983 for members of the Butler Armco Independent Union; or

(b) any decreases as a result of the Incentive Plan Offset for members of the
Salaried Employees Auxiliary of the Armco Employees Independent Federation,
Inc.; the Butler Armco Independent Salary Union, and the Butler Plant
Protection Union; or

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<PAGE>

(c) any other decreases which may hereafter be agreed to in a Basic Agreement
to be disregarded for the purpose of calculating Earnings under the Plan;
provided, however, that effective January 1, 1989, Earnings shall not include
any amount in excess of $200,000 (adjusted for cost-of-living in accordance with
Code (S) 401(a)(17)).

1.16 "Effective Date" means January 1, 1989, the effective date of the
Plan as hereby amended and restated.

1.17 "Eligible For Public Pension" means the date on which a Participant
(or the Participant's spouse or the widow of a deceased Participant) is eligible
to receive, or would upon application be eligible to receive, a Public Pension,
or would be so eligible except for an offset or suspension imposed by law.

1.18 "Employee" means any person who is employed by or paid through the
payroll of an Employing Company as a regular full-time permanent employee, and
whose principal duties are in the United States or a United States citizen
employed abroad, excluding (i) any person represented by a recognized collective
bargaining representative who has entered into a Basic Agreement which does not
provide for participation under the Plan if pension benefits were a subject of
good faith bargaining; (ii) any leased employee within the meaning of Code (S)
414(n)(2); (iii) any foreign national working in the United States; and (iv)
any full-time salaried employee with a Continuous Service date on or after
January 1, 1990.

1.19 "Employing Company" means the Company and any business unit or a
division or department of a business unit which is designated as an Employing
Company by BPAC and which is identified as such in an Appendix hereto.

1.20 "ERISA" means the Employee Retirement Income Security Act of 1974,
as now in effect or as hereafter amended. References to ERISA provisions shall
be interpreted to incorporate all lawful Regulations or rulings issued
thereunder or any successor provisions thereto.

1.21 "Layoff" means an involuntary, temporary discontinuance of
employment under a written layoff policy which, at the time of discontinuance,
is either declared by the Employing Company to be temporary or which is
reasonably believed at the time of the initial layoff by the Employing Company
to be temporary, and shall include voluntary layoff status which an Employee
elects in lieu of immediate termination of employment as a matter of right under
written Company policies regarding layoff status.

1.22 "Participant" means any Employee who is accruing Continuous
Service for any purpose under this Plan or any former Employee, including any
surviving spouse or beneficiary of a deceased former employee, who is accruing
Continuous Service for any purpose under this Plan or who is no longer accruing
Continuous Service but who is receiving or entitled to receive a pension or a
Deferred Vested Pension under this Plan. Each employee of an Employing Company
who becomes employed in a classification of

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<PAGE>

employment qualifying such employee as an Employee shall automatically become a
Participant upon completing at least one year of Continuous Service and
attaining age 21.

1.23 "PBGC" means the Pension Benefit Guaranty Corporation.

1.24 "Permanent Shutdown" means the total and permanent closing of a
major steelmaking, manufacturing or fabrication facility or a significant
department of such facility which involves the Layoff or termination of
employment of a significant number of Employees; or, when expressly provided in
a Basic Agreement, the permanent closing of a plant, department or division
which is agreed to be a Permanent Shutdown (or which is otherwise found under
the applicable claims procedure to be a Permanent Shutdown, provided that such
finding shall apply only with respect to the Employees covered by such Basic
Agreement). Except as may otherwise be required by the terms of a Basic
Agreement, an Employee (i) whose job is eliminated, (ii) who is displaced from
his job by a plant, department or division force reduction, (iii) who refuses a
transfer of employment, or (iv) who voluntarily terminates his employment or
voluntarily retires after the effective date of a Permanent Shutdown but before
his employment is involuntarily terminated by the Employing Company, shall be
deemed to have voluntarily terminated employment and not to have lost his
employment as a result of a Permanent Shutdown for all purposes under the Plan
including, but not limited to, eligibility for a pension under Plan (S)(S) 3.7
and 3.8. Neither the sale or transfer of a business nor the closing of all
or any part of a business following its sale or transfer shall be considered
a Permanent Shutdown.

1.25 "Plan" means the Armco Inc. Noncontributory Pension Plan, as the
same may be amended from time to time.

1.26 "Plan Year" means the calendar year.

1.27 "Public Pension" means a benefit in the nature of an annuity,
pension or payment of similar kind

(a) under Title II of the Social Security Act or its successor ("Social
Security Act"),

(b) under the Railroad Retirement Act or its successor,

(c) under a provision of law hereafter established, if an Employing Company
has contributed directly or indirectly to such benefit by tax or otherwise with
respect to employment of the Participant by an Employing Company,

(d) any pension or payment of similar kind by reason of any law of any
foreign country or any state or political subdivision thereof.

1.28 "Regulations" means the applicable regulations, rulings and
guidelines (including any proposed rules or temporary rules or releases
promulgated pending the

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<PAGE>

issuance of such regulations, rulings or other guidelines) issued under the Code
or ERISA by the Internal Revenue Service, the Department of Labor, the PBGC or
any other governmental agency.

1.29 "Retirement" means and shall be considered to occur:

(a) in the case of a Participant who applies for a pension prior to incurring
a Break In Continuous Service, on the date he wishes to retire which shall be a
date on or after the latest of

(1) the date of his request for Retirement,

(2) the date of his attainment of eligibility for a pension,

(3) the last day for which he received Earnings from an Employing
Company, but not later than the last day of his Continuous Service; or

(b) in the case of a Participant who applies for a pension after
incurring a Break In Continuous Service, on the last day of his Continuous
Service, provided that on such last day he was eligible for immediate
commencement of his pension.

1.30 "Trust" means the Armco Master Pension Trust, as amended from
time to time, or such other one or more trusts, or any successor trust or
trusts established by the Company, under which any assets of the Plan or
income thereon may be held, invested or reinvested to effectuate the purposes of
the Plan.

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<PAGE>

ARTICLE 2

PLAN ADMINISTRATION

2.1 Powers Of The Benefit Plans Administrative Committee. BPAC shall
be a named fiduciary of the Plan with the general responsibility, full
discretionary authority and the power to administer and construe the provisions
of the Plan, to determine in its discretion any questions of law or fact arising
under the Plan, to determine in its discretion the amount of and to authorize
the payment of benefits properly due under the Plan, to maintain Plan records,
to adopt amendments to the Plan in accordance with Plan (S) 13.1 and to exercise
such other rights and powers as may be specifically granted to it herein or by
the Board Of Directors.

2.2 Powers Of The Benefit Plans Asset Review Committee. BPARC shall
be a named fiduciary of the Plan with the general responsibility, full
discretionary authority and the power to manage or to direct the management of
any Plan asset which may be held in trust from time to time; to establish the
Plan's funding policy; to appoint, remove or change any trustee, investment
manager or other funding agency; to delegate to each trustee or investment
manager such authority or discretion to manage, acquire or dispose of such
assets of the Plan as BPARC may deem appropriate in its discretion and as may be
described from time to time by notice to each such trustee or investment
manager; and to exercise such other rights and powers as may be specifically
granted to it herein or by the Board Of Directors.

2.3 Powers Of An Arbitrator. Any question which is required to be
resolved in accordance with a grievance or arbitration procedure established
under a Basic Agreement shall be resolved in accordance with that procedure and
BPAC shall have no duty or responsibility with reference to such dispute except
to carry out its duties hereunder upon resolution of such dispute in accordance
with such procedure. Notwithstanding the foregoing, BPAC shall not be relieved
of its duty to assure the final resolution of any dispute resolved in accordance
with a Basic Agreement does not materially and adversely affect those
Participants who are not members of the unit of employees covered under the
Basic Agreement.

2.4 Compensation And Expenses Of Committee Members. No member of
either Committee shall receive any compensation for serving as a member of such
Committee but each member shall be entitled to be reimbursed for any reasonable
expense incurred in carrying out his duties as a member of such Committee.

2.5 Bond For Committee Members. No bond or other security shall be
required of either Committee or of any member of either Committee except as may
be required by ERISA.

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<PAGE>

2.6 Composition Of Committee. Any person may serve on either or both
Committees, and any member of either Committee or of any subcommittee or any
agent or other person to whom either of said Committees may delegate any
authority, may serve in more than one capacity with respect to the Plan.

2.7 Committee Procedures. Each Committee shall elect or designate a
Chairman, shall establish procedures for and the time and place of meetings,
shall provide for the keeping of minutes of all meetings and shall establish
such other procedures as they deem to be necessary or appropriate.

2.8 Disqualified Committee Member. No member of either Committee may
act or influence the decision of the remaining Committee members with respect to
any matter relating solely to himself or to any right or benefit he or any of
his beneficiaries may have under the Plan.

2.9 Exercise Of Discretion. The grant of discretion to the
Committees to carry out their respective duties hereunder and under the terms of
any Trust need not be expressly stated in order to apply to any situation
involving discretion in the administration of this Plan and the Trust, but shall
be inferred whenever discretion is found to be necessary; and further, the grant
of discretion to act is, and is to be construed as, a grant of the broadest
possible scope of authority and power to act, it being the intention of the
Company in establishing this Plan to assure that all interpretations of the Plan
and any Trust shall be made by the Committees, or in accordance with any
grievance procedure which may apply, rather than by a third party not familiar
with the Plan, its history and purpose. Furthermore, by way of illustration and
not limitation, it is intended to grant each fiduciary Committee the broadest
possible powers to interpret the Plan and Trust documents, to apply any
interpretation in its discretion to finally determine any question arising under
the Plan or Trust, and to determine all questions of eligibility for, the
commencement date of and the amount of benefits due under the Plan and Trust, if
any are due. Each Committee shall endeavor to make consistent determinations in
cases involving the same circumstances, but shall not be required to do so.
Neither Committee may exercise its discretion in an arbitrary or capricious
fashion, nor may it exercise its discretion in a fashion which adversely affects
the tax-qualified status of the Plan or which results in discrimination in favor
of shareholders, officers or highly compensated employees.

2.10 Appointment Of Counsel. Each Committee may arrange for the
engagement of legal counsel, who may be counsel for the Company or an Affiliate,
and may rely upon the opinion of such counsel.

2.11 Delegation Of Authority. Either Committee may delegate to any
agent or to any subcommittee or any member of either Committee or any
subcommittee the authority to perform any act such Committee may perform. Such
delegation is subject to revocation at any time at the Committee's discretion.

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<PAGE>

2.12 Local Plan Administrators. The Company or BPAC may designate one
or more persons, each of whom may or may not be a member of the Committee, to be
the Local Plan Administrator at each location of each Employing Company. The
Local Plan Administrator shall be responsible for providing such information to
the Participants and other persons entitled to benefits under the Plan as BPAC
may direct, including information regarding the procedure for electing the form
of benefits or for filing claims for benefits, and shall perform such other
routine and non-discretionary tasks involving the day-to-day administration and
operation of the Plan as BPAC may delegate from time to time. No Local Plan
Administrator may exercise any discretion in the performance of his duties
with respect to the Plan, nor shall any Local Plan Administrator be authorized
to make any interpretation of the Plan or to bind either Committee by any
statement, written or oral, not first approved in writing by the Committee.

2.13 Discharge Of Duties. In so far as it is acting in its fiduciary
capacity under the Plan, each Committee and any of those of its delegates or
appointees who exercise fiduciary responsibility shall discharge their
respective fiduciary duties under the Plan solely in the interest of and for the
exclusive purpose of providing benefits to Participants and their beneficiaries,
exercising the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of like character with like
aims, and in accordance with the terms and conditions of the Plan and applicable
law, and shall endeavor to defray the reasonable expenses for the administration
of the Plan.

2.14 Indemnification. The Company and each Employing Company shall,
and hereby does agree to, indemnify and hold harmless each present member of
each Committee and each successor member and each of any such member's heirs,
executors and administrators, and the Committees delegates and appointees,
including counsel (other than persons who are independent of the Company or any
Affiliate and who render services to the Plan for a fee and other than any
arbitrator acting in accordance with any Basic Agreement), from any and all
liability or expense, including settlement costs, costs of litigation and
counsel fees, reasonably incurred by him or on his behalf in any action, suit or
proceeding to which he is or may be made a party by reason of his being or
having been a member, delegate or appointee of or counsel to the Committee,
except in matters involving (i) felonious criminal liability or (ii) gross,
intentional and willful misconduct of a person who was not acting within the
scope of his authority with respect to the matter giving rise to the actual or
potential liability. If any insurance is in force to cover claims of a nature
described above, then no person indemnified hereunder shall have any right of
indemnification except to the extent of any deductible amount under the
insurance coverage or to the extent any claim is outside of the coverage or the
amount of the award, settlement or expense exceeds the insurance limits.

2.15 Claims Procedure. An application for benefits under the Plan or
an inquiry about the interpretation of a Plan provision shall not be a claim
under this procedure unless addressed to the Committee in writing and in
accordance with the provisions of this Plan (S) 2.15. No statement, whether
written or oral, by any person, including a Local

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<PAGE>

Plan Administrator or a Committee member (unless made by that member in
communicating a formal decision of the Committee), is binding on the Committee.

(a) Any person who questions the amount of any benefit paid or who
believes that a benefit should have commenced to be paid which did not so
commence or who has some other claim arising under the Plan or Trust (the
"Claimant"), shall either (i) deliver a written claim by notice to BPAC fully
describing the nature of such claim and incorporating or attaching all
information and documentation necessary to enable BPAC to determine whether to
grant or deny the claim, or (ii) if such claim is properly subject to resolution
under a grievance and/or arbitration procedure established by a Basic Agreement,
file such claim in accordance with such grievance and/or arbitration procedure.

(1) If the claim is filed with the Local Plan Administrator, then the
Local Plan Administrator shall forthwith forward the claim, as filed, to
BPAC and shall provide notice to the Claimant of the date that such claim
was so forwarded. BPAC shall review the claim and supporting information
and shall make an initial determination approving or denying the claim.

(2) If the claim is filed under an applicable grievance and/or arbitration
procedure, the final decision, whether made by agreement or as a result of
a final arbitration award, under such grievance and/or arbitration
procedure shall be the initial decision under the claims procedure set
forth in this Plan (S) 2.15; provided, however, that the Committee's
responsibility with respect to any such final decision shall be limited to
the review of such final decision with reference to its impact, if any, on
all persons not directly the subject of such final decision. Such final
decision shall be enforced by the Committee unless enforcement will, in the
Committee's sole discretion, materially and adversely affect other
Participants, in which case the Committee shall take such action as it
deems to be appropriate to protect the interests of all of the
Participants.

(b) When the initial determination of a claim is rendered by BPAC, BPAC
shall, within 90 days (or such other period as may be established by applicable
law) from the time the claim is received, mail a notice of the initial
determination to the Claimant. Such 90-day period may be extended by BPAC for
up to 90 additional days if special circumstances so require by a notice of
extension to the Claimant within the first 90-day period. If the initial
determination of a claim is rendered under an applicable grievance and/or
arbitration procedure, the final decision under such procedure shall be
communicated in accordance with such procedure, but not later than the last date
which BPAC could communicate such decision under the foregoing sentence.

(c) Each Claimant shall have the right to request a full and fair review
by BPAC of the initial determination. Such request for review must be made by
notice to BPAC within 60 days of receipt of the notice of initial determination
and must include all such new information, or documentation as the Claimant
believes to be pertinent to BPAC's review of the initial decision. The Claimant
or his duly authorized representative shall

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<PAGE>

have the right to review any pertinent documents and to submit any issues or
comments. The Claimant or his duly authorized representative may, during such
60-day period, examine and review during reasonable business hours any pertinent
documents and may request copies thereof, by written request accompanied by
payment of any reasonable copying charges therefor.

(d) BPAC shall, within 60 days after receipt of the request for review,
(or in special circumstances, such as where BPAC in its sole discretion holds a
hearing, within 120 days of receipt of the request for review) submit its
decision on review in writing to the Claimant. The decision on review will be
final, conclusive and binding on all parties.

(e) Any notice of denial or other decision on review shall be written in a
manner calculated to be understood by the Claimant. A notice of denial shall
set forth (i) the specific Plan provisions on which the denial is based, (ii) an
explanation of additional material or information, if any, necessary to validate
such claim together with a statement of why such material or information is
necessary, and (iii) an explanation of the review procedure. A decision on
review shall set forth the specific Plan provisions on which the decision is
based.

(f) Any claim questioning the amount of a benefit filed more than 90
days following the date of the first payment which would be adjusted if such
claim were granted may be rejected as untimely except upon a showing
satisfactory to the Committee of extenuating circumstances accounting for the
delay in filing the claim; provided, however, that the Plan expressly reserves
to the Committees the right and the power to review any claim made at any time,
whether within the time for filing such claim or not, or to provide an
interpretive opinion relating to any provision of the Plan or Trust or with
reference to any factual situation.

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ARTICLE 3

ELIGIBILITY AND TYPES OF PENSIONS

3.1 Pension Applications. Eligible Participants must make application for
a pension in writing on a form or forms provided by BPAC and file such form or
forms with BPAC at any time prior or subsequent to the Participant's Retirement,
except as provided in Plan (S) 3.9. BPAC may require an applicant for a pension
to provide any reasonably necessary information. Payment of pensions shall
commence as provided in Plan (S) 5.5.

3.2 Normal Retirement Pension. Any Participant who has attained age 65
and who has completed at least 5 years of Continuous Service shall be eligible
to retire and shall, upon his Retirement, be eligible for a Normal Retirement
Pension.

3.3 62/15 Retirement Pension. Any Participant who has attained age 62 but
not age 65 and who has completed at least 15 years of Continuous Service shall
be eligible to retire and shall, upon his Retirement, be eligible for a 62/15
Retirement Pension.

3.4 30-Year Retirement Pension. Any Participant who has not attained age
62 and who has completed at least 30 years of Continuous Service shall be
eligible to retire and shall, upon his Retirement, be eligible for a 30-Year
Retirement Pension.

3.5 Early Retirement (55/15) Pension. Any Participant who has completed
at least 15 but less than 30 years of Continuous Service and who has attained
age 55, but not age 62, shall be eligible to retire and shall, upon his
Retirement, be eligible for an Early Retirement (55/15) Pension. The amount of
an Early Retirement (55/15) Pension shall be equal to the Regular Pension
provided in Plan Article 5 reduced to its Actuarial Equivalent based on the
Participant's age on his pension commencement date, which shall be the date
specified by the Participant in his application for a pension, but no later than
the first day of the month following his 62nd birthday. If the Participant
elects to defer his pension, the Special Pension Payment pursuant to Plan
Article 4 shall be deferred to the pension commencement date unless the
Participant affirmatively elects to have such Special Pension Payment made upon
his Retirement.

3.6 Permanent Incapacity Pension. Any Participant who has completed at
least 15 years of Continuous Service, who becomes permanently incapacitated and
whose incapacity has continued for a period of at least 5 consecutive months
shall, upon presentation of evidence of permanent incapacity satisfactory to
BPAC, be eligible for a Permanent Incapacity Pension. A Participant shall be
eligible for a Permanent Incapacity Pension only if certified as totally and
permanently disabled by a physician selected by BPAC.

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3.7 Immediate Severance (70/80) Pension. Any Participant who has not
attained age 62, has completed at least 15 years of Continuous Service and who
(i) has attained age 55 and whose combined age and years of Continuous Service
equals 70 or more, or (ii) whose combined age and years of Continuous Service
equals 80 or more, and

(a) who incurs a Break In Continuous Service by reason of a Permanent
Shutdown, a Layoff or a physical disability, or

(b) who does not incur a Break In Continuous Service and who is absent
from work by reason of

(1) having elected Layoff status in lieu of having his employment
terminated as a result of a Permanent Shutdown, in accordance with the
provisions of a Basic Agreement or a written policy of an Employing Company
providing such election, or

(2) a physical disability, but only if the Participant shall be certified
as totally and permanently disabled by a physician selected by BPAC, or

(3) a Layoff other than Layoff status resulting from an election referred
to in (1) above and whose return to active employment is declared unlikely
by BPAC, or

(c) who does not incur a Break In Continuous Service and who, while on
Layoff status described in (b)(1) above, accepts a job with an Employing Company
and, prior to the expiration of 90 consecutive calendar days from the first day
worked on such job, elects to retire,

shall be eligible to retire and shall, upon his Retirement, be eligible for an
Immediate Severance (70/80) Pension. The amount of such Immediate Severance
(70/80) Pension paid to a Participant shall be determined in accordance with the
provisions of (S) 5.1(d).

3.8 Rule-Of-65 Retirement Pension. Any Participant (i) who has completed
at least 20 years of Continuous Service on his last day worked, (ii) who has not
attained age 55, and (iii) whose combined age and years of Continuous Service
equals 65 or more but less than 80, and

(a) who incurs a Break In Continuous Service by reason of (i) a Layoff or
(ii) a physical disability, or

(b) who does not incur a Break In Continuous Service and who is absent
from work by reason of a Layoff resulting from his election to be placed on
Layoff status as a result of a Permanent Shutdown, or

(c) who does not incur a Break In Continuous Service and who is absent
from work by reason of (i) a physical disability, but only if the Participant
shall be certified as totally and permanently disabled by a physician selected
by BPAC, or (ii) a Layoff other

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than a Layoff resulting from an election described in (b) above and whose return
to active employment is declared unlikely by BPAC, or

(d) who is not eligible for Retirement under (a), (b) or (c) above and who
incurs a Break In Continuous Service by reason of his involuntary termination of
employment by the Employing Company on or after the date the Board Of Directors
authorized the Permanent Shutdown of the unit at which he is employed, provided
the involuntary termination is by reason of the Permanent Shutdown and is not an
involuntary termination by the Employing Company for good cause,

and who has not been offered suitable long-term employment by the Employing
Company, shall be eligible to retire, and shall, upon his Retirement, be
eligible for a Rule-Of-65 Retirement Pension; provided, however, that if at the
time of the Participant's application for Retirement his Employing Company has
not yet determined whether the Participant will be offered suitable long-term
employment, the Participant will not be eligible to retire until the earlier of
(i) the date on which the Employing Company finally determines that the
Participant will not be offered suitable long-term employment and the
Participant is so advised, or (ii) the date on which the Participant incurs a
Break In Continuous Service. The amount of such Rule-Of-65 Retirement Pension
paid to a Participant shall be determined in accordance with the provisions of
(S) 5.1(d).

3.9 Deferred Vested Pension. Any Participant not eligible for a
pension under any other section of this Article 3, who incurs a Break In
Continuous Service for any reason and who, at the time of such Break In
Continuous Service, has completed at least 5 years of Continuous Service, shall
be eligible for a Deferred Vested Pension. BPAC shall furnish such Participant
with an appropriate written notice of the eligibility requirements and his
relevant employment status. The Participant may make application for a Deferred
Vested Pension not earlier than 90 days prior to the first day of the month for
which the first installment of pension is payable pursuant to Plan (S)(S) 5.5(d)
and (e). A Participant's right to his Regular Pension shall be nonforfeitable
(for reasons other than death) upon the later of (i) the date the Participant
attains age 65, or (ii) the fifth anniversary of the date the Participant
commenced participation in the Plan.

3.10 Nonduplication Of Benefits. Notwithstanding anything to the contrary
contained in this Plan, no pension (including any Special Pension Payment
pursuant to Article 4) shall be payable for any month with respect to which the
Participant claims and is eligible for benefits under the sickness and accident
plan of an Employing Company, or similar benefits provided under law.

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ARTICLE 4

SPECIAL PENSION PAYMENT

4.1 Eligibility. A special initial payment (the "Special Pension
Payment") shall be payable to retired Participants, except for any Participant
eligible for a Permanent Incapacity Pension, a Deferred Vested Pension or as
provided in Plan Article 10.

4.2 Amount.

(a) The amount of the Special Pension Payment for a Participant who
was entitled to a vacation in the year of his Retirement, or who would have been
entitled to a vacation in the year of his Retirement except for such Retirement,
shall be calculated as follows:

(1) The number of weeks of vacation to which the Participant was or
would have been entitled multiplied by the amount of the Participant's
vacation pay, plus

(2) The number of weeks of vacation determined in (1) above
subtracted from 13 (14 in the case of a Participant eligible for more
than 4 weeks of regular vacation in the year of his Retirement), and
multiplied by the amount of the Participant's adjusted vacation pay;
minus

(3) the amount of vacation pay the Participant received in such year.

(b) The amount of the Special Pension Payment for a Participant not
entitled to any vacation in the year of his Retirement shall be calculated under
the formula established in (a) above as though the Participant had retired in
the year in which he was last entitled to a vacation.

(c) The Special Pension Payment shall be reduced by the amount of
Other Pension as defined in Plan (S) 6.2 which is payable for any portion of the
3 month period to which the Special Pension Payment applies.

4.3 Vacation Pay Of Hourly Participants. For hourly paid
Participants, the weekly rate of vacation pay shall be computed in accordance
with the applicable formula for the calculation of such pay under a Basic
Agreement or an otherwise established practice.

(a) If a Participant takes his entire vacation in periods in which
the same rate of vacation pay applied, the weekly rate of vacation pay shall be
the rate paid to the Participant.

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(b) If a Participant takes his entire vacation in 2 or more periods
to which different rates of vacation pay apply, the weekly rate of vacation pay
shall be the average for the several periods.

(c) If a Participant takes only a part of his vacation, the weekly
rate of vacation pay shall be the average of the rates applicable to the period
taken and the period not taken.

(d) If a Participant has not taken any of his vacation, the weekly
rate of vacation pay shall be the rate applicable if he had commenced a vacation
immediately prior to Retirement.

(e) "Adjusted vacation pay" means the vacation pay determined in
accordance with (a) through (d) above, reduced by the amount of such pay which
results from a Cost-of-Living Adjustment other than the first Cost-of-Living
Adjustment included in the base hourly rates subsequent to April 30, 1974.

4.4 Vacation Pay Of Salaried Participants. For salaried
Participants, the weekly rate of vacation pay shall be deemed to be the
Participant's total compensation received in the last 12 months of active
employment status, including imputed income relating to supplemental life
insurance coverage and Company contributions to the Armco Inc. Thrift Plan for
Salaried Employees, or any successor plan, divided by 52. Such total
compensation shall not include any amounts paid as a Cost-of-Living Adjustment
in addition to regular base salary and shall not include payments of any form of
compensation received in such period of 12 months for a period in excess of 12
months; in any such case the lesser of such excess payments received shall be
excluded. From and after January 1, 1990, such total compensation shall not
include imputed income relating to life insurance coverage.

4.5 Period For Which Payable. The Special Pension Payment shall be
payable for the first 3 calendar months following the month of the Participant's
Retirement. Such Special Pension Payment shall be paid in accordance with
non-discriminatory administrative practices as established by BPAC from time to
time or as may be required by an applicable Basic Agreement.

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ARTICLE 5

REGULAR PENSION

5.1 Basic Formula For Calculation Of Regular Pension. The Regular
Pension shall be a monthly amount determined in accordance with (a), (b) and (c)
below, adjusted in accordance with Plan (S)(S) 5.2, 5.3, 6.1, 6.2, 6.3, 6.4,
7.1(f), 7.2(e), 7.3 and 7.4 if applicable.

(a) Subject to (b) and (c) below, the monthly amount used in the
calculation of any Regular Pension shall be determined in accordance with (1),
(2) or (3) below, whichever is the greatest:

(1) Minimum Pension. A monthly amount equal to:

(A) $17.50 ($21.50 for retirements on or after September 30, 1990)
for each of the first 15 years (and fractions thereof calculated to
the nearest month) of the Participant's Continuous Service; plus

(B) $19.00 ($23.00 for retirements on or after September 30, 1990)
for each of the Participant's years (and fractions thereof calculated
to the nearest month) of Continuous Service in excess of 15 but not
more than 30 years; plus

(C) $20.50 ($24.50 for retirements on or after September 30, 1990)
for each of the Participant's years (and fractions thereof calculated
to the nearest month) of Continuous Service in excess of 30 years.

For retirements occurring after September 30, 1989 and before
September 30, 1990, the monthly pension benefit will be increased from
and after October 1, 1990 to an amount determined under the Minimum
Pension formula as in effect on September 30, 1990.

(2) 1.1/1.2% Pension. A monthly amount equal to the Participant's Average
Monthly Earnings multiplied by:

(A) For a Participant with more than 30 years of Continuous Service,
33% plus a percentage determined by multiplying 1.2% by the number of
years (and fractions thereof calculated to the nearest month) of his
Continuous Service in excess of 30 years, or

(B) For a Participant with 30 or less years of Continuous Service,
1.1% multiplied by the number of years (and fractions thereof
calculated to the nearest month) of his Continuous Service,

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plus, for a Participant who retires on or after July 31, 1986 (or, for any
Participant whose terms and conditions of employment are subject to a Basic
Agreement in effect on January 1, 1989, or any successor thereto which
provides for a continuation of this provision, and who retires prior to the
expiration of such Basic Agreement or on such later date as the Basic
Agreement may provide) an additional amount determined by multiplying the
amount determined in accordance with (A) and (B) above, whichever is
applicable, by 5%.

(3) 1.5% Pension. A 1.5% Pension is payable only to a Participant who is
either receiving Social Security disability benefits for which he is
eligible on the date of his Retirement or who has attained age 62. The
1.5% Pension is a monthly amount equal to 1.5% of the Average Monthly
Earnings of the Participant multiplied by the number of years (and
fractions thereof calculated to the nearest month) of his Continuous
Service, less 50% of the monthly amount of Social Security benefits payable
at the date of his Retirement. If Social Security benefits are not payable
at the time of the Participant's Retirement, then 50% of the Social
Security benefit as defined in Plan (S) 5.1(b)(4)(A) shall be used. After
the reduction for the monthly amount of Social Security benefit has been
determined, it shall not be changed to reflect any change in such benefit.
The 1.5% Pension shall be increased by 5% for any Participant who retires
on or after July 31, 1986 (or, for any Participant whose terms and
conditions of employment are subject to a Basic Agreement in effect on
January 1, 1989, or any successor thereto which provides for a continuation
of this provision, and who retires prior to the expiration of such Basic
Agreement or on such later date as the Basic Agreement may provide). A
Participant will not be entitled to a 1.5% Pension unless he has been a
Participant for at least 60 months at any time prior to his Retirement,
including at least the 12 consecutive months immediately preceding his
Retirement.

Notwithstanding any other contrary provision of this Plan, in calculating
the accrued benefit (including the right to any optional benefit provided
under this Plan) of any Plan Participant who is a highly compensated
employee within the meaning of Code (S) 414(q), such highly compensated
employee shall accrue no additional benefit under this Plan (S) 5.1(a)(3)
from or after January 1, 1989 to the extent that such additional benefit
accrual exceeds the benefit which would otherwise accrue in accordance with
the terms of the Plan as subsequently amended to comply with those
qualification requirements described in Treasury Regulation (S) 1.401(b)-
1(b)(2)(ii).

This provision shall be effective until the last date by which the Plan may
be amended retroactively to comply with the Tax Reform Act of 1986 for the
Plan Year beginning January 1, 1989 in order to remain qualified under the
Code and shall be effective for such period if and only if the subsequent
amendment to comply with the Tax Reform Act of 1986 is made on or before
the last day by which the Plan may be amended retroactively to comply with
the Tax Reform Act of 1986 for the Plan Year commencing January 1, 1989.

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<PAGE>

In addition, the benefit accrued by any highly compensated employee, as
defined at Code (S) 414(q), shall in no event exceed the benefit accrual
during the Plan Year beginning January 1, 1989 with respect to such
participant under the terms of the Plan as subsequently amended to comply
with the terms of the Tax Reform Act of 1986. However, such highly
compensated employee's benefit shall not be less than what that participant
had accrued on December 31, 1988.

(b) Participants Eligible For Public Pension. Notwithstanding anything to
the contrary contained in Plan (S)(S) 5.1(a)(1), (2) and (3),

(1) for any month in which a Participant is eligible for a Public Pension
related to the Social Security Act, the monthly amount used in the
calculation of any Regular Pension may not exceed an amount which, when
added to the monthly amount of Social Security, will result in a sum that
is greater than the product of:

(A) the Participant's gross average monthly earnings, multiplied by

(B) the sum of 70% plus 1% for each full year of Continuous Service
in excess of 15;

(2) provided, however, that a monthly amount affected by the limitation in
(b)(1) above shall not be less than an amount equal to $14.00 for each of
the first 15 years of Continuous Service (and fractions thereof calculated
to the nearest month) plus $15.00 for each year of Continuous Service
between 15 and 30 (and fractions thereof calculated to the nearest month)
and $16.00 for each year of Continuous Service in excess of 30 (and
fractions thereof calculated to the nearest month); and

(3) provided, further, that there shall be no adjustment in the monthly
amount determined under (b)(1) above because of future increases in the
Participant's monthly amount of Social Security which may become effective
subsequent to the date of his Retirement.

(4) The phrase "monthly amount of Social Security" shall mean:

(A) in the case of a Participant who retires prior to age 62, the
Social Security Act Old-Age Benefit to which the Participant becomes
entitled at age 62 based on the law in effect at the time of his
Retirement and on the assumption that he will receive no creditable
compensation for Social Security purposes after the date of his
Retirement, and that the Participant's compensation prior to his
Retirement equaled or exceeded the maximum taxable wages creditable
for Social Security purposes, unless the Participant produces a
statement from the Social Security Administration establishing lesser
creditable compensation, or

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<PAGE>

(B) in the case of a Participant who retires on or after age 62, the
Social Security Act Old-Age Benefit to which he is or would be
entitled at the date of his Retirement based on the law in effect at
such date.

(5) For the purpose of (b)(1) above, "gross average monthly earnings"
means the sum of the Participant's W-2 earnings for the 2 calendar years
out of the last 10 calendar years prior to his Retirement in which the
Participant's earnings were the highest, divided by 24. The calendar year
in which the Participant retires shall be included as one of the "last 10
calendar years prior to his Retirement" if his Retirement occurs after June
30 of such year and the Participant worked in such year.

(6) In the case of a Participant who retires on other than a Deferred
Vested Pension and who did not work for one or more full calendar months
due solely to Layoff, disability and/or Retirement during either or both of
the last 2 calendar years in which he worked prior to his Retirement, his
W-2 earnings shall be increased by adding for each such calendar month
during that year an amount equal to 4-1/3 times his average weekly
earnings, including any Cost-of-Living Adjustment, for all hours paid for
by an Employing Company with respect to the weekly pay periods in which he
worked during that year, provided that if he did not work at least 12
weekly pay periods in that year, his average weekly earnings shall be based
on the last 12 weekly pay periods in which he worked during and prior to
that year. The calendar year in which the Participant retires shall be
included in the "last 2 calendar years in which he worked prior to his
Retirement" if his Retirement occurs after June 30 of such year and the
Participant worked in such year.

(7) A Participant who retires on other than a Deferred Vested Pension and
who did not work during either or both of the last 2 calendar years prior
to his Retirement due solely to a compensable disability shall, for the
purpose of the calculation in (b)(6) above, have his W-2 earnings for the
last 2 calendar years in which he worked adjusted by increasing his W-2
earnings for each such year by the amount provided pursuant to (b)(6)
above, if applicable, and then by the percentage increase in the non-
incentive standard hourly wage scale rate for Job Class 10 under a Basic
Agreement applicable to production and maintenance employees in the basic
steel operations of the Company between August 1 of the calendar year in
question and August l of the earlier of the last 2 calendar years prior to
his Retirement, except that such adjustment shall not be made with respect
to W-2 earnings for either of the last 2 calendar years prior to his
Retirement. The calendar year in which the Participant retires shall be
included in the "last 2 calendar years prior to his Retirement" if his
Retirement occurs after June 30 of such year and the Participant worked in
such year.

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(1) For a Regular Pension paid pursuant to an Early Retirement (55/15)
Pension, the monthly amount determined in accordance with Plan (S)(S)
5.1(a)(1), (2), (3) and 5.1(b) is applicable only if the Participant
elects, in his application for a pension, to defer commencement of his
Regular Pension until after attaining age 62, ("Deferred Early Retirement
(55/15) Pension"), and for any Deferred Vested Pension, the monthly amount
determined in accordance with Plan (S)(S) 5.1(a)(1), (2), (3) and 5.1(b) is
applicable, only if

(A) with respect to a Participant who incurs a Break In Continuous
Service after attaining age 40 and completing at least 15 years of
Continuous Service, his Regular Pension commences after he has
attained age 62, or

(B) with respect to a Participant who incurs a Break In Continuous
Service either prior to attaining age 40 or after attaining age 40 and
before completing at least 15 years of Continuous Service, his Regular
Pension commences after he has attained age 65.

(2) A Participant may, in his application for an Early Retirement (55/15)
Pension, elect immediate commencement of pension, and a Participant who
incurs a Break In Continuous Service after attaining age 40 and completing
at least 15 years of Continuous Service and who is entitled to a Deferred
Vested Pension may, pursuant to Plan (S) 5.5(d), make application for
commencement of pension payments after attaining age 55 and prior to
attaining age 62, and in either such case the Regular Pension calculated
under Plan (S)(S) 5.1(a)(1), (2) and 5.1(b) shall be reduced to its
Actuarial Equivalent as of the effective date of the pension; provided,
however, that at age 62 the amount of such pension shall be the greatest of
the amounts computed under Plan (S)(S) 5.1(a)(1), (2), (3) and 5.1(b)
reduced to its Actuarial Equivalent as of the effective date of such
pension. The Actuarial Equivalent early retirement percentages are
shown on Exhibit A, Schedule A-1 attached.

(3) A Participant who incurs a Break In Continuous Service either prior to
attaining age 40 or after attaining age 40 and before completing at least
15 years of Continuous Service, and who is entitled to a Deferred Vested
Pension may, pursuant to Plan (S) 5.5(e), make application for commencement
of pension payments after attaining age 55 and prior to attaining age 65,
and in such case the monthly amount calculated under Plan (S)(S) 5.1(a)(1),
(2) and 5.1(b) shall be reduced to its Actuarial Equivalent as of the
effective date of the pension; provided, however, that at age 65 the amount
of such pension shall be the greatest of the amounts computed under Plan
(S)(S) 5.1(a)(1), (2), (3) and 5.1(b) reduced to its Actuarial Equivalent
as of the effective date of such pension. The Actuarial Equivalent early
retirement percentages are shown on Exhibit A, Schedule A-2 attached.

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(d) Regular Pension Under Immediate Severance (70/80) Pension and Rule-Of-
65 Retirement Pension. Notwithstanding anything to the contrary in this Plan,
any Regular Pension paid pursuant to an Immediate Severance (70/80) Pension and
Rule-Of-65 Retirement Pension upon any Break In Continuous Service occurring on
or after January 1, 1990, shall not exceed the amount which would have been
payable had such Retirement occurred on December 31, 1989.

5.2 Increased Regular Pensions. Subject to the limitations of Plan (S)
5.1(d), in the determination of the amount of any Regular Pension under a
Permanent Incapacity Pension or Immediate Severance (70/80) Pension, the monthly
amount determined in accordance with Plan (S)(S) 5.1(a)(1), (2) and 5.1(b) shall
be increased by $400 per month; provided, however, that such increase shall not
be applicable with respect to a Regular Pension payable for any month for which
the Participant is eligible for a Public Pension.

5.3 Increased Rule-Of-65 Retirement Pensions. Subject to the
limitations of Plan (S) 5.1(d), in the determination of the amount of any
Regular Pension for Rule-Of-65 Retirement, the monthly amount determined in
accordance with Plan (S)(S) 5.1(a)(1), (2) and 5.1(b) shall be increased by $400
per month; provided, however, that such increase shall not be applicable with
respect to such Regular Pension payable for any month for which the Participant
is eligible for a Public Pension; and provided, further, that if the Participant
has earned income after his Retirement and prior to attainment of eligibility
for a Public Pension which exceeds $5,500 during any calendar year (hereinafter
"Excess Earned Income"), the Increased Pension payable pursuant to this Plan (S)
5.3 (hereinafter "Increased Pension") for any calendar year shall be reduced by
$1 for each $2 of Excess Earned Income. The Excess Earned Income base amount
shall be prorated for the year in which the Participant's Retirement occurs and
for the year in which the Participant becomes eligible for a Public Pension.
For the purpose of this Plan (S) 5.3, earned income shall include wages,
salaries, tips, bonuses, commissions, and earnings resulting from self-
employment.

(a) To facilitate determination of his annual earned income, each
Participant shall at the time of Rule-Of-65 Retirement, authorize the Social
Security Administration and/or the Railroad Retirement Board to release to BPAC
a record of his creditable earnings for Social Security and/or Railroad
Retirement Act purposes and agree to give BPAC by April 15th of each year a copy
of his W-2 forms and a statement of his annual earned income for the preceding
year on a form provided by BPAC. If the Participant revokes the authorization
to the Social Security Administration and/or Railroad Retirement Board or fails
to submit the required information to BPAC by April 15th of each year, the
Participant shall be presumed to be ineligible for Increased Pension for the
preceding year.

(b) If it is determined in accordance with (a) above that the Participant
was not eligible for all or part of the Increased Pension which he received for
the preceding year, payment of Increased Pension will be suspended and not
resumed until the month following the month in which the Participant notifies
BPAC that he does not expect his earned income for the current year to exceed
the Excess Earned Income base amount.

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The amount of any overpayment will be recouped by reducing or discontinuing
payment of the Participant's Regular Pension (and his Increased Pension, if he
notifies BPAC that he does not expect his earned income for the current year to
exceed the Excess Earned Income base amount) until the full amount of the
overpayment has been recovered.

(c) At the request of the Participant, BPAC may reduce or discontinue
payment of Increased Pension for a period specified by the Participant. If it
is determined that the Participant did not receive all of the Increased Pension
to which he was entitled for a given year, the amount due shall be paid
promptly.

5.4 Form Of Payment Of Regular Pensions. Each Regular Pension shall be
paid in monthly installments.

5.5 Commencement And Termination Of Regular Pension Payments.

(a) In the case of a Participant who is eligible for any type of pension
other than an Early Retirement (55/15) Pension, a Permanent Incapacity Pension
or a Deferred Vested Pension, the first installment of Regular Pension shall
commence with the first full calendar month following the 3 calendar months for
which the Special Pension Payment is payable.

(b) In the case of a Participant who is eligible for a Permanent
Incapacity Pension, the first installment of any Regular Pension shall commence
with the first full calendar month following the month in which the
Participant's Retirement occurs.

(c) In the case of a Participant who is eligible for an Early Retirement
(55/15) Pension, the first installment of Regular Pension shall commence with
the fourth calendar month following the month in which the Participant attains
age 62 unless the Participant elects earlier commencement in accordance with
Plan (S) 5.1(c)(2), in which case the first installment of Regular Pension shall
be payable for the first full calendar month following the 3 calendar months for
which the Special Pension Payment is payable.

(d) In the case of a Participant who is eligible for a Deferred Vested
Pension and who incurs a Break In Continuous Service after attaining age 40 and
completing at least 15 years of Continuous Service, the first installment of
Regular Pension shall be payable for the calendar month following the
Participant's 62nd birthday unless the Participant elects earlier commencement
in accordance with Plan (S) 5.1(c)(2), in which case the first installment of
Regular Pension shall be payable for the later of

(1) the calendar month specified by the Participant in his application for
a pension, provided such month is subsequent to the month in which he
attains age 55, or

(2) the calendar month in which his application for a pension is made.

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(e) In the case of a Participant who is eligible for a Deferred Vested
Pension and who incurs a Break In Continuous Service either prior to attaining
age 40 or after attaining age 40 and before completing at least 15 years of
Continuous Service, the first installment of Regular Pension shall be payable
for the calendar month following the Participant's 65th birthday unless the
Participant elects earlier commencement in accordance with Plan (S) 5.1(c)(3),
in which case the first installment of Regular Pension shall be payable for the
later of

(1) the calendar month specified by the Participant in his application for
a pension, provided such month is subsequent to the month in which he
attains age 55, or

(2) the calendar month in which his application for a pension is made.

(f) Unless the Participant otherwise elects, payment of benefits under the
Plan to the Participant shall commence not later than the 60th day after the
latest of the last day of the Plan Year in which the Participant (i) attains his
Normal Retirement date, (ii) attains the 10th anniversary of his participation
in the Plan or (iii) terminates his employment. Notwithstanding the
foregoing, any pension payable to a Participant shall commence in accordance
with Code (S) 401(a)(9) no later than April lst of the calendar year following
the calendar year in which such Participant attains age 70 1/2. Such pension
shall be paid, in accordance with the Regulations, over the life of such
Participant or over a period not extending beyond the life expectancy of such
Participant or the joint life expectancies of such Participant and his
beneficiary.

(g) To the extent required by the Code and Regulations, pension
payments may not commence prior to the date the Participant attains his Normal
Retirement date without the Participant's consent, and if the Participant is
married and has elected to receive his pension in a form other than an Automatic
50% Spouse Annuity, the consent of the Participant's spouse.

(h) The last monthly installment of any Regular Pension shall be paid
until the first to occur of:

(1) the month following the month in which the Participant dies, or

(2) the month following the month in which the Participant's pension
ceases pursuant to Plan Article 10, or

(3) in the case of a Participant receiving a Permanent Incapacity Pension,
for the month following the month in which it is determined by medical
examination that he is no longer permanently incapacitated.

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ARTICLE 6

DEDUCTIONS FROM PENSIONS

6.1 Deduction For Public Pension. Deduction from the amount determined in
accordance with Plan (S)(S) 5.1(a), (b) and (c) for a Public Pension shall be
made in accordance with the following provisions:

(a) Except as provided under Plan (S)(S) 5.1(a)(3) and 5.1(b), a Regular
Pension shall not be affected by a Public Pension related to the Social Security
Act.

(b) For any month a Participant is eligible for a Public Pension not
related to the Social Security Act, there shall be a deduction for such Public
Pension from the amount determined in accordance with Plan (S)(S) 5.1(a), (b)
and (c). The amount of such deduction shall be the amount of Public Pension
paid or payable to the Participant, or that would upon application become
payable to him for such month, without regard to any offset, suspension or
reduction imposed by law (including any reduction by reason of commencement of
such Public Pension prior to the age at which it is first provided under law
without such a reduction), except that for a Participant whose original date of
hire was prior to January 1, 1975, the amount of such deduction shall be equal
to 50% of the Tier II benefit determined in accordance with the Railroad
Retirement Act; provided such deduction shall be limited to the amount, to the
extent reasonably determinable, of such Public Pension attributable to
employment by an Employing Company; and provided, further, that in the case of a
Participant eligible for a Public Pension under the Railroad Retirement Act, the
amount of such deduction shall be based on the provisions of such Act in effect
as of the date the Participant retires.

(c) After a deduction for a Public Pension first becomes applicable, it
shall not be changed to reflect any increase of such Public Pension resulting
from:

(1) amendment of the law under which such Public Pension is provided, if
the effective date of such increase occurs after the first month with
respect to which a deduction for such Public Pension became applicable, or

(2) subsequent employment by other than an Employing Company.

6.2 Deduction For Other Pension. If any Participant entitled to a
pension under the Plan is or shall become, or upon application would
become, entitled to any other pension or payment in the nature of a pension
(other than a payment covered by Plan (S) 6.4, or any payment under the
Armco Inc. Thrift Plan for Hourly Employees or the Armco Inc. Thrift Plan
for Salaried Employees) or from any source or fund to which the Company,
any Employing Company or Affiliate or any foreign affiliate or subsidiary
directly or indirectly contributed (any such other pension or payment
hereinafter "Other Pension"), then the amount determined in accordance with
Plan (S)(S) 5.1, 5.2 or 5.3 and otherwise payable to such Participant
for any period shall be reduced by the amount of any such Other Pension
paid or payable to him or that would upon application become

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payable to him for the corresponding period; provided, however, that if
such Participant contributed to such source or fund, then the amount by
which such amount would otherwise be reduced in accordance with the
foregoing provisions of this Plan (S) 6.2 shall be decreased by the amount
of that part of such Other Pension which is attributable to the
contributions which such Participant made to such source or fund; and
provided, further, that such deduction shall be limited to the amount, to
the extent reasonably determinable, of such Other Pension attributable to
employment with an Employing Company during a period in which the
Participant was credited with Continuous Service for the purpose of
calculating the amount of any Regular Pension under this Plan. In the event
such Other Pension is not payable at the same time and manner as the
benefit under this Plan, an adjustment shall be made on an Actuarially
Equivalent basis.

6.3 Deduction For Severance Allowance. For retirements occurring on or
before December 31, 1989 and to the maximum extent permitted by applicable law:

(a) Severance Allowance Paid Or Payable. If any Participant is or becomes
entitled to or is paid any discharge, liquidation, dismissal, or severance
allowance or payment of similar kind (hereinafter "Severance Allowance") by
reason of any plan of the Company or any Employing Company, or in respect of
which the Company or any Employing Company directly or indirectly contributed,
or by reason of any law, then the total amount of such Severance Allowance paid
or payable to him shall be deducted from the amount determined in accordance
with Plan (S)(S) 5.1, 5.2 or 5.3 upon his Retirement; provided, however, that
(i) such Severance Allowance shall not be deducted from or charged against any
Deferred Vested Pension, and (ii) if such Participant contributed to the source
or fund out of which such Severance Allowance is paid or becomes payable, then
the amount which may be deducted from or charged against such amount in
accordance with the foregoing provisions of this Plan (S) 6.3 shall be decreased
by the amount of that part of such Severance Allowance which is attributable to
the contributions which such Participant made to such source or fund. There
shall be no deduction for Severance Allowance paid to a Participant whose Break
In Continuous Service occurs on or after January 1, 1990.

(b) Severance Allowance Waived. If any Participant becomes entitled to a
Severance Allowance which may be deducted from the amount determined in
accordance with Plan (S)(S) 5.1, 5.2 or 5.3 under (a) above, he may waive
payment of the Severance Allowance. Such waiver must be in writing on a form
acceptable to BPAC. If the Participant waives such Severance Allowance, the
total amount of Regular Pension paid to or on behalf of him and his Co-
Pensioner, if any, shall not be less than the amount of such Severance
Allowance.

6.4 Deduction For Disability Payments. Any amount paid to or on behalf of
any Participant on account of injury or occupational disease incurred in the
course of his employment by an Employing Company or any other employer causing
disability in the nature of a permanent disability, whether pursuant to Workers'
Compensation or Occupational Disease laws, or otherwise arising under statutory
or common law (except fixed statutory payments for the loss of, or 100% loss of
use of, any bodily member or a

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benefit in the nature of an annuity, pension or payment of similar kind by
reason of any law), shall be deducted from or charged against the amount
determined in accordance with Plan (S)(S) 5.1, 5.2 or 5.3; provided, however,
that any such deduction or charge shall be adjusted to take into account
expenses such as reasonable lawyers' fees and medical expenses, incurred by the
Participant in processing a claim for such payment and that any payments
received by the Participant under Workers' Compensation or Occupational Disease
laws shall not be deducted from any such amount for a Permanent Incapacity
Pension payable prior to age 65 or from the increase in Regular Pension for
Permanent Incapacity Retirement provided by Plan (S) 5.2. If any amount which is
to be deducted from or charged against the amount determined in accordance with
Plan (S)(S) 5.1, 5.2 or 5.3 pursuant to this Plan (S) 6.4 is determined with
respect to a period of time, such deduction or charge shall be made only with
respect to the same period. If any such amount is not determined with respect to
a period of time, the amount shall be apportioned to a period of time under
procedures reasonably designed to result in deduction or charge comparable to
that which would be made if the amount had been determined with respect to a
period of time.

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ARTICLE 7

SURVIVOR BENEFITS

7.1 Pre-Pension Spouse Coverage.

(a) Any Participant who has a spouse and

(1) who is accruing Continuous Service after having attained age 55, and
completing at least 5 years of Continuous Service, or

(2) who incurs a Break In Continuous Service with eligibility for an Early
Retirement 55/15 Pension or a Deferred Vested Pension, and who does not
elect immediate commencement of pension pursuant to Plan (S) 5.5, may elect
Pre-Pension Spouse Coverage which will provide a lifetime monthly payment
for the Participant's spouse following the Participant's death. Any
monthly payment resulting from Pre-Pension Spouse Coverage will be in
addition to any Surviving Spouse's Benefit provided under Plan Article 8.

(b) The Participant may elect to obtain Pre-Pension Spouse coverage by
filing the form prescribed for this purpose with BPAC at any time prior to
commencement of his pension.

(c) Pre-Pension Spouse Coverage shall become effective 2 years following
the date the Participant files the prescribed form electing coverage, provided
the Participant, with spousal consent, has waived Pre-Retirement Survivor
Annuity Coverage pursuant to Plan (S) 7.2 effective on such date.
Notwithstanding the foregoing, if a Participant dies as the result of an
accident after electing Pre-Pension Spouse Coverage but prior to the date such
coverage becomes effective, Pre-Pension Spouse Coverage will be deemed to have
become effective as of the date such Participant elected such coverage.

(d) A Participant may terminate Pre-Pension Spouse Coverage at any time
effective as of the date the form prescribed for this purpose is filed with
BPAC. Such coverage will automatically terminate as of the earliest of:

(1) the date the Participant is divorced from his spouse,

(2) the date the spouse dies,

(3) except in the case of a Participant covered by (a)(2) above, the date
of the Participant's Retirement,

(4) except in the case of a Participant covered by (a)(2) above, the date
the Participant incurs a Break In Continuous Service, or

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(5) in the case of a Participant covered by (a)(2) above, the last day of
the month preceding the first month for which Regular Pension is paid.

(e) Provided the Participant meets all of the eligibility requirements of
(a) above, the effective date of Pre-Pension Spouse Coverage for a Participant
who is reemployed following Retirement or a Break In Continuous Service, which
terminated such coverage in accordance with (d) (3) or (4) above, shall be the
date of his reemployment; provided, however, that the Participant may, within 30
days after such reemployment, revoke such coverage effective as of the date of
his reemployment.

(f) If a Participant elects Pre-Pension Spouse Coverage, the amount
determined in accordance with Plan (S) 5.1 will be reduced by an amount equal
to the product of 7/10 of 1% of such amount, multiplied by the number of years
(and fractions thereof) that such coverage was in effect.

(g) If a Participant dies while Pre-Pension Spouse Coverage is in effect,
the surviving spouse shall receive 50% of an amount equal to:

(1) the amount determined in accordance with Plan (S)(S) 5.1(a) and (b) as
though the Participant had retired on the date of his death and

(A) in the case of a Participant who dies after completing at least
15 years of Continuous Service and prior to attaining age 62, as
though at the time of his death he were entitled to receive a pension
without actuarial reduction on account of age, except that Plan (S)
5.1(a)(3) would not apply,

(B) in the case of a Participant who dies prior to completing at
least 15 years of Continuous Service and prior to attaining age 65, as
though at the time of his death he were entitled to receive a pension
without actuarial reduction on account of age, except that Plan (S)
5.1(a)(3) would not apply,

reduced in accordance with (f) above, multiplied by

(2) the applicable percentage obtained from Plan Exhibit A, Schedule A-3-1
or Schedule A-3-2 attached, based on the ages of the Participant and his
spouse as of the Participant's date of death.

(h) The first installment of the amount payable to the Participant's
spouse pursuant to this Plan (S) 7.1 shall be payable for the month following
the month in which the Participant dies and the last installment shall be
payable for the month in which the spouse dies.

(i) Satisfactory proof of marriage of the Participant and his spouse and
of the age of the Participant's spouse will be required prior to the
commencement of Pre-Pension Spouse Coverage. Satisfactory proof of divorce or
of the death of the Participant's spouse will be required for automatic
termination of Pre-Pension Spouse

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Coverage under (d)(1) and (2) above. Consent of the Participant's spouse shall
not be required to terminate Pre-Pension Spouse Coverage.

(j) The sum of any lifetime monthly benefits payable concurrently under
this Plan (S) 7.1 and Article 8 shall not be more than 100% of the amount the
Participant would have received during his lifetime had the Participant retired
at age 65 on the date of his death. In the event that the amount of such
benefit exceeds 100%, the amount of the Pre-Pension Spouse Coverage shall be
reduced accordingly.

(k) In the event a Participant who elected Pre-Pension Spouse Coverage
dies as the result of an accident prior to the date Pre-Pension Spouse Coverage
becomes effective, and such Participant has not revoked the Pre-Retirement
Survivor Annuity Coverage provided under Plan (S) 7.2, the Pre-Pension Spouse
Coverage will be paid in lieu of any benefit under Plan (S) 7.2.

7.2 Pre-Retirement Survivor Annuity Coverage.

(a) Eligibility. Pre-Retirement Survivor Annuity Coverage (hereinafter
"Survivor Annuity Coverage") is automatically applicable to any Participant
(i) who has been married for at least one year, (ii) who has not, with the
written consent of his spouse, revoked such coverage, and (iii) who has
completed at least 5 years of Continuous Service.

(b) Commencement And Termination Of Survivor Annuity Coverage. The
surviving spouse, as defined under Plan (S) 7.2(d)(7), of a Participant who dies
while Survivor Annuity Coverage is in effect, will be eligible for a monthly
payment:

(1) commencing with the first day of the month following the month in
which the Participant dies if the Participant died while accruing
Continuous Service and after having attained age 55 or having completed at
least 30 years of Continuous Service; or

(2) commencing with the first day of the month following the month in
which the Participant's 55th birthday would have occurred;

provided, however, to the extent required by the Code and Regulations, if the
Actuarially Equivalent value of Survivor Annuity Coverage exceeds $3,500,
payment of the Survivor Annuity Coverage may not, without the surviving spouse's
consent, commence prior to the date the Participant would have attained his
Normal Retirement date had he lived. If the surviving spouse does not consent,
payment of the Survivor Annuity Coverage shall commence with the first day of
the month following the month in which the surviving spouse's consent is
received or the Participant would have attained his Normal Retirement date had
he lived, whichever occurs first. The last installment of the Survivor Annuity
Coverage shall be payable for the month in which the spouse dies.

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<PAGE>

(1) If a Participant dies while accruing Continuous Service, the Survivor
Annuity Coverage shall be equal to

(A) the amount determined in accordance with Plan (S)(S) 5.1(a) and
(b) as though the Participant had been age 65 and had retired on the
date of his death, (but disregarding Plan (S) 5.1(a)(3) unless the
Participant had attained age 62 as of the date of his death), reduced
in accordance with Plan (S) 7.1(f) or 7.2(e), multiplied by

(B) the applicable percentage obtained from Exhibit A, Schedule A-
4, based on the difference between the ages of the Participant and
his spouse as of the date of the Participant's death,

reduced by any Surviving Spouse's Benefit payable under Plan Article 8.

(2) If a Participant retired on an Early Retirement 55/15 Pension or a
Deferred Vested Pension after attaining age 55, and elected to defer
commencement of such pension and dies prior to the commencement of such
pension, the Survivor Annuity Coverage shall be equal to:

(A) the amount determined in accordance with Plan (S)(S) 5.1(a) (but
disregarding Plan (S) 5.1(a)(3) unless the Participant had attained
age 62 as of the date of his death), (b) and (c), as though the
Participant had elected to have pension payments commence with the
first of the month following the date of his death, reduced in
accordance with Plan (S) 7.1(f) or 7.2(e), multiplied by

(B) the applicable percentage obtained from Exhibit A, Schedule A-
4, based on the difference between the ages of the Participant and
his spouse as of the date of the Participant's death,

reduced by any Surviving Spouse's Benefit payable under Plan Article 8.

(3) If a Participant who is eligible for a Deferred Vested Pension dies
prior to attaining age 55, the Survivor Annuity Coverage shall be equal to

(A) the amount determined in accordance with Plan (S) 5.1(a) (but
disregarding Plan (S) 5.1(a)(3) unless the Participant had attained
age 62 as of the date of his death), (b) and (c) as though the
Participant survived until age 55 and elected to have pension payments
commence as of the first of the month following attainment of age 55,
reduced in accordance with Plan (S) 7.1(f) or 7.2(e), multiplied by

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<PAGE>

(B) the applicable percentage obtained from Exhibit A, Schedule A-
4, based on the difference between the ages of the Participant and
his spouse as of the date of the Participant's death.

(d) Notification, Revocation, Election And Termination Of Survivor
Annuity Coverage.

(1) BPAC shall furnish or cause to be furnished to each Participant
covered by this Plan (S) 7.2, an explanation of Survivor Annuity Coverage,
the benefits provided and the effect, or cost, of such coverage on his
Regular Pension

(A) within the period beginning on the first day of the Plan Year in
which the Participant attains age 32 and ending on the last day of the
Plan Year preceding the Plan Year in which the Participant attains age
35 or, if an individual is not a Participant during such period,
within a reasonable time after such individual becomes a Participant,
and

(B) on the date of the Participant's termination of employment,
if he has a spouse. There shall be no charge for Survivor Annuity
Coverage after Retirement or after a Break In Continuous Service if
the Participant, with the written consent of his spouse, files a valid
revocation within 90 days of the date he is notified regarding such
coverage.

(2) A Participant may revoke, with the written consent of his spouse,
Survivor Annuity Coverage, within the period beginning on the first day of
the Plan Year in which he attains 35 and ending on the date of his death,
by filing the form prescribed for this purpose with BPAC. To be valid, the
revocation must be signed by the Participant and his spouse in the presence
of a representative of BPAC, or in the presence of a Notary Public, and the
form must be notarized. A revocation will become effective on the date the
form is received by BPAC. Spousal consent will not be required to revoke
Survivor Annuity Coverage if it is established to the satisfaction of BPAC
that the consent of the spouse cannot be obtained because there is no
spouse, because the spouse cannot be located or because of such other
circumstances as may be prescribed in Regulations.

(3) Survivor Annuity Coverage will automatically terminate as of the
earliest of

(A) the date the Participant is divorced from his spouse;

(B) the date the spouse dies;

(C) the date of the Participant's Retirement; provided that if the
Participant has terminated service while eligible for an immediate
pension, the last day of the month preceding the first month for which
a pension is paid;

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(4) A Participant who revokes Survivor Annuity Coverage may subsequently
elect such coverage at any time within the period specified in (2) above,
by submitting the prescribed form, together with copies of the
Participant's marriage certificate and birth certificates for the
Participant and his spouse, to BPAC. Such election will not be effective
until the form and required documents are received by BPAC.

(5) A Participant who returns to the employ of an Employing Company after
Retirement and receiving a pension or after having incurred a Break In
Continuous Service with eligibility for an Early Retirement (55/15) Pension
or Deferred Vested Pension, shall automatically receive Survivor Annuity
Coverage effective with the first day of his reemployment unless the
Participant, with the written consent of his spouse, revokes such coverage
within 90 days of his date of reemployment.

(6) Satisfactory proof of marriage of the Participant and his spouse and
the age of the Participant's spouse will be required prior to commencement
of the payments under Survivor Annuity Coverage. Satisfactory proof of
divorce or of the death of the Participant's spouse will be required for
automatic termination of Survivor Annuity Coverage under (d)(3) above.

(7) The "surviving spouse" for the purpose of this Plan (S) 7.2 is (i) the
person to whom the Participant is married on the date of his death, but
only if the Participant and his spouse were married throughout the one year
period immediately preceding the date of his death or (ii) the person
designated as the surviving spouse under a Qualified Domestic Relations
Order as provided in Plan (S) 12.2.

(e) Participant Cost For Survivor Annuity Coverage. There will be no
charge for Survivor Annuity Coverage prior to the Plan Year in which the
Participant attains age 35. After such time, if a Participant is covered by
Survivor Annuity Coverage, the amount determined in accordance with Plan (S) 5.1
will be reduced by an amount equal to the sum of:

1/10 of 1% for each year (and fraction thereof) that such coverage was in
effect prior to the Participant's attainment of age 50;

3/10 of 1% for each year (and fraction thereof) that such coverage was in
effect after the Participant attained age 50 and prior to attainment of age
55;

5/10 of 1% for each year (and fraction thereof) that such coverage was in
effect after the Participant attained age 55 plus

an adverse selection charge (applicable each time the Participant elects
Survivor Annuity Coverage following a revocation of the same) equal to 1/10,
3/10, or 5/10 of 1%, whichever is applicable, based on the age of the
Participant as of the date such

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coverage is elected; and the percentage determined pursuant to Plan (S) 7.1(f)
for each year that Pre-Pension Spouse Coverage was in effect.

(f) Notwithstanding anything to the contrary contained herein, in the
event a Participant who has elected Pre-Pension Spouse Coverage and has not
revoked Survivor Annuity Coverage dies accidentally before the effective date of
Pre-Pension Spouse Coverage, Pre-Pension Spouse Coverage will be payable in lieu
of Survivor Annuity Coverage.

7.3 Automatic 50% Spouse Annuity. A Participant who has a spouse at
the time pension payments commence shall automatically receive a Net Reduced
Pension during his lifetime and after his death, his spouse shall receive a
lifetime monthly payment equal to 50% of his Reduced Pension, unless he revokes
the Automatic 50% Spouse Annuity in accordance with (c) below.

(a) For the purpose of this Plan (S) 7.3, a "Reduced Pension" means an
amount equal to the amount determined in accordance with Plan (S) 5.1,
reduced in accordance with Plan (S)(S) 7.1(f) and 7.2(e), if applicable, and
subject to the deductions under Plan (S)(S) 6.1 and 6.2, if applicable,
multiplied by the applicable percentage obtained from Exhibit A, Schedule A-3-
1 or A-3-2 attached, based on the ages of the Participant and his spouse at the
date pension payments commence; and "Net Reduced Pension" means the Reduced
Pension increased in accordance with Plan (S) 5.2 or 5.3, if applicable, and
decreased in accordance with Plan (S)(S) 6.3 and 6.4, if applicable.

(b) BPAC shall furnish or cause to be furnished to each married
Participant, within a reasonable period of time before the date pension payments
commence, a written explanation of the Automatic 50% Spouse Annuity. A
Participant may revoke the Automatic 50% Spouse Annuity by written notice duly
filed with BPAC at any time within the 90-day period ending on the date pension
payments commence, or within 90 days following the date on which BPAC provides
such written explanation to the Participant, or, if the Participant has not been
given specific information regarding the terms and conditions of the Automatic
50% Spouse Annuity and its financial effect upon his pension and within 60 days
of receiving the notice makes a written request for such specific information,
within 90 days following the date on which BPAC provides such information,
whichever is later, and either (i) receive the Regular Pension otherwise
payable during his lifetime, or (ii) elect a Co-Pensioner Option in accordance
with Plan (S) 7.4.

(c) Revocation of the Automatic 50% Spouse Annuity must be executed on
the form prescribed for this purpose by BPAC and shall be deemed to be duly
filed when received by BPAC. A Participant may revoke the Automatic 50% Spouse
Annuity only with the written consent of his spouse. To be valid, the form must
be signed by the Participant and his spouse in the presence of a representative
of BPAC, or in the presence of a Notary Public. A spouse's consent is
irrevocable when properly signed, witnessed and delivered to BPAC and shall
continue to be effective and binding on the spouse notwithstanding any
subsequent election by the Participant to cancel such revocation of

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the Automatic 50% Spouse Annuity. Spousal consent will not be required to revoke
the Automatic 50% Spouse Annuity if it is established to the satisfaction of
BPAC that the consent of the spouse cannot be obtained because there is no
spouse, because the spouse cannot be located or because such other circumstances
prescribed by Regulations. A Participant may cancel a revocation of the
Automatic 50% Spouse Annuity at any time during the period in which it may be
revoked.

(d) Any monthly payment resulting from the Automatic 50% Spouse Annuity
will be in addition to any Surviving Spouse's Benefit provided under Plan
Article 8.

(e) The first installment of Net Reduced Pension under the Automatic 50%
Spouse Annuity shall be payable for the month in which the Participant is first
entitled under Plan (S) 5.5 to receive a Regular Pension. The last installment
of Net Reduced Pension shall be payable for the month in which the Participant
dies; provided, however, that any monthly installments payable to such
Participant and remaining unpaid at the time of his death will be paid to his
surviving spouse. The first monthly payment to the Participant's spouse shall be
payable for the month following the month in which the Participant dies, but not
for any month prior to the month for which the Participant would have first been
entitled to receive a Net Reduced Pension, and the last monthly payment to such
spouse shall be payable for the month in which the spouse dies.

(f) Satisfactory proof of marriage of the Participant and his spouse and
of the age of the Participant's spouse will be required prior to the
commencement of payments under the Automatic 50% Spouse Annuity.

(g) Upon the death of:

(1) a Participant prior to the commencement of pension payments, the
Participant's spouse shall not be entitled to any payments pursuant to this
Plan (S) 7.3;

(2) the Spouse of a Participant covered under the Automatic 50% Spouse
Annuity after the end of the period provided in (b) above but prior to the
death of the Participant, the Participant shall continue to receive Net
Reduced Pension installments; and

(3) the Spouse of a Participant covered by the Automatic 50% Spouse
Annuity prior to the expiration of the period provided in (b) above,
the Participant will be treated as if he had revoked the Automatic 50%
Spouse Annuity.

(h) Notwithstanding anything to the contrary contained in this Plan (S)
7.3, if, after the Retirement of a Participant covered under the Automatic 50%
Spouse Annuity, the amount of Regular Pension which would have been payable to
him had he revoked such coverage is subject to any further deduction, change,
offset or correction, then the amount payable under the Automatic 50% Spouse
Annuity to such Participant and/or his

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spouse shall be adjusted to reflect any such further deduction, change, offset
or correction.

(i) For the purpose of this Plan (S) 7.3, in the case of a Participant who
retires on other than a Deferred Vested Pension or a Deferred Early Retirement
(55/15) Pension, pension payments shall be deemed to commence as of the date of
the Participant's Retirement and, in the case of a Participant who retires on a
Deferred Vested Pension or a Deferred Early Retirement (55/15) Pension, pension
payments shall be deemed to commence as of the first of the month for which
Regular Pension is first payable under Plan (S) 5.5.

(j) The sum of any lifetime monthly benefits payable concurrently under
this Plan (S) 7.3 and Article 8 shall not be more than 100% of the pension
payable to the Participant during his lifetime. If the amount of such benefits
equals more than 100%, the amount of benefits payable under this Plan (S) 7.3
shall be reduced accordingly.

7.4 Co-Pensioner Options. Any Participant may, under the conditions set
forth in Plan (S) 7.5, by written notice duly filed with BPAC, (i) elect to
convert the Regular Pension otherwise payable to him upon his Retirement into a
Net Reduced Pension, in accordance with the 100% Co-Pensioner Option or the 50%
Co-Pensioner Option described below, or (ii) revoke any such election previously
made, in which event he shall be treated as if he had not made such election, or
(iii) change any such election from one to the other and/or change the person
previously named as his Co-Pensioner. For the purpose of this Plan (S) 7.4,
"Reduced Pension" means an amount equal to: (i) the amount determined in
accordance with Plan (S) 5.1 reduced in accordance with Plan (S)(S) 7.1(f)
and 7.2(e), if applicable, and subject to the deductions provided in Plan (S)(S)
6.1 and 6.2, if applicable, multiplied by (ii) the applicable percentage
obtained from Exhibit A, Schedule A-3-1 or A-3-2 attached, based on the ages of
the Participant and his Co-Pensioner at the date pension payments commence; and
"Net Reduced Pension" means the Reduced Pension increased in accordance with
Plan (S)(S) 5.3 and 5.4, if applicable, and decreased in accordance with Plan
(S)(S) 6.3 and 6.4, if applicable.

(a) 100% Co-Pensioner Option. Under this option a Net Reduced Pension
shall be payable to the Participant during his life and, after his death, an
amount equal to his Reduced Pension shall be payable to his Co-Pensioner, which
he named as such by written designation duly filed with BPAC.

(b) 50% Co-Pensioner Option. Under this option a Net Reduced Pension
shall be payable to the Participant during his life and, after his death, an
amount equal to 50% of his Reduced Pension shall be payable to his Co-Pensioner,
which he named as such by written designation duly filed with BPAC.

(c) Notwithstanding anything to the contrary in this Plan (S) 7.4 above,
if a Participant who elects a Co-Pensioner Option has a spouse eligible for a
Surviving Spouse's Benefit, the Participant shall receive a pension equal to:

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(1) 50% of the monthly amount determined in accordance with Plan (S) 5.1
reduced in accordance with Plan (S) 7.1(f), if applicable, and subject to
the deductions provided in Plan (S)(S) 6.1 and 6.2, if applicable; plus

(2) 50% of his Reduced Pension;

increased in accordance with Plan (S) 5.2 or 5.3, if applicable, and decreased
in accordance with Plan (S)(S) 6.3 and 6.4, if applicable. Following the
Participant's death, his Co-Pensioner shall receive an amount equal to 50% of
the Participant's Reduced Pension if the Participant elected a 100% Co-Pensioner
Option, or an amount equal to 25% of the Participant's Reduced Pension if the
Participant elected a 50% Co-Pensioner Option.

(d) The sum of any lifetime monthly benefits payable concurrently under
this Plan (S) 7.4 and Article 8 shall not be more than 100% of the pension
payable to the Participant during his lifetime. If the sum of such benefits
exceeds 100%, the benefit payable under this Plan (S) 7.4 shall be reduced
accordingly.

7.5 Election Of Co-Pensioner Options. A Participant may, in accordance
with the provisions of Plan (S) 7.4, elect a Co-Pensioner Option, revoke a Co-
Pensioner Option or change a Co-Pensioner Option election or Co-Pensioner,
provided such action is taken at any time prior to the date pension payments
commence, or within 90 days following the date on which BPAC provides written
notice to the Participant regarding the Co-Pensioner Options, or if the
Participant has not been given specific information regarding the terms and
conditions of such options and the financial effect upon his pension of electing
such options, and within 60 days of receiving the notice regarding the options
makes a written request for such specific information, within 90 days following
the date on which BPAC provides such information, whichever is later; provided,
however, that if the Participant has a spouse at the time pension payments
commence,

(a) the Participant may not elect a Co-Pensioner Option unless he revokes
the Automatic 50% Spouse Annuity and the spouse consents in writing to such
revocation and election; and

(b) the Participant may not change the Co-Pensioner Option elected or the
Co-Pensioner designated unless his spouse consents in writing to such change.

Any election or revocation of a Co-Pensioner Option, or change of a Co-
Pensioner Option election and/or Co-Pensioner pursuant to this Article 7 must be
on a form prescribed for the purpose by BPAC, signed by the Participant and,
when appropriate, the Participant's spouse and will be deemed to be duly filed
when received by BPAC or its delegate. Satisfactory proof of age of the Co-
Pensioner will be required prior to the payment of pension installments under an
elected option. The Co-Pensioner's consent is not required to revoke an
election, to change the Co-Pensioner or to change the Co-Pensioner Option
elected. Any consent of a spouse under this Plan (S) 7.5 must be made in
accordance with the procedure described in Plan (S) 7.3(c).

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7.6 Commencement And Termination Of Pensions Under Co-Pensioner Options.
In the case of a Participant who has elected a Co-Pensioner Option, the first
installment of Net Reduced Pension shall be payable for the month in which he is
first entitled to receive a Regular Pension under Plan (S) 5.5 and the last
installment of such Net Reduced Pension shall be payable to the Participant for
the month in which he dies. The first monthly payment to the Participant's Co-
Pensioner shall be payable for the month following the month in which the
Participant dies, but not for any month prior to the month for which the
Participant would have first been entitled to receive a Reduced Pension, and the
last monthly payment to such Co-Pensioner shall be payable for the month in
which the Co-Pensioner dies.

7.7 Death Of Participant Before Retirement. If a Participant who elected
a Co-Pensioner Option dies prior to the commencement of pension payments, such
election shall cease to be effective, and his Co-Pensioner shall not be entitled
to any payments.

7.8 Death Of Co-Pensioner After Retirement. If a Participant elected a
Co-Pensioner Option and his Co-Pensioner dies (a) after the Participant
commenced receiving pension payments, or, if later, (b) after the expiration of
the 90-day period described in Plan (S) 7.5 but prior to the Participant's
death, the Participant shall continue to receive Net Reduced Pension
installments.

7.9 Death Of Co-Pensioner Before Retirement. If a Participant elected a
Co-Pensioner Option and his Co-Pensioner dies (a) before the Participant
commenced receiving pension payments, or, if later, (b) before the expiration of
the 90-day period described in Plan (S) 7.5, then the Participant shall be
treated as if he had not elected a Co-Pensioner Option.

7.10 Post Retirement Adjustments. Notwithstanding any provision in Plan
(S)(S) 7.4 through 7.9, if after the Retirement of a Participant who elected a
Co-Pensioner Option, the amount of Regular Pension which would have been payable
to him had he not elected a Co-Pensioner Option is subject to any further
deduction, change, offset or correction, then the amount payable under the Co-
Pensioner Option to such Participant or his Co-Pensioner shall be adjusted to
reflect any such further deduction, change, offset or correction.
Notwithstanding anything to the contrary contained in this Plan Article 7, in
the event that the amount payable to a Co-Pensioner is determined as though the
Participant did not have a spouse who is eligible for a Surviving Spouse's
Benefit because the Participant had a spouse at Retirement but failed to notify
BPAC that he had a spouse, the amount otherwise payable to the Co-Pensioner for
any month shall be reduced by the amount of any Surviving Spouse's Benefit
provided to the Participant's spouse for the same month.

7.11 Commencement Of Payments. For the purposes of this Plan Article 7, in
the case of a Participant who retires on other than a Deferred Vested Pension or
a Deferred Early Retirement (55/15) Pension, pension payments shall be deemed to
commence as of the date of the Participant's Retirement and, in the case of a
Participant who retires on a Deferred Vested Pension or a Deferred Early
Retirement (55/15) Pension, pension

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payments shall be deemed to commence as of the first day of the month
for which Regular Pension is first payable.

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ARTICLE 8

SURVIVING SPOUSE'S BENEFIT

8.1 Eligibility. If a Participant dies

(a) (i) while accruing Continuous Service and after completing at least 15
years of Continuous Service, or (ii) before making application for a pension and
after incurring a Break In Continuous Service with eligibility for Retirement on
an immediately commencing pension, or

(b) after Retirement on other than a Deferred Vested Pension, his
surviving spouse, determined pursuant to Plan (S) 8.5, shall be eligible for a
Surviving Spouse's Benefit.

8.2 $140.00 And $90.00 Minimums. Unless the provisions of Plan (S) 8.3
result in a higher amount, the amount of the Surviving Spouse's Benefit shall be
$140.00 for any month up to and including the month in which the surviving
spouse attains the age at which widow's or widower's benefits are first provided
under a law referred to in Plan (S) 1.27 and $90.00 for any month thereafter.

8.3 50% Rate. Unless the provisions of Plan (S) 8.2 result in a higher
amount, the amount of the Surviving Spouse's Benefit shall be determined in
accordance with the following:

(a) If a Participant covered by Plan (S) 8.1(a) dies, the monthly amount
of the Surviving Spouse's Benefit, subject to (d) and (e) below, shall be equal
to 50% of the amount determined in accordance with Plan (S)(S) 5.1(a) and (b) as
though the Participant had retired on the date of his death, and, if the
Participant dies prior to age 62, as though at the time of his death he was
entitled to receive a Regular Pension without any actuarial reduction on account
of age, except that Plan (S) 5.1(a)(3) would not apply.

(b) If a Participant covered by Plan (S) 8.1(b) dies, the monthly amount
of the Surviving Spouse's Benefit, subject to (c), (d) and (e) below, shall be
equal to 50% of the Regular Pension payable to the Participant at the time of
his death determined in accordance with Plan (S) 5.1.

(c) If a Participant dies after his Retirement with eligibility for an
Early Retirement (55/15) Pension and prior to age 62 and who had elected to
defer the commencement of Regular Pension until after attaining age 62, the
Regular Pension payable to the Participant shall, for the purposes of (b) above,
be deemed to be the amount determined in accordance with Plan (S)(S) 5.1(a)(1),
(2), 5.1(b) and (c) which would have been payable if he elected to receive a
Regular Pension commencing with the first month for which the Surviving Spouse's
Benefit is payable.

(d) Commencing with the first Surviving Spouse's Benefit payable after the
surviving spouse attains the age at which widow's or widower's benefits are
first provided

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under a law referred to in Plan (S) 1.27, the amount of the Surviving Spouse's
Benefit otherwise payable for any month shall be reduced by 50% of the amount of
the widow's or widower's benefit to which the surviving spouse is, or upon
application would be, entitled for such month based on the law in effect at the
time the Surviving Spouse's Benefit first becomes payable (without regard to any
offset or suspension imposed by such law) and based upon the benefit payable to
such person as a widow or widower without regard to any benefit earned in his or
her own right. If the surviving spouse is not eligible for a widow's or
widower's benefit for such month, the amount of the reduction shall be equal to
50% of the amount of the widow's or widower's benefit that could have become
payable to the surviving spouse for such month, based on the Participant's
wages, if the surviving spouse had been eligible and had applied for such a
benefit.

(e) If the surviving spouse receives, or upon application would be
entitled to receive, any payment derived from rights acquired by the
Participant, which would if received by the Participant have been subject to
deduction under Plan (S) 6.2 from the amount determined in accordance with Plan
(S)(S) 5.1, 5.2 and 5.3 otherwise payable to the Participant (except any such
payment received by the surviving spouse by reason of an election by the
Participant to receive a reduced payment), the amount of such payment not
attributable to the contributions of the Participant shall be deducted from the
Surviving Spouse's Benefit.

8.4 Commencement And Termination Of Surviving Spouse's Benefit. The first
installment of Surviving Spouse's Benefit shall be payable for the month
following the month in which the Participant dies, and the last installment
shall be payable for the month in which the surviving spouse dies; provided,
however, that a Surviving Spouse's Benefit shall not be payable for any month
for which a Special Pension Payment was payable to the Participant. In
connection with an application for a Surviving Spouse's Benefit, BPAC may
require the surviving spouse to grant any authorization necessary to receive
relevant records from the agency administering the law referred to in Plan (S)
8.3(d).

8.5 Determination Of Status As Surviving Spouse. A person shall be
considered a surviving spouse for the purposes of this Plan Article 8, only if,

(a) such person is married to the Participant on the date of his death,
and

(b) with respect to a Participant who dies after his Retirement, such
person was married to the Participant at the date of the Participant's
Retirement or at a date after Retirement and before the Participant attained age
65, and

(c) immediately after the Participant's death, such person is a widow or
widower of the Participant within the provisions of the Social Security Act,
except that where such Act requires reference to the law of the District of
Columbia, the applicable law be that of the State of Ohio.

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ARTICLE 9

DETERMINATION OF CONTINUOUS SERVICE

9.1 Definition. "Continuous Service" means an Employee's service prior
to his Retirement calculated from his last hiring date (and in the case of an
employee who incurs a Break In Continuous Service, Continuous Service shall be
calculated from the date of his re employment following his last unremoved Break
In Continuous Service); provided however, that an Employee's last hiring date
prior to January 1989 shall be based on the practices in effect at the time his
Break In Continuous Service occurred.

9.2 Deductions From Continuous Service. There shall be no deduction for
any time lost which does not constitute a Break In Continuous Service, except
that in determining the length of an Employee's Continuous Service

(a) that portion of any absence due to shutdown, force reduction, Layoff
or physical disability which continues beyond 2 years from commencement of such
absence shall not be credited as Continuous Service; provided, however, that an
absence in excess of 2 years due to a compensable disability shall be credited
as Continuous Service;

(b) except as provided in 9.3(a) and 9.3(c)(2), the period between a Break
In Continuous Service and the date of the Employee's reemployment which results
in the removal of a Break In Continuous Service shall not be credited as
Continuous Service; and

(c) any period of employment with any company which, directly or
indirectly, owns at least 50% of the Company, or with any company or business at
least 50% owned by the Company or any Employing Company, shall be counted as
Continuous Service but only for the purposes of determining eligibility to
participate and entitlement to a pension under Plan Article 3 but not for
purposes of determining the Regular Pension amount, unless otherwise expressly
provided in a written Appendix hereto.

(d) Continuous Service Under Plan (S)(S) 3.7 Or 3.8. Notwithstanding
anything to the contrary in this Plan, Continuous Service after December 31,
1989 shall be included for the purpose of determining eligibility for Retirement
pursuant to Plan (S) 3.7 (Immediate Severance (70/80) Pension) or Plan (S) 3.8
(Rule-Of-65 Retirement Pension) upon the occurrence of a Break In Continuous
Service on or after January 1, 1990; provided that such Continuous Service
accruing from and after January 1, 1990 shall not be counted for the purpose of
determining the amount of any Regular Pension paid pursuant to an Immediate
Severance (70/80) Pension or a Rule-Of-65 Retirement Pension, which amount shall
be determined in accordance with Plan (S) 5.1(d).

9.3 Break In Continuous Service.

(a) An Employee's Continuous Service will be broken by

(1) his quitting;

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(2) his discharge, provided that if he is rehired within 6 months the
Break In Continuous Service will be removed;

(3) his involuntary termination of employment by the Employing
Company due to a Permanent Shutdown or force reduction, provided that if the
Participant is rehired within 2 years, or if at termination he had more than 2
years of Continuous Service, within a period equal to his length of Continuous
Service prior to the Break but not more than 5 years, the Break In Continuous
Service shall be removed and the first 2 years of absence will be counted as
Continuous Service;

(4) an absence which continues for more than 2 years, except that

(A) an absence in excess of 2 years due to compensable disability
incurred during the course of employment shall not constitute a Break In
Continuous Service until one month following the end of the month for which
statutory compensation payments terminate; and

(B) if an Employee who is absent in excess of 2 years on account of
Layoff or physical disability returns to work with an Employing Company
within the period equal to his length of Continuous Service prior to the
Break but not more than 5 years, the Break In Continuous Service shall be
removed; and

(C) a Break In Continuous Service will not occur by reason of the
absence of any Employee who subsequent to May 1, 1940, entered the
military, naval or merchant marine service of the United States, who has
reemployment rights under the law, who complies with requirements of law as
to reemployment and who is reemployed; or

(5) his Retirement.

(b) An Employee who is absent on a maternity or paternity absence
shall not incur a Break In Continuous Service until the second anniversary of
the first day of such absence; provided, however, that in determining the length
of an Employee's Continuous Service, the period between the first day of a
maternity or paternity absence and the first anniversary thereof shall be
credited as Continuous Service solely for eligibility and vesting purposes and,
provided further, that the period of any such absence which continues beyond the
first anniversary thereof shall be credited as Continuous Service solely for
eligibility and vesting purposes only if so provided under a parental leave
policy of an Employing Company or in accordance with the terms of a Basic
Agreement. For the purposes of this Plan (S) 9.3 (b), a "maternity or
paternity absence" means an absence from work by reason of the Employee's
pregnancy, the birth of the Employee's child or the placement of a child with
the Employee in connection with the adoption of the child by the Employee or for
purposes of caring for a child for the period immediately following such birth
or placement; provided that the Employee has proven to the satisfaction of BPAC
that such absence is for one of the foregoing purposes.

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<PAGE>

(c) For the sole purpose of determining eligibility for pension
pursuant to Plan (S) 3.2 or unreduced pension commencing at age 65 pursuant to
Plan (S) 3.9,

(1) for all purposes under the plan, an Employee who incurs a Break In
Continuous Service prior to becoming eligible for an immediate pension or
a Deferred Vested Pension and who is reemployed by an Employing Company
shall, upon completion of one year of Continuous Service following such
reemployment, have his Break In Continuous Service removed if the period
between the Break In Continuous Service and the date of his reemployment
does not exceed 5 years; and

(2) an Employee who incurs a Break In Continuous Service by reason of
quitting or being discharged prior to becoming eligible for an immediate
pension or a Deferred Vested Pension, who is reemployed within one year of
quitting or being discharged without having his Break In Continuous Service
removed pursuant to Plan (S) 9.3(a)(2), and who upon incurring a subsequent
Break In Continuous Service has less than 5 years of Continuous Service,
calculated in accordance with Plan (S)(S) 9.1, 9.2 and 9.3, shall receive
credit for his Continuous Service prior to the first break described above
and for the period between such Break In Continuous Service and the date of
reemployment plus any other Continuous Service which would result from
application of (b) above taking into account service credited pursuant to
this paragraph.

9.4 Other Continuous Service.

(a) Except as otherwise provided herein, Continuous Service as an Employee
with any Employing Company or Affiliate shall be recognized. A period of
employment with a unit of the Company or an Affiliate which is not an Employing
Company and with any Employing Company or Affiliate other than as an Employee
shall be counted only for purposes of determining eligibility to participate and
entitlement to a pension under Plan Article 3 but not for purposes of
determining the Regular Pension amount.

(b) BPAC may, in its sole discretion, determine that Continuous Service
may include service with an Employing Company prior to the date such Employing
Company became an Affiliate.

(c) In the case of a Participant who is an Employee on the date of his
Retirement, Continuous Service may include, in the discretion of BPAC, all
service recognized by any Affiliate or Employing Company for pension purposes.
The Participant's Average Monthly Earnings may include remuneration from any
such unit of the Company, in such manner as BPAC may determine.

(d) Continuous Service also may include, in the discretion of BPAC, a
leave of absence granted by an Employing Company and approved by the Company.

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9.5 Employment With a Divested Unit. Subject to Plan (S)(S) 1.24 and
13.6 and Plan Article 10 and any applicable Appendix or Basic Agreement,
employment with a Divested Unit shall constitute Continuous Service under the
Plan solely for the purpose of determining the date of entitlement to the
commencement of benefits under Plan Article 3, and employment with a Divested
Unit shall not be counted as Continuous Service under the Plan for satisfying
any other Continuous Service requirement unless otherwise expressly so provided
in the agreement for the sale or transfer of such Divested Unit which agreement
is approved by the Board Of Directors or by BPAC; provided, however, that no
person shall first qualify for a Permanent Incapacity Pension, an Immediate
Severance (70/80) Pension or a Rule-Of-65 Pension after the date of sale or
transfer to a Divested Unit.

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ARTICLE 10

REEMPLOYMENT OF RETIRED PARTICIPANTS

10.1 Application. The provisions of this Article 10 supersede the
provisions of all other Articles of the Plan with respect to any Participant who
is employed or reemployed by (i) the Company, (ii) an Employing Company, (iii) a
Divested Unit or (iv) an Affiliate at least 50% owned by the Company or an
Affiliate (provided such employer is an "employer maintaining the Plan" within
the meaning of ERISA (S) 203(a)(3)(B) and the Regulations thereunder).

10.2 Effect On Pension.

(a) A Participant covered under this Article 10 who returns to employment
of an employer described in Plan (S) 10.1 and whose employment with such
employer is counted as Continuous Service for any purpose under the Plan, shall
have his pension payment or commencement suspended beginning after his first
full month of employment (as determined in accordance with the Regulations).

(b) Notwithstanding the foregoing, a Participant's pension will not be
suspended if (i) payment of his pension is required to commence pursuant to Plan
(S) 5.5(f), (ii) the Participant's reemployment does not constitute "service"
within the meaning of ERISA (S) 203(a)(3)(B) or (iii) the Participant had
attained age 65 as of the date of his reemployment and his employment subsequent
to such date is not counted as Continuous Service for the purpose of determining
the amount of his pension.

(c) If a Participant's pension payment or commencement is suspended in
accordance with the foregoing, such suspension shall cease on the earlier of (i)
the date the Participant terminates his employment with an employer described in
Plan (S) 10.1, (ii) the date the Participant's pension is required to commence
pursuant to Plan (S) 5.5(f), (iii) the date the Participant's reemployment no
longer constitutes "service" within the meaning of ERISA (S) 203(a)(3)(B) or
(iv) the date the Participant attains age 65 if his employment subsequent to
such date is not counted as Continuous Service for the purpose of determining
the amount of his pension.

10.3 Continuous Service Of Reemployed Participant.

(a) Any Participant, other than a Participant covered under (b) below,
whose pension has been discontinued pursuant to Plan (S) 10.2, or who is
eligible for a Deferred Vested Pension, shall be credited with his Continuous
Service as of the date of his prior Retirement plus his Continuous Service
accrued after reemployment for the purpose of calculating any subsequent pension
to which he may become entitled; provided, however, that nothing in this Plan
(S) 10.3 shall affect the calculation of Continuous Service as provided in Plan
(S) 9.3(a)(4). Notwithstanding the foregoing, reemployment with an employer
described in Plan (S) 10.1(iii) or (iv) shall not be credited as Continuous
Service

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<PAGE>

for any purpose under the Plan unless specifically permitted in an Appendix or
in accordance with Plan (S) 13.6.

(b) If a Participant is reemployed more than three years after his
Retirement or more than three years after he incurred a Break In Continuous
Service with eligibility for a Deferred Vested Pension and such Participant
again retires or incurs a Break In Continuous Service before completing at least
5 years of Continuous Service after such reemployment, then the amount of
pension payable with respect to the period of Continuous Service accrued before
his most recent prior Retirement or prior Break In Continuous Service shall be
determined pursuant to the Plan as in effect at the time of his prior Retirement
or prior Break In Continuous Service.

10.4 Termination Of Reemployment After Original Immediate Severance (70/80)
Retirement Or Rule-Of-65 Retirement. Subject to Plan (S) 5.1(d), any
Participant who is receiving an Immediate Severance (70/80) Pension or Rule-Of-
65 Retirement Pension, and who is subsequently reemployed as an Employee by an
Employing Company, shall upon ceasing work, after reemployment and prior to age
62, by reason of a Permanent Shutdown of a plant, department or subdivision
thereof or by reason of a Layoff or physical disability, be eligible to retire
and, shall upon his Retirement (hereinafter "Reinstated Rule-Of-65 Retirement"
if he had previously retired on Rule-Of-65 Retirement or "Reinstated Immediate
Severance (70/80) Retirement" if he had previously retired on Immediate
Severance (70/80) Retirement), be eligible for a pension commencing with the
month following the month in which his Retirement occurs; provided, however,
that such Participant shall not be eligible under the provisions of this Plan
(S) 10.4 to retire during a period of absence from work due to a physical
disability until such disability has continued for a period of 5 consecutive
full calendar months, or until the Participant attains age 62, whichever occurs
first.

10.5 When Special Pension Payment Not Payable. A Special Pension Payment
shall not be made to any Participant who received a Special Pension Payment for
a prior Retirement under this or any predecessor plan.

10.6 Reinstated Immediate Severance (70/80) Retirement Or Reinstated Rule-
Of-65 Retirement. The amount of Regular Pension for Reinstated Immediate
Severance (70/80) Retirement shall be determined in the same manner as a Regular
Pension under Immediate Severance (70/80) Retirement, in accordance with Plan
(S) 5.1, including Plan (S) 5.1(d). The amount of Regular Pension for
Reinstated Rule-Of-65 Retirement shall be determined in the same manner as a
Regular Pension under Rule-Of-65 Retirement, in accordance with Plan (S) 5.1,
including Plan (S) 5.1(d).

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ARTICLE 11

FUNDING AND CONTRIBUTIONS

11.1 Contribution's. Subject to Plan Article 13, each Employing Company
shall contribute to one or more pension trusts or funds not less frequently than
quarterly during each Plan Year such amounts, based on the recommendation of the
Actuary, as the Company shall determine.

11.2 Actuarial Valuations. BPARC shall from time to time review the
actuarial assumptions and methods recommended by the Actuary. The Actuary shall
make an annual valuation of the Plan and, at least once in each 3-year period,
shall make an actuarial study of the mortality, service and compensation
experience of the Participants in the Plan and the investment experience and any
other relevant experience in gains and losses under the Plan, including such
calculations as may be necessary to determine whether the Plan is adequately
funded, and shall report the results of its study to BPARC. Prior to termination
of the Plan, forfeitures of benefits arising from termination of service, death
or any other reason under the Plan shall not be applied to increase the benefits
that any Participant would otherwise be entitled to receive under the Plan, but
may be anticipated in estimating costs under the Plan and shall be applied to
reduce the Company's contributions under the Plan.

11.3 Investment Of Contributions. All moneys, securities or other
property received as contributions under the Plan shall be delivered to the
trustee under the Trust, to be managed, invested, reinvested and distributed for
the purposes of the Plan.

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ARTICLE 12

GENERAL PROVISIONS

12.1 No Employment; Rights. This Plan is not and shall
not be deemed to be a contract between the Company or any Employing Company and
any employee or to be a consideration for, or an inducement or condition of, the
employment of any employee. Nothing contained in this Plan gives any employee
the right to be retained in the service of the Company or any Employing Company
or to interfere with the right of the Company or any Employing Company by which
he shall then be eoyed to terminate his employment at any time.

12.2 Non-Assignability; Of Pension Rights.

(a) Except as may otherwise be required by law or pursuant to the terms
of a "Qualified Domestic Relations Order"("QDRO"), no assignment of any pension
will be recognized or permitted nor shall any pension or payment on account of
pension be subject to attachment or other legal process for or against the
Participant, a surviving spouse or a Co-Pensioner. If BPAC sh find that any
such assignment, attachment or action for or against the Participant, a
surviving spouse or a Co-Pensioner has been made with respect to any pension
payment due or to become due to any Participant, surviving spouse or Co-
Pensioner, BPAC in its sole discretion may terminate the interest of such
Participant, surviving spouse or Co-Pensioner to such pension payment, and in
such case shall apply the amount of such pension payment to or for the benefit
of such Participant, surviving spouse or Co-Pensioner, his spouse, children or
other relatives or dependents, as BPAC may determine, and any such application
shall be a complete discharge of all liability with respect to such pension
payment.

(b) For purposes of the Plan, a "QDRO" means any judgment, decree or
order (including approval of a property settlement agreement) which has been
determined by BPAC, in accordance with QDRO procedures established under the
Plan, to constitute a qualified domestic relations order within the meaning of
Code (S) 414(p)(1).

12.3 Legal, Physical Or Mental Incapacity. If any person entitled to
receive any benefits hereunder is, in the judgment of BPAC, legally, physically
or mentally incapable of personally receiving or receipting for a payment, BPAC
may, but shall not be required to, order such payment to be made to such other
person, persons or institution as, in the judgment of BPAC, is then maintaining
or has custody of such payee.

12.4 Maximum Pensions.

(a) Subject to the provisions of Plan (S)(S) 12.4(b), (c), and 13.1, the
Board Of Directors shall have the power to determine the Maximum Pension to be
granted under this Plan.

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(b) Notwithstanding any other provision of the Plan, (i) any annuity
payable to a Participant for life as part of an Automatic 50% Spouse Annuity or
as part of a Co-Pension Option elected by the Participant and having the effect
of a qualified joint and survivor annuity within the meaning of Code (S)
401(a)(11) (excluding in either case any survivor annuity payable to a surviving
spouse thereunder); (ii) any straight life annuity payable to a Participant; and
(iii) any other Co-Pensioner Option elected by a Participant (including both the
annuity payable to the Participant and any other annuity or benefit payable
thereunder), shall be subject to the limitation of this Plan (S) 12.4.

(c) The benefits to which this Plan (S) 12.4 is applicable
shall not exceed the limitations set forth in Code (S) 415, which are
incorporated herein by reference. For these purposes, the limitation year shall
mean the Plan Year and "compensation" shall have the meaning set forth in
Treasury Regulation (S) 1.415-2(d). If a Participant in this Plan so
participates in any defined contribution plan (as defined in Code (S)(S) 414(i)
and 415(k)) maintained by the Company or any Affiliate, and, if in any Plan Year
the sum of the Participant's Defined Benefit Fraction (as defined in Code (S)
415(e)(2)) and the Participant's Defined Contribution Fraction (as defined in
Code (S) 415(e)(3)) exceed 1.0, then the benefit payable under this Plan shall
be reduced so that the sum of such fractions in respect of such Participant does
not exceed 1.0. If the above reductions do not insure that the limitations set
forth in this Plan (S) 12.4 are not exceeded, then the Annual Additions (as
defined in Code (S) 415(c)(2)) to any defined contribution plan maintained by
the Company or any Affiliate in which the Participant participates shall be
reduced in accordance with the provisions of that plan, but only to the extent
necessary to ensure that such limitation is not exceeded. IfParticipantin this
Plan also participates in another defined benefit plan (as defined in Code
(S)(S) 414(j) and 415(k)) maintained by the Company or any Affiliate, and if in
any Plan Year such Participant's aggregated accrued benefit under such plans
exceeds the applicable limits under Code (S) 415, then the benefit payable under
this Plan shall be reduced to the extent necessary to comply with Code (S) 415.

12.5 Sole Source Of Benefits. The pension trusts or funds contributed
in accordance with Plan Article 11 shall be the sole source of benefits under
the Plan and, except as otherwise required by ERISA, an Employing Company, BPAC
and BPARC assume no liability or responsibility for payment of such benefits,
and each Participant, surviving spouse, Co-Pensioner or other person who shall
claim the right to any payment under the Plan shall be entitled to look only to
such trusts or funds for such payment and shall not have any right, claim or
demand therefor against the Company, any Employing Company, Affiliate, BPAC or
BPARC or any member thereof, or against any Employee or director of the Company,
any Employing Company or Affiliate.

12.6 Information From Participants. Each Participant shall file with
the Human Resources Department of his Employing Company or BPAC such pertinent
information concerning himself, his spouse and his Co-Pensioner as BPAC may
reasonably require to carry out its duties hereunder, and to the maximum extent
permitted by ERISA, no Participant, surviving spouse, Co-Pensioner or other
person shall have any rights or be

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entitled to any benefits under the Plan unless such information is timely
filed by or with respect to him.

12.7 Communications To Committees. All elections, designations,
requests, notices, instructions and other communications (required or permitted
under the Plan) from the Company, an Employing Company, a Participant, Co-
Pensioner, surviving spouse or other person to BPAC or BPARC shall be in such
form as is prescribed from time to time by each such Committee, shall be mailed
by first-class mail to any member of either Committee or its Secretary or
Assistant Secretary or to the General Counsel of the Company or shall be
personally delivered to any such person, and shall be deemed to have been given
and delivered only upon actual receipt thereof by such person. Delivery to a
Local Plan Administrator shall not constitute delivery to a Committee.

12.8 Communications From Committees. All notices, statements, reports
and other communications required or permitted under the Plan from the Company,
an Employing Company, BPAC or BPARC to any Employee, Participant, Co-Pensioner,
surviving spouse or other person, shall be deemed to have been duly given when
delivered to, or when mailed by first-class mail, postage prepaid, and addressed
to such person at his address last appearing on the records of the Employing
Company.

12.9 Lost Payee. If BPAC cannot ascertain the whereabouts of any person
to whom a payment is due under the Plan, including an alternate payee under a
Qualified Domestic Relations Order described in Plan (S) 12.2, and if, after 3
years from the date such payment is due, a notice of such payment due is mailed
to the last known address of such person, as shown on the records of the
Employer, and within 3 months after such mailing such person has not made
written claim therefor, BPAC, if it so elects, may direct that such payment and
all remaining payments otherwise dto such person be cancelled on the records of
the Plan and the amount thereof used to reduce Company contributions, and upon
such cancellation, the Plan and the Trust shall have no further liability
therefor, except that, in the event such person later notifies BPAC of his
whereabouts and requests the payment or payments due to him under the Plan, the
amount so applied shall be paid to him in accordance with the terms of the Plan.

12.10 Service Of Process. Any member of BPAC, the Secretary of the
Company or the trustee may accept service of process for the Plan.

12.11 Expenses. Any expenses incurred by or on behalf of either
Committee, any trustee or investment manager in carrying out its duties with
respect to the Plan or the Trust may be paid by the Company or may, in the
discretion of BPAC, be charged to and paid from the interest of the Participant
or Participants with respect to whom such expenses were incurred in accordance
with rules uniformly applicable to all Participants. If the Company fails or
refuses to pay any such expense, then such expenses may be paid from the Trust
(i) when reimbursement of such expense is sought by any person other than the
trustee, if the expense is deemed to be reasonable in the sole discretion of the
trustee, or (ii) when reimbursement of such expense is sought by the trustee, if
the expense is deemed to be reasonable and appropriate in the sole discretion of
BPARC.

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<PAGE>

ARTICLE 13

AMENDMENT OR TERMINATION

13.1 Right Of Amendment Or Termination.

(a) The Board Of Directors shall have the right at any time to amend,
suspend or terminate the Plan, any contributions thereunder, any trust or any
contract issued by an insurance company forming a part of the Plan, in whole or
in part and for any reason and without the consent of the Company, any Employing
Company, or Affiliate, or any Participant, Co-Pensioner, surviving spouse or
other beneficiary; provided, however, that the Committees may adopt amendments
to the Plan or to any trust, investment management agreement or other contract
which may form a part of the Plan, to the extent so empowered by the Board Of
Directors. In so acting, a Committee is not acting in its capacity as a named
fiduciary of the Plan, but is acting solely in its corporate capacity as a
committee of the Board Of Directors.

(b) No amendment or modification shall be made which would retroactively
impair any rights to any benefit under the Plan which any Participant, Co-
Pensioner, surviving spouse or other eligible beneficiary would otherwise have
had at the date of such amendment by reason of the contributions theretofore
made, except to such extent as may be necessary or appropriate to qualify or
maintain the Plan and any trust which may form a part of the Plan as a plan and
trust meeting the requirements of Code (S)(S) 401(a) and 501(a) or any other
applicable section of law (including ERISA) and Regulations issued pursuant
thereto, as now in effect or hereafter amended or adopted, or make it possible
for any part of the funds of the Plan (other than such part as is required to
pay taxes, if any, and administration expenses as provided in Plan (S) 12.11) to
be used for or diverted to any purposes other than for the exclusive benefit of
Participants and their Co-Pensioners, surviving spouses and other eligible
beneficiaries under the Plan prior to the satisfaction of all liabilities with
respect thereto.

13.2 Allocation Of Trust Fund Upon Termination. Subject to Plan (S) 13.3,
if the Plan is wholly or partially terminated, the funds of the Plan shall be
allocated for the benefit of each Participant, Co-Pensioner and surviving spouse
affected by the termination in such nondiscriminatory manner as BPAC shall
determine in accordance with ERISA, subject to any required approval by
applicable government agencies, so as to provide nonforfeitable benefits for
each such affected person to the extent that such benefits have been funded, but
in no case shall the amount so allocated exceed the actuarial reserve for any
such person. If any of the funds of the Plan remain after the satisfaction of
all liabilities of the Plan, such remaining funds shall be paid to the Company.

13.3 Disposition Of Allocated Funds. Subject to Plan (S) 7.3, the amount
allocated with respect to an individual pursuant to Plan (S) 13.2 shall, in the
discretion of BPARC, be paid to such individual in cash in a single payment or
used to purchase an annuity retirement income contract from one or more
insurance companies selected by BPARC,

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<PAGE>

or paid to a trust or fund under any plan which meet the requirements for
qualification and tax-exemption under Code (S)(S) 401(a) and 501(a).

13.4 Conditional ;Limitation Of Benefits. The Unrestricted Benefits
provided by the contributions of the Employing Companies for the 25 highest paid
Employees as of the Effective Date (including any Unrestricted Benefits but
exclusive of any Supplemental Pension Payments that he has already received up
to that time), including any such Employees who are not Participants at that
time, but may later become Participants, (but excluding any Participant whose
annual pension will not exceed $1,500), shall not exceed his Unrestricted
Benefits as of the date the Plan is discontinued, if it is discontinued
(i) within 10 years after the Effective Date, or (ii) during the first 10 years
after the Effective Date, or (iii) after the first 10 years after the Effective
Date if the full current costs of the Plan for the first 10 years after the
Effective Date have not been funded.

(a) For the purposes of this Plan (S) 13.4, the following definitions
shall apply:

(1) "Effective Date" means August 1, 1975 and shall also mean the
effective date of any subsequent amendment to the Plan which has a
substantial effect on contributions or benefits payable under the Plan.

(2) "Unrestricted Benefits" means benefits in the form provided by the
Plan, including any cash payments available to a living Participant and
any survivor's benefits payable on behalf of a Participant who dies after
Retirement, which have been provided by contributions of the Employing
Companies not exceeding the greatest of the following amounts:

(A) the contributions of the Employing Companies (or funds
attributable thereto) which would have been applied to provide
benefits for the Employee under this Plan as in effect immediately
prior to the Effective Date,

(B) $20,000,

(C) the sum of (i) the contributions of the Employing Companies
(or funds attributable thereto) which would have been applied to
provide benefits for the Employee under this Plan as in effect
immediately prior to the Effective Date, and (ii) an amount computed
by multiplying the number of years for which the current costs of the
Plan after that date are met by the smaller of 20% of his annual
compensation or $10,000, or

(D) the sum of the amount allocated to him pursuant to priorities
First through Fourth (A) of ERISA (S) 4044.

(3) "Supplemental Pension Payments" mean any current payments to a
retired Participant sufficient, together with his Unrestricted Benefits,
to bring the total current payments to him up to the full pension
benefits provided under the Plan.

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<PAGE>

(b) Notwithstanding the above limitations, the following limitations shall
apply if they would result in a greater amount of Employing Company
contributions being used for the benefit of Employees described in (a) above:

(1) In the case of an Employee who is a substantial owner (as defined in
ERISA (S) 4022(b)(5)), an amount equal to the present value of the benefit
guaranteed to such Employee under ERISA (S) 4022, or if the Plan has not
terminated, the present value of the benefit that would be guaranteed if
the Plan had terminated on the date the benefit commenced, determined in
accordance with PBGC Regulations; and

(2) In the case of any other Employee, an amount equal to the present
value of the minimum benefit described in ERISA (S) 4022(b)(3)(B)
(determined on the earlier of the date the Plan terminates or the date
benefits commence in accordance with PBGC Regulations) without regard to
any other limitations in ERISA (S) 4022.

(c) The foregoing conditions shall not restrict the full payment of any
survivor's benefits on behalf of a Participant who dies while the Plan is in
effect and its full current costs have been met and shall not restrict the
current payment of the full amount of any pension called for by the Plan for any
retired Participant while the Plan is in full effect and its full current costs
have been met. If and when the contributions by the Employing Companies are
sufficient at a later date to meet the full current costs of the Plan, the
excess of the pension, otherwise payable, over the actual pension paid during
the period that such full current costs had not been met, shall be paid in a
lump sum to the retired Participant, or, if such retired Participant had died in
the meantime, to the estate of such Participant. If under applicable law or
Regulations, the foregoing provisions of this Plan (S) 13.4 are no longer
necessary for the Plan to meet the requirements of Code (S) 401(a), then such
provisions shall become void and shall no longer apply, without the necessity of
further amendment to the Plan.

13.5 Merger, Consolidation Or Transfer Of Assets Or Liabilities. This
Plan may be merged with or into any other qualified pension or retirement plan,
provided that no merger or consolidation with, or transfer of assets or
liabilities to, any other pension or retirement plan, shall be made unless the
benefit each Participant would receive if such plan were terminated immediately
after such merger or consolidation, or transfer of assets and liabilities, would
be at least as great as the benefit he would have received had this Plan been
terminated immediately before such merger, consolidation or transfer. Assets or
liabilities of another tax-qualified defined benefit pension plan may be
transferred to or assumed by this Plan, or another tax-qualified defined benefit
pension plan may be merged with and into this Plan if such action meets the
requirements of applicable law, including the requirements of Code (S) 414(l).

13.6 Corporate Mergers, Acquisitions And Divestments. Upon such terms as
BPAC may approve, benefits may be provided under this Plan to a Participant with
respect to any period of his prior employment by any organization, and such
benefits (and any Continuous Service credited with respect to such period of
employment under Plan

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<PAGE>

Article 9) may be provided for, in whole or in part, by funds transferred,
directly or indirectly, to this Plan from such organization or an employee
benefit plan of such organization which qualified under Code (S) 401(a).
Furthermore, Participants who are in the employ of a Divested Unit may continue
to accrue Continuous Service for limited purposes under this Plan (but not for
the purpose of determining the amount of benefit to be paid) while in the employ
of a Divested Unit, or its successor or acquiring business, upon such terms and
conditions as the agreement of sale or a Basic Agreement may provide and BPAC
may expressly approve in its sole discretion.

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<PAGE>

ARTICLE 14

TOP HEAVY PROVISIONS

14.1 Determination Of Top Heavy Status. For purposes of this Plan Article
14, the Plan shall be considered a "Top Heavy Plan" for any Plan Year if, (i) at
least one Key Employee is a Participant and (ii) the ratio of the total Present
Value of accrued benefits of all Key Employees under all Aggregation Group Plans
to the total Present Value of accrued benefits of both Key Employees and Non-Key
Employees under all Aggregation Group Plans exceeds 0.6. Solely for the purpose
of determining if the Plan, or any Aggregation Group Plan, is a Top Heavy Plan,
the accrued benefit of a Participant, other than a Key Employee, shall be
determined under (i) the method, if any, that uniformly applies for accrual
purposes under all plans maintained by the Company or an Affiliate (the "Armco
Group"), or (ii) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional rate of
Code (S) 411(b)(1)(c). All calculations under (i) and (ii) above with respect
to this Plan shall be made as of the Determination Date applicable to the
subject Plan Year, and all calculations under (ii) above with respect to any
Aggregation Group Plan other than this Plan shall be made as of that plan's
Determination Date which falls within the same calendar year as the
Determination Date used by this Plan.

14.2 Definitions. For the purpose of this Plan Article 14 the following
terms shall have the following meanings:

(a) Aggregation Group Plan. "Aggregation Group Plan" means each qualified
plan of the Armco Group in which a Key Employee is a participant and each other
qualified plan of the Armco Group which enables a plan of the Armco Group in
which a Key Employee is a participant to satisfy Code (S)(S) 401(a)(4) or 410,
including any such plan which was terminated during the five-year period ending
on the applicable Determination Date if such plan would, but for the fact that
it was terminated, be an Aggregation Group Plan. In addition, the Company may
choose to treat any other qualified plan as an Aggregation Group Plan if the
Aggregation Group Plans will continue to satisfy Code (S)(S) 401(a)(4) and 410
with such plan being taken into account.

(b) Average Annual Compensation. "Average Annual Compensation" means the
average of an individual's total compensation received from all members of the
Armco Group for the 5 consecutive Plan Years which produces the highest result,
excluding from consideration, however, compensation received in any Plan Year
which began prior to January 1, 1984 and in any Plan Year which follows the last
Plan Year in which the Plan was considered a Top Heavy Plan. For the purpose of
this Plan (S) 14.2(b) "compensation" shall have the meaning prescribed in
Treasury Regulation (S) 1.415-2(d).

(c) Determination Date. The "Determination Date", which is applicable to
any Plan Year of an Aggregation Group Plan, means the last day of the
immediately preceding

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<PAGE>

Plan Year (except that, for the first Plan Year of a plan, the "Determination
Date" shall be the last day of the first Plan Year).

(d) Key Employee. With respect to any Aggregation Group Plan and as of
any Determination Date, a "Key Employee" means any Employee or former Employee
or beneficiaries of such who at any time during the Plan Year which includes
such Determination Date, or during any of the 4 immediately preceding Plan
Years, is employed by and has received compensation from any member of the Armco
Group, and:

(1) an officer (disregarding any person with the title but not the
authority of an officer) of any member of the Armco Group, provided such
person receives compensation of greater than 50% of the amount in effect
under Code (S) 415(b)(1)(A) from all members of the Armco Group for the
Plan Year which includes the subject Determination Date and provided there
are not 50 other such officers who have received annual Earnings in a
greater amount than that received by the subject person for the Plan Year
which includes the subject Determination Date and the 4 immediately
preceding Plan Years;

(2) one of the 10 Employees owning (or considered as owning within the
meaning of Code (S) 318, except that subparagraph (c) of Code (S) 318(a)(2)
shall be applied by substituting "5%" for "50%") the largest Employee-held
interests in all members of the Armco Group, provided such person owns at
least 0.5% of all members of the Armco Group and receives total Earnings of
$30,000 or more from any and all members of the Armco Group for the Plan
Year which includes the subject Determination Date;

(3) a 5% or more owner of an employer; or

(4) a 1% or more owner of an employer who receives total Earnings of
$150,000 or more from any and all members of the Armco Group for the Plan
Year which includes the subject Determination Date.

A person is considered to own 5% or 1%, as the case may be, of an employer if
he owns (or is considered as owning within the meaning of Code (S) 318, except
that subparagraph (c) of Code (S) 318(a)(2) shall be applied by substituting
"5%" for "50%") at least 5% or 1%, as the case may be, of either the outstanding
stock of an employer or the voting power of all stock of an employer. For
purposes of this subsection (d), the term "Key Employee" includes any
beneficiary of a person who is deceased as of the subject Determination Date but
who when alive had been a Key Employee during the Plan Year which includes the
subject Determination Date or any of the 4 immediately preceding Plan Years.
Further, for purposes of determining the number of officers taken into account
under subsection (d)(1), employees described in Code (S) 414(q)(8) shall be
excluded.

(e) Non-Key Employee. With respect to any Aggregation Group Plan and as
of any Determination Date, a "Non-Key Employee" means a person who at any time
during the Plan Year which includes such Determination Date or during any of the
4 immediately

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<PAGE>

preceding Plan Years is employed by any member of the Armco Group but who has
never been considered a Key Employee as of such or any earlier Determination
Date. Further, the term "Non-Key Employee" includes any beneficiary of a person
who is deceased as of the subject Determination Date, and who when alive had
been an Employee of any member of the Armco Group during the Plan Year which
includes the subject Determination Date or any of the 4 immediately preceding
Plan Years, but had not been a Key Employee as of the subject or any earlier
Determination Date.

(f) Present Value Of Accrued Benefits.

(1) For any Aggregation Group Plan which is a defined benefit plan (as
defined, in Code (S) 414(j)), the "Present Value" of a Participant's
accrued benefit, determined as of any Determination Date, means the single
sum value of the monthly retirement benefit not yet paid which the
Participant had accrued under such plan, calculated, as of the latest
Valuation Date which coincides with or precedes such Determination Date, in
accordance with the actuarial assumptions and interest rate set forth in
Exhibit B. For this purpose, such accrued monthly retirement benefit is
calculated as if it was to commence as of the first day of the month
following the month the Participant attains his Normal Retirement age under
such plan (or, if such Normal Retirement age had already been attained, as
of the first day of the month next following the month in which occurs such
Valuation Date) and as if it was to be paid in the form of a single life
annuity. In addition, the dollar amount of any distributions from the Plan,
including the value of any annuity contract distributed from the Plan,
actually paid to such Participant prior to the subject Valuation Date but
still within the Plan Year which includes such Valuation Date or one of the
4 immediately preceding Plan Years shall be added in calculating such
"Present Value" of the Participant's accrued benefit.

(2) For any Aggregation Group Plan which is a defined contribution plan
(as defined in Code (S) 414(i)), the "Present Value" of a Participant's
accrued benefit, as determined as of any Determination Date, means (i) the
sum of the total of the Participant's account balances under the plan as
valued as of the latest Valuation Date which coincides with or precedes
such Determination Date, and (ii) an adjustment for contributions due as
of such Determination Date. In the case of a profit sharing or stock bonus
plan, the adjustment in clause (ii) above shall be the amount of the
contributions, if any, actually made after the subject Valuation Date but
on or before such Determination Date and, in the case of the first Plan
Year, any amounts contributed to the plan after such Determination Date
which are allocated as of a date in such first Plan Year. In the case of a
money purchase or target benefit plan, the adjustment in clause (ii) above
shall be the amount of the contributions, if any, which are either
actually made or due to be made after the subject Valuation Date but
before the expiration of the period allowed for meeting minimum funding
requirements under Code (S) 412 for the Plan Year which includes the
subject Determination Date. In addition, the dollar amount of any
distributions from the plan, including the value of any annuity contract
distributed from the plan, actually paid to such Participant prior to the
subject Valuation Date

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<PAGE>

but still within the Plan Year which includes such Valuation Date or one
of the four immediately preceding Plan Years shall be added in calculating
such "Present Value" of the Participant's accrued benefit.

(3) In the case of any rollover (as defined in Code (S) 402) from a plan
qualified under Code (S) 401(a) to another qualified plan, or a direct
qualified plan-to-qualified plan transfer, to or from a subject
Aggregation Group Plan which is both initiated by a Participant and made
between a plan maintained by a member(s) of the Armco Group and a plan
maintained by an employer(s) not in the Armco Group, then (i) the
Aggregation Group Plan, if it is the plan from which the rollover or
transfer is made, will count the amount of the rollover or transfer as a
distribution made as of the date such amount is distributed by such plan
in determining the "Present Value" of the Participant's accrued benefit
under subsection (1) or (2) above, as applicable, and (ii) the Aggregation
Gr Plan, if it is the plan to which the rollover or transfer is made, will
consider the amount of the rollover or transfer when made as part of the
Participant's accrued benefit in determining the "Present Value" thereof
under subsection (1) or (2) above, as applicable, if such rollover or
transfer was accepted prior to January 1, 1984, and will not so consider
the amount of the rollover or transfer as part of the Participant's
accrued benefit in determining such "Present Value" if such rollover or
transfer is accepted on or after January 1, 1984.

(4) In the case of any rollover (as defined in Code (S) 402) from a plan
qualified under Code (S) 401(a) to another qualified plan, or a direct
qualified plan-to-qualified plan transfer, to or from a subject
Aggregation Group Plan which is not described in subsection (3) above,
then (i) the subject Aggregation Group Plan, if it is the plan from which
the rollover or transfer is made, will not consider the amount of the
rollover or transfer as part of the Participant's accrued benefit in
determining the "Present Value" thereof under subsection (1) or (2) above,
as applicable, and (ii) the subject Aggregation Group Plan, if it is the
plan to which the rollover or transfer is made, will consider the amount
of the rollover or transfer when made as part of the Participant's accrued
benefit in determining such "Present Value."

(g) Valuation Date. "Valuation Date" means, (i) in the case of a defined
benefit plan (as defined in Code (S) 414(j)), the date as of which the plan
actuary computes plan costs for minimum funding requirements under Code (S) 412
and, (ii) in the case of a defined contribution plan (as defined in Code (S)
414(i)), the date as of which plan income, gains and/or contributions are
allocated to plan accounts of Participants.

14.3 Effect Of Top Heavy Status.

(a) If this Plan becomes a Top Heavy Plan with respect to any Plan Year
which begins on or after January 1, 1984, the reference in Plan (S) 3.9 to "at
least 5 years shall be deleted and the words "at least 3 years" shall be
inserted therefor, but such modification shall apply only with respect to the
benefit accrued through the close of the most recently

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<PAGE>

completed Top Heavy Plan Year during which such individual was a Participant.
With respect to the benefit accrued for any such Participant from and after the
close of the most recently completed Top Heavy Plan Year, Plan (S) 3.9 shall not
be modified. Each Participant who has at least 3 years of Continuous Service as
of the first day of a Plan Year during which the Plan is not a Top Heavy Plan
and who was a Participant during a preceding Plan Year during which the Plan was
a Top Heavy Plan shall be entitled to elect to continue to have his accrued
benefit determined in accordance with the provisions of Plan (S) 3.9 as modified
by this Plan (S) 14.3(a).

(b) For any Plan Year which begins on or after January 1, 1984 and in
which this Plan is considered a Top Heavy Plan, the annual amount of the accrued
benefit of any Participant who is a Non-Key Employee determined as of the
Determination Date applicable to such Plan Year shall not be less than 2% of the
Participant's Average Annual Compensation times the Participant's years of
Continuous Service up to but not exceeding 10 such years. A Participant's years
of Continuous Service shall not include any period of a Plan Year which began
prior to January 1, 1984 and any periof a Plan Year as of which the Plan is not
considered a Top Heavy Plan. Only up to 10 such years of Continuous Service of
participation are taken into account under this Plan (S) 14.3(b).

(c) For any Plan Year which begins on or after January 1, 1984 and in
which this Plan is considered a Top Heavy Plan, the maximum amount of Earnings
received by a Participant in any Plan Year which may be taken into account for
any purpose under this Plan shall not exceed $200,000 or such higher amount as
may be permitted by Regulations for the calendar year with or during which such
Plan Year ends.

(d) For any Plan Year which begins on or after January 1, 1984 and in
which this Plan is considered a Top Heavy Plan, the limitations of Plan (S)
12.4(c) shall be modified in accordance with Code (S) 416(h). For purposes
hereof, this Plan shall be considered a "Super Top Heavy Plan" for any Plan Year
if, both the reference to "0.6" contained in the first paragraph of Plan (S)
14.1 was changed to "0.9" and the Plan would be considered a Top Heavy Plan for
such Plan Year under Plan (S) 14.1, as so amended.

This Plan, together with the attached Exhibits and Appendices, was adopted
effective as of January 1, 1989, by action of the Board Of Directors of at its
meeting held on April 28, 1989, and as supplemented by further action of the
Board Of Directors at its meeting held on October 27, 1989.

/s/ Richard D. Brown
_____________________
Richard D. Brown
Assistant Secretary
Armco Inc.

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EXHIBIT A--SCHEDULE A-1
- -----------------------

Armco Inc. Noncontributory Pension Plan
[Plan (S) 5.1(c)(2)-Over Age 40 and Over 15 Years Of Service]

DEFERRED VESTED
EARLY COMMENCEMENT PERCENTAGES
Age At Commencement Of Pension
<TABLE>
<CAPTION>
Whole Years
-----------
Months 55 56 57 58 59 60 61 62
- ------ -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 55.85% 60.35% 65.33% 70.84% 76.96% 83.82% 91.45% 100.00%
1 56.23 60.77 65.79 71.35 77.53 84.46 92.16
2 56.60 61.18 66.25 71.86 78.10 85.09 92.87
3 56.98 61.60 66.71 72.37 78.68 85.73 93.59
4 57.35 62.01 67.17 72.88 79.25 86.36 94.30
5 57.73 62.43 67.63 73.39 79.82 87.00 95.01
6 58.10 62.84 68.09 73.90 80.39 87.64 95.72
7 58.48 63.26 68.54 74.41 80.96 88.27 96.44
8 58.85 63.67 69.00 74.92 81.53 88.91 97.15
9 59.23 64.09 69.46 75.43 82.11 89.54 97.86
10 59.60 64.50 69.92 75.94 82.68 90.18 98.57
11 59.98 64.92 70.38 76.45 83.25 90.82 99.29
</TABLE>

The above percentages will be applied on the basis of the Participant's age to
the nearest month.

EXHIBIT A--SCHEDULE A-2
- -----------------------

Armco Inc. Noncontributory Pension Plan
[Plan (S) 5.1(c)(3)-Under Age 40 or Under 15 Years Of Service]

DEFERRED VESTED
EARLY COMMENCEMENT PERCENTAGES
Age At Commencement Of Pension
<TABLE>
<CAPTION>
Whole Years
-----------
Months 55 56 57 58 59 60 61 62 63 64 65
- ------ -- -- -- -- -- -- -- --- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 42.04 45.42 49.16 53.30 57.91 63.10 68.85 75.28 82.53 90.72 100
1 42.32 45.73 49.51 53.68 58.34 63.58 69.39 75.88 83.21 91.49
2 42.60 46.04 49.85 54.07 58.78 64.06 69.92 76.49 83.90 92.27
3 42.89 46.36 50.20 54.45 59.21 64.54 70.46 77.09 84.58 93.04
4 43.17 46.67 50.54 54.84 59.64 65.02 70.99 77.70 85.26 93.81
5 43.45 46.98 50.80 55.22 60.07 65.50 71.53 78.30 85.94 94.59
6 43.73 47.29 51.23 55.61 60.51 65.98 72.07 78.91 86.63 95.36
7 44.01 47.60 51.58 55.99 60.94 66.45 72.60 79.51 87.31 96.13
8 44.29 47.91 51.92 56.37 61.37 66.93 73.14 80.11 87.99 96.91
9 44.48 48.23 52.27 56.76 61.80 67.41 73.67 80.72 88.67 97.68
10 44.86 48.54 52.61 57.14 62.24 67.89 74.21 81.32 89.36 98.45
11 45.15 48.85 52.96 57.53 62.67 68.37 74.74 81.93 90.04 99.23
</TABLE>

The above percentages will be applied on the basis of the Participant's age to
the nearest month.

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<PAGE>

EXHIBIT A--SCHEDULE A-3-1
- -------------------------
Armco Inc.
Noncontributory Pension Plan

Effective for retirements on or before September 30, 1989, this Table of
Percentages will be used in calculating the amounts payable if one of the
following options is applicable: the Pre-Pension Spouse Coverage (50%), the
Automatic 50% Spouse Option, the 50% Co-Pensioner Option, or the 100% Co-
Pensioner Option.
<TABLE>
<CAPTION>
Participant's Age
---------------------------------------------------------------------------
Difference Between 51 and 64 and
Ages of Participant Under 52 to 54 55 to 57 58 to 60 61 to 63 Over
and spouse or ------------ ---------- ---------- ---------- ---------- --------
Co-Pensioner 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%
- --------------------- --- ---- --- ---- --- ---- --- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Participant Older
- ---------------------
20 or more years 71% 56% 72% 57% 73% 58% 73% 58% 74% 58% 74% 58%
17, 18 or 19 yrs. 71 56 72 58 73 59 74 60 75 60 75 60
14, 15 or 16 yrs. 72 57 73 59 74 60 75 61 76 62 76 62
11, 12 or 13 yrs. 73 58 74 60 75 62 77 63 77 64 78 64
8, 9 or 10 yrs. 74 59 75 61 77 63 78 65 79 66 80 66
5, 6 or 7 yrs. 75 60 76 62 78 65 79 67 81 68 81 69
2, 3 or 4 yrs. 76 62 77 64 79 67 81 69 82 71 83 72
less than 2 yrs. 77 64 79 66 81 69 83 71 84 73 85 75

Participant Younger
- ---------------------
less than 2 yrs. 77% 64% 79% 66% 81% 69% 83% 71% 84% 73% 85% 75%
2, 3 or 4 yrs. 79 66 80 68 82 71 84 74 86 76 87 78
5, 6 or 7 yrs. 80 68 82 70 84 73 86 76 88 79 89 81
8, 9 or 10 yrs. 92 70 84 73 86 76 88 79 90 82 91 84
11, 12 or 13 yrs. 84 73 85 75 88 79 90 82 92 85 93 87
14, 15 or 16 yrs. 86 75 87 78 89 81 91 84 93 87 94 90
17, 18 or 19 yrs. 87 78 89 81 91 84 93 87 95 90 96 92
20 or more years 89 80 91 83 93 87 94 89 96 92 96 93
</TABLE>

NOTES:

Participant's age and co-pensioner's age rounded to the nearest whole year;
e.g., age 51 years, six months becomes 52. Age differential is net difference
between Participant's and co-pensioner's age as rounded.

If the named co-pensioner is any person other than the Participant's spouse, it
may, in compliance with Internal Revenue Service regulations, be necessary to
modify the amount payable to the Participant and co-pensioner so as to provide
that the present value of the benefit to the Participant is more than 50% of the
present value of the pension that would have been payable to the Participant had
he not elected a survivor option.

-63-
<PAGE>

EXHIBIT A-SCHEDULE A-3-2
- ------------------------

Armco Inc.
Noncontributory Pension Plan

Effective for retirements on or after October 1, 1989, this Table of Percentages
will be used in calculating the amounts payable if one of the following options
is applicable: the Pre-Pension Spouse Coverage (50%), the Automatic 50% Spouse
Option, the 50% Co-Pensioner Option, or the 100% Co-Pensioner Option.
<TABLE>
<CAPTION>

Table of Percentages
---------------------
Difference Between Ages Participant Older Participant Younger
of Participant and Spouse ----------------- -------------------
or Co-Pensioner 50% 100% 50% 100%
- ------------------------- --- ----- --- ----
<S> <C> <C> <C> <C>
0 Years 88.0% 81.0% 88.0% 81.0%
1 87.6 80.4 88.4 81.6
2 87.2 79.8 88.8 82.2
3 86.8 79.2 89.2 82.8
4 86.4 78.6 89.6 83.4
5 86.0 78.0 90.0 84.0
6 85.6 77.4 90.4 84.6
7 85.2 76.8 90.8 85.2
8 84.8 76.2 91.2 85.8
9 84.4 75.6 91.6 86.4
10 84.0 75.0 92.0 87.0
11 83.6 74.4 92.4 87.6
12 83.2 73.8 92.8 88.2
13 82.8 73.2 93.2 88.8
14 82.4 72.6 93.6 89.4
15 82.0 72.0 94.0 90.0
16 81.6 71.4 94.4 90.6
17 81.2 70.8 94.8 91.2
18 80.8 70.2 95.2 91.8
19 80.4 69.6 95.6 92.4
*20 and over 80.0 69.0 96.0 93.0
</TABLE>

NOTES: Age differential is net difference between Participant's and Co-
Pensioner's age as rounded.

* Further actuarial adjustments will be made in cases involving age
disparities greater than 20 years in accordance with the methods and
assumptions utilized in establishing the percentages included in the
tables set forth in this Schedule A-3-2.

-64-
<PAGE>

EXHIBIT A--SCHEDULE A-4
- -----------------------

Armco Inc. Noncontributory Pension Plan
[Plan (S) 7.2-Survivor Annuity Coverage]

DIFFERENCE BETWEEN AGES OF PARTICIPANT AND SPOUSE

<TABLE>
<CAPTION>
Participant's Age At Death
--------------------------
Participant Older
Whole Years 55 to 57 58 to 60 61 to 63 64 & Older
- ----------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
*20 or more years 36.5% 36.5% 37.0% 37.0%
17, 18, or 19 years 36.5 37.0 37.5 37.5
14, 15 or 16 years 37.0 37.5 38.0 38.0
11, 12 or 13 years 37.5 38.5 38.5 40.0
8, 9 or 10 years 38.5 39.0 39.5 40.5
5, 6 or 7 years 39.0 39.5 40.5 40.5
2, 3 or 4 years 39.5 40.5 41.0 41.5
less than 2 years 40.5 41.5 42.0 42.5

</TABLE>
<TABLE>
<CAPTION>
Participant Younger
Whole Years 55 to 57 58 to 60 61 to 63 64 & Older
- ------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Less than 2 years 40.5% 41.5% 42.0% 42.5%
2, 3 or 4 years 41.0 42.0 43.0 43.5
5, 6 or 7 years 42.0 43.0 44.0 44.5
8, 9 or 10 years 43.0 44.0 45.0 45.5
11, 12 or 13 years 44.0 45.0 46.0 46.5
14, 15 or 16 years 45.0 45.5 46.5 47.0
17, 18 or 19 years 45.5 46.5 47.5 48.0
*20 or more years 46.5 47.0 48.0 48.0

</TABLE>

-65-
<PAGE>

EXHIBIT B
- ---------
Armco Inc.
Noncontributory Pension Plan

The actuarial assumptions to be used in computing the Present Value of accrued
benefits for purposes of determining whether the Plan is a Top Heavy Plan under
Plan (S) 14.1 are as follows:

Mortality: The 1976-1980 GAM Table (The 1971 GAM Table projected to 1978 with
- ----------
Scale E).

Interest: 8.5% per annum, compounded annually.
- ---------

No assumptions as to future withdrawals or future salary increases shall be
used.

-66-
<PAGE>

EXHIBIT C-1 Armco Inc.
- ----------- Noncontributory Pension Plan
QUALIFIED DOMESTIC RELATIONS ORDERS
EARLY COMMENCEMENT PERCENTAGES
[Participant Over Age 40 and Over 15 Years Of Service]
Alternate Payee's Age At Commencement Of Pension
<TABLE>
<CAPTION> Months
Whole ------
Years 0 1 2 3 4 5 6 7 8 9 10 11
- ----- - - - - - - - - - - -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21 6.66% 6.69% 6.72% 6.75% 6.78% 6.81% 6.85% 6.88% 6.91% 6.94% 6.97% 7.00%
22 7.03 7.06 7.10 7.13 7.16 7.20 7.23 7.26 7.30 7.33 7.36 7.40
23 7.43 7.46 7.50 7.53 7.57 7.60 7.64 7.67 7.70 7.74 7.77 7.81
24 7.84 7.88 7.92 7.95 7.99 8.03 8.07 8.10 8.14 8.18 8.22 8.25
25 8.29 8.33 8.37 8.41 8.44 8.48 8.52 8.56 8.60 8.64 8.67 8.71

26 8.75 8.79 8.83 8.88 8.92 8.96 9.00 9.04 9.08 9.13 9.17 9.21
27 9.25 9.29 9.34 9.38 9.43 9.47 9.52 9.56 9.60 9.65 9.69 9.74
28 9.78 9.83 9.88 9.92 9.97 10.02 10.07 10.11 10.16 10.21 10.26 10.30
29 10.35 10.40 10.45 10.50 10.55 10.60 10.65 10.70 10.75 10.80 10.85 10.90
30 10.95 11.00 11.06 11.11 11.16 11.22 11.27 11.32 11.38 11.43 11.48 11.54

31 11.59 11.65 11.70 11.76 11.82 11.87 11.93 11.99 12.04 12.10 12.16 12.21
32 12.27 12.33 12.39 12.45 12.51 12.57 12.64 12.70 12.76 12.82 12.88 12.94
33 13.00 13.07 13.13 13.20 13.26 13.33 13.39 13.46 13.52 13.59 13. 13.72
34 13.78 13.85 13.92 13.99 14.06 14.13 14.20 14.26 14.33 14.40 14.47 14.54
35 14.61 14.68 14.76 14.83 14.91 14.98 15.05 15.13 15.20 15.28 15.35 15.43

36 15.50 15.58 15.66 15.74 15.82 15.90 15.98 16.05 16.13 16.21 16.29 16.37
37 16.45 16.54 16.62 16.71 16.79 16.88 16.97 17.05 17.14 17.22 17.31 17.39
38 17.48 17.57 17.66 17.75 17.84 17.93 18.03 18.12 18.21 18.30 18.39 18.48
39 18.57 18.67 18.77 18.87 18.96 19.06 19.16 19.26 19.36 19.46 19.55 19.65
40 19.75 19.86 19.96 20.07 20.17 20.28 20.39 20.49 20.60 20.70 20.81 20.91

41 21.02 21.13 21.25 21.36 21.47 21.59 21.70 21.81 21.93 22.04 22.15 22.27
42 22.38 22.50 22.63 22.75 22.87 22.99 23.12 23.24 23.36 23.48 23.61 23.73
43 23.85 23.98 24.12 24.25 24.38 24.51 24.65 24.78 24.91 25.04 25.18 25.31
44 25.44 25.58 25.73 25.87 26.01 26.16 26.30 26.44 26.59 26.73 26.87 27.02
45 27.16 27.32 27.47 27.63 27.78 27.94 28.09 28.25 28.40 28.56 28.71 28.87

46 29.02 29.19 29.36 29.53 29.69 29.86 30.03 30.20 30.37 30.54 30.70 30.87
47 31.04 31.22 31.41 31.59 31.77 31.95 32.14 32.32 32.50 32.68 32.87 33.05
48 33.23 33.43 33.63 33.83 34.02 34.22 34.42 34.62 34.82 35.02 35.21 35.41
49 35.61 35.83 36.04 36.26 36.48 36.69 36.91 37.13 37.34 37.56 37.78 37.99
50 38.21 38.45 38.68 38.92 39.16 39.39 39.63 39.87 40.10 40.34 40.58 40.81

51 41.05 41.31 41.57 41.83 42.08 42.34 42.60 42.86 43.12 43.38 43.63 43.89
52 44.15 44.43 44.72 45.00 45.28 45.57 45.85 46.13 46.42 46.70 46.98 47.27
53 47.55 47.86 48.17 48.48 48.79 49.10 49.42 49.73 50.04 50.35 50.66 50.97
54 51.28 51.66 52.04 52.42 52.80 53.18 53.57 53.95 54.33 54.71 55.09 55.47
55 55.85 56.23 56.60 56.98 57.35 57.73 58.10 58.48 58.85 59.23 59.60 59.98

56 60.35 60.77 61.18 61.60 62.01 62.43 62.84 63.26 63.67 64.09 64.50 64.92
57 65.33 65.79 66.25 66.71 67.17 67.63 68.09 68.54 69.00 69.46 69.92 70.38
58 70.84 71.35 71.66 72.37 72.83 73.39 73.90 74.41 74.92 75.43 75.94 76.45
59 76.96 77.53 78.10 78.68 79.25 79.82 80.39 80.96 81.53 82.11 82.68 83.25
60 83.82 84.46 85.09 85.73 86.36 87.00 87.64 88.27 88.91 89.54 90.18 90.81

61 91.45 92.16 92.87 93.59 94.30 95.01 95.72 96.44 97.15 97.86 98.57 99.29
62 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
63 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
64 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
65 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
</TABLE>

-67-
<PAGE>

EXHIBIT C-2 Armco Inc.
- ----------- Noncontributory Pension Plan
QUALIFIED DOMESTIC RELATIONS ORDERS
EARLY COMMENCEMENT PERCENTAGES
[Participant Under Age 40 Or Under 15 Years Of Service]
Alternate Payee's Age At Commencement Of Pension

<TABLE>
<CAPTION> Months
Whole ------
Years 0 1 2 3 4 5 6 7 8 9 10 11
- ----- - - - - - - - - - - -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21 5.00% 5.02% 5.05% 5.07% 5.09% 5.12% 5.14% 5.16% 5.19% 5.21% 5.23% 5.26%
22 5.28 5.30 5.33 5.35 5.38 5.40 5.43 5.45 5.47 5.50 5.52 5.55
23 5.57 5.60 5.62 5.65 5.67 5.70 5.73 5.75 5.78 5.80 5.83 5.85
24 5.88 5.91 5.94 5.97 5.99 6.02 6.05 6.08 6.11 6.14 6.16 6.19
25 6.22 6.25 6.28 6.31 6.34 6.37 6.40 6.42 6.45 6.48 6.51 6.54

26 6.57 6.60 6.63 6.66 6.69 6.72 6.76 6.79 6.82 6.85 6.88 6.91
27 6.94 6.97 7.01 7.04 7.07 7.11 7.14 7.17 7.21 7.24 7.27 7.31
28 7.34 7.38 7.41 7.45 7.48 7.52 7.55 7.59 7.62 7.66 7.69 7.73
29 7.76 7.80 7.84 7.88 7.91 7.95 7.99 8.03 8.07 8.11 8.14 8.18
30 8.22 8.26 8.30 8.34 8.38 8.42 8.46 8.50 8.54 8.58 8.62 8.66

31 8.70 8.74 8.79 8.83 8.87 8.91 8.95 9.00 9.04 9.08 9.13 9.17
32 9.21 9.26 9.30 9.35 9.39 9.44 9.48 9.53 9.57 9.62 9.66 9.71
33 9.75 9.80 9.85 9.90 9.95 10.00 10.05 10.09 10.14 10.19 10.24 10.29
34 10.34 10.39 10.44 10.50 10.55 10.60 10.65 10.70 10.75 10.81 10.86 10.91
35 10.96 11.02 11.07 11.13 11.18 11.24 11.30 11.35 11.41 11.46 11.52 11.57

36 11.63 11.69 11.75 11.81 11.87 11.93 11.99 12.05 12.11 12.17 12.23 12.29
37 12.35 12.41 12.48 12.54 12.60 12.67 12.73 12.79 12.86 12.92 12.98 13.05
38 13.11 13.18 13.25 13.32 13.38 13.45 13.52 13.59 13.66 13.73 13.79 13.86
39 13.93 14.00 14.08 14.15 14.23 14.30 14.38 14.45 14.52 14.60 14.67 14.75
40 14.82 14.90 14.98 15.06 15.14 15.22 15.30 15.37 15.45 15.53 15.61 15.69

41 15.77 15.86 15.94 16.03 16.11 16.20 16.28 16.37 16.45 16.54 16.62 16.71
42 16.79 16.88 16.98 17.07 17.16 17.25 17.35 17.44 17.53 17.62 17.72 17.81
43 17.90 18.00 18.10 18.20 18.30 18.40 18.50 18.59 18.69 18.79 18.89 18.99
44 19.09 19.20 19.31 19.41 19.52 19.63 19.74 19.84 19.95 20.06 20.17 20.27
45 20.38 20.50 20.61 20.73 20.84 20.96 21.08 21.19 21.31 21.42 21.54 21.65

46 21.77 21.90 22.02 22.15 22.28 22.40 22.53 22.66 22.78 22.91 23.04 23.16
47 23.29 23.43 23.56 23.70 23.84 23.97 24.11 24.25 24.38 24.52 24.66 24.79
48 24.93 25.08 25.23 25.38 25.53 25.68 25.83 25.97 26.12 26.27 26.42 26.57
49 26.72 26.88 27.05 27.21 27.37 27.53 27.70 27.86 28.02 28.18 28.35 28.51
50 28.67 28.85 29.02 29.20 29.38 29.55 29.73 29.91 30.08 30.26 30.44 30.61

51 30.79 30.98 31.18 31.37 31.57 31.76 31.96 32.15 32.34 32.54 32.73 32.93
52 33.12 33.33 33.55 33.76 33.97 34.18 34.40 34.61 34.82 35.03 35.25 35.46
53 35.67 35.90 36.14 36.37 36.61 36.84 37.08 37.31 37.54 37.78 38.01 38.25
54 38.48 38.78 39.07 39.37 39.67 39.96 40.26 40.56 40.85 41.15 41.45 41.74
55 42.04 42.32 42.60 42.89 43.17 43.45 43.73 44.01 44.29 44.58 44.86 45.14

56 45.42 45.73 46.04 46.36 46.67 46.98 47.29 47.60 47.91 48.23 48.54 48.85
57 49.16 49.51 49.85 50.20 50.54 50.89 51.23 51.56 51.92 52.27 52.61 52.96
58 53.30 53.68 54.07 54.45 54.84 55.22 55.61 55.99 56.37 56.76 57.14 57.53
59 57.91 58.34 58.78 59.21 59.64 60.07 60.51 60.94 61.37 61.80 62.24 62.67
60 63.10 63.58 64.06 64.54 65.08 65.50 65.98 66.45 66.93 67.41 67.89 68.37

61 68.85 69.39 69.92 70.46 70.99 71.53 72.07 72.60 73.14 73.67 74.21 74.74
62 75.28 75.88 76.49 77.09 77.70 78.30 78.91 79.51 80.11 80.72 81.32 81.93
63 82.53 83.21 83.90 84.83 85.26 85.94 86.63 87.31 87.99 88.67 89.36 90.04
64 90.73 91.49 92.27 93.04 93.81 94.59 95.36 96.13 96.91 97.68 98.45 99.23
65 100.00
</TABLE>

-68-
<PAGE>

Armco Inc.
Noncontributory Pension Plan

APPENDIX 1

Provisions Relating to Covered Employees
Of HMK Industries Of Oklahoma, Inc.

The Company sold its Sand Springs Works located in Sand Springs, Oklahoma
(the "Works") and its Fabricated Reinforcing Products plants located in Grand
Prairie, Texas; Omaha, Nebraska; Memphis, Tennessee; Denver, Colorado; Houston,
Texas; and Baton Rouge, Louisiana, (the "Plants") to HMK Industries of
Oklahoma, Inc. (the "Buyer") effective as of August 31, 1981. The salaried
employees of the Company at the Works and the Plants and the hourly paid
employees at the Grand Prairie and Omaha Plants participated in the Plan
immediately prior to such sale.

The Company and the Buyer agreed in the Purchase Agreement to provide
continuity of employment and benefits for such employees. The Plan was amended
to reflect the foregoing as described in this Appendix 1.

This Appendix 1 shall apply with respect to Covered Employees effective
from and after August 31, 1981. To the extent the provisions of this Appendix 1
conflict with any provision of the Plan, the provisions of this Appendix 1 shall
control.

Appendix 1.1 Covered Employees. This Appendix l applies to those employees
of the Company whose employment was transferred to the Buyer or its successor or
assign or any subsidiary or affiliate thereof in connection with the Buyer's
purchase of the Company's Works and Plants (the "Divested Unit"), effective as
of August 31, 1981, and who were Participants in the Plan immediately prior
thereto, including the salaried employees at such Works and Plants and the
hourly paid employees at the Grand Prairie and Omaha Plants.

Appendix 1.2 Extended Eligibility. Notwithstanding any provision of the
Plan to the contrary, for the purposes hereinafter described a Covered Employee
shall not be considered to have separated from service under the Plan, and
therefore shall not incur a Break In Continuous Service by reason of the sale of
the Divested Unit but shall continue to accrue Continuous Service under the
terms of Plan Article 9 as though his employment with the Buyer was employment
with an Employing Company, but only for the following purposes:

(a) for the purpose of determining eligibility to retire with a Normal
Retirement Pension, a 62/15 Retirement Pension, a 30-Year Retirement Pension, an
Early Retirement (55/15) Pension, or a Deferred Vested Pension;

-69-
<PAGE>

(b) for the purpose of determining eligibility for Pre-Pension Spouse
Coverage and a Surviving Spouse's Benefit.

Appendix 1.3 Fixed Factors. Except as expressly provided by this Appendix
1, all factors relating to eligibility for or amount of pension benefits of a
Covered Employee shall be fixed at their status on August 31, 1981, under the
terms of the Plan as in effect on such date. Events subsequent to the sale of
the Divested Unit shall not alter or affect any fixed factors. Such fixed
factors include but are not limited to:

(a) length of Continuous Service and Average Monthly Earnings for purposes
of determining the amount of any pension under Plan Article 5, which shall be
computed based on Continuous Service and Average Monthly Earnings up to August
31, 1981;

(b) the amount of any deductions under Plan Article 6, which shall be
computed as of August 31, 1981, based on the law in effect on such date;

(c) the existence of permanent incapacity, other disability, or Layoff
status for purposes of eligibility under Plan Article 3, which conditions shall
be recognized only if extant before September 1, 1981; and

(d) the occurrence of a Permanent Shutdown for purposes of eligibility
under Plan Article 3, which event shall not be recognized if it occurred after
August 31, 1981. The sale of the Divested Unit shall not be considered a
Permanent Shutdown.

Appendix 1.4 Certain Incidental Benefits. In no event shall any Covered
Employee first become eligible on or after August 31, 1981, to receive a
Permanent Incapacity Pension, Immediate Severance (70/80) Pension, or a
Rule-Of-65 Pension, nor shall any such Covered Employee qualify to receive a
Special Pension Payment, Increased Regular Pension or Increased Rule-Of-65
Pension.

Appendix 1.5 Reemployment Of Retired Covered Employees. If a Covered
Employee retires from the employ of the Company or the Buyer and is subsequently
re-employed by the Company or the Buyer, the provisions of Plan Article 10 shall
apply.

-70-
<PAGE>

Armco Inc.
Noncontributory Pension Plan

APPENDIX 2

Provisions Relating To Covered
Employees Of National-Oilwell

Effective as of March 31, 1987, the Company transferred its National Supply
Company business to National-Oilwell, a general partnership, 50% of which is
owned by the Company. The salaried employees of the Company at National Supply
Headquarters in Houston, Texas, the salaried and hourly employees at the
National Supply Marketing Division, except Mobile Rig, Houston Plant, Los
Neitos, Gainesville, Torrance, San Marcos, and certain salaried part-time
employees participated in the Plan immediately prior to such transfer.

This Appendix 2 shall apply with respect to Covered Employees, as defined
below, effective March 31, 1987. To the extent the provisions of this Appendix 2
conflict with any provision of the Plan, the provisions of this Appendix 2 shall
control.

Appendix 2.1 Covered Employees. This Appendix 2 applies to (i) any Employee
of the Company whose employment is transferred from the Company (including its
National Supply Company division) or National-Oilwell (including any Affiliate
that is at least 50% owned by National-Oilwell) at any time on or after March
31, 1987, and who was a Participant in the Plan immediately prior to his
transfer of employment, and (ii) to any former or retired Employee of the
Company or National-Oilwell who was a Participant in the Plan, who has a vested
accrued benefit under the Plan and who becomes an Employee of National-Oilwell.

Appendix 2.2 Extended Eligibility. Notwithstanding any provision of the
Plan to the contrary, for the purposes hereinafter described a Covered Employee
described in Appendix 2.1 shall not incur a Break In Continuous Service, solely
by reason of the transfer of such Employee's employment to National-Oilwell or
by National-Oilwell to an Affiliate that is at least 50% owned by
National-Oilwell. Each Covered Employee shall continue to accrue Continuous
Service under the terms of Plan Article 9 as though his employment with
National-Oilwell was employment with the Company, but only for the following
purposes:

(b) for the purpose of determining eligibility for Pre-Pension Spouse
Coverage and Pre-Retirement Survivor Annuity Coverage.

-71-
<PAGE>

Appendix 2.3 Fixed Factors. Except as expressly provided by this Appendix
2, all factors relating to eligibility for or amount of pension benefits of a
Covered Employee shall be fixed at their status on March 31, 1987, or if
earlier, as of the most recent Break In Continuous Service or Retirement of the
Covered Employee described in Appendix 2.1(ii) under the terms of the Plan as in
effect on such date. Events subsequent to the employment by or transfer to
National-Oilwell shall not alter or affect any fixed factors. Such fixed factors
include but are not limited to:

(a) length of Continuous Service and Average Monthly Earnings for the
purpose of determining the amount of any pension under Plan Article 5, which
shall be computed based on Continuous Service and Average Monthly Earnings up to
March 31, 1987;

(b) the amount of any deductions under Plan Article 6, which shall be
computed as of March 31, 1987, based on the law in effect on such date;

(d) the occurrence of a Permanent Shutdown of National-Oilwell or any
successor for purposes of eligibility under Plan Article 3, which event shall
not be recognized if it occurred after March 31, 1987. The transfer of the
Company's National Supply division to National-Oilwell shall not be considered a
Permanent Shutdown.

Appendix 2.4 Certain Incidental Benefits. In no event shall any Covered
Employee first become eligible after March 31, 1987, to receive a Permanent
Incapacity Pension, an Immediate Severance (70/80) Pension, or a Rule-Of-65
Pension nor shall any Covered Employee qualify for a Special Pension Payment,
Increased Regular Pension or Increased Rule-Of-65 Pension. Only Covered
Employees who had completed at least 15 years of Continuous Service on the date
of their transfer of employment to National-Oilwell shall be eligible for a
Surviving Spouse's Benefit.

Appendix 2.5 Reemployment Of Retired Covered Employees. If a Covered
Employee or former Employee retires from the employ of the Company or
National-Oilwell and is subsequently reemployed by the Company or
National-Oilwell, the provisions of Plan Article 10 shall apply.

-72-
<PAGE>

Armco Inc.
Noncontributory Pension Plan

APPENDIX 3

Provisions Relating To Covered Employees Under
The Armco Inc. Retirement Pension Plan

Effective January 1, 1988, the Armco Inc. Retirement Pension Plan
("Retirement Plan") was merged with and into the Plan. The liability to provide
all benefits payable under the Retirement Plan was assumed by the Plan which
received a transfer of assets from the Retirement Plan which is, in the opinion
of the enrolled actuary, the equivalent in value of the liabilities assumed. The
rights of any person whose employment terminated or who retired prior to January
1, 1988, including such person's eligibility for benefits and the time and form
in which benefits, if any, will be paid, shall be determined solely under the
terms of the Retirement Plan in effect on the date of his termination of
employment or retirement.

This Appendix 3 sets forth the provisions which apply to Covered Employees
on and after January 1, 1988 and which differ from the provisions of the Plan.
Any benefits payable to a Covered Employee under the Plan, and the time and
manner in which such benefits will be paid, shall be determined under the terms
of the Retirement Plan as set forth in this Appendix 3. To the extent the
provisions of this Appendix 3 conflict with any provision of the Plan, the
provisions of this Appendix 3 shall control.

Appendix 3.1 Covered Employees. This Appendix 3 applies to (i) those
employees at the Piqua Minerals facility in Piqua, Ohio of Armco Material
Resources Division of Armco Inc. hired on or after August 1, 1983 who, on
January 1, 1988, were covered under the Agreement between Armco Inc. and the
Employees Association of Piqua Minerals dated August 1, 1983 and (ii) those
employees of Atlantic Building Systems, Inc. whose benefits under the Retirement
Plan were frozen as of June 30, 1986, pursuant to the sale of Atlantic Building
Systems, Inc. to Southwest General, Inc. Individuals described in clause (ii)
shall continue to accrue Continuous Service solely for the purpose of
determining eligibility for benefits under the Retirement Plan.

Appendix 3.2 Pension Payable. The monthly retirement benefit a Participant
has earned as of a specified date (subject to any requirements as to vesting or
possibility of forfeiture) calculated by multiplying $8.50 by the number of the
Participant's years (and fractions thereof) of Credited Service and paid as a
Single Life Annuity commencing on the first day of the month following the month
in which the Participant attains Normal Retirement age (or if the Participant
has already attained his Normal Retirement age, commencing on the first day of
the month following the month in which such specified date occurs). In no event
shall any supplemental pension amount be payable under Plan Article 4 or Plan
(S)(S) 5.2 or 5.3. Upon Retirement under Plan (S) 3.4, as modified by

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Appendix (S) 3.4, or Plan (S) 3.9, any pension amount will be
reduced in accordance with Appendix (S) 3.4.

Appendix 3.3 Participation And Service.

1. Date of Participation. Each Covered Employee who as a Participant in
the Plan on December 31, 1987 shall continue to be a Participant on January 1,
1988. Each other person who is a Covered Employee or who becomes a Covered
Employee on or after January 1, 1988 shall become a Participant on the first day
of the month following the last to occur of the date (i) he becomes a Covered
Employee, (ii) he completes one year of Continuous Service or (iii) he attains
age 21.

2. Continuous Service. An employee's Continuous Service shall be
determined in accordance with the terms of the Plan, including, without
limitation, Plan Article 9.

3. Credited Service. Credited Service shall be determined in full years
and fractions thereof (with any whole month being counted as 1/12th of a full
year and with any fractional month being rounded to the nearest whole month).
For the purpose of determining an employee's Credited Service, an employee's
Continuous Service shall be reduced by any months (or fraction of a month) of
absence from active employment which may have been included as Continuous
Service under Plan (S)(S) 9.3(a)(2), (3), (4) or (6), 9.3(b), 93.(c)
or otherwise. Service with a Diverted Unit shall be counted as Continuous
Service only insofar as BPAC may approve at the time of the sale or transfer of
the Divested Unit.

4. Reemployment Within Twelve Months Of a Break In Service. If any former
employee of the Company or any Affiliate who incurred a Break In Continuous
Service for a reason described in Item 3 above is reemployed and performs an
hour of service within 12 months following the date of such Break In Continuous
Service, the Break in Continuous Service shall be disregarded; provided,
however, that the period from the Break in Continuous Service to his
reemployment date shall be included as Credited Service.

5. Reemployment With Ten Years or More. In any case where Item 4 above
does not apply, a former employee of the Company or any Affiliate who incurred a
Break in Continuous Service after completing 5 years or more of Continuous
Service, shall be credited with his prior Continuous Service of his reemployment
date and shall immediately qualify for participation in the Plan upon satisfying
each other applicable condition set forth in Item 1 above; provided, however,
that his period of absence shall not be counted as Credited Service.

6. Reemployment With Less Than Ten Years. In any case where Items 4 and 5
above do not apply, a former employee of the Company or any Affiliate who
incurred a Break In Continuous Service before completing at least 5 years of
Continuous Service, his prior Continuous Service on his reemployment date may be
disregarded only if his period of absence as of his reemployment date is of a
duration in excess of the greater of 5 years or the length of his prior

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<PAGE>

aggregate period of absence (excluding any prior period of absence which was
properly disregarded under this rule, as then in effect, because of a prior
Break In Continuous Service); provided, however, that his period of absence
shall not be counted as Credited Service.

Appendix 3.4 Retirement Dates.

1. Normal Retirement. A Participant who is covered under this Appendix 3
shall be eligible to retire only in accordance with Plan (S)(S) 3.2,
3.5, 3.6 and 3.9, as each may be amended herein.

2. Early Retirement. A Participant who incurs a Break In Continuous
Service (other than by reason of his death or permanent incapacity) prior to
qualifying for Normal Retirement may apply for and receive a retirement benefit
under Plan (S) 3.5; provided, however, that the reference to "15 years but
less than 30 years of Continuous Service" shall be amended to "10 years of
Continuous Service"; and provided further, that the Plan is amended to provide
that, subject to the other provisions of this Appendix 3, such retirement
benefit shall (i) commence as of the first day of the month following the later
of the month in which the Participant incurs a Break In Continuous Service or
the month in which he applies for his pension and (ii) be reduced by.5% for each
month by which the date as of which such retirement benefit commences precedes
the first day of the month following the month in which the Participant would
attain age 65, rather than the actuarial adjustment specified in Plan
(S)(S) 5.1(c)(2) or (3).

3. Deferred Vested Retirement. A Participant who incurs a Break In
Continuous Service (other than by reason of his death or permanent incapacity),
prior to attaining age 55 but after completing at least 5 years of Continuous
Service, may apply for and receive a retirement benefit under Plan (S) 3
and, subject to the other provisions of this Appendix 3, such retirement benefit
shall (i) commence as of the first day of the month following the later of the
month in which the Participant attains age 55 or the month in which he applies
for a pension and (ii) be reduced by 0.5% for each month by which the date as of
which such retirement benefit commences precedes the first day of the month
following the month in which the Participant would attain age 65.

Appendix 3.5 Payment Of Benefits. A Participant's retirement benefit under
the Plan, if any, shall be payable in accordance with Plan Article 7; provided,
however, that Plan (S)(S) 7.1, 7.2(e), 7.4 and Article 8 shall not apply to this
Appendix 3.

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<PAGE>

Armco Inc.
Noncontributory Pension Plan

APPENDIX 4

Provisions Relating To Covered
Employees Of ME International

Effective as of March 3, 1987 the Company transferred its National
Automatic Electric Foundry (NAEF) business to ME International, a general
partnership. The salaried employees of NAEF participated in the Plan immediately
prior to such transfer.

This Appendix 4 shall apply with respect to Covered Employees effective
from and after March 3, 1987. To the extent the provisions of this Appendix 4
conflict with any provisions of the Plan, the provisions of this Appendix 4
shall control.

Appendix 4.1 Covered Employees. This Appendix 4 shall apply, effective
March 3, 1987, to employees of NAEF, including any person whose employment was
transferred to ME International, in connection with the transfer of NAEF to ME
International, and who were Participants in the Plan immediately prior thereto.

Appendix 4.2 Extended Eligibility. Notwithstanding any provision of the
Plan to the contrary, for the purposes herein described a Covered Employee shall
not be considered to have separated from service under the Plan, and therefore
shall not incur a Break In Continuous Service, by reason of the transfer of NAEF
to ME International, but shall continue to accrue Continuous Service under the
terms of Plan Article 9 as though his employment with ME International was
employment with the Company, but only for the following purposes:

(b) for the purpose of determining eligibility for Pre-Pension Spouse
Coverage, and Pre-Retirement Survivor Annuity Coverage.

Appendix 4.3 Fixed Factors. All factors under the Plan relating to
eligibility for or amount of any pension benefits of a Covered Employee shall be
fixed at their status on March 3, 1987, under the terms of the Plan as in effect
on such date. Events subsequent to the transfer of NAEF to ME International
shall not alter or affect any fixed factors. Such fixed factors include but are
not limited to:

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<PAGE>

(b) the amount of any deductions under Plan Article 6, which shall be
computed as of March 3, 1987, based on the law in effect on such date;

(d) the occurrence of a Permanent Shutdown for purposes of eligibility
under Plan Article 3, which event shall not be recognized if it occurred after
March 3, 1987. The transfer of NAEF to ME International shall not be considered
a Permanent Shutdown.

Appendix 4.4 Certain Incidental Benefits. In no event shall any Covered
Employee first become eligible after March 3, 1987, to receive a Permanent
Incapacity Pension, Immediate Severance (70/80) Pension or Rule-Of-65 Pension,
nor shall any such Covered Employee qualify to receive a Special Pension Payment
under Plan Article 4, Increased Regular Pension under Plan (S) 5.2 or Increased
Rule-Of-65 Pension under Plan (S) 5.3.

Appendix 4.5 Reemployment Of Retired Covered Employees. If a Covered
Employee retires from the employ of the Company or ME International and is
subsequently reemployed by the Company, any Employing Company or ME
International, the provisions of Plan Article 10 shall apply.

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<PAGE>

Armco Inc.
Noncontributory Pension Plan

APPENDIX 5

Provisions Relating To Covered
Employees Of Contech Construction Products, Inc.

Effective as of June 30, 1986, the Company sold its Construction Products
Division ("CPD") to Contech Construction Products Inc. ("Contech"). All salaried
employees of CPD, excluding employees employed at field locations and Riverside,
California, participated in the Plan immediately prior to such sale.

This Appendix 5 shall apply with respect to Covered Employees effective
from and after June 30, 1986. On that date, Contech became an Employing Company
under the Plan. To the extent the provisions of this Appendix 5 conflict with
any provisions of the Plan, the provisions of this Appendix 5 shall apply.

Appendix 5.1 Covered Employees. This Appendix 5 shall apply, effective June
30, 1986, to employees of CPD including any person whose employment was
transferred to Contech or its successor or assign or any subsidiary or affiliate
therewith in connection with Contech's purchase of CPD from the Com_ pany, and
who were Participants in the Plan immediately prior thereto, including all
salaried employees of CPD except those employed at field locations and
Riverside, California.

Appendix 5.2 Fixed Factors. Notwithstanding any provision of the Plan to
the contrary, all factors under the Plan relating to eligibility for or amount
of any pension benefits of a Covered Employee shall be fixed at their status on
June 30, 1986, under the terms of the Plan as in effect on such date. Events
subsequent to the sale of CPD to Contech shall not alter or affect any of these
factors. Such fixed factors include but are not limited to:

(b) the amount of any deductions under Plan Article 6, which shall be
computed as of June 30, 1986, based on the law in effect on such date;

(c) the existence of permanent incapacity, other disability, or Lay off
status for purposes of eligibility under Plan Article 3, which conditions shall
be recognized only if extant before July 1, 1986; and

(d) the occurrence of a Permanent Shutdown for purposes of eligibility
under Plan Article 3, which event shall not be recognized if it occurred after
June 30, 1986. The sale of the CPD to Contech shall not be considered a
Permanent Shutdown.

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<PAGE>

Appendix 5.3 Certain Incidental Benefits. In no event shall any Covered
Employee first become eligible after June 30, 1986, to receive a Permanent
Incapacity Pension, an Immediate Severance (70/80) Pension, or Rule-Of-65
Pension, nor shall any Covered Employee qualify to receive any Special Pension
Payment under Plan Article 4, any Increased Regular Pension under Plan (S) 5.2
or any Increased Rule-Of-65 Pension under Plan (S) 5.3. Only Covered Employees
who had completed at least 15 years of Continuous Service as of June 30, 1986
shall be eligible for a Surviving Spouse's Benefit.

Appendix 5.4 Reemployment of Retired Covered Employees. If a Covered
Employee retired from the employ of the Company more than six months prior to
June 30, 1986 and is subsequently reemployed by Contech, such Covered Employee
shall not have his pension payment or commencement suspended.

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<PAGE>

Armco Inc.
Noncontributory Pension Plan

APPENDIX 6

Provisions Relating To Covered Employees
Of Atlantic Building Systems, Inc.

Effective June 30, 1986 the Company sold its Atlantic Building Systems,
Inc., ("Atlantic") to Southwest General, Inc. (the "Buyer"). Certain salaried
employees of Atlantic listed in Appendix (S) 6.6 and hourly paid employees
of Atlantic employed at Washington Courthouse, Ohio participated in the Plan
immediately prior to such sale.

This Appendix 6 shall apply with respect to Covered Employees from and
after June 30, 1986. On that date, Southwest General, Inc. became an Employing
Company under the Plan. To the extent the provisions of this Appendix 6 conflict
with any provisions of the Plan, the provisions of this Appendix 6 shall
control.

Appendix 6.1 Covered Employees. This Appendix 6 applies to those employees
of Atlantic whose employment was transferred to the Buyer or its successor or
assignor or any subsidiary or affiliate thereof in connection with the Buyer's
purchase of Atlantic, effective as of June 30, 1986, and who were participants
in the Plan immediately prior thereto, including those individuals listed in
Appendix (S) 6.6 and hourly paid employees of Atlantic employed at Washington
Courthouse, Ohio.

Appendix 6.2 Extended Eligibility. Notwithstanding any provision of the
Plan to the contrary, for the purposes hereinafter described, a Covered Employee
shall not be considered to have separated from service under the Plan, and
therefore shall not incur a Break In Continuous Service, by reason of the sale
of Atlantic but shall continue to accrue Continuous Service under the terms of
Plan Article 9 as though his employment with the Buyer was employment with the
Company, but only for the following purposes:

(a) for purposes of determining eligibility to retire with a Normal
Retirement Pension, a 30-Year Retirement Pension, an Early Retirement (55/15)
Pension or a Deferred Vested Pension; and

(b) for purposes of determining eligibility for Pre-Pension Spouse Coverage
and Pre-Retirement Survivor Annuity Coverage.

Appendix 6.3 Fixed Factors. Except as expressly provided in this Appendix
6, all factors relating to eligibility for or amount of pension benefits of a
Covered Employee shall be fixed at their status on June 30, 1986 under the terms
of the Plan as in effect on such date. Events subsequent to the sale of Atlantic

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<PAGE>

shall not alter or affect any fixed factors. Such fixed factors include but are
not limited to:

(b) the amount of any deductions under Plan Article 6, which shall be
computed as of June 30, 1986 based on the law in effect on such date;

(c) the existence of permanent incapacity, other disability or Layoff
status for purposes of eligibility under Plan Article 3, which conditions shall
be recognized only if extant before July 1, 1986; and

(d) the occurrence of a Permanent Shutdown for purposes of Plan Article 3,
which event shall not be recognized if it occurred after June 30, 1986. The sale
of Atlantic to the Buyer shall not be considered a Permanent Shutdown.

Appendix 6.4 Certain Incidental Benefits. In no event shall any Covered
Employee first become eligible after June 30, 1986 to receive a Permanent
Incapacity Pension, as Immediate Severance (70/80) Pension or a Rule-of-65
Pension, nor shall any Covered Employee qualify for a Special Pension Payment,
Increased Regular Pension under Plan (S) 5.2 or Increased Rule-of-65 Pension
under Plan (S) 5.3. Only Covered Employees who had completed at least 15 years
of Continuous Service as of June 30, 1986 shall be eligible for a Surviving
Spouse's Benefit.

Appendix 6.5 Reemployment Of Retired Covered Employees. If a Covered
Employee retires from the employ of the Company or the Buyer and is subsequently
reemployed by the Company or the Buyer, the provisions of Plan Article 10 shall
apply.

Appendix 6.6 Covered Salaried Employees. Effective January 1, 1984,
salaried employees of Atlantic were given the election to remain Participants in
the Plan or to become participants on the Armco Inc. Retirement Pension Plan.
The following individuals, who were Participants on the Plan on December 31,
1983, elected to remain covered under the Plan:

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<PAGE>

Social Security Number
----------------------
Kenneth Bond ###-##-####
Robert Boonstra ###-##-####
Derrell Brown ###-##-####
Robert Burns ###-##-####
Donald Campbell ###-##-####
Walker Carll ###-##-####
Donald Cockerill ###-##-####
Donald Dunn ###-##-####
Edwin Elliot ###-##-####
Richard Gleadall ###-##-####
James Hanawalt ###-##-####
Burdette Johnson ###-##-####
Paul Johnson ###-##-####
Phillip Johnson ###-##-####
Loren Klontz ###-##-####
William Koger ###-##-####
Lee Lynch ###-##-####
Donald Maddux ###-##-####
Marion McDonald ###-##-####
Philip Morrow ###-##-####
James Newland ###-##-####
John Owens ###-##-####
Roger Pope ###-##-####
John Rich ###-##-####
Hollis Slazer, Jr. ###-##-####
Robert Tillis ###-##-####
James Welch, Jr. ###-##-####
Melvin Wieland ###-##-####
Wiley Witherspoon, Jr. ###-##-####
Lee Zimmerman ###-##-####

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<PAGE>

Armco Inc.
Noncontributory Pension Plan

APPENDIX 7

Provisions Relating To Covered Employees Of
Permanently Shutdown Facilities

A Permanent Shutdown has occurred at the facilities and on the dates listed
below. In accordance with Plan (S) 9.3, Participants employed at such units
incurred a Break In Continuous Service by reason of their termination of
employment as a result of the Permanent Shutdown of the facility at which they
were employed. Such individuals are entitled to receive or are receiving
benefits, if any, in accordance with the provisions of the Plan.

Year Permanently
Facility Shutdown
-------- ----------------
Evendale, Ohio Facility 1979

Idaho Falls Sales Yard 1979

Bathey, Michigan Manufacturing Co. 1980

Marion, Ohio Works 1980

Mansfield, Pennsylvania 1980
Corrugated Steel Pipe Plant

Boise, Idaho Sales Yard 1980

Houston Construction Services 1981

South Bend, Indiana 1981
Construction Services

ALMA, Michigan Corrugated 1981
Steel Pipe Plant

Marion, Ohio Plant 1981

Butler, Pennsylvania Works 1982
Slab Mill

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<PAGE>

Houston, Texas Pipe and 1982
Tube Plant

Denver, Colorado Plant 1982

AMR Resource Development 1982
Department, Middletown, Ohio

Houston, Texas Works 1983

Kansas City Works 1983
Certain Low Carbon Wire Operations
Certain Merchant Wire Operations
Certain Fastener Operations
10" Bar Mill

PAR Industries, Texas 1983

Construction Products Division 1984
Fairbanks, Texas Plant

Construction Products Division 1984
Construction Service Division,
Middletown, Ohio

Construction Products Division 1985
Memphis, Tennessee Plant

Construction Products Division 1985
Halethorpe, Maryland Plant

Ambridge, Pennsylvania Works 1985

Logan, Ohio Plant 1985

Torrance, California Plant 1985

Well Control Plant 1985
Houston, Texas

Manchester Inn 1985
Middletown, Ohio

National Supply Company 1985
Houston, Texas Plant

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<PAGE>

Armco Special Risks Division 1986
Dallas, Texas

Los Nietos, California Plant 1986

Gainesville, Texas Plant 1986

Kansas City, Missouri Works 1988
12" Mill
#1 Melt Shop

Union Wire Rope Plant 1988

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<PAGE>

Armco Inc. Noncontributory Pension Plan
Noncontributory Pension Plan

APPENDIX 8

List Of Divested Units

The sale of the following Divested Units occurred on the dates listed below.

Eastern Steel Division 5/12/89 Armco Steel Company, L.P.
AK Management Corporation

Piqua Minerals 9/30/89 Valley Asphalt Corporation

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<PAGE>

FIRST AMENDMENT

to the

Armco Inc.

Noncontributory Pension Plan

The Armco Inc. Noncontributory Pension Plan is hereby amended in the
following respects:

1. Plan (S) 3.6 is amended to insert the following parenthetical after
the word Participant where it appears in the first line:

", other than a Participant eligible for a Deferred Vested Pension in
accordance with Plan (S) 3.9,"

2. Plan (S)(S) 5.1(b)(1), (2), (3), (5), (6), (7) are hereby
deleted and Plan (S)(S) 5.1(b)(4) is renumbered (S) 5.1(b); and the
reference to Plan (S) 5.1(b)(4)(A) where it appears in Plan (S) 5.1(a)(3),
or elsewhere within the Plan, is changed to refer to the new paragraph as
renumbered, Plan (S) 5.1(b).

3. Plan (S) 14.3(b) is amended to add the following new sentence
thereto at the end thereof:

"The minimum benefit of a Non-Key Employee will be determined without
regard to the level of the Non-Key Employee's Earnings."

The foregoing amendments shall be effective as of January 1, 1990.
Except as herein amended, the Plan shall remain in full force and effect as
heretofore constituted.

This first amendment was duly adopted by the Benefit Plans Administrative
Committee at its meeting held on the 23rd day of May, 1990.

/s/ Richard D. Brown
----------------------
Richard D. Brown
Assistant Secretary
<PAGE>

Second Amendment
to the
Armco Inc.
Noncontributory Pension Plan

The Armco Inc. Noncontributory Pension Plan as heretofore established effective
as of January 1, 1989 and as thereafter amended on May 23, 1990, is further
amended in the following respects:

1. Section 9.2(b) is amended to read as follows:
--------------

"Except as provided in Plan (S)(S) 9.3(a) and 9.3(c)(2), the period
between an Employee's Break In Continuous Service and the date of such
Employee's reemployment which results in the removal of a Break In
Continuous Service shall not be credited as Continuous Service; and"

2. Section 9.3(c) is amended to read as follows:
--------------

(c) An Employee who incurs a Break In Continuous Service prior to becoming
eligible for an immediate or a Deferred Vested Pension, who becomes
reemployed by an Employing Company, whose Break In Continuous Service
is not removed pursuant to Plan (S) 9.3(a)(2), and

(1) whose reemployment occurred within 5 years of such Break In
Continuous Service and who completes 1 year of Continuous Service
following such reemployment shall have his Break In Continuous
Service removed for all purposes under the Plan; and

(2) whose reemployment occurred within 1 year of such Break In
Continuous Service, who upon incurring a subsequent Break In
Continuous Service has less than 5 years of Continuous Service
shall receive credit for his Continuous Service prior to the
first break described above and for the period between such Break
In Continuous Service and the date of reemployment, plus any
other Continuous Service which would result from application of
Plan (S) 9.3(c)(1) above taking into account service credited
pursuant to this paragraph, but credit for his Continuous Service
shall be granted under this Plan (S) 9.3(c)(2) only for the
purpose of determining eligibility for pension under Plan (S)(S)
3.2 or 3.9.

3. Appendix 5 containing provisions relating to Covered Employees of
Contech Construction Products Inc. is amended in the following
respects:

(a) The second sentence of the of the first paragraph of Appendix 5
is deleted and a new sentence is inserted therefore reading as
follows:

"Except as provided in Appendix 5.5 below, all salaried
employees, and those hourly employees who are not represented by
the international unions with which Armco Inc. had a collective
bargaining agreement at the time of the sale, participated in the
Plan immediately prior to such sale."

(b) A new Appendix 5.5 is added reading as follows:

"Appendix 5.5. Excluded Employees. Those employees of CPD who
------------ ------------------
were not eligible to participate in the Plan at the date of sale
are as follows:

10/11/90
<PAGE>

(a) All non-exempt salaried employees not located in the
headquarters offices of CPD in Middletown, Ohio, who were
hired on or after June 22, 1982.

(b) All exempt salaried employees hired after January 1, 1984.

(d) All employees at any of the following locations:

Winchester, KY Walnut Ridge, AR
Bowling Green, OH Albuquerque, NM
West Palm Beach, FL Denver, CO
Sulfur Springs, TX Phoenix, AR

(e) All hourly employees hired on or after May 1, 1983, at any
of the following locations:

Madeira, CA Springfield, IL
Portage, WI Salt Lake City, UT
Montgomery, AL

(f) All hourly employees hired on or after June 1, 1983 at any
of the following locations:

Minneapolis, MN Baton Rouge, LA
Des Moines, IA Schulenburg, TX
Topeka, KS Wahoo, NE

(g) All hourly employees hired on or after July 1, 1983 at any
of the following locations:

Jacksonville, FL Raleigh, NC
Hillsboro, OR Mangum, OK

(h) All hourly employees hired on or after February 1, 1984 at
any of the following locations:

Greencastle, PA Palmer, AK

This Second Amendment of the Armco Inc. Noncontributory Pension Plan was
approved by the Armco Inc. Benefit Plans Administrative Committee at its meeting
held on October 11, 1990.

/s/ Richard D. Brown
______________________________
Richard D. Brown
Secretary-Benefit Plans
Administrative Committee
<PAGE>

Third Amendment
to the
Armco Inc.
Noncontributory Pension Plan

The Armco Inc. Noncontributory Pension Plan as heretofore established effective
as of January 1, 1989 and as thereafter amended on May 23, 1990 and October 11,
1990, is further amended in the following respects:

1. Section 9.4(a) is amended to delete the period at the end thereof and
--------------
to add at the end of the paragraph the following:

", the Special Pension Payment under Article 4 or the Surviving Spouse
Benefit under Article 8."

The Third Amendment of the Armco Inc. Noncontributory Pension Plan was approved
by the Armco Inc. Benefits Plan Administrative Committee at its meeting held on
November 14, 1991.

/s/ Richard D. Brown
______________________________
Richard D. Brown
Secretary-Benefit Plans
Administrative Committee

11/14/91

<PAGE>

EXHIBIT 10(u)

ARMCO INC.

THRIFT PLAN

FOR

SALARIED EMPLOYEES

Amended And Restated

Effective As Of January l, 1989
<PAGE>

ARMCO INC.

THRIFT PLAN

FOR SALARIED EMPLOYEES

Table Of Contents

<TABLE>
<CAPTION>
Article Page
------- ----

<C> <S> <C>
Background........................ 1

1 Definitions....................... 2
2 Eligibility And Vesting........... 8
3 Employer Contributions............ 9
4 Participant Contributions......... 11
5 Limitations On Contributions...... 13
6 Allocations And Valuation......... 18
7 Participant Directed Investments.. 20
8 Distributions..................... 22
9 Withdrawals While Employed........ 25
10 Loans............................. 28
11 Participating Employers........... 30
12 Plan Administration............... 32
13 Amendment Or Termination.......... 36
14 Miscellaneous Provisions.......... 38
15 Top Heavy Provisions.............. 41

</TABLE>
<PAGE>

BACKGROUND

Armco Inc., an Ohio corporation ("Armco"), established the Armco Inc.
Thrift Plan for Salaried Employees (the "Plan") effective as of January 1, 1964,
to encourage eligible employees to develop individual initiative and thrift
while at the same time providing them with an opportunity to invest in Armco
Stock. Further, the Plan enables employees to share in the growth and
prosperity of Armco, to accumulate capital for their future security and to
acquire a proprietary stock interest in Armco. Armco also believes that by
establishing and maintaining the Plan it is better able to attract and retain
qualified employees.

The assets to pay benefits provided under the Plan are held in the Armco
Inc. Thrift Plan Trust. All assets under such Trust are commingled and are
available to pay all benefits under the Plan.

The Internal Revenue Service has determined that the Plan and its Trust
meet the requirements for qualification under Sections 401(a), 401(k) and 501(a)
of the Internal Revenue Code.

The Plan, as herein set forth, constitutes an amendment and restatement of
the Plan effective as of January 1, 1989, except as otherwise provided herein.
The Plan has been restated to incorporate the First and Second Amendments to the
Plan and to include amendments to Article 10 in order to comply with the recent
Department of Labor Final Regulations regarding loans to participants. The Plan
and its Trust are intended to continue to meet the requirements of Sections
401(a), 401(k) and 501(a) of the Internal Revenue Code of 1986, as now in effect
or hereinafter amended, or any other applicable provisions of law.

Effective May 1, 1989, Armco created the Armco Steel Company Thrift Plan as
a result of the formation of Armco Steel Company, L.P., a Delaware limited
partnership ("ASC") jointly formed by Armco and Kawasaki Steel Corporation, a
Japanese corporation. Unless otherwise provided by the Armco Inc. Benefit Plans
Administrative Committee, the employees of ASC who were participants in the
Armco Salaried Plan prior to the formation of ASC have been permitted to
continue to participate under the Armco Salaried Plan until the transfer of
administration is completed, but not after January 1, 1990. ASC will make
contributions to a new trust for its plan as soon as the administrative systems
are established.

Unless otherwise expressly provided herein, the rights of any person whose
employment terminated or who retired on or before the effective date of a
particular amendment, including such person's eligibility for benefits and the
time and form in which benefits, if any, will be paid, shall be determined
solely under the terms of the Plan as in effect on the date of his termination
of employment or retirement, unless such person is thereafter reemployed and
again becomes a Participant.
<PAGE>

ARTICLE 1

DEFINITIONS

The following words and phrases have the meaning indicated below, unless a
different meaning is plainly required by the context.

1.1. "Account" means the record or records established and maintained
-------
pursuant to Plan (S) 6.5 to record funds held in the Trust for the benefit of a
Participant.

1.2. "Account Balance" means the proportionate interest of the
---------------
Participant's Account in the Fund or any segregated Investment Fund as of any
Valuation Date.

1.3. "Affiliate" means any corporation which is included in a controlled
---------
group of corporations (within the meaning of Code (S) 414(b) which includes
Armco, any trade or business (whether or not incorporated) which is under common
control with Armco (within the meaning of Code (S) 414(c), any organization
included in the same affiliated service group (within the meaning of Code (S)
414(m)) as Armco, and any other entity required to be aggregated with Armco
pursuant to the Regulations under Code (S) 414(o); except that for purposes of
Plan (S) 5.7 and Article 15 with respect to the limitation on contributions,
Code (S) 415(h) shall apply.

1.4. "After-Tax Contribution" means any contribution to the Plan made by a
----------------------
Participant by means of a payroll deduction, including both After-Tax Basic
Contributions and After-Tax Supplemental Contributions.

1.5. "Armco" means Armco Inc., an Ohio corporation, or any successor in
-----
interest to all or substantially all of its assets or any successor to Armco's
ownership or one or more of the Employers.

1.6. "Armco Stock" means Armco Inc. common stock.
-----------

1.7. "Armco Stock Fund" means the segregated commingled investment account
----------------
established by the Trustee in accordance with the provisions of the Trust
Agreement, the assets of which are invested in Armco Stock.

1.8. "Base Salary" means the rate at which that portion of an eligible
-----------
Employee's compensation is paid as regular periodic base wages, disregarding any
adjustment occasioned by a Participant's election to have Pretax Contributions
made on his behalf. Base Salary shall not include any amount in excess of
$200,000 (adjusted for cost-of-living in accordance with Code (S) 401(a)(17)).

2
<PAGE>
1.9. "Basic Contribution" means any contribution made to the Plan as a
------------------
condition of participation, including both After-Tax Basic Contributions made by
a Participant pursuant to a payroll deduction authorization and Pretax Basic
Contributions made by an Employer on the Participant's behalf pursuant to a
Pretax Authorization Agreement, and which is eligible for an Employer Matching
Contribution pursuant to Plan (S) 3.1. Contributions authorized by a
Participant by means of either a Pretax Authorization Agreement or a payroll
deduction authorization shall first be counted as Basic Contributions until the
Participant's maximum Basic Contribution percentage described in Plan (S) 4.1 is
reached.

1.10. "Beneficiary" means the Participant's Spouse, or if the Participant
-----------
has no Spouse or obtains the Spouse's Consent, any person or entity validly
designated in writing by a Participant to receive such benefits as may be due
hereunder upon the Participant's death. A designation shall become effective
only upon the Participant's death and shall be valid only if received by BPAC
prior to such Participant's death in such form as is acceptable to BPAC. In the
absence of a valid designation or if no validly designated Beneficiary survives
the Participant or if each surviving validly designated Beneficiary is legally
impaired or prohibited from taking, then the Participant's Beneficiary shall be
the Participant's surviving Spouse or, if none, the Participant's estate.

1.11. "Board" means the Board of Directors of Armco as the same may be
-----
constituted from time to time.

1.12. "BPAC" means the Benefit Plans Administrative Committee created by
----
the Board and as constituted from time to time or any successor thereto or any
subcommittee created or other delegate appointed by BPAC to exercise all or a
portion of its powers.

1.13. "BPARC" means the Benefit Plans Asset Review Committee created by the
-----
Board and as constituted from time to time or any successor thereto or any
subcommittee created or other delegate appointed by BPARC to exercise all or a
portion of its powers.

1.14. "Code" means the Internal Revenue Code of 1986, as now in effect or
----
as hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.

1.15. "Committee" means BPAC and BPARC or either of them. A reference to
---------
the Committee shall not expand or be deemed to have expanded the authority or
duty of either BPAC or BPARC to act or refrain from acting hereunder, such
authority and duty being as set forth specifically herein and in any formal
action of the Board establishing or modifying such authority or duty of either
Committee.

1.16. "DOL" means the United States Department of Labor.
---

3
<PAGE>
1.17. "Early Retirement" means any termination of Service on or after a
----------------
Participant's 55th birthday.

1.18. "Effective Date" of the Plan as amended and restated means January 1,
--------------
1989.

1.19. "Employee" means any person who is employed by an Employer in the
--------
classification of a regular salaried employee or, when approved by BPAC a
regular hourly-paid employee of the Employer, but excluding (i) any individual
who is an active participant in the Armco Inc. Thrift Plan for Hourly Employees,
(ii) any individual who is a member of a unit of employees whose terms and
conditions of employment are subject to collective bargaining between the
Employer and the representative union of which any such employee is a member and
if retirement benefits have been the subject of good faith bargaining between
the Employer and such representative union, unless such collective bargaining
agreement expressly provides for participation hereunder, (iii) any individual
who is an employee of an Affiliate which is not an Employer, (iv) any individual
who is employed in a division, plant, location, or other operating unit which
his Employer has elected not to include for participation in the Plan, and (v)
any leased employee within the meaning of Code (S) 414(n)(2).

1.20. "Employer" means any Affiliate which, with the consent of BPAC, makes
--------
participation under this Plan available for and on behalf of all of its
Employees or those of its Employees employed in such division, plant, location
or other operating unit or units as the Employer may specify and BPAC may
approve.

1.21. "Employer Contribution" means any contribution made by an Employer,
---------------------
including any Pretax Contribution, any Employer's Matching Contributions made
pursuant to Plan (S)(S) 3.1 and 6.1 and any other Employer Contribution to be
allocated pursuant to Plan (S)(S) 3.3 and 6.2.

1.22. "Employment Date" means the first date on which an Employee is
---------------
credited with an Hour Of Service.

1.23. "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
now in effect or as hereafter amended. All citations to sections of ERISA are
to such sections as they may from time to time be amended or renumbered.

1.24. "Fixed Income Fund" means the segregated commingled investment
-----------------
account established by the Trustee in accordance with the provisions of the
Trust Agreement, the assets of which, including any income thereon, shall be (i)
deposited wholly or partly with an insurance company or companies to be held and
invested by such insurance company or companies under a fixed income fund
arrangement established pursuant to a group deposit administration annuity

4
<PAGE>
contract, or other type of contract, and utilizing under any such contract any
general, commingled, separate or individual separate investment accounts, or
(ii) invested wholly or partly in a fixed income type fund, maintained by a
bank or other financial institution, through the medium of any common,
collective or commingled trust fund which is qualified under Code (S)(S) 401(a)
and 501(a), or (iii) invested wholly or partly by direct investments made by an
Investment Manager designated from time to time by BPARC.

1.25. "Fund" means all property of the Plan, real or personal, tangible or
----
intangible, all of which shall be held in such trust or trusts as may be
established by BPARC, including the assets of each and every Investment Fund
which may be established or maintained from time to time.

1.26. "Highly Paid Group" means those Employees who are "highly compensated
-----------------
employees" as defined in Code (S) 414(q).

1.27. "Hour Of Service" means each hour for which an Employee is directly
---------------
or indirectly paid, or entitled to payment, by Armco or any Affiliate for the
performance of duties as an Employee.

1.28. "Investment Fund" means the Armco Stock Fund, the Fixed Income Fund,
---------------
or such other segregated, commingled fund or funds as may be from time to time
established and maintained in accordance with the provisions of the Trust
Agreement.

1.29. "Investment Manager" means the fiduciary appointed by the Trustee or
------------------
BPARC to manage the investment of all or a specified portion of the Fund. Each
Investment Manager shall be an insurance company qualified to provide investment
management services under the laws of more than one state, a bank as defined in
the Investment Advisors Act of 1940, or an investment advisor properly
registered under that Act and shall acknowledge in writing to BPARC that it is a
fiduciary of the Plan.

1.30. "IRS" means the United States Internal Revenue Service.
---

1.31. "Local Plan Administrator" means the Local Plan Administrator
------------------------
designated pursuant to Plan (S) 12.11.

1.32. "Lower Paid Group" means those Employees who are not members of the
----------------
Highly Paid Group.

1.33. "Notice" means a written document prepared in a form acceptable to
------
either Committee, as appropriate, and if such notice is to be provided by an
Employer or a Committee, either properly posted or mailed on or before the last
date said notice is permitted to be given in a properly addressed envelope,
postage prepaid, to the last known address of the person entitled to such
notice, as shown on the Employer's records; or, if such notice is to be provided
to an

5
<PAGE>
Employer or a Committee or by any person other than an Employer or a Committee,
received by the addressee on or before the last date said notice is permitted
to be given.

1.34. "Participant" means any person who is entitled to the distribution of
-----------
an Account or for whose benefit an Account is maintained.

1.35. "Plan" means the Armco Inc. Thrift Plan for Salaried Employees as the
----
same may be amended from time to time.

1.36. "Plan Year" means the calendar year.
---------

1.37. "Pretax Authorization Agreement" means a written agreement between
------------------------------
the Participant and his Employer, in a form acceptable to BPAC, pursuant to
which the Participant elects to reduce his Base Salary and the Employer agrees
to contribute such amount to the Plan on the Participant's behalf as a Pretax
Contribution.

1.38. "Pretax Contribution" means any contribution to the Plan made by an
-------------------
Employer on behalf of a Participant pursuant to a Participant's Pretax
Authorization Agreement, including both Pretax Basic Contributions and Pretax
Supplemental Contributions.

1.39. "Reemployment Date" means the date an Employee is first credited with
-----------------
an Hour Of Service following a Severance From Service Date.

1.40. "Regulations" mean the applicable regulations, rulings, and
-----------
guidelines (including any proposed rules or temporary rules or releases
promulgated pending the issuance of such regulations, rulings or other
guidelines) issued under the Code or ERISA by the IRS, the DOL, or any other
governmental agency.

1.41. "Retirement" means a Participant's termination of employment for any
----------
reason, other than death, on or after the earlier of his (i) having attained age
65 or (ii) having qualified for the immediate payment of pension benefits under
any defined benefit pension plan maintained by Armco or any Affiliate.

1.42. "Rollover Contribution" means contributions made by a Participant
---------------------
pursuant to Plan (S) 4.5.

1.43. "Service" means all service credited under the terms of the Plan
-------
prior to January l, 1989 and the aggregate of each period of employment as an
Employee of Armco or any Affiliate measured from the later of (i) January 1,
1989, (ii) an Employee's Employment Date or (iii) an Employee's Reemployment
Date, through any subsequent Severance From Service Date. All months of
Service, whether or not consecutive, shall be aggregated and expressed as full
years and fractions thereof.

6
<PAGE>
1.44. "Severance From Service Date" means the later of (i) the date on
---------------------------
which an Employee's Service terminates for any reason or (ii) the second
anniversary of an Employee's absence due to layoff or disability, including a
compensable disability incurred during the course of employment.

1.45. "Spouse" means the person to whom a Participant is legally married on
------
the later of (i) the date the Participant executes a Beneficiary designation
form or (ii) the date the Participant qualifies for a distribution of his
interest in the Plan.

1.46. "Spouse's Consent" means a written consent signed by a Participant's
----------------
Spouse in the presence of and whose signature is witnessed by a representative
of BPAC or a notary public. The Spouse's Consent must acknowledge the effect on
the Spouse of consenting to an action for which the consent is sought. The
Spouse's consent is not required if the Participant established to the
satisfaction of BPAC that he has no Spouse, that his Spouse cannot be located,
or such other circumstances as may be authorized by Regulations.

1.47. "Supplemental Contribution" means any contribution made to the Plan
-------------------------
by or on behalf of a Participant, other than Basic Contributions, including both
Pretax Supplemental Contributions and After-Tax Supplemental Contributions.

1.48. "Trust Agreement" means the agreement of trust by and between Armco
---------------
Inc. and the Trustee establishing the Armco Inc. Thrift Plan Trust and such one
or more other agreements under which any asset of the Plan or any income thereon
is received, held, invested, or reinvested.

1.49. "Trustee" means T. Rowe Price Trust Company, a Maryland Limited Trust
-------
Company, or any other trustee which may accept appointment as such from time to
time under the Trust Agreement.

1.50. "Valuation Date" means the last day of each month and such other date
--------------
or dates as BPAC may establish from time to time.

7
<PAGE>

ARTICLE 2

ELIGIBILITY AND VESTING

2.1. Eligibility To Participate. Each Employee who was a Participant in
--------------------------
the Plan on December 31, 1987 shall continue to be a Participant. Each other
Employee shall be eligible to participate in the Plan in accordance with Plan
(S) 2.2 on his Employment Date or Reemployment Date.

2.2. Participation Election. An eligible Employee may elect to become a
----------------------
Participant by completing and filing the appropriate written enrollment forms
with the Local Plan Administrator. Such election forms shall include a Pretax
Authorization Agreement and/or a payroll deduction authorization specifying the
amount of the contributions elected pursuant to Article 4, an investment
direction pursuant to Plan (S) 7.1, a Beneficiary designation pursuant to Plan
(S) 1.10 and an agreement to be bound by all the terms and conditions of the
Plan under the Trust. An Employee who so elects shall become a Participant on
the first pay day of the month following the date on which such forms are filed.

2.3. Vesting Of Contributions. Employer Contributions (including Pretax
------------------------
Contributions) and Participant Contributions (including Rollover Contributions)
shall be fully vested and nonforfeitable from and after the date such
contributions are received by the Trustee.

8
<PAGE>

ARTICLE 3

EMPLOYER CONTRIBUTIONS

3.1. Employer Matching Contributions. Subject to Article 5, each Employer
-------------------------------
shall contribute to the Plan for each Plan Year an amount equal to 100% of the
aggregate Basic Contributions made during such Plan Year by those Participants
employed by such Employer during the Plan Year; provided, however, that each
Employer, by action of its board on or before the last date for the payment of
its contribution hereunder, may contribute for any Plan Year such greater or
lesser amount as its board of directors may determine or may elect to make no
contribution at all.

3.2. Pretax Contributions. Each Employer shall, unless otherwise approved
--------------------
by BPAC, allow its Employees to enter into a Pretax Authorization Agreement with
the Employer. If all or any portion of any Pretax Contribution is not
deductible by the Employer for the fiscal year for which paid, the Employer
shall immediately give Notice of such fact to BPAC. BPAC shall either pay such
Contribution to the Participant for whose benefit the contribution was made or
shall, to the extent permitted by law, allow the Participant to reclassify the
contribution as an After-Tax Contribution.

3.3. Additional Employer Contributions. Subject to Article 5, in addition
---------------------------------
to the contributions under Plan (S)(S) 3.1 and 3.2, an Employer may contribute
such additional amounts to the Plan from time to time as may be determined by
its board of directors and approved by BPAC.

3.4. Right To Discontinue Contributions. Each Employer reserves the right
----------------------------------
to permanently discontinue its contributions hereunder by Notice to BPAC.

3.5. Last Date For Payment Of Contributions. Each Employer will make
--------------------------------------
payment of its contribution for each Plan Year directly to the Trustee, or in
such other manner as BPARC may direct, on or before the last date prescribed by
law for the filing of its federal income tax return, including any extension of
time for such filing, for the fiscal year which ends within or concurrently with
the Plan Year for which such contribution is made. Neither the Trustee nor
either Committee shall be under any duty to inquire into the correctness of the
amounts contributed and paid over to the Trustee hereunder, nor shall the
Trustee or either Committee be under any duty to enforce payment of any
contribution to be made hereunder by any Employer.

3.6. Contribution Of Employer Stock. Armco may make its contribution
------------------------------
hereunder in cash or by transferring shares of Armco Stock to the Trustee from
shares held in treasury or from authorized but previously unissued shares.
Armco may make a contribution of Armco Stock on behalf of another Employer
provided appropriate intercorporate transfers are made to assure that

9
<PAGE>
the Employer is bearing the expense of its contribution. Contributions of
Armco Stock will be valued at the average of the daily high and low reported on
the New York Stock Exchange - Composite Transactions for the day the Trustee
receives the contribution.

3.7. Exclusive Benefit Rule. The assets of the Plan shall not inure to
----------------------
the benefit of any Employer and shall be held for the exclusive purpose of
providing benefits to Participants and/or their Beneficiaries and for defraying
the reasonable expenses of administering the Plan. Notwithstanding the
foregoing, (i) any portion of an Employer's Contribution which is made by virtue
of a mistake of fact shall, unless prohibited by law, be returned to the
Employer within one year after the payment of the contribution or, at the option
of the Employer, shall be treated as a carry-over contribution; (ii) each
Employer's Contribution is conditioned upon the deductibility of the
contribution for federal income tax purposes under Code (S) 404 and to the
extent any such contribution is disallowed as a deduction, such contribution
shall, in the Employer's discretion, be treated as a carry-over contribution or
be returned to the Employer upon demand therefor made within one year of the
disallowance; and (iii) each Employer's Contribution is conditioned upon the
Plan's continued qualification for favorable federal income tax treatment under
the applicable provisions of Code (S) 401 and any contribution paid with respect
to a Plan Year during which the Plan fails to so qualify shall, in the
Employer's discretion, be treated as a carry-over contribution or be returned to
the Employer upon demand therefor made within one year following the date of
denial of such qualification.

10
<PAGE>

ARTICLE 4

PARTICIPANT CONTRIBUTIONS

4.1. Basic Contributions. Subject to Article 5, Basic Contributions may
-------------------
not be less than 1% of a Participant's Base Salary nor more than the percentage
of the Participant's Base Salary shown in the following table:

<TABLE>
<CAPTION>
Years Of Service As Of
The First Day Of Each Maximum Basic Contributions
Calendar Quarter As A Percentage Of Base Salary
------------------ ------------------------------
<S> <C>
Less than 10 years 3%
10 years, but less than 20 4%
20 years or more 5%
</TABLE>

4.2. Supplemental Contributions. Subject to Article 5, each Participant
--------------------------
who is contributing at his maximum permissible Basic Contribution rate may
authorize Pretax Supplemental Contributions made on his behalf by means of a
Pretax Authorization Agreement and/or After-Tax Supplemental Contributions made
by means of a payroll deduction authorization.

4.3. Changes To Basic And/Or Supplemental Contributions.
--------------------------------------------------

A Participant may change his Basic and/or Supplemental Contribution rate
effective as of the first day of January, April, July, or October of any Plan
Year by filing the appropriate form with the Local Plan Administrator by the
last work day of the month preceding the month in which such change is to be
effective.

4.4. Suspension Of Contributions. A Participant may suspend his Basic
---------------------------
and/or Supplemental Contributions effective as of the first day of any month by
filing the appropriate form with the Local Plan Administrator by the last work
day of the month preceding the month in which such suspension is to be
effective. Any suspension of Basic Contributions shall concurrently suspend any
Supplemental Contributions which may have been authorized by the Participant. A
Participant who suspends Basic Contributions may not resume making Basic or
Supplemental Contributions for 3 months following the date such suspension is
effective. Such Participant may elect to resume making Basic and Supplemental
Contributions following such 3-month suspension period, by filing new enrollment
forms with the Local Plan Administrator. Such election shall be effective on
the first pay day of the month following the date on which such forms are filed.

4.5. Rollover Contributions. An Employee may make a Rollover Contribution
----------------------
of cash, or such other property as BPARC may specifically approve in advance, of
the taxable portion of a "qualifying rollover distribution" which the Employee
received from another plan and which is contributed to the Plan in

11
<PAGE>
compliance with the requirements for the Employee's making a federal income tax-
free "rollover" under the Code. BPAC shall obtain such evidence, assurances,
opinions and certifications as it deems necessary to establish to its
satisfaction that any amount contributed to the Plan as a Rollover Contribution
was received by the Employee as a qualifying rollover distribution and that the
acceptance of such Rollover Contribution will not affect the qualification of
the Plan or the tax-exempt status of the Trust under Code (S)(S) 401(a) and
501(a). Any Rollover Contribution which is found by the IRS as not being
qualified for tax-free rollover treatment shall be returned to the Participant.
Any expense incident to or liability incurred by the Plan or any fiduciary of
the Plan because of transfer of such disqualified assets to the Trustee shall be
borne solely by and charged to the individual who requested the transfer.

12
<PAGE>

ARTICLE 5

LIMITATIONS ON CONTRIBUTIONS

5.1. Maximum Employer Contributions. Subject to Plan (S)(S) 5.5 and 5.6,
------------------------------
in no event shall Employer Contributions in any Plan Year, including for this
purpose an Employer's Matching and Pretax Contributions, exceed in the aggregate
an amount equal to 15% of the compensation of all Participants in its employ
during such Plan Year or the amount otherwise deductible by the Employer for
such year for federal income tax purposes.

5.2. Maximum Pretax Contributions. Subject to Plan (S)(S) 5.4, 5.5 and
----------------------------
5.6, Pretax Contributions made on behalf of a Participant in any Plan Year shall
not exceed $7,000 (adjusted for cost-of-living in accordance with Code (S)
402(g)). In the event that the aggregate amount of Pretax Contributions made on
behalf of a Participant exceeds the limitation in the previous sentence, the
amount of such excess, increased by any income and decreased by any losses
attributable thereto, shall be refunded to the Participant no later than April
15 of the calendar year following the calendar year for which the Pretax
Contributions were made.

5.3. Maximum After-Tax Supplemental Contributions. Subject to Plan (S)(S)
--------------------------------------------
5.4 and 5.6, a Participant's After-Tax Supplemental Contributions for any Plan
Year shall not exceed 10% of his Base Salary for such Plan Year.

5.4. Maximum Aggregate Contributions. Subject to Plan (S)(S) 5.5 and 5.6,
-------------------------------
a Participant's total Basic Contributions and Supplemental Contributions may
not, for any Plan Year, exceed 20% of the Participant's Base Salary for such
Plan Year.

5.5. Actual Deferral Percentage Tests.
--------------------------------

(a) Notwithstanding any provision of the Plan to the contrary, the
Actual Deferral Percentage for the Plan Year for members of the Highly Paid
Group shall not exceed the greater of the following Actual Deferral Percentage
tests: (i) the Actual Deferral Percentage for the Plan Year of members of the
Lower Paid Group multiplied by 1.25; or (ii) the Actual Deferral Percentage for
the Plan Year of members of the Lower Paid Group multiplied by 2.0, provided
that the Actual Deferral Percentage for members of the Highly Paid Group does
not exceed the Actual Deferral Percentage of members of the Lower Paid Group by
more than 2%.

(b) The "Actual Deferral Percentage" for a Plan year means, for each
specified group of Employees, the average of the ratios (calculated separately
for each Employee in such group) of (i) the amount of Pretax Contributions made
on behalf of each Employee for the Plan Year to (ii) the amount of each
Employee's compensation (as defined in Code (S) 414(s)) for such

13
<PAGE>
Plan Year. An Employee's Actual Deferral Percentage shall be zero if no Pretax
Contributions are made on his behalf for such Plan year.

(c) BPAC shall determine as of the end of the Plan Year, and at such
other time or times as BPAC in its discretion shall determine, whether one of
the Actual Deferral Percentage tests specified in (a) above is satisfied for
such Plan Year. This determination shall be made after first determining the
amount, if any, of excess deferrals (within the meaning of Code (S) 402(g)) as
provided in Plan (S) 5.2. In the event that neither of the Actual Deferral
Percentage tests is satisfied, BPAC shall, (i) to the extent permitted under the
Code and the Regulations, and to the extent any such recharacterization would
not cause a violation of the requirements of Plan (S) 5.6(a), if the Participant
so elects, recharacterize Excess Contributions as After-Tax Contributions, in
the manner described in (d) below, or (ii) to the extent such recharacterization
is not possible or the Participant does not so elect, refund the Excess
Contributions in the manner described in (e) below. "Excess Contributions"
mean, with respect to any Plan Year, the excess of the aggregate amount of
Pretax Contributions (and any earnings and losses allocable thereto) made on
behalf of members of the Highly Paid Group for such Plan Year, over the maximum
amount of Pretax Contributions that could be made on behalf of the Highly Paid
Group without violating the requirements of Plan (S) 5.5(a), determined by
reducing Pretax Contributions made on behalf of members of the Highly Paid Group
in order of the Actual Deferral Percentages beginning with the highest of such
percentages.

(d) To the extent provided in (c) above, in accordance with the Code
and the Regulations, if a member of the Highly Paid Group so elects in writing,
BPAC shall recharacterize Excess Contributions of such Participant for a Plan
Year as After-Tax Contributions in order to satisfy the requirements of (a)
above, in which event the amount of Excess Contributions so recharacterized
shall, to the extent permitted by the Code and the Regulations, be treated as
having been refunded to the Participant and then contributed by the Participant
as an After-Tax Contribution.

(e) If a Highly Compensated Participant does not elect
recharacterization under (d) above, or if required in order to comply with the
provisions of (a) above and the Code, BPAC shall refund Excess Contributions for
a Plan Year to the Participant. The distribution of such Excess Contributions
shall be made to members of the Highly Paid Group to the extent practicable
before the 15th day of the third month immediately following the Plan Year for
which such Excess Contributions were made, but in no event later than the end of
the Plan Year immediately following the Plan Year for which such Excess
Contributions were made. Any such distribution shall be made to each member of
the Highly Paid Group on the basis of the respective portions of such amounts
attributable to each member of the Highly Paid Group.

14
<PAGE>

5.6. Average Contribution Percentage Tests.
-------------------------------------

(a) Notwithstanding any provisions of the Plan to the contrary, the
Average Contribution Percentage for the Plan Year for members of the Highly Paid
Group shall not exceed the greater of the following Average Contribution
Percentage tests: (i) the Average Contribution Percentage for the Plan Year of
members of the Lower Paid Group multiplied by 1.25; or (ii) the Average
Contribution Percentage for the Plan Year of members of the Lower Paid Group
multiplied by 2.0, provided that the Average Contribution Percentage for members
of the Highly Paid Group does not exceed the Average Contribution Percentage for
members of the Lower Paid Group by more than 2%.

(b) The "Average Contribution Percentage" for a Plan Year means, for
each specified group of Employees, the average of the ratios (calculated
separately for each Employee in such group) of (i) the sum of (A) Employer
Matching Contributions, (B) After-Tax Contributions, and (C) if BPAC so elects
in accordance with and to the extent permitted by the Regulations, Pretax
Contributions, credited to the Employee's Account for such Plan Year, to (ii)
the amount of his compensation (as defined in Code (S) 414(s)) for the Plan
Year. An Employee's Average Contribution Percentage shall be zero if no
contributions are made on his behalf for such Plan Year.

(c) BPAC shall determine as of the end of the Plan Year, and at such
other time or times as BPAC in its discretion shall decide, whether one of the
Average Contribution Percentage tests specified in (a) above, is satisfied for
such Plan Year. This determination shall be made after first determining the
treatment of excess deferrals (within the meaning of Code (S) 402(g)) as
provided in Plan (S) 5.2 and then determining the treatment of Excess
Contributions under Plan (S) 5.5. In the event that neither of the Average
Contribution Percentage tests is satisfied, BPAC shall refund the Excess
Contributions in the manner described in (d) below. For purposes of this Plan
(S) 5.6, "Excess Contributions" mean with respect to any Plan Year and with
respect to any Participant, the excess of the total amount of Employer Matching
Contributions, After-Tax Contributions and Pretax Contributions (if the
Regulations permit and BPAC elects to take Pretax Contributions into account
when calculating the Average Contribution Percentage) and any earnings and
losses allocable thereto, credited to the Accounts of members of the Highly Paid
Group for such Plan Year, over the maximum amount of such contributions that
could be made without violating the requirements of (a) above. The amount of
each Highly Paid Group member's Excess Contributions shall be determined by
reducing the Average Contribution Percentage of each member of the Highly Paid
Group whose Average Compensation Percentage is in excess of the percentage
otherwise permitted under (a) above to the maximum amount permitted under (a)
above.

15
<PAGE>
(d) If BPAC is required to refund Excess Contributions to any member
of the Highly Paid Group for a Plan Year in order to satisfy the requirements of
(a) above, then such refund shall be made to the extent practicable before the
15th day of the third month immediately following the Plan Year for which such
Excess Contributions were made, but in no event later than the end of the Plan
Year following the Plan Year for which such excess contributions were made. The
amounts so refunded shall be made in the following order of priority: (i) first
by distributing After-Tax Contributions, and earnings thereon credited to the
Participant's Account; (ii) then by distributing Pretax Contributions (to the
extent such amounts are included in the Average Contribution Percentage) and
earnings thereon credited to the Participant's Account; and (iii) finally by
distributing Employer Matching Contributions and earnings thereon credited to
the Participant's Account. All such distributions shall be made to members of
the Highly Paid Group on the basis of the respective portions of such amounts
attributable to each member of the Highly Paid Group.

5.7. Annual Additions Limitation.
---------------------------

(a) The maximum Annual Addition which may be credited for a Plan Year
to each Participant's Account shall not exceed the lesser of (1) 25% of his
compensation for the Plan Year or (ii) $30,000, as adjusted from time to time in
accordance with Code (S) 415(d). For purposes of this Plan (S) 5.7, "Annual
Addition" means the total amount of Pretax Contributions, Employer Matching
Contributions, Additional Employer Contributions and After-Tax Contributions
credited to a Participant's Account during the Plan Year, "compensation" means
compensation as defined under Treasury Regulation 1.415-2(d) and the "limitation
year" means the Plan Year. This limitation shall be administered in compliance
with the requirements of Code (S) 415, the provisions of which are incorporated
herein by reference.

(b) If the Annual Addition to a Participant's Account exceeds the
maximum permissible under (a) above, calculated after the adjustments made in
accordance with Plan (S)(S) 5.5 and 5.6, then the excess amount ("Excess
Amount") shall be disposed of, but only to the extent necessary, by first
returning the After-Tax Contributions credited to the Participant's Account. If
the excess may be distributed by the return of After-Tax Contributions credited
to the Participant's Account, then the After-Tax Contributions shall be
returned, without earnings, gains or losses attributable thereto, but such
earnings, gains or losses will be considered as an Employee contribution for the
limitation year in which the After-Tax Contributions were returned. If it is
necessary to return either Pretax Contributions or Employer Matching
Contributions credited to the Participant's Account, then such contributions
shall be set aside in a suspense account to be reallocated to the Participant
from whose Account the contributions were removed in order to satisfy the Annual
Additions limitation year in the next succeeding limitation year or any
subsequent limitation year, as necessary in order to allow the reallocation
without violation of the Annual

19
<PAGE>
Additions limitation herein described; provided, however, that if the
Participant is not employed on the last day of the Plan Year, then the Excess
Amounts remaining and held unallocated in a suspense account for such
Participant shall, in the next limitation year, be applied to reduce Employer
Matching Contributions for such year and shall be reallocated to all other
Participants in the next succeeding limitation year, until exhausted.

(i) if the Participant is covered by the Plan at the end of
the limitation year, the Excess Amount in the Participant's
Account will be used to reduce Employer Matching Contributions
for such Participant in the next limitation year, and each
succeeding limitation year if necessary, or

(ii) if the Participant is not covered by the Plan at the
end of the limitation year, the Excess Amount will be held
unallocated in a suspense account and will be applied to reduce
future Employer Matching Contributions for all remaining
Participants in the next limitation year, and each succeeding
limitation year if necessary."

17
<PAGE>
ARTICLE 6

ALLOCATIONS AND VALUATION

6.1. Allocation Of Employer Matching Contributions. Each Employer's
---------------------------------------------
Matching Contribution for each Plan Year, if any, made pursuant to Plan (S) 3.1
shall be paid to the Trust and allocated not less often than annually among
those Participants who are Employees of the Employer and who made Basic
Contributions during the Plan Year pro rata based upon the ratio that each such
Participant's Basic Contribution bears to the aggregate of all such
Participant's Basic Contributions.

6.2. Allocation Of Additional Employer Contributions.
-----------------------------------------------

If an Employer makes additional contributions to the Plan pursuant to Plan
(S) 3.3, such contributions shall be paid to the Trust in a single payment and
shall be allocated among all Employees of such Employer who are employed on the
last day of the Plan Year for which such contribution is made in the proportion
that each such Employee's compensation for such Plan Year bears to the
compensation of all Employees of such Employer.

6.3. Investment Of Employer Contributions. Employer Contributions
------------------------------------
(excluding Pretax Contributions) for each Plan Year shall be invested in the
Armco Stock Fund at the average price per share paid by the Trustee to purchase
shares of Armco Stock for the Armco Stock Fund for such contribution. An
Employer may direct the investment of Employer Contributions to one or more
other Investment Funds, as provided in Plan (S) 7.3. Pretax Contributions shall
be invested as Participant contributions in accordance with Plan Article 7.
Nothing herein shall be deemed to limit or prevent a Participant from fully
exercising any right with respect to Armco Stock held in the Trust for his
benefit, such as the right to vote shares or tender shares, which rights are
reserved to the Participant under the terms of the Trust Agreement.

6.4. Allocation Of Participant Contributions. Each Participant's Basic or
---------------------------------------
Supplemental Contributions (including any Pretax Contributions made on his
behalf) for each pay period shall be allocated not less often than monthly, to
such Participant's Account. Any Rollover Contribution, including any earnings,
gains or losses properly allocable thereto, shall each be separately identified
and accounted for.

6.5. Establishment Of Accounts. BPAC shall maintain, or cause to be
-------------------------
maintained, accurate and complete records of all contributions made by or on
behalf of each Participant, the investment thereof and the expenses, earnings or
losses allocable thereto, and shall establish and maintain in the name of each
Participant, as appropriate, an Armco Stock Fund Account, a Fixed Income Fund
Account, and such other accounts and subaccounts as are necessary for the proper
administration of the Plan. The establishment and maintenance of, or

18
<PAGE>
allocations and credits to, the Account of any Participant shall not vest in
any Participant any right, title or interest in and to any Plan assets or
benefits except at the time or times and upon the terms and conditions and to
the extent expressly set forth in the Plan and in accordance with the terms of
the Trust.

6.6. Fund Earnings Or Losses. The accounting method used shall assure
-----------------------
that the current fair market value of the assets held in each Investment Fund,
as determined by the Trustee, exclusive of any Employer's or Participant's
contribution paid to or accrued by the Fund which may be allocable to such
Investment Fund for the period for which the valuation is made, shall be
determined and allocated not less often than quarterly as of each Valuation Date
among the Participants' Accounts in the Investment Fund in the proportion that
each Participant's Account in such Investment Fund bears to the aggregate of all
Participants' Accounts in such Investment Fund as of such Valuation Date.

6.7. Correction Of Errors. Notwithstanding anything to the contrary
--------------------
contained in the Plan or the Trust Agreement, each Committee is fully empowered
to do, at any time and from time to time, all things necessary or convenient to
correct any accounting or recordkeeping errors or to maintain the Plan's tax
qualified status, including any error made in calculating the Account Balance of
any Participant, and no Participant shall have or be deemed to have any interest
in any sum erroneously credited to his Account.

6.8. Other Accounting Procedures. Each Committee may, in its respective
---------------------------
discretion and if administratively necessary or desirable, establish such other
accounting or other procedures as may be appropriate to carry out its function
hereunder and to implement the intent of the Plan. Nothing contained herein
shall require or be deemed to require deviation from the procedures herein
established.

19
<PAGE>

ARTICLE 7

PARTICIPANT DIRECTED INVESTMENTS

7.1. Investment Of Basic And Supplemental Contributions. Each Participant
--------------------------------------------------
shall, at the time he files his enrollment forms in accordance with Plan (S)
2.2, direct that his Basic and Supplemental Contributions be allocated to and
invested in the Armco Stock Fund, the Fixed Income Fund, or such other
Investment Funds as may be established by BPARC. Such allocations shall be made
in increments of 10% or more as BPAC may from time to time determine. Each
Participant may, once during each calendar quarter in accordance with procedures
established by BPAC, change the Investment Fund or Funds to which future Basic
and/or Supplemental Contributions are to be allocated.

7.2. Rollover Contributions. Each Participant shall specify concurrently
----------------------
with the making of any Rollover Contribution, in accordance with procedures
established by BPAC, the Investment Fund or Funds to which such contribution
shall be allocated and invested. Such allocation shall be made in increments of
10% or more as BPAC may from time to time determine.

7.3. Transfers Between Investment Funds. Each Participant may, once
----------------------------------
during each calendar quarter, in accordance with procedures established by BPAC,
direct that all or a specified portion of his Account, including any earnings
thereon, held in any one or more Investment Funds be transferred from such
Investment Fund or Funds to any other Investment Fund or Funds.

7.4. Absence Of Direction. If a Participant fails or refuses to direct
--------------------
the investment of his current contributions as provided in Plan (S) 7.1 such
Participant shall be deemed to have elected to direct the investment of such
contributions in the Fixed Income Fund or any successor to such Investment Fund
or to such other Investment Fund as the Trustee may from time to time recommend
or BPARC shall select.

7.5. No Direction By A Beneficiary. A Participant's Beneficiary may not
-----------------------------
exercise the rights afforded to Participants pursuant to this Article 7.

7.6. Delayed Effective Date Of Direction. Either Committee or the Trustee
-----------------------------------
may, in their sole discretion and without liability therefore, delay the
effective date of any investment direction delivered by any Participant in order
to enable the orderly liquidation or reinvestment of assets or for such other
reason as the Trustee deems to be appropriate. In no event shall any direction,
properly given, be effective unless actually received.

7.7. Trustee's Limited Discretion. The Trustee may not and shall not be
----------------------------
under any duty or obligation to purchase or sell shares of Armco's Stock except
as may be necessary to invest funds required by the terms of the Plan to be
invested in the Armco Stock Fund regardless of the current market

20
<PAGE>
conditions, the presence of a bona fide tender offer or any other condition
affecting or tending to affect the value of Armco's Stock.

7.8. Voting Rights. Each Participant shall have the exclusive right (i)
-------------
to direct the Trustee to vote whole shares held by the Trustee for the
Participant's benefit in the Armco Stock Fund, and (ii) to exercise any and all
other rights which may accrue to an owner of any shares so held in the Armco
Stock Fund. In the absence of any such directions, neither the Trustee nor
either Committee may exercise any right accruing with respect to any shares held
in the Armco Stock Fund.

21
<PAGE>

ARTICLE 8

DISTRIBUTIONS

8.1. Distribution Upon Termination Of Service. Any Participant who
----------------------------------------
terminates Service for any reason other than Retirement or death shall be
entitled to payment in full of his Account Balance within a reasonable time
after the date of his termination of Service, in kind and/or in cash at the net
value on the date on which the assets in which his Account is invested are
liquidated. If the Participant's Account Balance is greater than $3,500 on the
date he terminates Service, the Participant may make a one-time irrevocable
election at the time of his termination of Service to receive an immediate
distribution of his Account Balance or to leave his Account Balance in the Plan
until April 1 of the calendar year in which the Participant attains age 65. If
the Participant elects to have his Account Balance remain in the Plan after his
termination of Service, his Account Balance will be invested in the Fixed Income
Fund, or any successor to such Investment Fund or to such other Investment Fund
as the Trustee may from time to time recommend or BPARC shall select. If the
Participant should die prior to distribution thereof, such Participant's Account
Balance, will be distributed in accordance with Plan (S)(S) 8.3 and 8.5.

8.2. Distribution Upon Retirement. Any Participant who terminates Service
----------------------------
because of his Retirement shall be entitled to payment in full of his Account
Balance, in kind and/or in cash at the net value on the date on which the assets
in which his Account is invested are liquidated. Unless a deferred payment is
elected in accordance with Plan (S) 8.4, such distribution shall be made within
a reasonable time following such Participant's Retirement.

8.3. Distribution Upon Death. Distribution of a Participant's Account
-----------------------
Balance shall be made within a reasonable time following the death of a
Participant in kind and/or in cash at the net value on the date on which the
assets in which his Account is invested are liquidated.

8.4. Deferred Distribution. A Participant who is entitled to distribution
---------------------
under Plan (S) 8.2 may direct, by Notice to BPAC on or before the date he
terminates Service, that distribution of his Account Balance be deferred until
any date on or before the first day of the Plan Year in which the Participant
attains age 70, or such earlier date as the Participant may subsequently
request.

8.5. Form Of Distribution. Any portion of a Participant's Account Balance
--------------------
invested in any Investment Fund other than the Armco Stock Fund shall, upon
Retirement or other termination of Service, be paid in a single sum payment by
check drawn on the Trust and payable to the order of the Participant or, if he
is deceased, to the order of his Beneficiary. A Participant's distributable
interest in the Armco Stock Fund shall be paid in a single sum payment either in
cash or in whole shares of Armco Stock together with cash representing the value
of any fractional shares or any contributions theretofore

22
<PAGE>
not yet invested in Armco Stock, as the Participant may specify by Notice to
BPAC. In the case of a distribution following the Participant's death, the
Participant's distributable interest in the Armco Stock Fund shall be paid to
his Beneficiary in whole shares of Armco Stock together with cash representing
the value of any fractional shares. The payment of a Participant's interest in
the Armco Stock Fund in cash shall be accomplished by the sale of the
Participant's shares of Armco Stock.

8.6. Statutory Payment Date Before January 1, 1989. Unless a Participant
---------------------------------------------
elects to defer the commencement of benefits hereunder to a date not later than
the first day of the Plan Year in which such Participant attains age 70, the
payment of benefits under the Plan will begin not later than the 60th day after
the latest of the close of the Plan Year in which the Participant (i) attains
age 65, (ii) attains the 10th anniversary of his first date of participation in
the Plan, or (iii) terminates his Service. Notwithstanding the foregoing,
distribution of a benefit to any Participant who is a 5% owner with respect to
the Plan Year ending in the calendar year in which such Participant attains age
70-1/2 must commence no later than the April 1st of the calendar year in which
such Participant attains age 70-1/2. No distribution of any amounts
attributable to contributions paid after January 1, 1985 on behalf of a
Participant (other than voluntary non-deductible contributions made by him as a
5% owner) while he was a 5% owner shall be made to a Participant who is or has
been a 5% owner prior to such Participant's attaining age 59-1/2 for any reason
other than such Participant's death or disability. For purposes of this Plan
(S) 8.6, a 5% owner shall mean a 5% owner of such Participant's employer as
defined in Code (S) 416(i)(1)(B)(i).

8.7. Statutory Payment Date After December 31, 1988. Notwithstanding Plan
----------------------------------------------
(S) 8.6, effective from and after January 1, 1989, any benefit payable to a
Participant hereunder shall commence no later than April 1 of the calendar year
following the calendar year in which the Participant attains age 70 1/2
regardless of whether the Participant has terminated Service.

8.8. Transferred Employees. If a Participant ceases to be an Employee by
---------------------
reason of a transfer of employment to a class of employees of an Employer not
eligible for participation or to an Affiliate which is not an Employer then,
except as hereinafter provided, such Participant's Account Balance shall be held
for distribution until such time as such Participant's Service terminates. BPAC
may, in its sole discretion, direct the Trustee to transfer and the Trustee
shall thereupon transfer such Participant's Account Balance directly to the
trustee of any other qualified defined contribution plan of an Affiliate in
which the Participant may then be participating. Any such transfer shall be
expressly conditioned upon the existence of provisions in such transferee plan
and trust to the effect that the interest so transferred shall be fully vested
and nonforfeitable from and after the date of transfer and shall be separately
accounted for and held for the benefit of the Participant. Transfer by the

23
<PAGE>
Trustee hereunder shall be in full satisfaction of any claim for benefits
hereunder by such Participant.

8.9. QDRO Accounts. An Account established for the benefit of an
-------------
alternate payee (who is not an Employee) under a Qualified Domestic Relations
Order (as provided in Plan (S) 14.2) shall be treated in the same manner as an
Account of a Participant who had terminated service.

24
<PAGE>

ARTICLE 9

WITHDRAWALS WHILE EMPLOYED

9.1. Withdrawals. Withdrawals may be made not more often than twice in
-----------
any Plan Year from After-Tax Contributions and/or Employer Matching
Contributions, or any earnings thereon. Subject to the provisions of Plan
(S)(S) 9.3 and 9.4, withdrawals may be made from Pretax Contributions, or any
earnings thereon, at any time. Withdrawals may be made from all or a specified
portion of contributions credited to an Account from such Investment Fund or
Funds as the Participant may specify, by filing the appropriate form with the
Local Plan Administrator by the last work day of the month preceding the month
in which such withdrawal is to be effected. No withdrawal may exceed the lesser
of the amount specified by the Participant or the fair market value of the
contributions from which the withdrawal is specified to be made.

9.2. Employer Matching Contributions. Withdrawals from Employer Matching
-------------------------------
Contributions may only be made from those contributions credited to the
Participant's Account for at least two full calendar years prior to the date of
withdrawal.

9.3. Withdrawal Of Pretax Contributions. Pretax Contributions and
----------------------------------
earnings attributable thereto may be withdrawn prior to a Participant's
attaining age 59-1/2, only upon an adequate showing of hardship in accordance
with Plan (S) 9.4. Withdrawals may be made solely from Pretax Contributions but
not from earnings thereon.

9.4. Hardship Withdrawals.
--------------------

(a) Subject to Plan (S) 9.3 and the following provisions of this Plan
(S) 9.4, a Participant who has made all permissible withdrawals (other than
hardship withdrawals) and obtained all nontaxable loans currently available
under this Plan and all other plans maintained by the Employer in which the
Participant also participates, may make a withdrawal of at least $500 from
Pretax Contributions credited to his Account by filing the appropriate forms
with the Local Plan Administrator by the 15th day of the month preceding the
month in which such withdrawal is to be effective. Such forms shall include the
Participant's written representation that the amount of the hardship withdrawal
does not exceed the amount necessary to satisfy a heavy and immediate financial
need of the Participant (as described in subsection (b) below).

(b) Hardship withdrawals shall be available only if the withdrawal is
made on account of an immediate and heavy financial need of the Participant
resulting from:

25
<PAGE>
(i) medical expenses described in Code (S) 213(d) incurred by the
Participant, his spouse or any dependent of the Participant (as
defined in Code (S) 152),

(ii) the purchase (excluding mortgage payments) of a principal
residence for the Participant,

(iii) payment of tuition for the next semester or quarter of
post-secondary education for the Participant or his spouse,
children or dependents,

(iv) the need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence, or

(v) such other events as may be prescribed by the IRS.

(c) Any Participant who makes a hardship withdrawal shall not be
permitted to make Basic or Supplemental Contributions under the Plan for the 12-
month period immediately following the date on which the hardship withdrawal is
received. In addition, the maximum amount of Pretax Contributions (as provided
on Plan (S) 5.2) made on behalf of such Participant for the Plan Year
immediately following the Plan Year in which the hardship withdrawal is made
shall be reduced by the amount of Pretax Contributions made on such
Participant's behalf for the Plan Year in which the hardship withdrawal was
made.

9.5. Form Of Payment.
---------------

(a) Any portion of a Participant's Account Balance withdrawn from any
Investment Fund other than the Armco Stock Fund shall be paid in a single
payment by check drawn on the trust and payable to the order of the Participant
or, if he is deceased, then to the order of his Beneficiary.

(b) Sums withdrawn from a Participant's Account invested in the Armco
Stock Fund shall be paid in a single payment in cash or in whole shares of
Armco Stock together with cash representing the value of any fractional shares
or any contributions theretofore not yet invested in Armco Stock, as the
Participant may specify by Notice to BPAC. If such sums are to be withdrawn in
cash, the shares shall be sold and the net proceeds distributed. Shares to be
withdrawn shall be valued at the price of shares sold by the Trustee for cash
withdrawals. If that average cost of the Participant's shares is less than the
fair market value of the shares, the Participant's application requesting a
withdrawal shall be deemed to include a request to withdraw such net unrealized
appreciation. If that average cost exceeds the fair market value of the
shares, to the extent the withdrawal is from Participant contributions, the
amount of the unrealized net loss shall be recorded as undistributed
Participant contributions.

26
<PAGE>

ARTICLE 10

LOANS

10.1. Permitted Loans. Subject to the following provisions of this Article
---------------
10, any Participant who has not terminated Service, who is receiving pay from
his Employer and who is eligible to contribute to the Plan, may make application
to borrow from his Account Balance, from such Investment Fund or Funds as he may
specify, by filing the appropriate form with the Local Plan Administrator by the
20th day of any month. Effective as of October 18, 1989, any Participant may
make application to borrow from his Account Balance. Any loan application
received after the 20th day of the month shall be returned to the Participant.
Determination of whether a loan shall be approved shall be made under procedures
developed by BPAC and applied in a uniform and nondiscriminatory manner.
Approved loans shall be distributed to the Participant by the 20th day of the
month immediately following the month in which the loan application is made.

10.2. Required Consent. To the extent required by the Code and
----------------
Regulations, no loan shall be made to any Participant unless BPAC receives the
written consent of the Participant and, if the Participant is married, of the
Participant's Spouse, to the loan and to any potential reduction in the
Participant's Account Balance resulting from such loan, and authorizing payroll
deductions for the repayment of the loan.

10.3. Limitations On Loans.
--------------------

(a) Loans under the Plan must be for a minimum of $1,000 and in no
event may exceed the lesser of (a) $50,000 reduced by the excess (if any) of (i)
the highest outstanding loan balance owed by the Participant during the one-year
period ending on the day preceding the date of the loan, over (ii) the
outstanding balance of all other loans from the Plan to the Participant on the
date of the loan, or (b) 50% of his Account Balance; provided, however, that the
maximum amount available for loan from each Investment Fund selected by the
Participant may not exceed 95% of the value of the Participant's interest in
such Investment Fund determined on the date the Participant's Account is debited
for the loan.

(b) No more than one loan shall be made to a Participant at any time
and any outstanding loan must be repaid in full before another loan may be
granted.

(c) Loans will first be applied against After-Tax Contributions
credited to a Participant's Account, then against Employer Matching
Contributions credited to a Participant's Account and finally against Pretax
Contributions credited to a Participant's Account.

27
<PAGE>
10.4. Required Collateral. A promissory note shall be signed by the
-------------------
Participant and his Spouse, if any, pledging not more than 50% of the present
value of the Participant's Account Balance and any other security deemed
necessary as collateral for the loan.

10.5. Repayment.
---------

(a) Each loan to a Participant shall be repaid by payroll deductions
in substantially equal installments of no less than $50 consisting of principal
and interest. Each loan shall have a repayment period of not less than 1 year
and not more than 5 years, except that a loan that is used to buy or build the
borrower's principal residence may have a repayment period of not more than 10
years. Principal residence status will be determined at the time application
for the loan is made. Any loan may be prepaid in whole without penalty at any
time.

(b) As each repayment of the loan is received, the entire amount
representing both principal and interest shall be credited to the Participant's
Account and invested in accordance with the Participant's investment allocation
election in effect at the time of each repayment.

10.6. Interest Charges. Effective as of October 18, 1989, the interest
----------------
rate on loans shall be a reasonable rate of interest commensurate with the
prevailing interest rate charged on similar commercial loans by persons in the
business of lending money. Unless otherwise established by BPAC, the interest
rate, as established by the Chase Manhattan Bank, N.A., shall be equal to the
prime rate plus 2.0% determined on the first market day of the month in which
the loan application is approved. The interest rate so established shall remain
fixed for the full term of the loan.

10.7. Failure To Make Timely Payment. If at any time prior to the full
------------------------------
repayment of the loan the Participant's periodic loan payments cease to be made
for any reason, the loan shall be in default and shall be immediately due and
payable. Notice of the default shall be given to the Participant at his last
known address. If such payment is not made within 30 days thereafter, BPAC
shall have the right at its discretion either to accelerate the loan and to
reduce the Participant's Account Balance by the amount of the unpaid loan
balance including interest then due or to file suit on the Participant's
promissory note.

10.8. Termination Of Employment. If at any time prior to the full
-------------------------
repayment of a loan the Participant terminates Service for any reason, or if the
Plan should terminate, the unpaid balance of the Participant's loan (including
any interest thereon) shall be immediately due and payable, and if the unpaid
balance is not repaid by the date the Participant terminates Service, the unpaid
loan and interest shall be deducted from any amount distributable from the Plan
to which such Participant or his Beneficiary may be entitled without further
action by or

28
<PAGE>

approval of the Participant, the Participant's Spouse or any Beneficiary. Such
reduction shall constitute a complete discharge of all liability to the Plan for
the loan.

29
<PAGE>
ARTICLE 11

PARTICIPATING EMPLOYERS

11.1. Permission To Participate. Any Affiliate may participate as an
-------------------------
Employer under this Plan for the benefit of its Employees or such Employees of
such division, plant, location, or other operating unit as the Board or BPAC may
specifically authorize.

11.2. Agreement To Contribute. By applying to participate as an Employer
-----------------------
or by participating as an Employer with respect to any Employee, each Employer
expressly agrees to make contributions to the Trust for the benefit of
Participants employed by such Employer in accordance with the terms of the Plan,
as the same may be modified from time to time with respect to such Employer with
the approval of BPAC.

11.3. Post-Joinder Amendments. By choosing to participate as an Employer,
-----------------------
each Employer expressly agrees to be bound to any modification or amendment to
the Plan or the Trust which may be adopted from time to time by the Board, BPAC,
or BPARC without further action by its respective board of directors.

11.4. Delegation Of Authority To BPAC/BPARC. Each Employer expressly
-------------------------------------
agrees that BPAC and BPARC be, and each hereby is, authorized and empowered to
exercise such authority of the board of directors of the Employer with respect
to the adoption, amendment, or restatement of any employee benefit plan or
related trust established to provide benefits for Employees of the Employer as
either Committees may exercise with respect to employee benefit plans or related
trusts of Armco in accordance with authority delegated to each Committee from
time to time by the Board or by the terms of this Plan. No such action by BPAC
or BPARC shall require any express or implied ratification by any Employer to
become effective and binding.

11.5. Termination Of Participation. Any Employer may terminate its
----------------------------
participation in the Plan or Trust as to all or any portion of the Participants
who are Employees of such Employer or may permanently discontinue its
contributions under the Plan by Notice to the Committees at least 30 days prior
to the effective date of such action. If those Participants to whom such
Employer has taken action to terminate participation or discontinue
contributions continue to be employed by an Affiliate, then each such
Participant's Accrued Benefit shall be held in the Trust for distribution in
accordance with the terms of the Plan. If those Participants cease to be
employed by an Affiliate, distribution shall be made in accordance with the
terms of this Plan.

11.6. Segregated Investment Funds. Any Employer may request that BPARC
---------------------------
cause the Trustee to establish a segregated Investment Fund for the benefit of
Participants employed by such Employer. The Trustee shall establish

30
<PAGE>
any such segregated Investment Fund for the purpose of holding assets
contributed by such Employer or the Participants employed by such Employer only
if and as directed by BPARC.

11.7. Special Provisions. BPAC may adopt such riders to this Plan to
------------------
modify the terms of all or any part of the Plan as it applies to all or to a
specified portion of the Employees of any Employer as BPAC deems to be necessary
or desirable to implement the desires of a particular Employer. No such
modification may result in discrimination in favor of the officers,
shareholders, or highly paid employees of Armco or any Affiliate and any such
modification which is finally found by the IRS or by any other federal agency or
by a court of competent jurisdiction to be discriminatory may be voided, in the
discretion of BPAC, from and after the effective date such discriminatory effect
began.

31
<PAGE>

ARTICLE 12

PLAN ADMINISTRATION

12.1. Power Of Administrative Committee. BPAC shall be the named fiduciary
---------------------------------
with the general responsibility and the power to administer and construe the
provisions of the Plan, to determine questions of law and fact arising under the
Plan, to determine the amount of the authorized payment of benefits under the
Plan, to maintain Plan records, to adopt amendments to the Plan as hereinafter
provided, and to exercise such other rights and powers as may be specifically
granted to it herein or by the Board.

12.2. Power Of Asset Review Committee. BPARC shall be the named fiduciary
-------------------------------
with the general responsibility and the power to manage or to direct the
management of any Plan asset which may be held in trust from time to time, to
establish the Plan's funding policy, to appoint or remove or change any Trustee,
Investment Manager, or other funding agency, to delegate to each Trustee or
Investment Manager such authority or discretion to manage, acquire, or dispose
of such assets of the Plan as BPARC may deem appropriate and as may be described
from time to time by Notice to each such Trustee or Investment Manager, and to
exercise such other rights and powers as may be specifically granted to it
herein or by the Board. BPARC shall have no responsibility for any investment
decision made by a Participant in accordance with the terms of this Plan.

12.3. Compensation And Expenses Of Committee Members. No member of either
----------------------------------------------
Committee shall receive any compensation for serving as a member of such
Committee, but each member shall be entitled to be reimbursed for any reasonable
expense incurred in carrying out his duties as a member of such Committee.

12.4. Bond For Committee Members. No bond or other security shall be
--------------------------
required of either Committee or of any member of either Committee except as may
be required by ERISA.

12.5. Composition Of Committees. Any person may serve on either or both of
-------------------------
said Committees, and any member of either of said Committee or of any
subcommittee or any agent or other person to whom either of said Committees may
delegate any authority, may serve in more than one capacity with respect to the
Plan.

12.6. Committee Procedures. Each Committee shall elect or designate a
--------------------
Chairman, shall establish procedures for and the time and place of meetings,
shall provide for the keeping of minutes of all meetings, and shall establish
such other procedures as they deem to be necessary or appropriate. The Chairman
or any other member authorized by the Committee may sign any document by or on
behalf of the Committee.

32
<PAGE>
12.7. Disqualified Committee Member. No member of either Committee may act
-----------------------------
or influence the decision of the remaining Committee members with respect to any
matter relating solely to himself or to any right or benefit he or any of his
Beneficiaries may have under the Plan.

12.8. Exercise Of Discretion. Whenever BPAC or BPARC is vested with
----------------------
discretionary powers under the terms of this Plan, such Committee shall endeavor
to make consistent determinations in cases involving the same circumstances, but
shall not be required to do so. Neither Committee may exercise its discretion
in a fashion which results in discrimination in favor of shareholders, officers
or highly compensated employees of Armco or any Affiliate, or in such manner as
may otherwise adversely affect the tax-qualified status of the Plan.

12.9. Appointment Of Counsel. Each Committee may arrange for the
----------------------
engagement of such legal counsel, who may be counsel for Armco or any Affiliate,
and may rely upon the written opinion of such counsel.

12.10. Delegation Of Authority. Either Committee may delegate to any
-----------------------
agent or to Armco's Human Resources Department or Finance Department or to any
subcommittee or member of such Committees or any subcommittee the authority to
perform any act, such Committee may perform hereunder, such delegation to be
subject to revocation at any time in the Committee's discretion.

12.11. Local Plan Administrators. BPAC may designate one or more persons,
-------------------------
each of whom may or may not be a member of the Committee, to be the Local Plan
Administrator at each location of each Employer. The Local Plan Administrator
shall be responsible for providing such information to the Participants and
other persons entitled to benefits under the Plan as BPAC may direct, including
information regarding the procedure for electing the form of benefits, for
making withdrawals, making transfers or filing claims for benefits, and shall
perform such other routine and nondiscretionary tasks involving the day-to-day
administration and operation of the Plan as BPAC may delegate from time to time.
No Local Plan Administrator may exercise any discretion in the exercise of his
duties, such exercise being reserved to the Committees and their delegates as
named fiduciaries.

12.12. Discharge Of Duties. Each Committee and any of its delegates or
-------------------
appointees shall discharge their respective duties under the Plan solely in the
interest of and for the exclusive purpose of providing benefits to the
Participants and their Beneficiaries exercising the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in
like capacity and familiar with such matters would use in the conduct of an
enterprise of like character with like aims and in accordance with the terms and
conditions of the Plan and applicable law, and shall endeavor to defray the
reasonable expenses for the administration of the Plan.

33
<PAGE>
12.13. Indemnification. Each Employer shall, and hereby does agree, to
---------------
indemnify and hold harmless each present member of each Committee and each
successor member and each of any such member's heirs, executors, and
administrators, and the Committee's delegates and appointees, including counsel
(other than persons who are independent of any Affiliate and who render services
to the Plan for a fee) for any and all liability or expense, including
settlement costs, costs of litigation and counsel fees reasonably incurred by
him in any action, suit, or proceeding to which he is or may be made a party by
reason of his being or having been a member, delegate, or appointee of or
counsel to the Committee, except in matters involving felonious criminal
liability or gross, intentional and willful misconduct of a person who was not
acting within the scope of his authority with respect to the matter giving rise
to the actual or potential liability. If any insurance is in force to cover
claims or a nature described above, then no person indemnified hereunder shall
have any right of indemnification except to the extent of any deductible amount
under the insurance coverage or to the extent any claim is outside of the
coverage or the amount of the award, settlement, or expense exceeds the
insurance limits.

12.14. Claims Procedure.
----------------

(a) Any person who questions the amount of any benefit paid or who
believes that a benefit should have commenced to be paid which did not so
commence or who has some other claim arising under the Plan or Trust (the
"Claimant"), shall deliver a written claim by Notice to BPAC fully describing
the nature of such claim and incorporating or attaching all information and
documentation necessary to enable BPAC to determine whether to grant or deny the
claim. If the claim is filed with the Local Plan Administrator, then the Local
Plan Administrator shall forthwith forward the claim, as filed, to BPAC, and
shall provide Notice to the Claimant of the date that such claim was so
forwarded. BPAC shall review the claim and supporting information and shall
make an initial determination approving or denying the claim.

(b) If the claim is denied in whole or in part, BPAC shall, within 90
days (or such other period as may be established by applicable law) from the
time the claim is received, mail a Notice of Denial to the Claimant. Such 90-
day period may be extended by BPAC if special circumstances so require for up to
90 additional days by a Notice of Extension to Claimant within the first 90-day
period.

(c) Each Claimant shall have the right to request a full and fair
review by BPAC of its initial determination. Such request for review must be
made by Notice to BPAC within 60 days of receipt of the Notice of Denial and
must include all such new information or documentation as the Claimant believes
pertinent to BPAC's review of its prior decision. The Claimant or his duly
authorized representative shall have the right to review any pertinent documents
and to submit any issues or comments. The Claimant or his duly authorized

34
<PAGE>
agent may, during such 60-day period, examine and review during reasonable
business hours any pertinent documents and may request copies thereof, by
written request accompanied by payment of any reasonable copying charges
therefor.

(d) BPAC shall, within 60 days after receipt of the request for
review (or in special circumstances, such as where BPAC in its sole discretion
holds a hearing, within 120 days of receipt of the request for review), submit
its decision on review in writing to the Claimant. The decision on review will
be final, conclusive, and binding on all parties.

(e) Any notice of denial or decision on review shall be written in a
manner calculated to be understood by the Claimant. A notice of denial shall set
forth (i) the specific Plan provisions on which the denial is based, (ii) an
explanation of additional material or information, if any, necessary to perfect
such claim together with a statement of why such material or information is
necessary, and (iii) an explanation of the review procedure. A decision on
review shall set forth the specific Plan provisions on which the decision is
based.

12.15. Service Of Process. Any member of BPAC, the Secretary of Armco or
------------------
the Trustee may accept service of process for the Plan.

12.16. Expenses. Any expenses incurred by either Committee or the Trustee
--------
in carrying out its duties with respect to the Plan or the Fund may be paid by
Armco or may, in the discretion of BPAC, be charged to and paid from the Account
of the Participant or Participants for whose benefit or with respect to whose
Accounts said expenses were incurred in accordance with rules uniformly
applicable to all Participants. In the event Armco fails or refuses to pay any
such expense and, when reimbursement of such expense is sought by any person
other than the Trustee, the expense is deemed to be reasonable in the sole
discretion of the Trustee, or when reimbursement of such expense is sought by
the Trustee, the expense is deemed to be reasonable and appropriate in the sole
discretion of BPARC, then the Trustee shall reimburse such expense directly from
the aggregate Employer Contributions for the Plan Year in which such expense was
reimbursed.

12.17. Information From Participants. Each Participant shall file with
-----------------------------
BPAC or BPARC such pertinent information concerning himself, his Beneficiary or
any other person as BPAC may reasonably require, and no Participant, Beneficiary
or other person shall have any right or be entitled to any benefit under the
Plan unless such information is filed by or with respect to him.

35
<PAGE>

ARTICLE 13

AMENDMENT OR TERMINATION

13.1. Right To Amend Or Terminate. Armco intends to maintain the Plan in
---------------------------
effect indefinitely. However, the Board reserves the right to amend, modify, or
terminate the Plan at any time or to modify or amend in whole or in part any or
all of the provisions of the Plan, retroactively if deemed necessary or
appropriate to meet the requirements of the Code, ERISA or any similar
provisions of subsequent laws or to conform to Regulations or other policies in
effect from time to time, or to obtain a determination that the Plan qualifies
for favorable federal income tax treatment. The Committees may exercise such
power and authority of the Board to modify, amend, merge, split, or terminate
the Plan or any Trust Agreement as the Board may delegate to either of such
Committees from time to time. No amendment or modification shall make it
possible for any part of the corpus or income of the Fund to be used for or
diverted to purposes other than for the exclusive benefit of Participants and
their Beneficiaries under the Plan prior to the satisfaction of all liabilities
of the Plan.

13.2. Merger. This Plan shall not merge or consolidate with or transfer
------
assets or liabilities to any other plan unless each Participant would be
entitled to receive a benefit immediately after the merger, consolidation or
transfer, if the Plan then terminated, at least equal to the benefit each such
Participant would have been entitled to receive immediately before the merger,
consolidation, or transfer, if the Plan then terminated.

13.3. Termination. The Board may, with Notice to the Committees and to the
-----------
Trustee, terminate this Plan or discontinue all Employer Contributions as to all
Participants or as to any class or unit of the Participants. No Employer shall
have any duty or liability to make or to continue to make contributions
hereunder from and after the effective date of any such termination or
discontinuance of contributions.

13.4. Distribution Upon Termination. Upon the permanent discontinuance of
-----------------------------
contributions or the termination or partial termination of the Plan, the
interest of all affected Participants shall be distributed as and when BPAC
shall provide. Prior to authorizing any distribution, BPAC shall process any
termination reports required to be filed in accordance with federal law. Any
assets in the Fund which have not been allocated to any Participant shall, after
the payment of taxes and administration expenses, be allocated among the
Accounts of all Participants in such nondiscriminatory manner as may be approved
by BPAC.

13.5. Plan-To-Plan Transfers. In the case of a disposition of all or any
----------------------
part of any business of Armco or any Affiliate. BPARC may direct the Trustee to
transfer the Account of any Participant who becomes an employee of the acquiring
entity directly to the trustee of any successor plan, provided such

36
<PAGE>
successor plan qualifies for favorable federal income tax treatment under the
provisions of Code (S) 401(a) and the interest of the Participant so
transferred is nonforfeitable and held for the exclusive benefit of such
Participant under the terms of such successor plan. In the case of an
acquisition of all or any part of a business by Armco or any Affiliate, BPARC
may direct the Trustee to accept a transfer to this Plan of an account balance
held for the benefit of any employee of such business, provided such
predecessor plan qualifies for favorable federal income tax treatment under the
provisions of Code (S) 401(a) and such balance shall be nonforfeitable and held
for the exclusive benefit of the employee for whom the account was held by such
predecessor plan. Upon a transfer of Plan assets or liabilities to or from any
other plan as herein provided, each Participant shall be entitled to receive a
benefit immediately after such transfer which shall be equal to or greater than
the benefit which the Participant would have been entitled to receive
immediately prior to the transfer if the Plan then terminated.

37
<PAGE>

ARTICLE 14

MISCELLANEOUS PROVISIONS

14.1. Not An Employment Contract. This Plan is not and shall not be deemed
--------------------------
to constitute a contract of employment between Armco or any Affiliate and any
Employee or other person, nor shall anything herein contained be deemed to give
any Employee or other person any right to be retained in his Employer's employ
or to in any way limit or restrict his Employer's right or power to discharge
any Employee or other person at any time and to treat him without any regard to
the effect which such treatment might have upon him as a Participant of the
Plan.

14.2. Non-Alienation Of Benefits. Except as may otherwise be required by
--------------------------
law or pursuant to the terms of a Qualified Domestic Relations Order, no asset
held in Trust for the benefit of any Participant or for the Beneficiary of any
deceased former Participant nor any benefit payable under the terms of this Plan
shall be subject to any manner to any voluntary or involuntary alienation,
anticipation, sale, transfer, assignment, pledge, encumbrance or charge. Each
and every attempt to voluntarily or involuntarily anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge the same shall be void and no
distribution or payment of assets or benefits shall be in any way attachable for
or subject to any debt, contract, liability, engagement or tort of any person
entitled to such distribution or payment. If a Participant or Beneficiary is
adjudicated a bankrupt or purports to anticipate, alienate, sell, transfer,
assign, pledge, voluntarily or involuntarily, BPAC may hold or cause to be held
and, if so held, shall apply such asset, distribution or payment or any part
thereof to or for the benefit of such Participant or Beneficiary in such manner
as BPAC shall, in its discretion, determine. For purposes of this Plan (S)
14.2, a "Qualified Domestic Relations Order" means any judgment, decree or order
(including approval of a property settlement agreement) which has been
determined by BPAC in accordance with procedures established under the Plan, to
constitute a qualified domestic relations order within the meaning of Code (S)
414(p)(1). The prohibition against assignment or alienation of benefits
provided in this Plan (S) 14.2 shall not apply with respect to any loan made to
a Participant under the Plan pursuant to Plan Article 10.

14.3. Minors And Incompetents. Whenever and as often as any person
-----------------------
entitled to payments hereunder shall be under a legal disability, or in the sole
judgment of BPAC, shall otherwise be unable to apply such payments to his own
best interest and advantage, BPAC in the exercise of its discretion may direct
all or any portion of such payments to be made in any one or more of the
following ways: (i) directly to such person; (ii) to his legal guardian or
conservator; (iii) to his Spouse; or (iv) to any other person to be expended for
the Participant's benefit. Any such payment shall be a complete discharge of
the liability of the Plan and the Trustee therefor. BPAC's decisions shall in
each case be final and binding upon all persons in interest and, upon payment,
neither Committee nor

38
<PAGE>
the Trustee shall be under any duty to see to the proper application of such
funds.

14.4. Slayers. No person who is held criminally responsible under the law
-------
of any state or nation by a court of competent jurisdiction for any crime which
directly or indirectly results in the death of any Participant or the death of
any Beneficiary of a deceased Participant may take any interest of such
Participant under this Plan, whether or not such person is the sole Beneficiary
of such Participant, and the interest of each Participant shall be distributed
as if any such person predeceased the Participant unless BPAC otherwise
determines in its sole discretion.

14.5. Lost Payee. If BPAC cannot ascertain the whereabouts of any person
----------
to whom a payment is due under the Plan, including an Alternate Payee under a
Qualified Domestic Relations Order, and if, after 5 years from the date such
payment is due, a Notice of such payment due is mailed to the last known address
of such person, as shown on the records of the Employer and within 3 months
after such mailing such person has not made written claim therefor, BPAC may
direct that such payment and all remaining payments otherwise due to such person
be paid to any other Beneficiary or, if none can be found, be cancelled on the
records of the Plan and neither the Plan nor BPAC nor any Affiliate nor any
other person shall have any liability until proper claim is made therefor. Any
Participant or Beneficiary may receive such cancelled benefit by making proper
claim therefor at any time.

14.6. Source For Payment Of Benefits. The Fund shall be the sole source
------------------------------
for payment of benefits under this Plan, and each Employee, Participant,
Beneficiary or any other person who shall claim any right to any payment or
benefit under this Plan shall be entitled to look only to the Fund therefor. No
Affiliate, Trustee, Committee or Committee member or any other person shall be
individually liable for the payment of any benefit under this Plan.

14.7. Rights Under The Plan. No Participant or Beneficiary or any other
---------------------
person shall have any interest in or right under the Plan to any part of the
Plan's assets except as and to the extent provided in the Plan.

14.8. Necessary Parties. To the extent permitted by law, in any action or
-----------------
proceeding involving the Fund or any property constituting part or all thereof,
or the administration thereof, BPAC and the Trustee shall be the only necessary
parties. No Participant, Beneficiary or other person having or claiming to have
an interest in the Fund or under the Plan shall be entitled to any notice of the
proceeding unless notice is required by applicable law or by the court or
administrative agency having jurisdiction over the proceeding. Any final
judgment which may be entered in any such action shall be binding upon all such
persons having or claiming to have any interest in the Fund.

39
<PAGE>
14.9. Stockholders. In any action either at law or equity involving a
------------
Participant and his interest in the Plan or its operation, but in which the
Trustee, a Committee, or an Employer are not directly a party litigant or a
necessary party, upon court approval or order, BPAC may direct that payment be
made to any court or those persons designated by the court of all sums or other
property which are the subject matter of such litigation. Upon such payment,
neither the Trustee, either Committee nor any Employer shall be liable or
accountable for such payment.

14.10. Participant's Annual Statement. Each Participant shall be
------------------------------
furnished at least annually a statement of his Account showing as of the first
day and the last day of the prior Plan Year the value of his investments
reflecting all After-Tax Contributions, Pretax Contributions, Rollover
Contributions and Employer Contributions made by or on his behalf and earnings
credited thereto, and any withdrawals therefrom and any interfund transfers made
during the Plan Year.

14.11. Applicable Law. This Plan shall be governed by, construed and
--------------
enforced, to the extent possible, according to federal law and the law of the
State of Ohio, and all provisions hereof shall be administered according to such
State's law and any federal law, regulation, or rule which may from time to time
be applicable.

40
<PAGE>

ARTICLE 15

TOP HEAVY PROVISIONS

15.1. Top Heavy Plan. The Plan will be considered a Top Heavy Plan for any
--------------
Plan Year if it is determined to be a Top Heavy Plan as of the last day of the
preceding Plan Year. Notwithstanding any other provisions of the Plan, the
provisions of this Article 15 shall apply and supersede all other provisions of
the Plan during each Plan Year with respect to which the Plan is determined to
be a Top Heavy Plan.

15.2. Special Definitions. For purposes of this Article 15 and as
-------------------
otherwise used in the Plan, the following terms shall have the meanings set
forth below:

(a) "Aggregation Group" shall mean (i) the group composed of each
-----------------
qualified employee benefit plan maintained by Armco or any Affiliate in which a
Key Employee is a participant and (ii) each other qualified plan maintained by
Armco or any Affiliate which enables a plan of Armco or any Affiliate in which a
Key Employee is a participant to meet the requirements of Code (S)(S) 401(a)(4)
and 410. In addition, BPAC may, in its discretion, include in the Aggregation
Group such other qualified plan or plans maintained by Armco or any Affiliate if
such Aggregation Group will continue to satisfy the requirements of Code (S)(S)
401(a)(4) and 410 with such plans being taken into account; provided, however,
that voluntary inclusion as a member of the Aggregation Group shall not subject
the plan to the requirements of Code (S) 416 unless the plan is part of the
required aggregation group as defined in Code (S) 416(g)(2)(A)(i).

(b) "Key Employee" means any Employee of an Employer who at any time
------------
during the Plan Year or the 4 preceding Plan Years is (i) an officer
(disregarding any person with the title but not the authority of an officer and
disregarding all but the 50 officers who have the largest annual compensation
during the 5 Plan Years including the current Plan Year) having an annual
compensation greater than 50% of the amount in effect under Code (S)
415(b)(1)(A) for any such Plan Year, (ii) one of the 10 Employees having an
annual compensation greater than the limitation in effect under Code (S)
415(c)(1)(A) and owning the largest interest in the Employer, (iii) a 5% owner
of the Employer, or (iv) a 1% owner of the Employer having an annual
compensation from the Employer of more than $150,000. For the purposes of this
Plan (S) 15.2(b), compensation shall have the meaning prescribed in Treasury
Regulation (S) 1.415-2(d).

(c) "Top Heavy Plan" means the Plan if, as of the last day of the
--------------
Plan Year, (i) the aggregate of the Account Balances of Key Employees under the
Plan exceeds 60% of the aggregate of the Account Balances of all participants,
or (ii) the sum as of the last day of the Plan Year of the present value of the
cumulative accrued benefits for Key Employees under all the

41
<PAGE>
defined benefit plans included in an Aggregation Group in which the Plan is a
member and the aggregate of the accounts of Key Employees under all defined
contribution plans included in such Aggregation Group exceeds 60% of a similar
sum determined for all Employees participating in such plans. For the purpose
of determining the present value of the cumulative accrued benefit for any
Employee or the amount of the Account of any Employee, such present value or
amount shall be increased by the aggregate distributions made with respect to
such Employee under the Plan during the 5 year period ending on the last day of
the Plan Year for which the test is made. Rollover Contributions shall be
disregarded for these purposes in accordance with Regulations.

(d) "Super Top Heavy Plan" means a Top Heavy Plan which would
--------------------
continue to be a Top Heavy Plan if 90% was substituted for 60% each place it
appears in the definition of Top Heavy Plan.

15.3. Limitations On Base Salary. For any Plan Year that the Plan is a Top
--------------------------
Heavy Plan, only the first $200,000 (adjusted annually for Plan Years beginning
on or after January l, 1988, in accordance with the Regulations) of Base Salary
shall be credited to a Participant.

15.4. Minimum Contributions. If the Plan is a Super Top Heavy Plan, the
---------------------
allocation of an Employer's Contribution (disregarding any Pretax Contribution)
shall, in any Plan Year for any Participant who is not a Key Employee, be equal
to the lesser of (i) 4% of such Participant's Base Salary, or (ii) the
percentage of Base Salary of contributions for the Key Employee for whom such
percentage is the highest for such Plan Year, disregarding Base Salary in excess
of $200,000 and any Pretax Contribution included in Base Salary. For this
purpose, all defined contribution plans required to be included in the
Aggregation Group shall be treated as a single plan. If the Plan is a Top Heavy
Plan but not a Super Top Heavy Plan, the foregoing sentence shall be modified to
substitute 3% for 4%.

15.5. Limitations. For each Plan Year that the Plan is a Top Heavy Plan,
-----------
1.0 shall be substituted for 1.25 as the multiplicand of the dollar limitation
in determining the denominator of the defined benefit plan faction and of the
defined contribution plan fraction for purposes of Plan (S) 5.7 and Code (S)
415(e).

15.6. Other Plans. BPAC shall, to the maximum extent permitted by the Code
-----------
and in accordance with the Regulations, apply the provisions of this Article 15
by taking into account the benefits payable and the contributions made under all
other defined contribution plans and defined benefit plans maintained by an
Affiliate which are qualified under Code (S) 401(a) to prevent inappropriate
omissions or required duplications of minimum benefits or contributions.

42
<PAGE>

First Amendment
to the
Armco Inc. Thrift Plan For
Salaried Employees
Effective as of January 1, 1989

Armco Inc., Armco Advanced Material Corporation and Baltimore Specialty Steels
Corporation have each determined that it would be appropriate to allow certain
individuals to accumulate an additional retirement savings contribution under
the Armco Inc. Thrift Plan For Salaried Employees commencing on and after
January 1, 1990. It is expected that the first contribution will be made
following the close of the Plan Year ending December 31, 1990.

Furthermore, as a result of its review of the provisions of the Armco Inc.
Thrift Plan For Salaried Employees, as amended and restated effective as of
January 1, 1989, the Internal Revenue Service has requested that certain
amendments be made in order to assure continuing compliance with the applicable
provisions of Sections 401 and 501 of the Internal Revenue Code of 1986, as
amended.

Now, therefore, the Armco Inc. Thrift Plan For Salaried Employees is hereby
amended in the following respects, all effective as of January 1, 1990 except as
specifically made effective on January 1, 1989:

1. Section 1.21 is deleted and a new Plan (S) 1.21 is inserted reading as
follows:

1.21. "Employer Contribution" means any contribution made by an Employer,
---------------------
including any Employer's Matching Contributions made pursuant to Plan (S)
3.1, any Pretax Contribution made pursuant to Plan (S) 3.2, any Retirement
Savings Contributions made pursuant to Plan (S) 3.3 or any Additional
Contribution made pursuant to Plan (S) 3.4.

2. Article 1 is hereby amended to add a new Plan (S) 1.35 and new Plan (S)(S)
1.43, 1.44 and 1.45, and to renumber the present Plan (S)(S) 1.35-1.41 as Plan
(S)(S) 1.36-1.42 and existing Plan (S)(S) 1.42-1.50 as Plan (S)(S) 1.46-1.54,
the new Plan (S) 1.35 and (S)(S) 1.43-1.45 reading as follows:

1.35 "Participant Contributions" means any After-Tax Contribution made by
-------------------------
a Participant, including After-Tax Basic and After-Tax Supplemental
Contributions.
<PAGE>
1.42. "Retirement Savings Contribution" means an amount equal to 2% of a
-------------------------------
Retirement Savings Participant's Retirement Savings Income received in any
Plan Year.

1.43. "Retirement Savings Income" means a Participant's Base Salary plus
-------------------------
any overtime earnings, bonuses (including profit sharing bonuses), shift
differential compensation and any salary continuation payments received
during a period of up to ninety (90) days in any Plan Year.

1.44. "Retirement Savings Participant" means any Employee employed in a
------------------------------
classification of employees eligible for participation in the Plan's
Retirement Savings Contribution in accordance with the provisions of Plan
(S) 2.4.

3. Plan (S) 2.1 is amended to change the reference to "1987" where it appears
in the second line to "1989".

4. A new Plan (S) 2.4 is added to the end of Article 2 reading as follows:

2.4. Retirement Savings Participation. An Employee who is in a
--------------------------------
classification of employees of an Employer listed on Appendix A, attached
hereto and made a part of the Plan by this reference, shall be eligible to
participate as a Retirement Savings Participant commencing upon the first
day of the month following the date of his employment in a covered
classification of employees as defined on Appendix A. No person accruing
benefits under a defined benefit pension plan to which Armco or any
Affiliate sponsors or maintains, or to which Armco or any Affiliate has
made or is making a contribution, may be eligible to share in the
allocation of any Retirement Savings Contribution made by any Employer
hereunder; provided, however, in the case of a transfer of employment
during a Plan Year to or from a classification of employment eligible for
participation in such a defined benefit pension plan, an Employee may
receive a share of the allocation of a Retirement Savings Contribution with
respect to his Retirement Savings Income earned during that portion of the
Plan Year while he did not accrue benefits under the defined benefit
pension plan. Appendix A may be modified or amended from time to time
hereafter provided that no such modification shall retroactively deprive
any Retirement Savings Participant of any previously accrued and vested
benefit.

-2-
<PAGE>
5. Plan Article 3 is amended to renumber Plan (S)(S) 3.3 through 3.7 as Plan
(S)(S) 3.4 through 3.8 and to insert a new Plan (S) 3.3 reading as follows:

3.3. Retirement Savings Contributions. Subject to Article 5, in addition
--------------------------------
to the contributions under Plan (S)(S) 3.1 and 3.2, an Employer shall make
a contribution as of the last day of each Plan Year in an amount equal to
two percent (2%) of the Retirement Savings Income of each Retirement
Savings Participant employed by such Employer as of the last day of the
Plan Year. Such Contribution shall be made regardless of the profits of
the contributing Employer but shall for all purposes of the federal income
tax laws be and be deemed to be a profit sharing plan contribution.

6. Plan (S) 5.1 is amended to modify the phrase "including for this purpose an
Employer's Matching and Pretax Contributions..." where it appears in the second
and third lines thereof to read "including for this purpose an Employer's
Matching, Retirement Savings and Pretax Contributions..."

7. Plan Article 5 is amended to change the reference to "Base Salary" where it
appears in Plan (S)(S) 5.3 and 5.4 to "Retirement Savings Income."

8. Plan (S) 5.6(b)(i) is amended to renumber subparagraphs (i)(B) and (i)(C)
as subparagraphs (i)(C) and (i)(D) and to add a new subparagraph (i)(B) reading
as follows: "(B) Retirement Savings Contributions,"

9. Plan (S)(S) 5.6(c) and (d) and Plan (S)(S) 5.7 (b), (c)(i) and (c)(ii) are
each amended to add a reference to "and/ or Retirement Savings Contributions,"
immediately after the reference to "Employer Matching Contributions" in each
place it appears.

10. Effective as of January 1, 1989, Plan (S) 5.7(b) is hereby amended to
insert after the words "under (a) above" the following:

as a result of the allocation of forfeitures, a reasonable error in
estimating a Participant's annual compensation, or under other limited
facts and circumstances which the Commissioner of the Internal Revenue
Service finds justify the availability of the rules hereinafter set forth,
...

11. Plan Article 6 is amended to delete Plan (S) 6.3, to renumber Plan (S) 6.2
as Plan (S) 6.3 and to insert a new Plan (S) 6.2 reading as follows:

-3-
<PAGE>
6.2. Allocation Of Retirement Savings. Each Employer's Retirement Savings
--------------------------------
Contribution for each Plan Year made pursuant to Plan (S) 3.3 shall be paid
to the Trust and allocated not less often than annually, as of the last day
of the Plan Year for which the contribution is made, for the benefit of
those Retirement Savings Participants who are employed by Armco or any
Affiliate as of the last day of such Plan Year; provided, however, that
such Contribution shall only be made with respect to Retirement Savings
Income earned while such person employed in a classification of employment
for which such person was eligible to be a Retirement Savings Participant.
No contribution shall be due or payable on behalf of any person not
employed by Armco or one of its Affiliates on the last day of the Plan Year
with respect to which a Employer makes a Retirement Savings Contribution.
For Plan Years beginning after 1989, all Employer Matching Contributions
and Retirement Savings may be aggregated for record keeping purposes and
held in a single Account for the benefit of the Participant.

12. Plan (S) 7.1 is deleted and a new Plan (S) 7.1 is inserted therefore
reading as follows:

7.1. Investment Of Contributions. Each Participant shall, at the time he
---------------------------
files his enrollment forms in accordance with Plan (S)(S) 2.2, direct that
Employer Contributions and Participant Contributions allocated to his
account shall be invested in the Armco Stock Fund, the Fixed Income Fund or
such other Investment Fund or Funds as may be established by BPARC. Such
allocations shall be made in increments of ten percent (10%) or more as
BPAC may from time to time determine. Each participant may, once during
each calendar quarter in accordance with the procedures established by
BPAC, change the Investment Fund or Funds to which the future Contributions
are to be invested.

13. Effective as of January 1, 1989, Plan (S) 8.3 as amended to insert after
the words "within a reasonable time following the death of a Participant" the
words "(but in no event more than five years following the death of the
Participant)".

14. Plan (S) 9.1 is amended to add a new sentence thereto at the end thereof
reading as follows:

-4-
<PAGE>
No withdrawals may be made of any Employer Matching Contributions or
Retirement Savings Contributions received for Plan Years beginning after
1989 or any earnings thereon.

15. Effective as of January 1, 1989, Plan (S) 10.2 is amended to add the
following sentence thereto at the end thereof: "The Participant's Spouse must
consent to the loan within a ninety (90) day period ending on the date of the
loan."

16. Effective as of January 1, 1989, Plan (S) 15.2(a) is amended to change the
reference to "Code (S)(S) 401(a)(4) and 410" to "Code (S)(S) 401(a)(4) or 410"
in both places where that phrase appears.

17. Effective as of January 1, 1989, Plan (S) 15.2(a) is further amended to add
the parenthetical

"(including for this purpose any terminated plan that was maintained by
Armco or any Affiliate during the 5-year period ending on the determination
date for the year in question if a key employee participated in that plan)"

between the words "participant" and "and" at the end of the subparagraph (i).

In all other respects the Plan shall remain in full force and effect in
accordance with it's terms.

This amendment was adopted by the Armco Inc. Benefit Plans Administrative
Committee at it's meeting held on the 8th day of February, 1990.

/s/ Richard D. Brown
___________________________
Richard D. Brown
Assistant Secretary

-5-
<PAGE>
Appendix A
to the
Armco Inc. Thrift Plan For Salaried Employees
Employers Providing
Retirement Savings Eligibility

The following units have elected to become participating Employers for the
purpose of providing certain of their Employees with the opportunity to
participate in the Retirement Savings Contribution, each effective as of January
1, 1990.

Armco Inc.-for the benefit of any Employee who has a continuous service date of
January 1, 1990 or later and who is not eligible for current benefit
accruals under the Armco Inc. Noncontributory Pension Plan, the Armco Inc.
Pension Agreements Plan or any other tax-qualified defined benefit pension
plan maintained by Armco or any Affiliate.

Armco Inc. Midwest Steel Division-for the benefit of any Employee who has a
continuous service date of January 1, 1990 or later and who is not eligible
for current benefit accruals under the Armco Inc. Noncontributory Pension
Plan, the Armco Inc. Pension Agreements Plan or any other tax-qualified
defined benefit pension plan maintained by Armco or any Affiliate.

Armco Advanced Materials Corporation ("AAMC")-

for the benefit of any Employee who has a continuous service date of
January 1, 1990 or later and who is not eligible for current benefit
accruals under the Armco Inc. Noncontributory Pension Plan, the Armco Inc.
Pension Agreements Plan or any other tax-qualified defined benefit pension
plan maintained by Armco or any Affiliate; and

for the benefit of any employee who is a member of a unit of employees
whose terms and conditions of employment are the subject of a collective
bargaining agreement between AAMC and a recognized union representing
employees of such unit (a "covered employee") provided (i) such covered
employee has a continuous service date of January 1, 1990 or later, (ii) is
not eligible for current benefit accruals under the Armco Inc.
Noncontributory Pension Plan, the Armco Inc. Pension Agreements Plan or any
other tax-qualified defined benefit pension plan maintained by Armco or any
Affiliate,

-1-
<PAGE>
(iii) if such covered employee is an hourly-paid employee who is
a participant in the Armco Inc. Thrift Plan for Hourly Employees ("Hourly
Thrift Plan"), (A) participation shall be permitted hereunder
notwithstanding the prohibition contained in Plan (S) 1.19(i), but solely
for the limited purpose of participation in the Retirement Savings
Contribution and no other Contributions by or on behalf of such participant
shall be permitted hereunder, (B) the definition of Retirement Savings
Income set forth at Plan (S) 1.43 shall be amended to substitute the phrase
"Eligible Wages as defined in the Armco Inc. Thrift Plan for Hourly
Employees" for the phrase "Base Salary", and (C) the Retirement Savings
Contribution held for the benefit of any participant may be transferred
annually, or otherwise as BPAC may direct, to the Hourly Thrift Plan for
the benefit of such covered employee provided such transfer meets all
requirements of applicable law.

Baltimore Specialty Steels Corporation-for the benefit of any Employee who has a
continuous service date of February 1, 1988 or later and who is not
eligible for current benefit accruals under the Armco Inc. Noncontributory
Pension Plan, the Armco Inc. Pension Agreements Plan or under any other
tax-qualified defined benefit pension plan maintained by Armco or any
Affiliate.

Additionally, any other Employee of Armco or any Affiliate listed above
(including an hourly-paid employee of AAMC) may become a Retirement Savings
Participant by executing a written agreement, in a form acceptable to the
Employer and approved by BPAC, to voluntarily and irrevocably forego future
participation in each and every defined benefit pension plan sponsored or
maintained by Armco or any Affiliate or to which Armco or any Affiliate has made
a contribution (but without forfeiture of any theretofore accrued benefit and
with continuing credit under such defined benefit plan for future continuous
service for the purposes of vesting and eligibility for benefits thereunder) and
to voluntarily and irrevocably waive any and all benefit accruals in any and all
such defined benefit pension plans for continuous service accrued from and after
the date of the election to participate as a Retirement Savings Participant.
Any such election, shall require the Participant's Spouse's Consent and, once
made, the Spouse's Consent shall be irrevocable.

-2-
<PAGE>
or maintained by Armco or any Affiliate or to which Armco or any Affiliate has
made a contribution.

-3-
<PAGE>

Second Amendment
to the
Armco Inc. Retirement and Savings Plan
(formerly the Armco Inc. Thrift Plan for Salaried Employees)
Effective as of January 1, 1990

At its meeting held on February 8, 1990, the Armco Inc. Benefit Plans
Administrative Committee approved the adoption of the First Amendment to the
Armco Inc. Thrift Plan for Salaried Employees, which among other things,
provided for Retirement Savings Contributions for certain qualifying
participants. Certain represented hourly-paid employees were allowed to
participate in the Retirement Savings Contribution to be made following the
close of the Plan Year ending December 31, 1990. By reason of subsequent
negotiations with the collective bargaining representative for such employees,
it has been agreed that those represented hourly-paid employees will instead
participate in the Armco Inc. Thrift Plan For Hourly Employees for 1990.
Appendix A must be amended to reflect this bargaining agreement.

At its meeting held on May 23, 1990, the Armco Inc. Benefit Plans Administrative
Committee approved the addition of two new investment choices and changed the
name of the Plan to the Armco Inc. Retirement and Savings Plan.

Now, therefore, the Appendix A, added by the First Amendment to this Armco Inc.
Retirement and Savings Plan, is hereby restated in its entirety reading as in
the form attached hereto and made a part hereof by this reference, all effective
as of January 1, 1990.

In all other respects the Plan shall remain in full force and effect in
accordance with it's terms.

This amendment was adopted by the Armco Inc. Benefit Plans Administrative
Committee at it's meeting held on the 11th day of October, 1990.

/s/ Richard D. Brown
______________________________
Richard D. Brown
Assistant Secretary

10/11/90
<PAGE>
Appendix A
to the
Armco Inc. Retirement and Savings Plan

Employers Providing
Retirement Savings Eligibility

Armco Inc. - for the benefit of any Employee who has a continuous service date
of January 1, 1990 or later and who is not eligible for current benefit
accruals under the Armco Inc. Noncontributory Pension Plan, the Armco Inc.
Pension Agreements Plan or any other tax-qualified defined benefit pension
plan maintained by Armco or any Affiliate.

Armco Inc. Midwest Steel Division - for the benefit of any Employee who has a
continuous service date of January 1, 1990 or later and who is not eligible
for current benefit accruals under the Armco Inc. Noncontributory Pension
Plan, the Armco Inc. Pension Agreements Plan or any other tax-qualified
defined benefit pension plan maintained by Armco or any Affiliate.

Armco Advanced Materials Corporation ("Armco/AMC") -

for the benefit of any represented salaried employee who is a member of a
unit of employees whose terms and conditions of employment are the subject
of a collective bargaining agreement between Armco/AMC and a recognized
union representing employees of such unit (a "covered employee") provided
such covered employee has a continuous service date of January 1, 1990 or
later and is not eligible for current benefit accruals under the Armco Inc.
Noncontributory Pension Plan, the Armco Inc. Pension

-1-
<PAGE>
Agreements Plan or any other tax-qualified defined benefit pension plan
maintained by Armco or any Affiliate.

Baltimore Specialty Steels Corporation - for the benefit of any Employee who has
a continuous service date of February 1, 1988 or later and who is not
eligible for current benefit accruals under the Armco Inc. Noncontributory
Pension Plan, the Armco Inc. Pension Agreements Plan or under any other
tax-qualified defined benefit pension plan maintained by Armco or any
Affiliate.

Additionally, any Employee of Armco or any Affiliate whose continuous service
date is before January 1, 1990 may become a Retirement Savings Participant by
executing a written agreement, in a form acceptable to the Employer and approved
by BPAC, to voluntarily and irrevocably forego future current participation in
each and every defined benefit pension plan sponsored or maintained by Armco or
any Affiliate or to which Armco or any Affiliate has made a contribution (but
without forfeiture of any theretofore accrued benefit and with continuing
continuous service credit under such defined benefit plan for the purposes of
vesting and eligibility for benefits thereunder) and to voluntarily and
irrevocably waive any and all benefit accruals in any and all such defined
benefit pension plans for continuous service accrued from and after the date of
the election to participate as a Retirement Savings Participant. Any such
election, shall require the Participant's Spouse's Consent and, once made, the
Spouse's Consent shall be irrevocable.

In no event shall any person be entitled to any Retirement Savings Contributions
under this Plan with respect to any period of time such person accrued a benefit
under a defined benefit pension plan sponsored or maintained by Armco or any
Affiliate or to which Armco or any Affiliate has made a contribution.

-2-

<PAGE>

EXHIBIT 11

ARMCO INC. AND CONSOLIDATED SUBSIDIARIES

COMPUTATION OF INCOME (LOSS) PER SHARE

(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>

Year Ended December 31
----------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>

I. PRIMARY
Income (loss) from continuing operations... $ (256.2) $ (419.3) $ (160.6) $ (75.8) $ 188.5
Less: preferred dividends................. 17.8 10.3 8.1 8.1 8.1
------------ ----------- ----------- ----------- -----------
Income (loss) from continuing operations
after preferred dividends................. $ (274.0) $ (429.6) $ (168.7) $ (83.9) $ 180.4
============ =========== =========== =========== ===========
Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles..................... $ (327.0) $ (421.5) $ (336.5) $ (85.2) $ 165.0
Less: preferred dividends................. 17.8 10.3 8.1 8.1 8.1
------------ ----------- ----------- ----------- -----------
Income (loss) before extraordinary
items and cumulative effect of changes
in accounting principles after preferred
dividends................................. $ (344.8) $ (431.8) $ (344.6) $ (93.3) $ 156.9
============ =========== =========== =========== ===========

Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles..................... $ (327.0) $ (421.5) $ (336.5) $ (85.2) $ 165.0
(Loss) on extraordinary items............ (7.3) (8.4) -- (4.3) --
Cumulative effect of changes in
accounting principles................... (307.5) -- -- -- --
------------ ----------- ----------- ----------- -----------
Net income (loss).......................... $ (641.8) $ (429.9) $ (336.5) $ (89.5) $ 165.0
Less: preferred dividends................ 17.8 10.3 8.1 8.1 8.1
------------ ----------- ----------- ----------- -----------
Net income (loss) after preferred
dividends................................ $ (659.6) $ (440.2) $ (344.6) $ (97.6) $ 156.9
============ =========== =========== =========== ===========
Weighted average number of
common shares............................. 103,837,743 98,813,185 88,491,503 88,462,818 88,275,303
Weighted average number of
common equivalent shares (A).............. * * * * 123,625
------------ ----------- ----------- ----------- -----------
Total shares for computation 103,837,743 98,813,185 88,491,503 88,462,818 88,398,928
============ =========== =========== =========== ===========
Primary income (loss) per share:
Income (loss) from continuing operations.. $ (2.64) $ (4.35) $ (1.91) $ (0.95) $ 2.04
Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles..................... (3.32) (4.37) (3.89) (1.05) 1.78
(Loss) on extraordinary items............ (0.07) (0.08) -- (0.05) --
Cumulative effect of changes in
accounting principles................... (2.96) -- -- -- --
Net income (loss)......................... (6.35) (4.45) (3.89) (1.10) 1.78
</TABLE>
<PAGE>

EXHIBIT 11
ARMCO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER SHARE - (Continued)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>

Year Ended December 31
---------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
II. FULLY DILUTED INCOME (LOSS) PER SHARE
Income (loss) from continuing operations.............. $ (256.2) $ (419.3) $ (160.6) $ (75.8) $ 188.5
Less: preferred dividends............................ 17.8 10.3 8.1 8.1 --
------------ ----------- ----------- ----------- -----------
Income (loss) from continuing operations
after preferred dividends............................ $ (274.0) $ (429.6) $ (168.7) $ (83.9) $ 188.5
============ =========== =========== =========== ===========
Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles................................ $ (327.0) $ (421.5) $ (336.5) $ (85.2) $ 165.0
Less: preferred dividends............................ 17.8 10.3 8.1 8.1 --
------------ ----------- ----------- ----------- -----------
Income (loss) before extraordinary
items and cumulative effect of changes
in accounting principles after preferred.............
dividends............................................ $ (344.8) $ (431.8) $ (344.6) $ (93.3) $ 165.0
============ =========== =========== =========== ===========
Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles................................ $ (327.0) $ (421.5) $ (336.5) $ (85.2) $ 165.0
(Loss) on extraordinary items....................... (7.3) (8.4) -- (4.3) --
Cumulative effect of changes in
accounting principles.............................. (307.5) -- -- -- --
------------ ----------- ----------- ----------- -----------
Net income (loss)..................................... $ (641.8) $ (429.9) $ (336.5) $ (89.5) $ 165.0
Less: preferred dividends........................... 17.8 10.3 8.1 8.1 --
------------ ----------- ----------- ----------- -----------
Net income (loss) after preferred
dividends........................................... $ (659.6) $ (440.2) $ (344.6) $ (97.6) $ 165.0
============ =========== =========== =========== ===========
Weighted average number of
common shares........................................ 103,837,743 98,813,185 88,491,503 88,462,818 88,275,303
Weighted average number of
common equivalent shares (A)......................... * * * * 157,943
Weighted average number of preferred
shares on an "if converted" basis.................... * * * * 4,376,163
------------ ----------- ----------- ----------- -----------
Total shares for computation.. 103,837,743 98,813,185 88,491,503 88,462,818 92,809,409
============ =========== =========== =========== ===========
Fully diluted income per share (B):
Income (loss) from continuing operations.............. $ (2.64) $ (4.35) $ (1.91) $ (0.95) $ 2.03
Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles................................ (3.32) (4.37) (3.89) (1.05) 1.78
Gain (loss) on extraordinary items.................. (0.07) (0.08) -- (0.05) --
Cumulative effect of changes in
accounting principles.............................. (2.96) -- -- -- --
Net income (loss)................................... (6.35) (4.45) (3.89) (1.10) 1.78
</TABLE>
- ---------
* Antidilutive

NOTES:
(A) Common equivalent shares are included for dilutive stock options as if the
options were exercised and the proceeds used to acquire common shares of
Armco.
(B) Calculation of fully diluted income per share is submitted for 1989 in
accordance with Securities Exchange Act of 1934 Release No. 9083 although
it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an
antidilutive result.

<PAGE>

EXHIBIT 13

MANAGEMENT'S DISCUSSION AND ANALYSIS
19
- --------------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS

THREE YEARS ENDED DECEMBER 31, 1993

(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PER TON DATA)

GENERAL

This discussion and analysis of Armco's 1993 financial results should be read
together with the Consolidated Financial Statements and Notes on pages 33
through 56.

Armco's results in 1993, 1992 and 1991, shown below, reflect the
reclassification of Worldwide Grinding Systems as a discontinued operation.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1993 1992 1991
===============================================================================
<S> <C> <C> <C>
Net sales $1,664.0 $1,673.2 $1,204.0
Special charges -- net (165.5) (185.1) (48.7)
Operating loss (146.0) (157.3) (9.5)
Equity in losses of equity companies (43.7) (255.5) (110.6)
Loss from continuing operations (256.2) (419.3) (160.6)
Discontinued operations --
Worldwide Grinding Systems
Income from operations 14.2 0.4 8.8
Loss on disposal of business (40.0) -- --
AFSG companies to be sold
Loss from operations -- (2.6) (14.4)
Write-off of advances to AFSG -- -- (170.3)
Loss on disposal of business (45.0) -- --
Loss before extraordinary losses and
cumulative effect of accounting changes (327.0) (421.5) (336.5)
Net loss $ (641.8) $ (429.9) $ (336.5)
- -------------------------------------------------------------------------------
</TABLE>

TITLE: ARMCO INC. -- 1993 SALES

% BY PRODUCTS
Stainless Sheet and Strip 30%
Electrical Steel 15%
Semi-Finished 8%
Stainless Plate 7%
Carbon Sheet and Strip 18%
Pipe and Tubing 15%
Other 7%

% BY MARKETS
Industrial and Electrical Equipment 30%
Service Centers 26%
Automotive 18%
Construction 13%
Appliance, Utensils and Cutlery 2%
Other 11%

AS A RESULT OF DIVESTMENTS, THE PERCENTAGE OF ARMCO'S SALES FROM MORE
PROFITABLE, VALUE-ADDED SPECIALTY STEEL PRODUCT LINES INCREASED DRAMATICALLY.

Year-to-year results are not directly comparable due to the divestiture of
certain businesses and to the acquisition of Cyclops Industries, Inc. (Cyclops)
on April 24, 1992.

In 1993, consistent with its specialty steel strategy, Armco sold its
Brazilian sheet and strip operations, Worldwide Grinding Systems, a welded
tubing operation and a portion of its nonresidential construction business and
also announced its plans to dispose of certain other businesses within the Other
Steel and Fabricated Products segment. In early 1994, Armco signed a letter of
intent to sell the Armco Financial Services Group (AFSG) companies to be sold
and announced a recapitalization plan for Armco Steel Company, L.P. (ASC), its
carbon steel joint venture with Kawasaki Steel Corporation (Kawasaki), whereby
Armco's interest will be reduced to less than one percent. See discussions in
"Business Segment Results," "Discontinued Operations" and "Equity and Other
Investments -- Armco Steel Company, L.P. (ASC)," below. In conjunction with the
disposal of businesses, Armco recorded, in 1993, charges totaling $250.5, which
include special charges of $165.5 reflected in operating losses, a $45.0 charge
for expenses and losses associated with Armco's signing of a letter of intent to
sell the AFSG companies to be sold and $40.0 as a loss on the disposal of the
Worldwide Grinding Systems segment.

[PHOTOGRAPH OF FRED O'BRIEN APPEARS HERE]

"ARMCO'S INVESTOR RELATIONS ACTIVITIES WILL CONTINUE TO BE MORE FOCUSED IN 1994.
AS A COMPLEX COMPANY MAKING MAJOR CHANGES TO BECOME MORE OPERATIONS-ORIENTED, WE
WILL SCHEDULE REGULAR MEETINGS WITH ANALYSTS TO KEEP THEM UP-TO-DATE ON OUR
PROGRESS." -- FRED O'BRIEN, ASSISTANT TREASURER AND DIRECTOR OF INVESTOR
RELATIONS
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
20
- --------------------------------------------------------------------------------

The total charges include $143.6 for the excess of carrying value of net
assets over anticipated proceeds on disposal, $66.2 for employee benefit costs
and $18.1 for estimated losses through the dates of disposal. Most of the
charges are either non-cash or will be paid over a long period. Armco expects to
spend up to $25.0 in 1994 related to these charges. Other components of the
charges were expenses related to provisions for legal and environmental matters
and recognition of previously deferred foreign currency translation adjustments,
partially offset by pension curtailment gains. Some of the businesses that have
recently been sold or that are currently for sale significantly impacted Armco's
results in recent periods. In conjunction with Armco's decision to dispose of
certain businesses in the Other Steel and Fabricated Products segment, Armco
stopped recording, as a component of continuing operations, the sales, costs and
expenses of these businesses after September 30, 1993. All results presented for
the Worldwide Grinding Systems businesses and the AFSG companies to be sold have
been reclassified to discontinued operations.

Effective January 1, 1993, Armco recorded a charge of $440.0, or $4.24 per
share, net of taxes, for the adoption of Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions (SFAS 106). This accounting standard requires the accrual of expense
for postretirement benefits during the years an employee is actively employed,
rather than the former practice of expensing the benefits on an as-incurred
basis when the participant is retired. In addition, the adoption of SFAS 106
resulted in an increase in annual postretirement benefit expense, which
increased net losses $32.0 for 1993.

Also effective January 1, 1993, Armco recorded a cumulative effect benefit
of $135.6, or $1.31 per share, for the adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), excluding
the tax benefit related to the adoption of SFAS 106.

TITLE: STAINLESS STEEL SHEET AND STRIP CONSUMPTION

Apparent Consumption (Tons in Thousands)
1988 1,133
1989 1,060
1990 1,064
1991 1,047
1992 1,188
1993 1,366

Import Penetration
1988 11.9%
1989 13.7%
1990 15.3%
1991 16.1%
1992 16.1%
1993 25.2%

Source: Specialty Steel Institute of the United States

ON THE POSITIVE SIDE, STAINLESS STEEL CONSUMPTION IN THE U.S. CONTINUES TO RISE.
IN 1993, SHEET AND STRIP USE INCREASED 15 PERCENT OVER 1992 AND PLATE
CONSUMPTION WAS UP OVER 13 PERCENT. ON THE NEGATIVE SIDE, RECORD LEVELS OF
STAINLESS SHEET AND STRIP IMPORTS PUT STRONG DOWNWARD PRESSURE ON PRICES AND
ACCOUNTED FOR MUCH OF 1993'S GROWTH IN DOMESTIC USE.

TITLE: ARMCO INC. -- SPECIALTY STEEL MARKET SHARE

STAINLESS SHEET AND STRIP
Armco 25%
Allegheny-Ludlum 26%
J&L Specialty Products 16%
Washington Steel/Lukens 8%
Imports 25%

ELECTRICAL STEEL
Armco 42%
Allegheny-Ludlum/Jessop 20%
Warren Consolidated Industries 16%
Imports 22%

STAINLESS PLATE
Armco 18%
Allegheny-Ludlum 31%
J&L Specialty Products 11%
Washington Steel/Lukens 9%
Avesta 8%
Other 7%
Imports 16%

ARMCO IS A MAJOR PLAYER IN ALL OF THE DOMESTIC SPECIALTY STEEL MARKETS AND THE
LEADER IN AUTOMOTIVE CHROME STAINLESS AND ELECTRICAL STEELS.

Source: Management estimates

As a result of the adoption of SFAS 109, Armco has recorded a deferred tax
asset of $298.5, net of a valuation allowance of $776.2. The ultimate
realization of this asset depends on Armco's ability to generate sufficient
taxable income in the future. As of December 31, 1993, Armco had capital and net
operating loss carryforwards of approximately $1,216.3, expiring between 1996
and 2008, with approximately 70% expiring after the year 2000. Even though Armco
has incurred book and tax losses for the past four fiscal years, management
believes that it is more likely than not that it will generate taxable income
sufficient to realize the recognized portion of the tax benefit associated with
future deductible temporary differences and NOL and tax credit carryforwards
prior to their expiration. This belief is based upon, among other factors,
changes in operations that have occurred during 1992 and 1993, as well as
consideration of available tax planning strategies. Specifically, cost savings
associated with Armco's acquisition of Cyclops and capital investments are being
realized, and are anticipated to continue, to improve operating results.
Business restructurings announced during the fourth quarter of 1992 and the
third and fourth quarters of 1993 included the sale of non-strategic units, some
of which have been unprofitable. Armco has operated in a highly cyclical
industry and consequently has had a
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

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

history of generating and then utilizing significant amounts of NOL
carryforwards. During the years 1987-1989, Armco utilized approximately $350.0
of NOL carryforwards. Management believes that the valuation allowance noted
above is appropriate given the current projections of taxable income. If Armco
is unable to generate sufficient taxable income in the future through operating
results, increases in the valuation allowance will be required through a charge
to expense. However, if Armco achieves sufficient profitability to utilize a
greater portion of the total deferred tax asset, the valuation allowance will be
reduced through a credit to income.

1993 VS. 1992: Armco's net sales declined slightly because of the sale or
the identification for sale of a number of businesses within the Other Steel and
Fabricated Products segment. The decline was almost entirely offset by improved
sales in the Specialty Flat-Rolled Steel segment and Douglas Dynamics as well as
by the impact of a full year of results from the former businesses of Cyclops.

Operating losses declined because of improved performance in the Specialty
Flat-Rolled Steel segment and at Douglas Dynamics, and because of a reduction in
special charges. Special charges of $165.5, taken in the third quarter of 1993,
were associated with the decision to dispose of a number of businesses within
the Other Steel and Fabricated Products segment. Excluding special charges,
operating profit declined slightly in 1993 compared to 1992, as improvements in
the Specialty Flat-Rolled Steel segment were more than offset by increased
losses at Empire-Detroit, costs associated with the start-up of a new stretch
mill at Sawhill Tubular, losses on certain contracts at a nonresidential
construction company and approximately $29.3 of additional expense related to
the adoption of SFAS 106.

The loss from continuing operations in 1993 compared to the prior year
declined due to reduced special charges and reduced losses from equity
investments. Armco's net loss from equity investments was $43.7 in 1993 compared
to $255.5 in 1992. The reduction was due primarily to the fact that Armco
stopped recording losses in ASC after Armco's investment in ASC was reduced to
zero. (See "Equity and Other Investments," below.) Armco's net loss for 1993
includes $14.9 of tax refunds and accrual reversals compared to $52.1 in 1992.
The net loss for 1993 was impacted by the cumulative effect of the adoption of
three new accounting standards, the net effect of which was a charge of $307.5
recorded in the first quarter.

1992 VS. 1991: Armco's net sales increased, primarily due to the Cyclops
acquisition, but operating losses worsened, primarily due to special charges. In
1992, the net loss reflected net special charges of $204.2 for a series of
restructuring actions to reduce costs, improve future profitability and
strengthen Armco's competitive position. Of this total, $185.1 is reported as a
special charge reflected in operating loss, and $19.1 is reflected in income
from discontinued operations. The $204.2 charge is comprised of $126.0 for
employee benefit costs related to the restructurings, $24.0 for the estimated
losses through the dates of the ultimate disposal of specified units, $23.0 for
the loss on the divestment and the excess carrying value of net assets over the
anticipated proceeds on disposal, with the remainder comprised primarily of
provisions for legal and environmental matters and the recognition of previously
deferred foreign currency translation adjustments. In addition to these special
charges, the 1992 net loss reflected $173.2 for Armco's share of special and
extraordinary charges at ASC, $3.3 for Armco's share of special charges at the
National-Oilwell joint venture, a $2.3 extraordinary loss on early retirement of
debt, a tax refund of $39.1 and a $13.0 reduction in income tax reserves. The
net loss in 1991 reflected special restructuring charges of $48.7, a charge of
$170.3 to write off Armco's advances to AFSG and a gain of $24.1 on Armco's
investment in ASC. Excluding special charges, the operating results in 1992
decreased as cost reduction benefits of the acquisition and results of the
acquired stainless flat-rolled steel, tubular and nonresidential construction
businesses were more than offset by increased operating losses from the
stainless bar, rod and wire products and carbon steel businesses. Excluding
special charges, ASC's results improved but National-Oilwell's results weakened
in 1992 compared to 1991.

OUTLOOK: Armco's results are expected to improve in 1994 compared to 1993 as
a result of restructuring actions taken in 1992 and 1993, operational
improvements in its Specialty Flat-Rolled Steel segment and an improving U.S.
economy, which is favorably affecting Armco's major markets.

BUSINESS SEGMENT RESULTS

SPECIALTY FLAT-ROLLED STEEL

Armco's Specialty Flat-Rolled Steel businesses produce and finish stainless
and electrical steel sheet and strip at plants in Butler, Pennsylvania and
Coshocton and Zanesville, Ohio. Stainless steel plate products are finished at
Eastern Stainless Corporation (Eastern Stainless), Armco's 84%-owned subsidiary
in Baltimore, Maryland. The segment also includes the results of European
trading companies which buy and sell steel and manufactured steel products.

[PHOTOGRAPH OF DENNIS McGLONE APPEARS HERE]

"IN 1994, THE SPECIALTY FLAT-ROLLED STEEL SEGMENT MUST CONTINUE TO IMPROVE
QUALITY, DELIVERY AND INTERNAL COST EFFICIENCY. WE ALSO HAVE TO RAMP UP SALES AT
NORTH AMERICAN STAINLESS, CONTINUE TO IMPROVE ELECTRICAL STEEL PROFITABILITY AND
FIND BETTER WAYS TO MEET THE NEEDS OF EXISTING AUTOMOTIVE CHROME AND CHROME
NICKEL STAINLESS CUSTOMERS." -- DENNIS MCGLONE, SENIOR VICE PRESIDENT --
COMMERCIAL, ARMCO ADVANCED MATERIALS COMPANY
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
22
- --------------------------------------------------------------------------------

There is significant interaction between Armco's Butler, Pennsylvania plant and
North American Stainless (NAS), a 50%-owned joint venture which operates a
greenfield chrome nickel stainless finishing facility in Carrollton, Kentucky.
NAS purchases, at market prices, a portion of its steel requirements from
Armco's Butler plant. In addition, Armco is the exclusive sales agent for NAS.
The results for NAS are reported under "Other Equity Companies."

The Specialty Flat-Rolled Steel segment's results appear below.

<TABLE>
<CAPTION>
- -------------------------------------------------------
1993 1992 1991
=======================================================
<S> <C> <C> <C>
Customer sales $1,001.5 $885.5 $693.0
Special charges -- (37.6) --
Operating profit 75.5 21.4 42.3
(000s tons)
Shipments 653 571 469
Raw steel production 882 793 612
Capability utilization 94% 84% 79%
- -------------------------------------------------------
</TABLE>

1993 VS. 1992: The 13% increase in customer sales reflects a 14% increase in
volume due to a full year of shipments from former Cyclops units and increased
demand for specialty steels, particularly from the automotive chrome markets.
Average prices declined slightly, reflecting a change in product mix as strong
demand for automotive chrome and increased supply of chrome nickel semi-finished
product to NAS led to reduced shipments of higher-priced, finished chrome nickel
products, now being sold by NAS. In addition, lower raw material costs and
increased foreign imports, which have risen 62%, 26% and 40% for stainless sheet
and strip, stainless plate and electrical steels, respectively, during 1993
compared to 1992, have placed pressure on chrome nickel pricing. Exports
declined to 4% of this segment's total tons shipped in 1993 compared to 6% in
1992 as Armco shifted some melting capacity from export markets to more
profitable domestic markets.

Operating profit increased because of improvements in operating practices
and cost savings relating to synergies from the Cyclops acquisition, in addition
to the absence of special charges such as those incurred in 1992. Operating
profit excluding special charges was $116 per ton, or 8% of sales, in 1993
compared to $103 per ton, or 7% of sales, in 1992. In 1993, due to the adoption
of SFAS 106, operating profit included approximately $20.1 of additional
postretirement benefits expense over the previous, as-incurred basis. Were it
not for that increase, the operating profit margins would have improved more
significantly in the period-to-period comparisons.

Key to Armco's strategy of enhancing its role as a leading domestic producer
of specialty flat-rolled steel was supplying the steel feedstock for finishing
by the former Cyclops businesses from Armco's world-class melt shop in Butler,
thereby increasing the utilization of the Butler facility and providing the
former Cyclops units with an improved source of supply. In 1993, the steelmaking
capability at the Butler plant increased to 850,000 tons per year from 750,000
tons per year in 1992, primarily as a result of improved operating practices.
Production at the Butler plant increased 15% in 1993 compared to 1992, with the
majority of the increase due to supplying feedstock to the former Cyclops units
and to NAS and the balance due to increased demand for steel products by
external customers. Because Butler was able to meet Eastern Stainless' feedstock
requirements at a lower cost, Eastern Stainless was able to close its melt shop
in July 1993.

TITLE: SPECIALTY FLAT-ROLLED STEEL -- 1993 SALES

% BY PRODUCTS
Stainless Sheet and Strip 51%
Electrical 24%
Semi-Finished Stainless 14%
Stainless Plate 11%

% BY MARKETS
Industrial and Electrical Equipment 40%
Automotive 27%
Service Centers 20%
Construction 3%
Appliance, Utensils and Cutlery 3%
Other 7%

THE AUTOMOTIVE, INDUSTRIAL MACHINERY AND SERVICE CENTER MARKETS CONTINUE TO BE
THE MAJOR CONSUMERS OF ARMCO SPECIALTY STEELS.

During 1993, Eastern Stainless signed two-year labor agreements with the
United Steelworkers of America (USWA). Although the new agreements do not
significantly affect employment cost, they do provide Armco with more
flexibility as it continues to take action to restructure Eastern Stainless to
improve its operating performance. Armco also signed, in 1993, 36-month and 33-
month agreements with the local independent unions at the specialty steel plants
in Butler, Pennsylvania and Zanesville, Ohio, respectively. These contracts
include provisions for a managed healthcare benefits system and greater
flexibility within the work force.

1992 VS. 1991: Customer sales increased 28% in 1992, reflecting both
increased shipments and higher average prices. The shipment increase of 22%,
average price improvement of 5% and mix

[PHOTOGRAPH OF GARY McDANIEL APPEARS HERE]

"WE HAVE AN AGGRESSIVE OPERATING PLAN FOR BUTLER, ZANESVILLE AND EASTERN
STAINLESS IN 1994. CLEARLY, OUR EFFORTS WILL BE CONCENTRATED ON ACHIEVING OR
EXCEEDING THE PLANNED PROFITABILITY WHILE CONTINUING TO ENHANCE CUSTOMER
SATISFACTION, CREATING AN ENVIRONMENT THAT FOSTERS MORE EMPLOYEE TEAMWORK AND
REDUCING VARIABILITY IN OUR PROCESSES. SPECIFICALLY, WE WANT TO INCREASE CAST
TONS BY ANOTHER SIX PERCENT OVER 1993'S RECORD LEVELS, FURTHER OPTIMIZE COLD
ROLLING AND CONTINUE TO IMPROVE OUR CUSTOMER DELIVERY PERFORMANCE, WHICH REACHED
93 PERCENT IN THE FOURTH QUARTER." -- GARY MCDANIEL, VICE PRESIDENT & GENERAL
MANAGER -- BUTLER, ZANESVILLE AND EASTERN STAINLESS
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
23
- --------------------------------------------------------------------------------

TITLE: BUTLER PLANT ON-TIME SHIPMENT PERFORMANCE
1993 PERCENT ON-TIME (BY ORDERS)

1st QTR 80%
2nd QTR 79%
3rd QTR 90%
4th QTR 93%

CLOSE COOPERATION BETWEEN PRODUCTION AND INSIDE SALESPEOPLE AT THE BUTLER PLANT
RESULTED IN 93 PERCENT ON-TIME DELIVERY PERFORMANCE FOR THE FOURTH QUARTER OF
1993, A 63 PERCENT IMPROVEMENT FROM JUST TWO YEARS AGO, WHILE SHIPMENTS
INCREASED AND INVENTORY WAS REDUCED.

improvements were a result of the Cyclops acquisition. By comparison, average
prices excluding the former Cyclops businesses were slightly lower in 1992 than
in 1991.

Operating profit in 1992 included a special charge of $37.6 for closing the
Eastern Stainless melt shop and reducing the work force of the businesses in the
segment. Excluding the special charge, operating profit was $103 per ton, or 7%
of sales, in 1992 compared to $90 per ton, or 6% of sales, in 1991, reflecting
the improved product mix and a better capability utilization rate as a result of
the benefit of the Cyclops acquisition, offset by poor electrical steel yields
and higher costs.

OUTLOOK: Demand for specialty flat-rolled steel in 1994 is expected to be
strong, especially in automotive chrome stainless sheet. Electrical steel demand
is anticipated to improve further principally due to higher housing starts.
However, domestic shipments of stainless plate are likely to remain weak due to
high levels of imports and softness in certain capital goods markets. Operating
results are expected to improve in 1994 relative to 1993 as raw steel production
should run at improved levels for the full year due to higher product demand.

Increased foreign competition, combined with added domestic capacity, will
continue to place pressure on pricing. Despite this increased competition, Armco
expects to compete as a low-cost, high-quality producer and to retain its
position in the marketplace.

[PHOTO OF JAY PARR APPEARS HERE]

"FOR 1994, COSHOCTON'S EMPLOYEES WANT TO INCREASE SHIPMENT VOLUME TO 70,000 TONS
FROM LAST YEAR'S BEST-EVER TOTAL OF 66,300 TONS. WE'RE GOING TO IMPROVE ON-TIME
DELIVERIES TO 95 PERCENT. AND WE'LL CONTINUE TO DRIVE THE COST OF QUALITY DOWN
TO 12 PERCENT OF TOTAL SALES REVENUE. PLANT SAFETY WILL CONTINUE TO BE OUR
NUMBER ONE PRIORITY." -- JAY PARR, GENERAL MANAGER, COSHOCTON STAINLESS

Regarding imports of grain-oriented electrical steel, in 1993, Armco and a
domestic competitor, as well as several labor unions representing work forces at
specialty steelmaking plants, filed countervailing duty and anti-dumping duty
petitions against Italy. There was also an anti-dumping duty petition filed
against Japan, in which Armco was not a filing party. In October 1993, the
International Trade Commission (ITC) issued a preliminary finding of injury. On
January 25, 1994, the U.S. Department of Commerce announced a preliminary
countervailing duty margin of 23.14% on imports of grain-oriented electrical
steel from Italy. On February 3, the Department of Commerce announced
preliminary anti-dumping duties of 5.62% against Italy and 31.08% against Japan.
Final injury determination by the ITC is now scheduled for May regarding the
countervailing duty of imports from Italy and for June regarding the anti-
dumping investigation of imports from Japan and Italy.

TITLE: COSHOCTON STAINLESS DIVISION COST OF QUALITY

% of Sales
1989 18.8%
1990 18.1%
1991 18.7%
1992 18.5%
1993 13.2%

DUE TO A MORE CONSISTENT SUPPLY OF FEEDSTOCK AND MORE EFFICIENT ROUTING FROM THE
BUTLER MELT SHOP THROUGH ACS HOT ROLLING, ARMCO'S COSHOCTON FINISHING PLANT WAS
ABLE TO DECREASE ITS COST OF QUALITY 27 PERCENT IN 1993. CRITICAL ISSUE TEAMS
HAVE TARGETED ANOTHER 9 PERCENT IMPROVEMENT FOR 1994.
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
24
- --------------------------------------------------------------------------------

OTHER STEEL AND FABRICATED PRODUCTS

At December 31, 1993, the Other Steel and Fabricated Products business
segment included Empire-Detroit, Sawhill Tubular and Douglas Dynamics. At
various times during the three-year period ended December 31, 1993, the segment
included other businesses which have since been divested or identified for
divestment. During 1991, 1992 and 1993, Armco took actions to restructure and/or
divest several businesses in this segment that did not represent a strategic fit
or offer growth potential or generate positive cash flow, resulting in
significant special charges in all three years.

<TABLE>
<CAPTION>
- -----------------------------------------------
1993 1992 1991
===============================================
<S> <C> <C> <C>
Customer sales $ 662.5 $ 787.7 $511.0
Special charges (165.5) (129.8) (48.7)
Operating (loss) (183.5) (128.5) (19.4)
- ------------------------------------------------
</TABLE>

1993 VS. 1992: Customer sales decreased by 16% in 1993 compared to 1992,
primarily due to divestments and restructuring of businesses within the segment.
Divestments that affect the comparison include Southwestern Ohio Steel (SOS)
(sold in August 1992), Armco do Brasil (sold in September 1993), Miami
Industries (sold in October 1993) and E. G. Smith (sold in February 1993). In
addition, the results of other businesses identified for divestment are no
longer reflected as consolidated units in Armco's consolidated statements of
income from the dates indicated. Those businesses include stainless bar, rod and
wire (year-end 1992), the conversion systems business (September 30, 1993),
Flour City Architectural Metals (September 30, 1993) and Armco's Tex-Tube
Division (September 30, 1993). This decrease was partially offset by increased
sales at Douglas Dynamics and by a full year of shipments from Empire-Detroit
and Sawhill Tubular (both acquired as part of Cyclops in April, 1992).

On September 21, 1993, Armco sold the stock of Armco do Brasil, S.A. to the
operation's management for approximately $55.0 in net cash proceeds and recorded
a special charge of $15.0 against third quarter earnings. On October 28, 1993,
Armco completed the sale of Miami Industries to Copperweld Corporation for
approximately $15.0 in total cash proceeds and certain assumed liabilities. On
February 16, 1993, Armco sold E. G. Smith to a Pittsburgh-based investor group
for approximately $11.0.

[PHOTOGRAPH OF TONY KURLEY APPEARS HERE]

"1993 SAW GROUNDBREAKING ON A $100 MILLION THIN-SLAB CONTINUOUS CASTER AND
CREATION OF THE MANSFIELD STEEL OPERATIONS (MSO) TO COMPETE AGAINST TRADITIONAL
MINI-MILLS. OUR 1994 GOALS ARE TO EXPEDITE CONSTRUCTION, START UP A NEW LADLE
METALLURGY FACILITY TO IMPROVE QUALITY AND REDUCE COSTS AND RESTRUCTURE MSO INTO
AN EFFICIENT OPERATION WHICH CAN CONTRIBUTE TO ARMCO'S PROFITABILITY." -- TONY
KURLEY, GENERAL MANAGER, MANSFIELD STEEL OPERATIONS

TITLE: OTHER STEEL & FABRICATED PRODUCTS -- 1993 SALES

% BY PRODUCTS
Carbon Sheet and Strip 46%
Pipe and Tubing 37%
Construction 5%
Other 12%

% BY MARKETS
Service Centers 35%
Construction 27%
Industrial and Electrical Equipment 15%
Aircraft and Aerospace 5%
Automotive 4%
Other 14%

BECAUSE OF THE DIVESTMENT AND RESTRUCTURING OF VARIOUS NON-STRATEGIC BUSINESSES
IN 1993, THE OTHER STEEL AND FABRICATED PRODUCTS SEGMENT NOW INCLUDES STEEL
PIPE, SNOWPLOW AND FLAT-ROLLED CARBON STEEL BUSINESSES.

The operating loss in this segment in 1993 includes special charges of
$165.5 to cover estimated losses and reserve requirements for the ultimate
disposal of a number of businesses. Of the total, $15.0 is associated with the
sale of Armco's Brazilian operations and the remaining $150.5 is associated with
the ultimate disposal of Armco's stainless bar, rod and wire businesses, its
conversion services business, a nonresidential construction business and a
tubing business. Operating profit, excluding special credits and charges,
declined in 1993 primarily because of the divestiture of SOS and E.G. Smith, as
well as the costs associated with the start-up of the stretch reduction mill at
Sawhill Tubular Division, higher scrap prices for Empire-Detroit and losses on
certain contracts at the remaining nonresidential construction operation. These
declines were partially offset by improvements at Douglas Dynamics and the
elimination of losses due to the restructuring of the stainless bar, rod and
wire businesses at year-end 1992.

1992 VS. 1991: Customer sales increased 54%, primarily as a result of the
Cyclops acquisition, which more than offset the effect of divestitures.
Operating results in 1992 and 1991 included special charges related to such
divestitures. In 1992, special charges included $101.4 to restructure and
downsize significantly the stainless bar, rod and wire businesses in Maryland
and Pennsylvania, $25.7 to divest operations primarily in Venezuela and $8.1 to
close a metal fabricating plant in Pennsylvania, partially offset by a gain of
$5.4 on the sale of SOS. In 1991, special charges included $32.4 for the sale or
divestiture of businesses in South America, $13.8 for work force reductions at
the stainless bar, rod and wire business in Maryland and $2.5 related to other
divestitures. Operating profit of the
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
25
- --------------------------------------------------------------------------------

remaining businesses increased in 1992 primarily due to cost reductions at the
Brazilian operation and improvement in the snowplow business. The steel tubing
and nonresidential construction companies obtained in the Cyclops acquisition
also contributed to the improved operating results before special charges. LIFO
layer liquidations resulting from reductions of inventory levels increased 1992
operating losses by $0.4 and decreased 1991 operating losses by $26.0.

OUTLOOK: Operating results are expected to improve in 1994 at Douglas
Dynamics on higher shipments of snowplows and at Sawhill Tubular as that
operation moves into full production with the new stretch reduction mill.
Continuing losses are expected at Empire-Detroit, however, partially driven by
scrap prices, which are expected to remain at a higher average level in 1994
relative to 1993.

In June 1993, Armco announced a plan to spend approximately $100.0 to
enhance the steel production capability and improve operating performance at
Empire-Detroit's Mansfield, Ohio operations by installing a thin-slab caster and
making related plant modifications. The caster is designed to produce carbon
steels, functional grades of chrome stainless steels and non-oriented grades of
electrical steels. Installation of the caster is expected to be completed in
1995.

In late June 1993, the USWA employees at Empire-Detroit's Mansfield and
Dover, Ohio plants ratified new, six-year contracts, which became effective
September 1, 1993. The contracts allow for a 25% reduction in the work force and
a change in work rules that should allow for a more efficient use of the new
caster technology and increased employee health benefit cost sharing, partially
offset by benefit and wage increases toward the end of the contract.

On July 27, 1993, the ITC announced its decisions on trade cases that had
been levied by U.S. carbon steel producers, ruling that foreign producers had
not caused injury to the domestic producers of hot-rolled carbon steel, although
about one-third of the claims against foreign cold-rolled producers, and
generally all claims against foreign coated carbon steel producers, were upheld.
This ruling could adversely impact domestic carbon steel producers such as
Armco's Mansfield, Ohio operations. While the effect that the rulings will have
upon future pricing and demand for domestically produced steel products is still
unknown, domestic carbon steel price increases effective January 1994 appear to
be holding, and additional price increases have been announced on flat-rolled
products effective July 1994. As is typical in the industry, however, there is
no certainty that these increases will continue to be realized.

[PHOTOGRAPH OF JOE VALLEY APPEARS HERE]

"LAST YEAR'S INSTALLATION AND START-UP OF THE NEW STRETCH MILL AT SAWHILL WAS A
SOLID SUCCESS. OUR PLAN FOR 1994 IS TO IMPROVE BY EIGHT PERCENT ON LAST YEAR'S
RECORD SALES WHILE REAPING THE COST BENEFITS FROM THE MORE EFFICIENT EQUIPMENT.
WE ALSO INTEND TO INVESTIGATE OTHER CAPITAL INVESTMENTS WHICH CAN BE
ECONOMICALLY JUSTIFIED." -- JOE VALLEY, PRESIDENT, SAWHILL TUBULAR

DISCONTINUED OPERATIONS

WORLDWIDE GRINDING SYSTEMS

<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1993 1992 1991
====================================================================
<S> <C> <C> <C>
Income from operations $ 14.2 $ 0.4 $ 8.8
Loss on disposal of business (40.0) -- --
- --------------------------------------------------------------------
</TABLE>

As part of Armco's strategy to focus on its specialty steel businesses,
Armco sold, on September 28, 1993, its Worldwide Grinding Systems' 50% interest
in several wire drawing operations for $33.0 in cash to Leggett & Platt
Incorporated, its partner in these joint ventures. On November 12, 1993, Armco
completed the sale of the balance of its Worldwide Grinding Systems segment to
an investment firm, Bain Capital, in partnership with members of the operations'
management. In this latter transaction, Armco received about $80.0 in total
compensation, excluding pending post-closing adjustments. The 1992 operating
loss included a special charge of $19.1 for closing a foundry and reducing the
work force. Armco's results for 1991, 1992 and 1993 reflect the reclassification
of the results of Worldwide Grinding Systems to discontinued operations.

ARMCO FINANCIAL SERVICES GROUP (AFSG)

The Armco Financial Services Group consists primarily of insurance companies
that Armco intends to sell and which continue underwriting (AFSG companies to be
sold) and companies that have stopped writing new business for retention and are
being liquidated (runoff companies).

On January 31, 1994, Armco announced that it had signed a letter of intent
to sell the ongoing insurance operations to Vik Brothers Insurance, Inc., a
privately-held, Raleigh, North Carolina-based, property and casualty insurance
holding company. Under the terms of the letter, the buyer would pay $70.0 at the
closing and $15.0 in three years, reduced by a potential adjustment for adverse
experience in the insurance reserves. Proceeds from the sale will remain
committed to the support of Armco's runoff insurance subsidiaries. Armco
recorded a charge against 1993 fourth quarter earnings of $45.0 to write down
the carrying value of the AFSG companies to be sold to the estimated net
realizable value upon
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
26
- --------------------------------------------------------------------------------

disposition. The final agreement is subject to a number of conditions, including
a definitive purchase agreement and approval by regulatory authorities and the
boards of directors of both companies.

At December 31, 1990, Armco's investment in and advances to AFSG were stated
at Armco's then estimated net realizable value on ultimate disposition of the
companies in the group. Due to depressed market conditions, underwriting losses
and changes in the expected timing of the disposition, Armco, in the fourth
quarter of 1991, wrote off its advances to AFSG of $170.3. At December 31, 1993,
Armco's investment in AFSG is stated at an amount equal to Armco's current
estimate of its net realizable value.

AFSG COMPANIES TO BE SOLD

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1993 1992 1991
==============================================================================
<S> <C> <C> <C>
Equity in income (loss) $ 10.4 $ (2.6) $ (14.4)
Deferred income (10.4) -- --
Write-off of advances to AFSG -- -- (170.3)
Cumulative effect of SFAS 106 (14.0) -- --
Premiums earned $227.7 $239.9 $ 250.9
Underwriting loss (32.1) (46.2) (50.9)
Net investment income
(including realized gains) 43.7 44.1 37.8
Realized gains 11.2 10.1 2.5
- ------------------------------------------------------------------------------
</TABLE>

1993 VS. 1992: Operations for 1993 resulted in income before the cumulative
effect of an accounting change, as losses and underwriting expenses were
reduced. The adoption of SFAS 106 in the first quarter of 1993 resulted in a
charge of $14.0. This charge reduced Armco's investment in the AFSG companies to
be sold and was included in the total cumulative effect of accounting changes
recorded by Armco. Armco accounts for these operations under the cost recovery
method, whereby net income is not recognized until realized through a sale of
the businesses, while net losses are charged against income as incurred.

Direct written premiums and premiums earned declined due to a continuing
soft market in business insurance, as well as the shutdown of the Southwest
Region office as of January 1, 1993. Lower incurred losses, workers'
compensation pool expenses and loss adjustment expenses resulted in reduced
losses from underwriting. Net investment income, including realized gains,
declined slightly on lower market interest rates.

1992 VS. 1991: The net loss of the AFSG companies to be sold was reduced in
1992 relative to 1991. Premiums earned declined in 1992 compared to 1991 as the
property and casualty insurance industry continued to experience soft
underwriting conditions. Despite the lower premiums, the underwriting loss
improved due to a decline in the number of large losses.

LIQUIDITY AND FINANCIAL POSITION: At December 31, 1993, the AFSG companies
to be sold had total assets of $571.4, including cash and invested assets of
$440.7. Net assets at December 31, 1993 were $135.9, an increase of $9.7
compared to December 31, 1992.

Insurance premiums and interest are the companies' primary sources of cash.
Operating activities provided $2.3 in 1993 compared to a use of cash of $6.5 in
1992. The improvement in 1993 is primarily due to a $13.3 reduction in loss
payments and a $6.4 decrease in commissions and general underwriting expenses,
partially offset by reduced premium collections of $10.3. Investing activities
provided $11.4 in 1993 compared to a use of $2.2 in 1992. Financing activities
used $2.8 in 1993 compared to a use of $5.8 in 1992. The investment portfolio of
the AFSG companies to be sold consists primarily of investment grade bonds. The
market value of the invested assets at December 31, 1993 was $441.5 compared to
$428.6 at December 31, 1992.

OUTLOOK: As discussed above, Armco has announced the signing of a letter of
intent to sell the AFSG companies to be sold. Finalization of the disposition is
subject to a number of conditions, including a definitive purchase agreement and
approval by regulatory authorities. Proceeds from the sale have been pledged as
security for certain note obligations due the runoff insurance companies and
will be retained in the investment portfolios of the AFSG runoff companies. If
the proposed transaction is unable to be consummated, Armco would negotiate with
other potential buyers to conclude a sale of these businesses.
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
27
- --------------------------------------------------------------------------------

Armco expects results from the AFSG companies to be sold to continue to
improve in 1994 over 1993. New programs have been implemented which are targeted
at improving pricing and reducing incurred losses through selection of risks and
agency management, with a focus on classes of business that yield profitable
returns. Premiums written are expected to increase slightly in 1994, primarily
through improving customer service and an expansion of the agency force.
Incurred losses are expected to continue to decline through the implementation
of a non-metro agency and underwriting program, focused pricing and various
other tactical activities.

RUNOFF COMPANIES

The runoff insurance companies have not written any business for retention,
except for an immaterial amount of guaranteed renewable accident and health
business. The number of policyholders of this business has decreased from
approximately 4,000 at December 31, 1986 to about 1,300 as of December 31, 1993.
No charges have been recorded with respect to the runoff companies since the
second quarter of 1990.

In September 1991, Armco sold one of its runoff insurance companies to a
group comprised of the company's management. In exchange for the transfer of the
cash and assets related to this company, the purchaser assumed all obligation
for the liabilities, future losses and expenses of the company. In 1992,
regulatory authorities approved a merger plan, which permitted Armco to merge a
runoff insurance company, which had a statutory surplus impairment, into another
runoff company, curing the impairment. Under terms of this merger plan, Armco
agreed with regulatory authorities to maintain statutory surplus of the
surviving runoff company at $10.0. During 1993, regulatory authorities allowed
the restructure and securing of certain obligations arising from the 1992 merger
plan, and Armco was released from the surplus maintenance agreement.

LIQUIDITY AND FINANCIAL RESOURCES: Claims are paid by using the investment
portfolio of the runoff companies and the related investment income from such
portfolio. The portfolio had a market value of $126.2 at December 31, 1993. The
runoff companies believe the existing invested assets, related income and other
assets will provide sufficient funds to meet all future claims payments.

The loss reserves of the runoff companies, net of reinsurance recoverables,
decreased from $498.3 at December 31, 1986 to $165.2 at December 31, 1993. The
runoff companies estimate that 61% 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 the runoff
companies' independent and consulting actuaries.

OUTLOOK: Armco management continues to believe, based on current facts and
circumstances and the views of outside counsel and advisors, that future
charges, if any, resulting from the runoff companies will not be material to
Armco's financial condition. However, it is possible that due to fluctuations in
Armco's results, future developments could have a material affect on the results
of one or more future interim or annual periods.

EQUITY AND OTHER INVESTMENTS

ARMCO STEEL COMPANY, L.P. (ASC)

ASC, an equally owned limited partnership between Armco and Kawasaki,
concentrates on the production of custom engineered grades and value-added
applications of hot-rolled steel and coated and uncoated cold-rolled steel for
sale to the automotive, appliance and manufacturing markets, as well as to the
construction industry and independent steel distributors and service centers.

Armco's financial interest in ASC, originally 60%, decreased to 55% in May
1990 and to 50% in May 1991 as a result of cash contributions made by Kawasaki
pursuant to the joint venture formation agreement. Kawasaki's final required
cash contribution to ASC pursuant to the formation agreement was made in October
1991 without further change in ownership. Armco recorded a gain of $24.1 on its
investment in ASC in 1991, reflecting Armco's interest in the increase in net
assets of ASC caused by Kawasaki's cash contributions, which was partially
reduced by the decrease in Armco's investment due to the ownership changes.

On January 26, 1994, Armco Inc. announced that ASC has begun implementing a
proposed plan to recapitalize the business. Under the plan, ASC intends to sell
equity through an initial public offering and debt through a senior note
offering. Proceeds would be used to restructure and recapitalize ASC, primarily
by reducing its current debt and unfunded pension liability. None of the
proceeds would be paid to either of the partners. Under the terms of the plan,
Armco's obligations to make certain cash payments to ASC would be eliminated and
its ownership reduced to less than one percent. No assurance, however, can be
given that the recapitalization plan for ASC will be successfully completed. In
connection with the offerings, ASC adopted SFAS 106 retroactive to January 1,
1990, recorded a cumulative effect charge of $491.6 and reclassified its
financial statements for 1990 through 1993. The Customer sales, Operating profit
(loss) and Net loss shown below represent the results of ASC, including the
retroactive application of SFAS 106.
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
28
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- ----------------------------------------------------------
1993 1992 1991
==========================================================
<S> <C> <C> <C>
Customer sales $1,594.5 $1,404.5 $1,301.4
Special charges (19.6) (379.3) --
Operating profit (loss) 13.9 (499.3) (219.0)
Net loss (40.7) (544.1) (251.1)
Armco's equity loss (27.9) (234.1) (119.0)
(000s tons)
Shipments 3,429 3,049 2,769
Raw steel production 3,601 3,399 3,087
Capability utilization 91% 79% 68%
- -----------------------------------------------------------
</TABLE>

1993 VS. 1992: Losses incurred by ASC during the first quarter of 1993
reduced Armco's investment to zero, after which Armco stopped recording losses
related to the operations of ASC. In 1993, Armco funded $19.4 to ASC for hot
strip mill improvements that enhance ASC's ability to roll certain gauges of
chrome nickel stainless steel for Armco. However, Armco has no binding
commitment or intention to provide financial support of ASC's operations. ASC
currently provides services to Armco (on an arm's length basis) under a long-
term toll rolling agreement, which will continue in effect after completion of
the proposed recapitalization.

ASC's customer sales increased 14% in 1993 versus 1992, reflecting a 12%
increase in tons shipped and a 1% increase in average selling prices. The
shipment increase was primarily due to improved operating efficiencies. Price
increases announced during 1993 were partially offset by a less favorable
product mix. In addition, many of the price increases did not take effect until
the fourth quarter of 1993, and certain others will not be fully reflected until
the first half of 1994.

ASC recorded an operating profit in 1993 compared to an operating loss in
1992. This improvement is due to continuing efforts on cost reduction
activities, the move to 100% continuous casting, improved productivity, lower
raw material contract prices, salaried work force reductions and the
rationalization of less productive, higher cost operations. The 1993 operating
income includes approximately $19.6 in restructuring charges, while the 1992
operating loss included restructuring charges of approximately $379.3. In
December 1993, ASC adopted SFAS 106 retroactive to January 1, 1990, and recorded
a cumulative effect charge of $491.6 in 1990. The 1992 operating loss includes a
charge of $16.0 in connection with ASC's decision to shut down permanently the
hot strip rolling mill and associated units at its Ashland (Kentucky) Works, as
well as the benefits of a litigation settlement reached in February 1992, the
terms of which are subject to a confidentiality agreement.

1992 VS. 1991: Armco's equity loss from ASC increased substantially in 1992
because of special charges.

ASC's 1992 customer sales increased 8% compared to 1991 reflecting a 10%
increase in shipments and a 2% decrease in selling prices (exclusive of mix
changes) in a weak market environment. Shipments to service centers increased
while shipments to the automotive, appliance, construction and manufacturing
sectors decreased. ASC's capability utilization rate was adversely affected by
interruptions caused by the installation of a gas cleaning system at Ashland in
1992 and by interruptions due to a major modernization of the Middletown hot
strip mill in 1991. Excluding special charges, ASC's operating loss declined
about 50% in 1992 compared to 1991, reflecting improved operating performance.

In 1992, ASC recorded charges totaling $379.3, which included $119.5 to
write down operating assets, $158.2 for pension costs and termination benefits
related to work force reductions and $46.6 for the impairment of its investment
in Eveleth, a partnership which produces iron ore pellets. Rationalization of
operating facilities resulted from the determination that ASC had redundant
assets and excess capacity. The impairment of Eveleth followed ASC's conclusion
as to its inability to recover its investment because of doubts regarding the
continued level of support by it and the other Eveleth partners in light of
worldwide excess iron ore capacity and Eveleth's position as a high cost
producer. In the fourth quarter of 1992, ASC decided not to continue to purchase
iron ore pellets from Eveleth. Most of these actions took place following an
operations review conducted by ASC's newly-appointed management team and
completed in the fourth quarter of 1992.

OUTLOOK: As discussed above, ASC is implementing a plan to recapitalize the
business. Under that plan, Armco will reduce its ownership in ASC to less than
one percent. No assurance, however, can be given that the recapitalization plan
for ASC will be successfully completed. Armco does not intend to record any
profit and loss impact from the results of ASC.

The current collective bargaining agreement with the USWA covering ASC's
hourly steelmaking employees at the Ashland Works was originally scheduled to
expire July 31, 1993, but has been extended to June 1, 1994. The current
agreement with the Oil, Chemical and Atomic Workers (OCAW) was scheduled to
expire October 1, 1993, but has been extended to May 1, 1994. No predictions can
be made as to the results of the renegotiations of these agreements or the
possible effects of the renegotiations upon ASC, although the agreement with the
USWA covering hourly Ashland Works employees establishes procedures for revising
economic terms upon their expiration and contains no-strike clauses that are
effective during the negotiation period.
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
29
- --------------------------------------------------------------------------------

The terms of the agreement with the Armco Employees Independent Federation
(AEIF) covering ASC's hourly employees at the Middletown Works have been settled
through March 1, 1997 pursuant to arbitration. On February 15, 1994, the USWA
filed a petition with the National Labor Relations Board seeking to represent
the hourly employees at the Middletown Works currently represented by the AEIF.
If the USWA is elected as the bargaining representative for those employees, it
may seek to renegotiate the terms of the existing AEIF agreement covering those
employees prior to its scheduled expiration on March 1, 1997.

LIQUIDITY AND FINANCIAL RESOURCES: As a limited partnership, ASC maintains
its own cash, credit lines and long-term debt, and funds its own operations,
liabilities and capital expenditures, separate from the partners. At December
31, 1993, ASC had $729.4 principal amount of long-term debt outstanding
(including current portion), a substantial portion of which was incurred after
the formation of ASC to finance capital improvements and operating losses. In
addition, ASC has a $50.0 revolving credit facility available for general
partnership purposes, which expires in May 1994, under which $3.8 was utilized
for letters of credit and the balance was available at December 31, 1993. These
facilities and the majority of ASC's long-term debt are secured by substantially
all of ASC's assets, including accounts receivable, inventories and property,
plant and equipment. Included in the total long-term debt figure stated above,
ASC has borrowed, under an agreement with an affiliate of Kawasaki, $100.0 on an
unsecured basis, subordinated to the secured lenders, which matures in February
1996. In the event that ASC is unable to borrow under its credit agreement or is
unable to secure new financing, ASC may be unable to continue to fund its
operations and to satisfy its debt obligations. Armco has no commitments or
intention to finance ASC further.

Under the credit agreements relating to these obligations, as amended
effective December 30, 1992, ASC is required to maintain a minimum tangible net
worth of $650.0, which increased from $600.0 on July 1, 1993, a minimum current
ratio of 1.0 and a maximum leverage ratio of 1.0. At December 31, 1993, ASC's
tangible net worth, current ratio and leverage ratio, each as defined, were
$742.1, 1.76 and 0.85, respectively.

ASC had $144.2 in cash and cash equivalents at December 31, 1993. ASC's
operating activities generated cash and cash equivalents of $98.8 in 1993. In
the same period, ASC used $32.8 in investing activities, including $40.2 in
capital expenditures, and obtained $77.0 from net financing activities. ASC has
debt payments due under its credit facilities aggregating $130.8 in 1994. The
terms of the security agreement will permit additional financings, which are yet
to be negotiated, up to $254.0 through 1995 to be secured by the pledged assets.
However, there are no formal commitments with respect to further financing.

ASC will continue to review its businesses to determine if additional
facilities should be written down or otherwise restructured. In this regard, ASC
is negotiating with the Eveleth partners concerning the potential closure of, or
ASC's exit from, Eveleth. If these negotiations are successfully completed, the
closure of, or exit from Eveleth, would be subject to other events, including
the approval by ASC's Board of Directors and could result in an additional
charge of approximately $30.0. Although it is not possible at this time to
determine accurately the amounts of any other special charges that may result
from the closure, write-down or other restructuring of additional facilities,
additional special charges could be incurred and may be material to the results
and financial condition of ASC.

OTHER EQUITY COMPANIES

Armco's equity in net losses of other equity companies in 1993, 1992 and
1991 are shown below:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1993 1992 1991
===============================================================================
<S> <C> <C> <C>
National-Oilwell $(11.0) $(19.4) $(16.0)
North American Stainless (6.4) -- --
Other 1.6 (2.0) 0.3
Total (15.8) (21.4) (15.7)
- -------------------------------------------------------------------------------
</TABLE>

1993 VS. 1992: Improvement in 1993 compared to 1992 was primarily the result
of National-Oilwell's increased revenues and implementation of previously
announced actions to rationalize the company. Included in Armco's 1993 equity in
losses from National-Oilwell was $5.0, representing half of National-Oilwell's
write-down of its wellhead business assets, which National-Oilwell sold in
February 1994. The 1992 equity in losses for National-Oilwell included $3.3 of a
$6.5 charge for restructuring and rationalization. The improvement in Armco's
equity in losses was somewhat offset by the equity losses recorded in 1993 by
Armco for NAS, which was proceeding through start-up and early periods of
operation during 1993.

As a partnership, NAS maintains its own cash, credit lines and long-term
debt, and funds its own operations, liabilities and capital expenditures,
separate from the partners. NAS is partially financed by long-term debt and a
revolving credit agreement. These agreements contain covenants which require NAS
to maintain certain minimum net worth and ratio tests. At December 31, 1993, NAS
was in default on certain of its covenant requirements. Discussions designed to
reach agreement on a cure for this default situation have begun, and Armco
believes that an acceptable resolution will be reached. Armco is restricted by
its own credit facilities as to the amount of contributions it can make to its
joint venture partnerships.
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
30
- --------------------------------------------------------------------------------

1992 VS. 1991: The decline in 1992 compared to 1991 was principally due to
the worsening of National-Oilwell's operating loss. The results reflected the
continuing market weakness and downsizing in the North American oil sector,
which led to a reduction in work force and the closing of manufacturing plants,
supply stores and tubular product stocking yards in 1991 and 1992. Armco's
equity in losses at National- Oilwell includes $3.3 and $12.3 for its equity in
special charges associated with this restructuring in 1992 and 1991,
respectively.

OUTLOOK: NAS is expected to increase its shipments due to improved
operations, greater customer acceptance and a stronger economy. However, NAS
faces increased foreign competition in commodity chrome nickel stainless sheet,
which is likely to place pressure on pricing.

National-Oilwell's sales are expected to continue to be negatively impacted
by a weak market for oilfield equipment and supplies. However, National-
Oilwell anticipates improvement in overall results due to benefits from
rationalization in 1992 and 1993 and from divestiture of its unprofitable
wellhead business in February 1994.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1993, Armco had cash and cash equivalents of $183.5 compared
to $171.3 at December 31, 1992. The increase was due primarily to the net
generation of $100.5 of cash by investing activities, primarily the sale of
businesses and assets, which provided $188.6, and the sale of investments, which
provided $24.9, offset by capital expenditures of $53.9 and contributions to
equity investees of $22.4. Despite the $641.8 loss for the year, operating
activities used cash of only $21.1 because much of the loss was due to special
charges and the cumulative effect of accounting changes which did not require
the immediate use of Armco's cash. Cash used in operating activities was
primarily due to increases in accounts receivable and decreases in payables and
accrued expenses. Financing activities used $61.8, primarily for principal
payments on debt of $165.7 and preferred stock dividends of $18.2, partially
offset by proceeds of $125.0 raised in a Senior Note Offering on November 12,
1993. The effect of exchange rate changes during the period reduced cash by
$5.4.

In addition to its cash balance and liquid investments, Armco has a $170.0
revolving credit facility that matures on December 31, 1995. At December 31,
1993, $84.3 of the credit facility was used for letters of credit and $85.7 was
available. Borrowings under the credit facility are secured by certain of
Armco's inventory and receivables. The credit facility contains a minimum
working capital requirement, as defined, of $225.0 at any time during 1994,
increasing to $250.0 at any time during 1995. At December 31, 1993, such working
capital was $272.3. Beginning January 1, 1994, a cumulative net income test, as
defined, was in effect, which requires Armco to have a minimum cumulative net
income greater than zero at December 31, 1994, which will increase by $10.0 per
quarter in 1995. In addition, Armco must meet certain ratio requirements. Under
the terms of the amended credit agreement, Armco is not permitted to pay cash
dividends on its common stock.

Armco anticipates that its capital expenditures for 1994 will be
approximately $100.0, including normal ongoing maintenance capital as well as
$50.0-$60.0 of expenditures on the two-year, $100.0 thin-slab caster project at
the Mansfield, Ohio plant, which was discussed in the Other Steel and Fabricated
Products section. Financing commitments for this project have been obtained, and
installation of the caster is expected to be completed in 1995. As discussed in
"Equity and Other Investments -- Armco Steel Company, L.P.," above, Armco, in
1993, to satisfy a separate tolling agreement with ASC, funded $19.4 for ASC hot
strip mill improvements that enhance ASC's ability to toll roll certain gauges
of chrome nickel stainless steel for Armco.

In November 1993, Armco sold $125.0 of 9.375% Senior Notes to the public.
The Senior Notes, which mature on November 1, 2000, are unsecured and rank
equally with other existing, unsecured indebtedness. The proceeds of that
offering, together with approximately $16.6 of Armco's cash, were used to
refinance an aggregate of $125.0 principal amount of existing indebtedness.
Armco expects to meet all of its debt service and working capital requirements
during 1994 through cash generated from operations, the proceeds of asset sales
and cash on hand. Although to date Armco has been able to obtain financing on
satisfactory terms, there can be no assurance that this will continue to be the
case.

On January 28, 1994, Armco's Board of Directors declared the regular
quarterly dividends of $0.525 per share of $2.10 cumulative convertible
preferred stock, Class A, and $0.90625 per share of $3.625 cumulative
convertible preferred stock, Class A, each payable March 31, 1994, to
shareholders of record on March 4, 1994. The Board of Directors also declared
the regular quarterly dividend of $1.125 per share of $4.50 cumulative
convertible preferred stock, Class B, payable April 1, 1994, to shareholders of
record March 4, 1994. Payment of dividends on Armco's common stock is currently
prohibited under the terms of certain of Armco's debt instruments. Armco does
not anticipate paying a common stock dividend in the foreseeable future.

At the April 23, 1993, annual meeting, Armco's shareholders voted to reduce
the par value of Armco's common stock to $0.01 per share from $1.00 per share.
As a result, $102.7 was transferred from Armco's stated capital account for its
common stock to Additional paid-in capital, increasing surplus from which Armco
is permitted, under Ohio law, to pay dividends on its common and preferred stock
issues. Armco is incorporated in Ohio. In addition, effective March 31, 1993,
the corporate statute of Ohio was amended to provide that Ohio corporations that
recognize immediately the full amount of their transition obligation under SFAS
106, as Armco did, could increase the amount available for
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
31
- --------------------------------------------------------------------------------

payment of dividends by adding to the corporation's surplus at the time of the
dividend the amount of the difference between the reduction in the corporation's
surplus that resulted from the immediate recognition of the SFAS 106 transition
obligation and the amount of the transition obligation that would have been
recognized at the time of the dividend had the corporation elected to amortize
its recognition of such transition obligation. At December 31, 1993, the amount
from which Armco is permitted to pay dividends was $75.7.

ENVIRONMENTAL MATTERS

Armco has spent substantial amounts in recent years to control air and water
pollution to achieve and maintain compliance with applicable environmental
requirements. Armco also has spent and will continue to spend substantial
amounts for proper waste disposal and for the investigation and cleanup of
properties that require remediation as a result of past waste disposal.
Statutory and regulatory requirements in this area are continuing to evolve and,
accordingly, it is not possible to predict with certainty the type and magnitude
of expenditures that will be required in the future. However, Armco has
estimated aggregate expenditures of approximately $30.0 for capital projects for
pollution control during the three-year period 1993-1995, of which approximately
$20.0 is related to control of air pollution as required by amendments to the
Clean Air Act (enacted in November 1990), corresponding state laws and
implementing regulations. This projection has been prepared internally and
without independent engineering or other assistance and reflects Armco's current
analysis of probable required capital projects for pollution control.
Expenditures associated with remediation matters for which Armco is one of a
number of potentially responsible parties are generally not included. In
addition to the direct impact on Armco, the Clean Air Act amendments are
expected to increase the operating costs of electrical utilities which rely on
fossil fuels and this, in turn, could result in increased costs for utility
services of which certain operations of Armco are significant customers. Armco's
capital expenditures for pollution control projects amounted to approximately
$72.6 during the period 1982 through 1992.

Armco also is a party to a number of administrative proceedings and
negotiations with environmental regulatory authorities. Armco believes that the
ultimate liability from environmental-related liabilities will not materially
affect the consolidated financial position or liquidity of Armco; 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 or liquidity in future interim or annual periods.

In addition, environmental exit costs with respect to Armco's ongoing
businesses may be incurred if Armco makes a decision to dispose of additional
properties. While Armco believes that the ultimate liability for the
environmental remediation and related matters identified to date, including the
cleanup, closure and monitoring of waste sites, will not materially affect its
consolidated financial condition or liquidity, the identification of additional
sites, increases in remediation costs with respect to identified sites, the
failure of other potentially responsible parties to contribute their share of
remediation costs, decisions to dispose of additional properties and other
changed circumstances may result in increased costs to Armco, which could have a
material effect on its financial condition, liquidity and results of operations.

[PHOTOGRAPH OF JOHN BAUER APPEARS HERE]

"ARMCO IS FOCUSED ON SPECIALTY STEEL AND COMMITTED TO CREATING VALUE FOR ALL OF
ITS CUSTOMERS. THIS IS THE MESSAGE WE'LL BE TRYING TO GET ACROSS IN 1994. A KEY
AUDIENCE IS GOVERNMENT OFFICIALS DEBATING FOREIGN TRADE ISSUES. WE WILL PURSUE
UNFAIR TRADE ACTIONS, SUCH AS LAST YEAR'S SUCCESSFUL GRAIN-ORIENTED ELECTRICAL
STEEL SUITS, TO PROTECT OUR COMPETITIVE POSITION IN THE SPECIALTY BUSINESS. WE
WILL ALSO BE HEAVILY INVOLVED IN THE DEVELOPING DEBATES ON HEALTH CARE AND
ENVIRONMENTAL ISSUES." -- JOHN BAUER, DIRECTOR -- CORPORATE AFFAIRS
<PAGE>

32
- --------------------------------------------------------------------------------

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. We believe the accounting principles chosen are
appropriate in the circumstances, and the estimates and judgements 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. We maintain 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 our stated policies and procedures,
including policies on the ethical conduct of business. We continually review and
update our policies and system of internal accounting control as our 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 as independent auditors for the Company. Deloitte & Touche 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, and Armco's
internal auditors, both individually and jointly, to discuss internal accounting
control and financial reporting matters. Deloitte & Touche 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
President and
Chief Executive Officer

/s/ David G. Harmer

David G. Harmer
Vice President and
Chief Financial Officer

INDEPENDENT AUDITORS' REPORT

[LOGO OF DELOITTE & TOUCHE APPEARS HERE]

2500 One PPG Place
Pittsburgh, PA

Armco, Its Shareholders and Directors:

We have audited the statement of consolidated financial position of Armco
Inc. and consolidated subsidiaries as of December 31, 1993 and 1992 and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1993. 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 consolidated
subsidiaries at December 31, 1993 and 1992 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.

As discussed in Notes 1, 2 and 4 to the financial statements, in 1993 Armco
Inc. changed its methods of accounting for postretirement benefits other than
pensions, income taxes, certain investments in debt and equity securities, and
postemployment benefits.

/s/ Deloitte & Touche

February 9, 1994
<PAGE>

33
- --------------------------------------------------------------------------------

STATEMENT OF CONSOLIDATED OPERATIONS

Interest income 5.0 9.6 28.8
Interest expense (42.7) (44.6) (49.6)
Sundry other -- net (36.1) (5.5) (20.9)
- -------------------------------------------------------------------------------
Loss before income taxes (219.8) (197.8) (51.2)

Credit for income taxes (Note 4) 7.3 34.0 1.2
- -------------------------------------------------------------------------------
Loss of Armco and consolidated
subsidiaries (212.5) (163.8) (50.0)

Equity in loss of Armco Steel Company, L.P.
(Note 14) (27.9) (234.1) (119.0)
Gain on investment in Armco Steel Company,
L.P. (Note 14) -- -- 24.1
Equity in loss of other equity companies
(Note 15) (15.8) (21.4) (15.7)
- -------------------------------------------------------------------------------
Loss from continuing operations (256.2) (419.3) (160.6)

Discontinued operations --
Worldwide Grinding Systems (Note 17)
Income from operations (Net of taxes
of $2.6 in 1993, $1.6 in 1992 and
$1.3 in 1991) 14.2 0.4 8.8
Loss on disposal of business (40.0) -- --
AFSG companies to be sold (Note 3)
Loss from operations (Net of tax
benefit of $0.2 in 1992 and
tax provision of $0.2 in 1991) -- (2.6) (14.4)
Writeoff of advances to AFSG -- -- (170.3)
Loss on disposal of business (45.0) -- --
- -------------------------------------------------------------------------------
Loss before extraordinary losses and
cumulative effect of accounting changes (327.0) (421.5) (336.5)
Extraordinary losses (Notes 5 and 14) (7.3) (8.4) --
Cumulative effect of changes in accounting
for postretirement and postemployment
benefits and income taxes (Notes 2 and 4) (307.5) -- --
- -------------------------------------------------------------------------------
Net loss $ (641.8) $ (429.9) $ (336.5)
- -------------------------------------------------------------------------------
Loss per share -- primary (Note 1)
Loss from continuing operations $ (2.64) $ (4.35) $ (1.91)
Loss from discontinued operations (.68) (.02) (1.99)
Loss before extraordinary losses and
cumulative effect of accounting
changes (3.32) (4.37) (3.89)
Extraordinary losses (.07) (.08) --
Cumulative effect of accounting
changes (2.96) -- --
Net loss (6.35) (4.45) (3.89)
Dividends (Note 7)
Preferred stock
$2.10 Class A 2.10 2.10 2.10
$3.625 Class A 3.63 .84 --
$4.50 Class B 4.50 4.50 4.50
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements on pages 38 through 56.
<PAGE>

34
- --------------------------------------------------------------------------------

STATEMENT OF CONSOLIDATED FINANCIAL POSITION

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1993 and 1992
- -------------------------------------------------------------------------------
(Dollars in millions, except per share amounts) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 1) $ 183.5 $ 171.3
Accounts and notes receivable
Trade (less allowance for doubtful accounts of
$4.0 for 1993 and $5.1 for 1992) 166.1 187.9
Other receivables 19.0 23.1
Inventories (Note 1) 205.5 238.1
Net assets held for sale (Note 1) 30.9 190.4
Other 20.4 13.9
- -------------------------------------------------------------------------------
Total current assets 625.4 824.7
- -------------------------------------------------------------------------------
Investments (Note 1)
Investment in Armco Steel Company, L.P. (Note 14) -- 8.5
Investment in National-Oilwell (Note 15) 83.9 94.8
Investment in North American Stainless (Note 15) 43.8 48.3
Investment in AFSG (Note 3) 97.1 149.4
Other (less allowance for impairment of $20.0 for
1993 and $28.3 for 1992) 44.3 53.5
Property, plant and equipment (Note 1)
Land 26.0 28.3
Buildings 78.8 96.7
Machinery and equipment 843.1 924.5
Construction in progress 35.1 38.7
- -------------------------------------------------------------------------------
Total property, plant and equipment 983.0 1,088.2
Accumulated depreciation (455.2) (465.1)
- -------------------------------------------------------------------------------
Property, plant and equipment -- net 527.8 623.1
- -------------------------------------------------------------------------------
Deferred tax asset (Note 4) 295.6 --
Goodwill and other intangible assets (Note 1) 162.6 36.4
Other assets 24.2 31.2
- -------------------------------------------------------------------------------
Total assets $1,904.7 $1,869.9
- -------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements on pages 38 through 56.

<PAGE>

35
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Current liabilities
Accounts and notes payable
Trade $ 108.6 $ 136.0
Other 11.0 22.4
Accrued taxes 7.7 15.3
Accrued salaries and wages 28.7 31.6
Current employee benefit obligations (Note 2) 98.3 63.3
Other accruals 90.4 99.1
Current portion of long-term debt and lease
obligations (Note 5) 8.3 20.7
- -------------------------------------------------------------------------------
Total current liabilities 353.0 388.4
- -------------------------------------------------------------------------------
Long-term debt and lease obligations (Note 5) 379.7 401.0
Long-term employee benefit obligations (Note 2) 1,270.9 541.6
Other liabilities 204.5 187.3
Commitments and contingencies (Note 12)
Class B common stock of subsidiary, redemption value
$13.2 (Note 16) 9.7 9.3
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) (Note 7)
Preferred stock
Class A--authorized 6,697,231 shares of no par
value, issuable in series.
Series issued: $2.10 cumulative convertible
(involuntary liquidation value $25.5) and
$3.625 cumulative convertible (involuntary
liquidation value $135.0) 137.6 137.6
Class B--authorized 5,000,000 shares of $1 par
value, issuable in series.
Series issued: $4.50 cumulative convertible
(involuntary liquidation value $50.0) 48.3 48.3
Common stock--authorized 150,000,000 shares of $.01 par
value ($1 in 1992); issued and outstanding 104,122,974
for 1993 and 103,512,133 for 1992 1.0 103.5
Additional paid-in capital 951.1 845.5
Retained deficit (1,450.3) (790.7)
Net foreign currency translation loss (Note 1) (0.8) (1.9)
- -------------------------------------------------------------------------------
Total shareholders' equity (deficit) (313.1) 342.3
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity
(deficit) $ 1,904.7 $1,869.9
- -------------------------------------------------------------------------------
</TABLE>

<PAGE>

36
- --------------------------------------------------------------------------------

STATEMENT OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
For the years ended December 31, 1993, 1992 and 1991
- -------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(641.8) $(429.9) $(336.5)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and lease-right amortization 53.2 46.7 33.9
Loss from discontinued operations 70.8 2.2 175.9
Gain on sales of investments and
facilities (3.2) (0.9) (38.6)
Loss on retirement of debt 7.3 2.3 --
Equity in losses and undistributed
earnings of associated companies 45.1 261.8 149.5
Special charges -- net 165.5 185.1 48.7
Cumulative effect of accounting changes 307.5 -- --
Other 22.0 14.3 7.1
Change in assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable (28.5) 7.6 (1.5)
Inventory 0.8 (20.7) 43.9
Payables and accrued expenses (14.0) (71.0) (33.9)
Other assets and liabilities -- net (5.8) (88.2) (27.4)
- -------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (21.1) (90.7) 21.1
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from the sale of businesses
and assets 188.6 38.9 2.0
Proceeds from the sale and maturity of
marketable securities 2.0 28.1 335.1
Proceeds from the sale of investments 24.9 18.7 40.7
Purchase of marketable securities -- (7.0) (90.6)
Purchase of investments (6.0) (12.8) (7.3)
Contributions to equity investees (22.4) (8.0) (38.1)
Capital expenditures (53.9) (59.4) (26.1)
Acquisitions, net of cash acquired -- (103.3) (66.6)
Net cash provided by (used in)
discontinued operations (2.2) 32.9 9.6
Other (30.5) (8.2) (0.2)
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 100.5 (80.1) 158.5
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 125.0 100.0 36.5
Principal payments on debt (165.7) (195.6) (17.1)
Change in notes payable (3.7) 1.0 (12.1)
Proceeds from issuance of common stock 2.1 0.4 --
Proceeds from issuance of preferred stock -- 130.4 --
Dividends paid (18.2) (10.3) (16.9)
Other (1.3) 0.9 0.7
- -------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (61.8) 26.8 (8.9)
- -------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5.4) (10.3) (4.9)
- -------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 12.2 (154.3) 165.8
Cash and cash equivalents:
Beginning of year 171.3 325.6 159.8
- -------------------------------------------------------------------------------
End of year $ 183.5 $ 171.3 $ 325.6
- -------------------------------------------------------------------------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 44.5 $ 39.6 $ 48.3
Income taxes 2.7 2.1 2.4
Supplemental schedule of noncash investing and
financing activities:
Debt incurred directly for property -- -- 1.0
Issuance of restricted stock 0.1 3.9 --
Acquisition of a business:
Fair value of assets acquired -- 687.6 80.7
Liabilities assumed -- (470.2) (13.7)
Cash paid -- current year -- (104.5) (67.0)
Cash paid -- prior year -- (4.0) --
Stock issued -- (78.9) --
Debt issued to retire preferred stock of
Cyclops Corporation -- (30.0) --
Contribution of investment to equity investee -- (9.1) --
- -------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements on pages 38 through 56.
<PAGE>

37
- --------------------------------------------------------------------------------

STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1991, 1992 and 1993
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in millions)
- --------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock

Class A Class B
Additional
Paid-In
Shares Amount Shares Amount Shares Amount Capital
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1990 1,697,256 $ 7.2 999,900 $48.3 88,494,610 $ 88.5 $777.4
Restricted stock cancelled (9,000) -- (0.1)
Net loss
Cash dividends declared --
preferred
Adjustment for net unreal-
ized gains on marketable
equity securities of AFSG
Foreign currency
translation adjustment
- ---------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1991 1,697,256 7.2 999,900 48.3 88,485,610 88.5 777.3
$3.625 preferred stock issued 2,700,000 130.4
Exercise of options 103,980 0.1 0.3
Restricted stock issued 645,000 0.6 3.3
Common stock issued for
business acquisition 14,277,543 14.3 64.6
Net loss
Cash dividends declared --
preferred
Adjustment for net unreal-
ized losses on marketable
equity securities of AFSG
Foreign currency
translation adjustment
- ---------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1992 4,397,256 137.6 999,900 48.3 103,512,133 103.5 845.5
Exercise of options 585,458 0.2 2.8
Restricted stock issued 26,000 -- 0.1
Par value reduction -- (102.7) 102.7
Net loss
Cash dividends declared --
preferred
Foreign currency
translation adjustment
Other (25) -- (617) -- --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1993 4,397,231 $137.6 999,900 $48.3 104,122,974 $ 1.0 $951.1
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Net
Foreign Net
Currency Unrealized
Retained Translation Gains
Deficit Adjustments (Losses)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance,
December 31, 1990 $ (5.9) $(14.8) $(0.9)
Restricted stock cancelled
Net loss (336.5)
Cash dividends declared --
preferred (8.1)
Adjustment for net unreal-
ized gains on marketable
equity securities of AFSG 1.1
Foreign currency
translation adjustment 3.2
- --------------------------------------------------------------------------------------
Balance,
December 31, 1991 (350.5) (11.6) 0.2
$3.625 preferred stock issued
Exercise of options
Restricted stock issued
Common stock issued for
business acquisition
Net loss (429.9)
Cash dividends declared --
preferred (10.3)
Adjustment for net unreal-
ized losses on marketable
equity securities of AFSG (0.2)
Foreign currency
translation adjustment 9.7
- --------------------------------------------------------------------------------------
Balance,
December 31, 1992 (790.7) (1.9) --
Exercise of options
Restricted stock issued
Par value reduction
Net loss (641.8)
Cash dividends declared --
preferred (17.8)
Foreign currency
translation adjustment 1.1
Other
- --------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1993 $(1,450.3) $ (0.8) $ --
- --------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements on pages 38 through 56.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
38
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in millions, except per share amounts)

1. SUMMARY OF ACCOUNTING POLICIES

CONSOLIDATION

The accompanying statements include the accounts of Armco and all
subsidiaries in which Armco has a controlling interest except for the Worldwide
Grinding Systems segment (Note 17) and the Armco Financial Services Group (AFSG)
(Note 3), which are reflected as discontinued operations for all periods
presented.

On April 24, 1992, Armco completed the acquisition of Cyclops Industries,
Inc. (Cyclops), including its subsidiary, Eastern Stainless Corporation (Note
16). Armco paid $103.3 in cash and issued $30.0 of debt and 14.3 million shares
of its common stock valued at $78.9 for the businesses acquired. The acquisition
was accounted for using the purchase method of accounting. Cyclops was a
producer of flat-rolled stainless and carbon steels, tubular steel products and
special alloys, and operated businesses which designed, fabricated and erected
nonresidential construction products. As of April 25, 1992, Armco began
including the former Cyclops units in its financial statements. The following
unaudited pro forma schedule presents combined Armco and Cyclops for the twelve
months ended December 31, 1992 and 1991 as if the acquisition had taken place on
January 1, 1991:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1992 1991
===============================================================================
<S> <C> <C>
Net sales $1,974.6 $2,227.8
Loss before extraordinary losses (437.1) (397.5)
Net loss (445.5) (397.5)
Net loss per share (4.41) (3.95)
- -------------------------------------------------------------------------------
</TABLE>

INVESTMENTS

Armco has investments in associated companies (joint ventures, partnerships
and companies in which Armco has a 20% or more interest, but does not control).
The following summary financial information reflects Armco's share of these
associated companies, which are accounted for by the equity method, including
Armco Steel Company, L.P. (restated as described in Note 14), National-Oilwell
(Note 15) and North American Stainless (Note 15).

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1993 1992 1991
===============================================================================
<S> <C> <C> <C>
Current assets $ 436.0 $ 368.4 $ 432.4
Noncurrent assets 699.6 670.1 700.9
Current liabilities 357.2 316.6 327.4
Noncurrent liabilities 885.1 797.2 595.0
Net sales 1,073.8 991.0 1,084.9
Gross profit (loss) 155.3 (62.7) 40.0
Loss before extraordinary loss (35.1) (285.2) (144.9)
Net loss (35.1) (291.3) (144.9)
- -------------------------------------------------------------------------------
</TABLE>

In 1993, Armco adopted Statement of Financial Accounting Standards (SFAS)
115, Accounting for Certain Investments in Debt and Equity Securities, which
provides guidance as to when it is appropriate to report certain invested assets
at fair market value. Under the definitions provided in this Statement at
December 31, 1993, Armco's invested assets, totaling $203.0, have been
classified as held to maturity and are therefore properly recorded at amortized
cost. There was no material effect to Armco as a result of adopting this
standard.

At December 31, 1993, Armco has included in Other investments in the
Statement of Consolidated Financial Position, $26.2 of financial instruments, of
which $22.1 are restricted collateral deposits.

Sales of marketable securities and other cost investments resulted in gains
of $14.1 in 1991, which are reported in Sundry other -- net.

CASH AND CASH EQUIVALENTS

Cash equivalents, which consist primarily of commercial paper, bank
repurchase agreements and certificates of deposit, are stated at cost plus
accrued interest, which approximates market value. Cash equivalents include only
securities having a maturity of three months or less at the time of purchase.

In accordance with SFAS 95, Statement of Cash Flows, cash flows from Armco's
operations in foreign countries are calculated based on their reporting
currencies. As a result of this and the sale of businesses during the year,
amounts related to changes in assets and liabilities reported on the Statement
of Consolidated Cash Flows will not necessarily agree to changes in the
corresponding balances on the Statement of Consolidated Financial Position. The
effect of exchange rate changes on cash balances held in foreign currencies is
reported on a separate line below Cash flows from financing activities.

TRANSLATION OF FOREIGN CURRENCY

Assets and liabilities of international operations are translated at current
exchange rates, and related revenues and expenses are translated at average
rates of exchange in effect during the year. Cumulative translation adjustments
are recorded as a separate component of shareholders' equity. Assets and
liabilities of international operations in hyperinflationary economies are
translated at historical rates, and
<PAGE>

NOTES TO FINANCIAL STATEMENTS
39
- --------------------------------------------------------------------------------

translation adjustments relating to such operations are included in Sundry other
- -- net with transaction gains and losses. Armco reports interest income and
interest expense net of related translation losses and gains to approximate the
real rate of interest earned or expensed by its businesses operating in
hyperinflationary economies.

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, 1993 and 1992 were:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1993 1992
===============================================================================
<S> <C> <C>
INVENTORIES ON LIFO:
Finished and semi-finished $190.8 $200.3
Raw materials and supplies 21.5 15.2
Adjustment to state inventories at LIFO value (38.5) (27.4)
- -------------------------------------------------------------------------------
Total 173.8 188.1
- -------------------------------------------------------------------------------
INVENTORIES ON AVERAGE COST:
Finished and semi-finished 14.1 23.4
Raw materials and supplies 17.6 26.6
- -------------------------------------------------------------------------------
Total 31.7 50.0
- -------------------------------------------------------------------------------
Total inventories $205.5 $238.1
- -------------------------------------------------------------------------------
</TABLE>

Liquidation of LIFO inventory layers caused by certain inventory reductions
reduced the Loss before extraordinary losses and cumulative effect of accounting
changes and Net loss for 1991 by $27.4, or $.31 per share, primarily in the
Other Steel and Fabricated Products segment.

RESEARCH AND DEVELOPMENT COSTS

Armco conducts a broad range of research and development activities,
including programs for its affiliated companies. 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, reduced by amounts funded by affiliates. The amounts incurred for
1993, 1992 and 1991 were $12.9, $24.0 and $23.6, respectively, including $3.9,
$9.4 and $11.8 funded by affiliates in 1993, 1992 and 1991.

[PHOTOGRAPH OF STEVE GILBY APPEARS HERE]

"ARMCO RESEARCH & TECHNOLOGY HAS FOUR KEY OBJECTIVES FOR 1994. ONE, WE WILL LEAD
THE DEVELOPMENT OF A LONG-RANGE STRATEGIC PLAN FOR RETAINING AND GROWING ARMCO'S
FLAT-ROLLED STEEL MARKET SHARE. TWO, WE WILL IMPLEMENT A KEY PROJECT MANAGEMENT
SYSTEM TO COORDINATE ALL RESEARCH PROJECTS TOWARD THIS END. THREE, WE WILL
ASSIST ARMCO OPERATING UNITS IN ACHIEVING THEIR AGGRESSIVE 1994 BUSINESS PLANS.
FOUR, WE WILL ACCELERATE OUR LONGER RANGE RESEARCH PROGRAM AIMED AT MAJOR NEW
PROCESS AND PRODUCT DEVELOPMENT FOR THE SPECIALTY STEEL GROUP." -- STEVE GILBY,
MANAGING DIRECTOR -- RESEARCH & TECHNOLOGY

PROPERTY, PLANT AND EQUIPMENT

Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the related assets. Leasehold
improvements are amortized over the shorter of the life of the related asset or
the life of the lease.

During 1993, 1992 and 1991, Armco expensed $125.1, $129.6 and $101.8,
respectively, for maintenance and repair of its property, plant and equipment.

NET ASSETS HELD FOR SALE

Net assets held for sale in the Statement of Consolidated Financial Position
consists of the lower of cost or net realizable value of net assets in
businesses which have been identified for divestment.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets primarily include goodwill recorded in
connection with the effect of adoption of SFAS 106 in 1993 on the acquisition of
Cyclops on April 24, 1992. These assets are being amortized using the straight-
line method over 40 years. Also included are goodwill and intangible assets
acquired in the purchase of Douglas Dynamics, Inc. on July 2, 1991. These assets
are being amortized over their estimated useful lives, the majority of which do
not exceed 17 years. Amortization expense for 1993, 1992 and 1991 was $7.0, $3.7
and $1.9, respectively.

EARNINGS PER SHARE

Primary earnings per share is computed by deducting the amount of dividends
on preferred stock from income (added to a loss). This amount is then divided by
the weighted average number of common shares outstanding during the year, plus
common equivalent shares outstanding if the common equivalent shares are
dilutive. Common equivalent shares include dilutive stock options as if the
options were exercised and the proceeds used to acquire common shares. Dilutive
stock options give the right to buy shares at a price which is less than current
market price. The fully diluted per share amounts are not presented in 1993,
1992 and 1991 because such amounts are antidilutive.

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.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
40
- --------------------------------------------------------------------------------

CONCENTRATIONS OF CREDIT RISK

Armco is primarily a producer of stainless, electrical and carbon steels and
steel products, which are sold to a number of markets, including industrial
machinery and equipment, automotive, aircraft, construction, power generation,
appliances, and agriculture. Following the divestment of the Worldwide Grinding
Systems business segment, Armco sells domestically to customers primarily in the
Midwestern and Eastern United States, while foreign sales are primarily made to
customers in Western Europe. 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 period financial statements have been reclassified
to conform to the 1993 presentation.

2. PENSION AND OTHER EMPLOYEE BENEFITS

PENSIONS

Armco provides noncontributory pension benefits for most employees. Benefits
for most nonrepresented and certain represented employees are primarily based on
years of service and earnings in the highest 60 consecutive months in the last
120 months prior to the date of retirement or a minimum amount per year of
service, whichever is higher. As a result of the labor negotiations in 1993, the
benefits for most hourly represented employees are based on a fixed dollar
amount per year of service.

The qualified plans have been funded to meet the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. During
years prior to 1993, Armco made cash contributions which in total exceeded the
minimum required contributions. As a result, at December 31, 1993, funding
credits of $39.7 were available to offset future minimum funding requirements.
No contributions were made during 1993.

On April 24, 1992, Armco assumed the former Cyclops pension plans. These
plans had projected benefit obligations of $431.4 and plan assets with a market
value of $323.6. The unfunded projected benefit obligation of $107.8 was
recorded on acquisition. Effective October 31, 1992, all qualified Cyclops
pension plans, with the exception of plans for certain Eastern Stainless
Corporation employees, were merged into the Armco pension plans.

[PHOTOGRAPH OF JIM EDGERTON APPEARS HERE]

"IN 1993, ARMCO PUT IN PLACE A PROGRAM TO MONITOR AND CONTROL HEALTH CARE COSTS.
THE KEY DECISION WAS MOVING TO MANAGED CARE FOR BOTH ACTIVE EMPLOYEES AND
RETIREES. THIS DELIVERY SYSTEM IS MORE EFFICIENT AND COST-EFFECTIVE. FURTHER
REFINEMENTS SUCH AS HMOS COULD BE DOWN THE ROAD. WE ARE ALREADY SEEING
SIGNIFICANT SAVINGS FROM MORE COST-SHARING." -- JIM EDGERTON, DIRECTOR -- HUMAN
RESOURCES

Economic assumptions and net periodic pension expense by component were as
follows:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1993 1992 1991
==================================================================================================
<S> <C> <C> <C>
Weighted average discount rate 8.0% 8.0% 9.0%
Weighted average expected long-term rate of return
on assets 8.75% 8.75% 9.75%
Rate of future compensation increases 5.0% 5.0% 5.0%
Cost of benefits earned during the period $ 20.4 $ 21.5 $ 13.9
Interest cost on the projected benefit obligation 150.3 137.0 117.2
Actual return on plan assets (256.9) (108.3) (325.0)
Net amortization and deferral 115.1 (32.8) 212.5
- --------------------------------------------------------------------------------------------------
Net periodic pension expense $ 28.9 $ 17.4 $ 18.6
- --------------------------------------------------------------------------------------------------
</TABLE>

Expense increased in 1993 primarily due to lower than expected investment
returns in 1992, inclusion of Cyclops for the full year, closing facilities and
force reductions. The net periodic expense shown above includes $3.7, for
divested units, which was charged in 1993 to previously established accruals.

Net curtailment losses on pensions of $23.8 in 1993, $44.6 in 1992 and $5.8
in 1991 for reductions in the work force were recorded as special charges and
are not included in net periodic pension expense. Certain former Cyclops units
have hourly employees participating in multi-employer pension and welfare plans.
The total expense for contributions to those programs was $1.7 in 1993 and $2.1
in 1992, which was not included in net periodic pension expense shown above.

The following table presents the funded status of pension plans using
discount rates of 7.25% and 8.0%, respectively, at December 31, 1993 and 1992.
The assumed rate of future compensation increases was 4% for 1993 and 5% for
1992. The funded status of the pension plans decreased during 1993, primarily as
a result of the decrease in the discount rate, but also due to early retirements
related to shutdowns and force reductions. Amounts include benefits for
employees of Worldwide Grinding Systems.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
41
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Plans for which Plans for which
Assets Exceed Accumulated
Accumulated Benefits Total
1993 Benefits Exceed Assets All Plans
=================================================================================
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF
BENEFIT OBLIGATIONS:
Vested benefits $34.9 $2,014.2 $2,049.1
Nonvested benefits 1.7 46.8 48.5
- ---------------------------------------------------------------------------------
Accumulated benefits 36.6 2,061.0 2,097.6
Projected benefit obligation 41.5 2,115.9 2,157.4
Plan assets at fair value/1/ 45.5 1,864.9 1,910.4
- ---------------------------------------------------------------------------------
Unfunded (overfunded)
projected benefit obligation (4.0) 251.0 247.0
RECONCILIATION OF FUNDED
STATUS TO RECORDED AMOUNTS:
Unrecognized prior service -- (20.8) (20.8)
Unrecognized net gain (loss) (1.3) 73.0 71.7
Unrecognized net asset
(obligation) 2.5 (56.1) (53.6)
Amount required to recognize
minimum liability -- 5.0 5.0
- ---------------------------------------------------------------------------------
Accrued pension liability
(benefit) $(2.8) $ 252.1 $ 249.3
- ---------------------------------------------------------------------------------
</TABLE>

/1/ The mix of pension assets held at December 31, 1993 was 50% equities, 44%
fixed income securities, and 6% short-term securities.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Plans for which Plans for which
Assets Exceed Accumulated
Accumulated Benefits Total
1992 Benefits Exceed Assets All Plans
=================================================================================
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF
BENEFIT OBLIGATIONS:
Vested benefits $1,121.0 $651.0 $1,772.0
Nonvested benefits 38.2 16.8 55.0
- ---------------------------------------------------------------------------------
Accumulated benefits 1,159.2 667.8 1,827.0
Projected benefit obligation 1,256.6 700.8 1,957.4
Plan assets at fair value/1/ 1,228.8 605.1 1,833.9
- ---------------------------------------------------------------------------------
Unfunded projected benefit
obligation 27.8 95.7 123.5
RECONCILIATION OF FUNDED
STATUS TO RECORDED AMOUNTS:
Unrecognized prior service (10.2) (7.6) (17.8)
Unrecognized net gain 109.3 59.1 168.4
Unrecognized net obligation (58.5) (13.6) (72.1)
Amount required to recognize
minimum liability -- 3.1 3.1
- ---------------------------------------------------------------------------------
Accrued pension liability $ 68.4 $136.7 $ 205.1
- ---------------------------------------------------------------------------------
</TABLE>

/1/ The mix of pension assets held at December 31, 1992 was 53% equities, 44%
fixed income securities, and 3% short-term securities.

RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS

In addition to providing pension benefits, Armco provides certain health
care and life insurance benefits for most retirees. Most employees become
eligible for these benefits when they retire. Retiree health and life insurance
benefits are funded as claims are paid. During 1993, the company announced
changes in the plans for certain nonrepresented employees and retirees which
will require either higher retiree contributions or an alternative managed care
program. Also during 1993, new managed care programs were negotiated with most
of Armco's represented hourly employees which will be applicable to future
retirements.

Effective January 1, 1993, the Company implemented the immediate recognition
method of adopting SFAS 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions. The standard requires the accrual of expense for these
benefits during the years an employee is actively employed, rather than the
previous practice of expensing these benefits on a pay-as-you-go basis when the
participant retired.

The cumulative effect of recognizing this obligation resulted in a net of
tax charge of $440.0 or $4.24 per share as of January 1, 1993. The cumulative
effect was determined as follows:

<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation attributable to:
Retirees $ 712.9
Active employees eligible to retire 103.8
Other active employees 202.2
- -----------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 1,018.9
- -----------------------------------------------------------------------------
Less:
Fair value of plan assets --
Retroactive purchase adjustment of Cyclops acquisition 131.2
Accruals recorded in previous years for divestitures/shutdowns 277.4
- -----------------------------------------------------------------------------
Transition obligation at January 1, 1993 610.3
Estimated deferred tax benefits 170.3
- -----------------------------------------------------------------------------
Cumulative effect recorded on January 1, 1993 $ 440.0
=============================================================================
</TABLE>

Included in the above schedule are $19.5 in total accumulated postretirement
benefit obligation and $5.5 in accruals recorded in previous years for
divestitures/shutdowns on the financial statements of the AFSG companies to be
sold. The resulting net charge of $14.0 reduced the net assets of the AFSG
companies to be sold and Armco's investment in AFSG (Note 3).

<PAGE>

NOTES TO FINANCIAL STATEMENTS
42
- --------------------------------------------------------------------------------

Upon adoption, Armco was required to apply, retroactively, the provisions of
SFAS 106 to its accounting for the acquisition of Cyclops. As a result, Armco
recognized $133.4 of goodwill not previously recorded. The cumulative effect of
accounting changes considers $2.2 of goodwill amortization for the period from
April 24, 1992 to December 31, 1992.

For 1993, the components of the net periodic postretirement benefit expense
were as follows:

<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Cost of benefits earned during the period $12.2
Interest cost on accumulated postretirement
benefit obligation 80.6
Amortization of plan changes 1.7
- --------------------------------------------------------------------------------
Net periodic postretirement benefit expense $94.5
- --------------------------------------------------------------------------------
</TABLE>

The net periodic postretirement benefit expense shown above includes $9.6,
for divested units, which was charged to previously established accruals. Net
curtailment gains on postretirement benefits of $4.4 recorded in 1993 were
recorded as special charges and are not included in net periodic postretirement
benefit expense. Assumptions used to determine the January 1, 1993 obligation
and 1993 costs are as follows:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Pre-age 65 Post-age 64
==================================================================================
<S> <C> <C>
Weighted average discount rate 8.0% 8.0%
Current year health care trend rate 13.0% 10.0%
Ultimate health care trend rate 6.0% 6.0%
- ----------------------------------------------------------------------------------
</TABLE>

The current year health care trend rates are assumed to decrease one percent
per year until they reach the ultimate rate of 6.0%. The weighted average trend
rate for all years is 7.0%. A one percent increase in the assumed health care
trend rate in each year would increase the accumulated postretirement benefit
obligation as of January 1, 1993 by approximately $90.0, and increase the annual
net periodic postretirement benefit expense by approximately $9.5.

The expense for postretirement benefits under the previous pay-as-you-go
method reduced net income by $49.6 in 1992, and $43.8 in 1991. These amounts
were less than the incurred claims cost for these programs, since under the
previous accounting method a portion of the claims amounts ($7.1 in 1992 and
$6.8 in 1991) were charged to reserves established on previous divestments.
Total incurred claims costs were approximately $64.9 in 1993, $56.7 in 1992, and
$50.6 in 1991. The 1992 expense includes $3.2 for Cyclops retirees. As part of
the formation of Cyclops, an unrelated company retained the liability for
postretirement benefits for former Cyclops employees retiring before July, 1987.

The following table shows the funded status of the postretirement benefit
plans and the amounts recognized in Armco's Statement of Consolidated Financial
Position as of December 31, 1993:

<TABLE>
- -----------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ 734.5
Fully eligible active plan participants 82.2
Other active plan participants 156.2
- -----------------------------------------------------------------------------
Total 972.9
Plan assets at fair value --
- -----------------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 972.9

RECONCILIATION OF OBLIGATION TO RECORDED AMOUNTS:
Unrecognized transition obligation --
Unrecognized net reduction in prior service cost 23.2
Unrecognized net gain 47.4
- -----------------------------------------------------------------------------
Accrued postretirement benefit liability $1,043.5
=============================================================================
</TABLE>

Assumptions used to determine obligation:
- -----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Pre-age 65 Post-age 64
=============================================================================
<S> <C> <C>
Discount rate 7.25% 7.25%
Current year health care trend rate 11.25% 8.25%
Ultimate health care trend rate 5.25% 5.25%
- ------------------------------------------------------------------------------
</TABLE>

The current year health care trend rates are assumed to decrease one percent
per year until they reach the ultimate rate of 5.25%. The weighted average trend
rate is 6.25% for all years.

POSTEMPLOYMENT BENEFITS

Effective January 1, 1993, the Company adopted SFAS 112, Employers'
Accounting for Postemployment Benefits and recorded $3.1, or $.03 per share, of
expense for the cumulative effect of establishing additional liabilities for
certain short-term and long-term disability benefit plans.

EMPLOYEE BENEFIT OBLIGATIONS OF FORMER BUSINESS UNITS

Armco has recorded, in its employee benefit obligations, the present value
of estimated pension and health care benefits for former employees associated
with facilities which have been or are being divested. Sundry other -- net
includes net pension and imputed interest costs related to these liabilities of
$23.8, $13.2 and $16.1 in 1993, 1992 and 1991, respectively.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
43
- --------------------------------------------------------------------------------

3. ARMCO FINANCIAL SERVICES GROUP (AFSG)

AFSG currently consists primarily of insurance companies which Armco intends
to sell and which continue underwriting activities (AFSG companies to be sold)
and companies that have stopped writing new business and are being liquidated
(runoff companies). Armco previously announced its intention to dispose of or
liquidate all of the AFSG companies.

AFSG COMPANIES TO BE SOLD

In 1991, in light of depressed market conditions, underwriting losses and
changes in the expected timing of the disposition of the AFSG companies to be
sold, Armco wrote off its advances to AFSG of $170.3. At December 31, 1992 and
1991, Armco's investment in the AFSG companies to be sold was stated at an
amount equal to Armco's equity in the net assets of these businesses, which
approximated Armco's estimate of their net realizable value. The net realizable
value was based on an assumption that Armco would retain the AFSG companies to
be sold until the insurance business had recovered from weak market conditions.
In January 1994, after further evaluation of its various alternatives, Armco
signed a letter of intent to sell these businesses, even though the insurance
market remained weak. The final agreement is subject to a number of conditions,
including a definitive purchase agreement, and approvals by regulatory
authorities and the boards of directors of both companies. Armco has recorded a
$45.0 charge in the fourth quarter of 1993 in connection with its decision to
sell these companies. The charge was primarily taken to reduce Armco's
investment in the AFSG companies to be sold to the current estimate of its net
realizable value. In connection with the proposed transaction, the buyer would
pay approximately $70.0 at the closing and approximately $15.0, reduced by a
potential adjustment for adverse experience in the insurance reserves, in three
years. As a result of restructuring certain obligations arising from the 1992
merger plan for the runoff companies, the proceeds from the sale have been
pledged as security for certain note obligations due to the runoff insurance
companies and will be retained in the investment portfolio of the AFSG runoff
companies.

Armco accounted for the operating results of the AFSG companies to be sold
under the cost recovery method, whereby net income is not recognized until
realized through a sale of the businesses, while net losses are charged against
income as incurred. These businesses are now presented as discontinued
operations.

The following sets forth the summarized statements of financial condition
and results of operations for the AFSG companies to be sold at December 31, 1993
and 1992, and for the year ended December 31, 1993, 1992 and 1991.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1992
================================================================================
<S> <C> <C>
FINANCIAL CONDITION
ASSETS:
Invested assets $ 440.7 $ 417.4
Receivables 87.7 85.8
Other 43.0 42.5
- -------------------------------------------------------------------------------
Total assets 571.4 545.7
- -------------------------------------------------------------------------------
LIABILITIES:
Property and casualty reserves 398.3 391.6
Payables and other liabilities 37.2 27.9
- -------------------------------------------------------------------------------
Total liabilities 435.5 419.5
- -------------------------------------------------------------------------------
Net assets $ 135.9 $ 126.2
Amounts not recognized under cost recovery:
Current period income (10.4) --
Unrealized investment gain (13.3) --
Loss on disposal of businesses (45.0) --
Net liabilities to be retained 6.7 --
- --------------------------------------------------------------------------------
Investment in AFSG companies to be sold $ 73.9 $ 126.2
- --------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1993 1992 1991
======================================================================================
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Premiums earned $ 227.7 $ 239.9 $ 250.9
Losses and loss adjustment expenses (177.1) (196.1) (209.0)
Underwriting expenses (82.7) (90.0) (92.8)
- --------------------------------------------------------------------------------------
Underwriting loss (32.1) (46.2) (50.9)
Investment income 43.7 44.1 37.8
Other expenses (1.2) (0.5) (1.3)
- --------------------------------------------------------------------------------------
Income (loss) before cumulative effect of change
in accounting for postretirement benefits 10.4 (2.6) (14.4)
Cumulative effect of change in accounting for
postretirement benefits (14.0) -- --
- -------------------------------------------------------------------------------------
Net loss $ (3.6) $ (2.6) $ (14.4)
- --------------------------------------------------------------------------------------
</TABLE>

<PAGE>

NOTES TO FINANCIAL STATEMENTS
44
- --------------------------------------------------------------------------------

During 1993, the AFSG companies to be sold adopted SFAS 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, SFAS 112, Employers'
Accounting for Postemployment Benefits, SFAS 113 Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts and SFAS 115,
Accounting for Certain Investments in Debt and Equity Securities. Upon adoption
of SFAS 106, the AFSG companies to be sold recorded a charge of $14.0 for the
cumulative effect of this accounting change. This amount is included in
Cumulative effect of changes in accounting on Armco's Statement of Consolidated
Operations. The effect of adoption of SFAS 112 was not material. SFAS 113
requires that reinsurance receivables and prepaid insurance premiums be reported
as assets and eliminates the practice of reporting assets and liabilities
relating to reinsurance contracts net of the effects of reinsurance. Adoption of
SFAS 113 by the AFSG companies to be sold did not result in a charge to
earnings; however, AFSG's 1992 statement of financial condition has been
restated to reflect this accounting change. As a result of the adoption of SFAS
115, the recorded value of certain investments and net assets of the business
was increased by $13.3. There was no effect on net income, and under the cost
recovery method, Armco deferred the effect on equity. AFSG adopted SFAS 109,
Accounting for Income Taxes, in 1993; however, the effect of adoption was not
material.

Based on market values, invested assets at December 31, 1993 consisted
primarily of investment grade bonds: U.S. Treasury securities (19%); corporate
bonds (48%); mortgage-backed securities (28%) and cash and short-term
investments (5%). The market value of invested assets at December 31, 1993 and
1992 was $441.5 and $428.6, respectively. Investment income for 1993, 1992 and
1991 included net realized gains of $11.2, $10.1 and $2.5, respectively.

Property and casualty reserves included amounts determined from loss reports
and individual cases and an amount, based upon past experience, for losses
incurred but not reported. Such amounts are necessarily based upon estimates
and, while management believes the amounts are fairly stated, the ultimate
liability may be in excess of or less than the amount provided. The methods for
making such estimates and for establishing the resulting liability are
continually reviewed and any adjustments are reflected in current earnings.

Policy acquisition costs that vary with and are directly related to the
production of premiums are deferred and amortized over the terms of the
policies. Amortization for the years ended December 31, 1993, 1992 and 1991 was
$46.5, $49.9 and $56.3.

The AFSG companies to be sold limit their exposure to loss by ceding
(reinsuring) certain levels of risk with other insurers. In the event that all
or any of the reinsuring companies might be unable to meet their obligations
under the reinsurance agreements, the AFSG companies to be sold would be liable
for such obligations. At December 31, 1993, reinsurance ceded balances totaled
$38.3.

Participating business represented approximately 14.5%, 13.2%, and 11.0% of
total premiums in force at December 31, 1993, 1992 and 1991. The amount of
dividends to be paid on these policies is based upon the individual policies.
Policyholder dividend expense for the years ended December 31, 1993, 1992 and
1991 was $2.4, $3.0 and $5.2, respectively.

The amount of statutory policyholders' surplus at December 31, 1993 and 1992
was $108.7 and $94.2, respectively.

RUNOFF COMPANIES

The runoff companies are accounted for 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 such net losses relating
to the ultimate liquidation of the runoff companies will not be material to
Armco's financial position or liquidity. The following sets forth the summarized
statement of financial condition of the runoff companies at December 31, 1993.

<TABLE>
- ----------------------------------------------------------------------------
<S> <C>
ASSETS:
Invested assets $126.2
Reinsurance recoverable 179.5
Other 29.2
- -----------------------------------------------------------------------------
Total assets 334.9
- -----------------------------------------------------------------------------
LIABILITIES:
Losses and loss reserves (net of future
investment income of $43.8) 279.7
Other 32.0
- -----------------------------------------------------------------------------
Total liabilities 311.7
- -----------------------------------------------------------------------------
Net assets $ 23.2
- -----------------------------------------------------------------------------
</TABLE>

The statement of financial condition reflects the runoff companies' adoption of
SFAS 113.

Other assets include notes receivables and accrued interest of $4.0 and $7.0
from North American Stainless and National-Oilwell, respectively, joint
ventures which are 50%-owned by subsidiaries of Armco.

In 1992, regulatory authorities approved a merger plan which permitted Armco
to merge a runoff insurance company with a statutory surplus impairment into
another of Armco's runoff companies, curing the impairment. The merger plan
contemplated that Armco would cause the surviving company to be runoff and to
maintain its statutory surplus at not less than $10.0. During 1993, regulatory
authorities allowed Armco to restructure and secure certain obligations arising
from the 1992 merger plan, and Armco was released from its surplus maintenance
agreement.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
45
- --------------------------------------------------------------------------------

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

There are various pending matters relating to litigation, arbitration and
regulatory affairs, including matters related to Northwestern National Insurance
Company, a runoff company currently involved in, among other matters, litigation
with respect to certain reinsurance programs. The ultimate liability from such
matters at December 31, 1993 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.

4. 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.

The United States and foreign components of income (loss) before income
taxes consist of the following:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1993 1992 1991
===============================================================================
<S> <C> <C> <C>
United States $(232.7) $(207.8) $(29.1)
Foreign 12.9 10.0 (22.1)
- --------------------------------------------------------------------------------
Total $(219.8) $(197.8) $(51.2)
- --------------------------------------------------------------------------------
</TABLE>

[PHOTOGRAPH OF BARRY HALLER APPEARS HERE]

"IN ADDITION TO PERFORMING THE TRADITIONAL ROLE OF ASSESSING THE CONTROL
ENVIRONMENT AND THE RELIABILITY OF FINANCIAL INFORMATION, IN 1994 ARMCO'S
INTERNAL AUDITORS WILL ADD VALUE THROUGH INTERNAL AUDITS DESIGNED TO IDENTIFY
OPPORTUNITIES FOR IMPROVEMENT IN OPERATIONAL EFFICIENCIES AND EFFECTIVENESS." --
BARRY HALLER, DIRECTOR -- INTERNAL AUDITING

Income tax credits (provisions) for Armco and consolidated subsidiaries are as
follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1993 1992 1991
=================================================================================
<S> <C> <C> <C>
CURRENT:
U.S. federal $ 4.2 $29.4 $ 1.7
U.S. state 4.9 (0.3) (3.3)
Foreign (1.8) (2.6) (2.3)
- ----------------------------------------------------------------------------------
Total 7.3 26.5 (3.9)
- ----------------------------------------------------------------------------------
DEFERRED:
U.S. federal -- 4.4 6.1
U.S. state -- 1.6 (1.5)
Foreign -- 1.5 0.5
- ----------------------------------------------------------------------------------
Total -- 7.5 5.1
- ----------------------------------------------------------------------------------
Total credit for income taxes $ 7.3 $34.0 $ 1.2
- ----------------------------------------------------------------------------------
</TABLE>

At December 31, 1993, Armco had capital and net operating loss (NOL)
carryforwards for federal tax purposes expiring as follows:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year
Expires Amount
================================================================================
<S> <C> <C>
CAPITAL LOSSES: 1996 $ 68.7
1998 118.1
- ---------------------------------------------------------------------------------
Total $ 186.8
- ---------------------------------------------------------------------------------
ORDINARY LOSSES: 1998 $ 63.0
1999 128.8
2001 156.7
2002 3.0
2004 9.1
2005 130.5
2006 247.1
2007 193.4
2008 97.9
- ----------------------------------------------------------------------------------
Total $1,029.5
- ----------------------------------------------------------------------------------
</TABLE>

Included in the $1,029.5 net operating loss carryforward are $71.2
attributable to the former Cyclops consolidated group and $17.5 from the
separate return years of Douglas Dynamics, Inc. These losses are subject to
limitations regarding the offset of Armco's future taxable income and will
expire if not used in the period 1998-2005. Armco has $755.6 in U.S.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
46
- --------------------------------------------------------------------------------

alternative minimum tax net operating losses. Additionally, Armco has $12.1 of
alternative minimum tax credits which have no expiration. Investment tax credits
of $7.7 are available to offset the regular tax liability in future years. Armco
also has tax loss carryforwards available at certain foreign subsidiaries of
$17.4, most of which, if not used to reduce future taxable income, will expire
in 1995 and 1996.

Armco adopted SFAS 109, Accounting for Income Taxes, effective January 1,
1993. SFAS 109 supersedes SFAS 96, Accounting for Income Taxes, which was
adopted by Armco in 1988. The cumulative effect of adopting SFAS 109, excluding
a tax benefit of $170.3 for the cumulative effect of adoption of SFAS 106, was a
benefit of $135.6, or $1.31 per share, as of January 1, 1993. In 1993, there was
no material effect on pretax accounting income as a result of applying SFAS 109.

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. Of the total net deferred tax asset
of $298.5 on the Statement of Consolidated Financial Position, $295.6 is
reported as noncurrent Deferred tax asset and $5.9 is in Other current assets.
Partially offsetting the asset amounts are credits of $1.5 each in Other
accruals and Other liabilities. Significant components of Armco's net deferred
tax asset are as follows:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
December 31, January 1,
1993 1993
=====================================================================================
<S> <C> <C>
Operating loss and tax credit carryforwards $ 497.0 $ 408.7
Employee benefits 615.3 570.2
Property, plant and equipment (142.5) (168.6)
Other (includes contingencies and other accruals) 104.9 69.5
- -------------------------------------------------------------------------------------
Subtotal $1,074.7 879.8
Less: Valuation allowance (776.2) (581.8)
- --------------------------------------------------------------------------------------
Total deferred tax asset $ 298.5 $ 298.0
- --------------------------------------------------------------------------------------
</TABLE>

Even though Armco has incurred book and tax losses for the past four fiscal
years, management believes that it is more likely than not that it will generate
taxable income sufficient to realize a portion of the tax benefit associated
with future deductible temporary differences and NOL and tax credit
carryforwards prior to their expiration. This belief is based upon, among other
factors, changes in operations that have occurred during 1992 and 1993, as well
as consideration of available tax planning strategies. Specifically, cost
savings, associated with Armco's acquisition of Cyclops and new capital
investments, are being realized and are anticipated to continue to improve
operating results. Business restructurings announced during the fourth quarter
of 1992 and third quarter of 1993 include the sale of certain non-strategic
units, some of which have been unprofitable. Armco has operated in a highly
cyclical industry and consequently has had a history of generating and then
utilizing significant amounts of NOL carryforwards. During the years 1987-1989,
Armco utilized approximately $350.0 of NOL carryforwards. Management believes
that the valuation allowance is appropriate given the current estimates of
future taxable income. If Armco is unable to generate sufficient taxable income
in the future through operating results, increases in the valuation allowance
will be required through a charge to expense. However, 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 the year 1988 and prior years
have been subject to examination by the Internal Revenue Service and are closed
to assessments. However, net operating loss carryforwards from these years
remain open to adjustment. Armco has been in a cumulative net operating loss
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.

In 1993, Armco recorded income from tax benefits of $4.9 in Credit for
income taxes on the Statement of Consolidated Operations; and income of $5.8,
related to interest, in Sundry other -- net, for settlements of state income tax
issues. In addition, Armco reversed a federal tax reserve of $4.3 as a result of
the resolution of certain tax issues. This amount was recorded in Credit for
income taxes. In 1992, Armco recognized income of $39.1 as the result of a
settlement with the Internal Revenue Service on two federal tax refund claims.
Of the total amount recognized, $16.2, representing the tax refunds, was
recorded in Credit for income taxes and $22.9, representing interest on the
claims, was recorded in Sundry other -- net. In addition, Armco adjusted certain
income tax reserves resulting in a $13.0 benefit for income taxes, primarily in
the fourth quarter of 1992.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
47
- --------------------------------------------------------------------------------

5. LONG-TERM DEBT AND OTHER FINANCING

At December 31, 1993 and 1992 Armco's long-term debt, less current
maturities, was as follows:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1993 1992
======================================================================================
<S> <C> <C>
SINKING FUND DEBENTURES:
8.5% due 2001 $ 48.0 $ 53.7
9.2% due 2000 35.0 35.0
8.7% due 1995 7.9 11.0
8.0% Eastern Stainless
Corporation due 2003 13.4 13.4
NOTES PAYABLE:
9.375% due 2000 125.0 --
11.375% due 1999 100.0 100.0
7.875% due 1994-1996 5.3 7.0
Variable rate (1993 average 6.4%) due 1996-2000 29.6 29.6
11% note to AFSG due 1997 -- 30.0
13.5% due 1994 -- 89.0
Pollution control and other revenue bonds (2.6% to 8.125%) 15.0 31.1
Other 0.5 1.2
- --------------------------------------------------------------------------------------
Total $379.7 $401.0
- --------------------------------------------------------------------------------------
</TABLE>

Maturities of existing long-term debt during the five years ending December
31, 1998, is as follows: 1994, $8.3; 1995, $22.1; 1996, $22.5; 1997, $20.3 and
1998, $20.5.

The fair market value of Armco's long-term debt, including current
maturities, is approximately $392.8. This value was determined by calculating a
value based on cash flow yield to maturity and comparing that amount to market
quotations where possible. The fair market value estimate is based on pertinent
information available to management as of December 31, 1993. Management is not
aware of any significant factors that would alter this estimate after that date.

At December 31, 1993, long-term debt included $29.6 of financing utilized to
construct a cold rolling mill at Armco's Butler, Pennsylvania facility, included
in the Specialty Flat-Rolled Steel segment. The last two payments on this debt
were to be made in 1994 and 1995. However, Armco signed an agreement effective
February 28, 1994, which restructures such payments to ten semiannual
installments beginning in 1996. This loan is secured by a pledge of the cold
rolling mill and a $6.0 cash collateral account.

In the fourth quarter of 1993, Armco issued $125.0 of 9.375% Senior Notes
due November 1, 2000. The proceeds, together with approximately $16.6 of Armco's
cash, were used for the retirement of the following debt issues: $30.0 of the
11% note maturing in 1997 due to the AFSG runoff companies from Douglas
Dynamics, Inc., $5.0 of the 7.875% bonds maturing in 2005 and $2.0 of the 8.7%
debentures due in 1995. In addition, $88.0 of the 13.5% Notes due 1994 were
defeased when Armco placed $99.9 in a trust to pay principal and interest when
due. The early extinguishment of debt resulted in an extraordinary loss of $7.3
or $.07 per share in fourth quarter of 1993.

In 1992, Armco issued $100.0 of 11.375% Senior Notes due October 15, 1999.
The proceeds were used for general corporate purposes and retirement of other
debt issues. On November 10, 1992, Armco extinguished the $30.0, 12.75% notes
issued on April 24, 1992, in connection with the acquisition of Cyclops (Note
1).

In 1992, Armco purchased $32.5 face value of its long-term debt obligations
resulting in an extraordinary loss of $2.3 or $.02 per share.

In the fourth quarter of 1993, Armco entered into an amended credit
agreement with a group of banks to provide a credit facility for borrowings up
to $170.0 on a revolving credit basis until December 31, 1995, secured by
certain of Armco's receivables and inventories. As of the end of 1993, Armco had
utilized $84.3 of the credit facility for letters of credit.

At December 31, 1993, the amended credit agreement required Armco to
maintain a minimum working capital of $225.0 at any time in 1994 increasing to
$250.0 at any time in 1995. At December 31, 1993, working capital, as defined,
was $272.3. In addition to these requirements, Armco must maintain cumulative
net income greater than zero for the year 1994, increasing by $10.0 per quarter
in 1995, and meet certain ratio requirements. Certain subsidiaries of Armco have
other financing agreements which require that they meet covenants and financial
tests. Under the terms of the amended credit agreement, Armco is not permitted
to pay cash dividends on its common stock. The payment of dividends on preferred
stock is prohibited if Armco is in default under the amended credit agreement.

Armco capitalized interest on projects during construction of $1.2, $1.1,
and $0.8 in 1993, 1992 and 1991, respectively.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
48
- --------------------------------------------------------------------------------

6. LONG-TERM LEASES

Rental expenses under operating leases were $11.3 in 1993, $14.1 in 1992 and
$9.2 in 1991. At December 31, 1993, commitments to make future minimum lease
payments for operating leases were as follows:

<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
PAYMENTS TO BE MADE IN:
1994 $ 9.7
1995 7.7
1996 5.8
1997 4.5
1998 2.7
1999 and thereafter 5.5
- ------------------------------------------------------------------------------
Total 35.9
- ------------------------------------------------------------------------------
Less future minimum subleases to be received 2.3
- ------------------------------------------------------------------------------
Net commitment $33.6
- ------------------------------------------------------------------------------
</TABLE>

7. SHAREHOLDERS' EQUITY

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.

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 $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 on or after October 15, 1995 at prices starting at
$52.5375, plus accrued but unpaid dividends, and declining, at 12-month
intervals, to $50 on and after October 15, 2002.

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.

COMMON STOCK

At the April 23, 1993 annual meeting, Armco's shareholders voted to reduce
the par value of Armco's common stock to $.01 per share from $1.00 per share.

At December 31, 1993, 22,681,261 shares of Armco's common stock were
reserved for the conversion of preferred stock and 3,015,774 shares of common
stock were reserved for the exercise of stock options (Note 8).

SHAREHOLDER RIGHTS PLAN

On June 27, 1986, Armco adopted a Shareholder Rights Plan designed to deter
coercive takeover tactics and to 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 July 7, 1986. Until the rights become
exercisable, common stock issued will also have one right attached. Each right
will entitle shareholders to buy one two-hundredth (a "unit") of a share of a
newly authorized Class A participating preferred stock of Armco at an exercise
price of $35. Each right or unit 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 $70. 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 own 30% or more of the common
stock. A total of 650,000 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 one cent per right at any time during a ten-day period
following public announcement that a 20% position in Armco has been acquired.
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, 1996.

DIVIDENDS

Under the terms of the amended credit agreement (Note 5), Armco cannot pay
cash dividends on its common stock. In addition, under the terms of indentures
for Armco's 11.375% Senior Notes due 1999 and 9.375% 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 expect to satisfy these tests
in the near future, and therefore, Armco does not expect to be able to pay a
common stock dividend or repurchase its capital stock. The payment of preferred
stock

<PAGE>

NOTES TO FINANCIAL STATEMENTS
49
- --------------------------------------------------------------------------------

dividends is prohibited if Armco is in default of the credit agreement.

As a result of the reduction in the par value of Armco's common stock,
$102.7 was transferred from Armco's stated capital account for its common stock
to Additional paid-in capital, increasing surplus from which Armco is permitted,
under Ohio law, to pay dividends on its common and preferred stock issues. Armco
is incorporated in Ohio. In addition, effective March 31, 1993, the corporate
statute of Ohio was amended to provide that Ohio corporations that recognize
immediately the full amount of their transition obligation under SFAS 106, as
Armco did, could increase the amount available for payment of dividends by
adding to the corporation's surplus at the time of the dividend the amount of
the difference between the reduction in the corporation's surplus that resulted
from the immediate recognition of the SFAS 106 transition obligation and the
amount of the transition obligation that would have been recognized at the time
of the dividend had the corporation elected to amortize its recognition of such
transition obligation. At December 31, 1993, the amount from which Armco is
permitted to pay dividends under this provision was $75.7.

The Board of Directors at its January 1994 meeting declared the regular
quarterly dividends payable on both series of Armco's Class A preferred stock
and on its Class B preferred stock.

8. COMMON STOCK OPTIONS

Armco shareholders adopted Common Stock Option Plans in 1977, 1983 and 1988.
In addition, stock options may also be granted under the 1993 Long Term
Incentive Plan. These plans provide generally for granting options to purchase
common stock for not less than 100% of the market price on the date the option
is granted. The 1977, 1983 and 1988 Plans have expired as to new grants. For
outstanding options containing stock appreciation rights, the excess of the
market price of the stock over the option price is accrued. Although they may
terminate earlier under certain conditions, stock options generally expire 10
years after they are granted. Options relating to 3,427,000 shares of stock were
available for granting at December 31, 1993 under the 1993 Long Term Incentive
Plan.

On April 24, 1992, stock options granted to Cyclops employees and directors
prior to the acquisition were converted into Armco stock options with the same
terms and conditions as the original grants. The Cyclops options provided for
purchase of common stock for not less than 100% of the market price on the date
the options were granted, and generally expire five years after the date of
grant. However, options converted for members of the Cyclops board of directors
expired on April 24, 1993.

The following is summarized information relating to Armco common stock
options:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Number Option Price
of Shares Per Share
===========================================================================================
<S> <C> <C>
Options outstanding December 31
1993 3,015,774 $3.24-19.38
1992 3,741,252 3.24-19.38
1991 3,451,500 4.13-21.38
Options exercisable December 31
1993 2,429,274 $3.24-19.38
1992 3,741,252 3.24-19.38
1991 2,842,100 5.94-21.38
Options exercised (including stock appreciation rights)
1993 717,398 $ 3.24-7.00
1992 119,580 3.24-5.94
1991 -- --
- -------------------------------------------------------------------------------------------
</TABLE>

9. SEGMENT INFORMATION

Armco's business segments include: (1) Specialty Flat-Rolled Steel, which
includes businesses that produce electrical and stainless steel sheet and strip,
and stainless steel plate for the industrial machinery and equipment,
automotive, construction and service center markets; and international trading
companies, that buy and sell steel and manufactured steel products; and (2)
Other Steel and Fabricated Products, which, at December 31, 1993, included
operations that produce carbon sheet and strip, and tubular products for the
industrial machinery, construction, agriculture and appliance markets, and a
manufacturer of snowplows for light trucks and utility vehicles. At various
times during the three-year period ended December 31, 1993, the Other Steel and
Fabricated Products segment also included other businesses which have since been
divested or identified for disposal (Note 10). Such businesses included
producers of stainless steel bar, rod and wire and high temperature superalloys,
and providers of nonresidential construction products and services, and steel
cutting, slitting, leveling, blanking and other services.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
50
- --------------------------------------------------------------------------------

Armco's industry segment information is as follows:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1993 1992 1991
======================================================================================
<S> <C> <C> <C>
CUSTOMER SALES:
Specialty Flat-Rolled Steel $1,001.5 $ 885.5 $ 693.0
Other Steel and Fabricated Products 662.5 787.7 511.0
- -------------------------------------------------------------------------------------
Total $1,664.0 $1,673.2 $1,204.0
- -------------------------------------------------------------------------------------
INTERSEGMENT SALES:/1/
Specialty Flat-Rolled Steel $ 11.1 $ 7.1 $ 5.4
Other Steel and Fabricated Products 52.0 2.9 7.4
- --------------------------------------------------------------------------------------
SPECIAL CHARGES -- NET:
Specialty Flat-Rolled Steel $ -- $ (37.6) $ --
Other Steel and Fabricated Products (165.5) (129.8) (48.7)
Corporate general -- (17.7) --
- --------------------------------------------------------------------------------------
Total $ (165.5) $ (185.1) $ (48.7)
- ---------------------------------------------------------------------------------------
OPERATING PROFIT (LOSS):/2/
Specialty Flat-Rolled Steel $ 75.5 $ 21.4 $ 42.3
Other Steel and Fabricated Products (183.5) (128.5) (19.4)
Corporate general (38.0) (50.2) (32.4)
- --------------------------------------------------------------------------------------
Total $ (146.0) $ (157.3) $ (9.5)
- --------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Specialty Flat-Rolled Steel $ 17.1 $ 34.1 $ 17.0
Other Steel and Fabricated Products 36.0 24.1 9.1
Corporate general 0.8 1.2 1.0
- --------------------------------------------------------------------------------------
Total $ 53.9 $ 59.4 $ 27.1
- --------------------------------------------------------------------------------------
DEPRECIATION AND LEASE-RIGHT AMORTIZATION:
Specialty Flat-Rolled Steel $ 30.1 $ 27.0 $ 19.7
Other Steel and Fabricated Products 21.0 17.2 11.8
Corporate general 2.1 2.5 2.4
- --------------------------------------------------------------------------------------
Total $ 53.2 $ 46.7 $ 33.9
- --------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Specialty Flat-Rolled Steel $ 614.3 $ 626.0 $ 370.3
Other Steel and Fabricated Products 380.9 570.9 331.7
Corporate general/3/ 812.4 400.4 772.3
Discontinued operations 97.1 272.6 290.7
- --------------------------------------------------------------------------------------
Total $1,904.7 $1,869.9 $1,765.0
- --------------------------------------------------------------------------------------
</TABLE>

/1/ Prices generally approximate market. Intersegment sales are eliminated in
consolidation. Sales between foreign and domestic companies are not
material.

/2/ Operating profit (loss) includes the effects of Special charges -- net. In
addition, in 1993 Armco adopted SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (Note 2). As a result, in 1993
Armco recognized additional employee benefit expenses of $20.1 and $7.6 in
the Specialty Flat-Rolled and Other Steel and Fabricated Products segments,
respectively.

/3/ Corporate general identifiable assets in 1993 includes, among other assets,
$174.3 of cash and liquid investments, $83.9 for the investment in National-
Oilwell, current and noncurrent deferred tax assets of $301.5 and goodwill
of $127.9.

10. SPECIAL CHARGES

In 1993, as part of its strategy to focus on specialty flat-rolled steel,
Armco sold the Brazilian operations and decided to exit a number of domestic
businesses and recorded special charges totaling $165.5. Of the total, $15.0
related to the sale of Armco do Brasil S.A. and the remainder was associated
with the ultimate disposal of a nonresidential construction business, a tubing
plant, the stainless bar, rod and wire businesses, and conversion systems
business. The total special charges include $61.2 for the excess of carrying
value of net assets over anticipated proceeds on disposal, $78.0 for employee
benefit costs, and $19.5 for estimated losses through the dates of disposal.
Other components of the charges were expenses related to provisions for legal
and environmental matters and recognition of previously deferred foreign
currency translation adjustments, partially offset by pension curtailment gains.

In 1992, Armco recorded special charges, totaling $185.1, associated with a
series of restructuring actions undertaken to reduce costs, improve
profitability and strengthen Armco's competitive position. These charges
included: $37.6 to close the Eastern Stainless Corporation melt shop and reduce
the salaried work force at Armco's Specialty Flat-Rolled Steel operations; $32.6
related to the sale of Armco's Venezuelan operations and closing a fabricating
plant in Heidelberg, Pennsylvania; and $101.4 to downsize plants in Baltimore,
Maryland and Bridgeville, Pennsylvania, and sell the Cytemp Specialty Steel
plant in Titusville, Pennsylvania. Armco also recognized a charge of $17.7 to
restructure corporate functions. Additional special charges -- net in the Other
Steel and Fabricated Products segment in 1992 included a $5.4 gain on the sale
of Southwestern Ohio Steel and SOS Leveling Co., Inc. and $1.2 to increase a
reserve for the planned divestment of VSX Corporation. These charges included
$114.0 for employee benefit costs related to the restructurings and $39.9 for
continuing losses and excess carrying value of net assets over the anticipated
proceeds on disposal, with the remainder comprised primarily of provisions for
legal and environmental matters and the recognition of previously deferred
foreign currency translation adjustments.

Special charges in 1991 included $13.8 associated with work force reductions
at the stainless bar, rod and wire business in Baltimore, Maryland, $5.2 for
costs related to the shutdown of a tubing plant in South America, a $1.7 charge
for costs associated with the divestment of VSX Corporation, $27.2 for net
losses and costs related to the planned divestment of certain businesses in
South America and $0.8 to close a trading company office.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
51
- --------------------------------------------------------------------------------

11. FOREIGN SUBSIDIARIES

Armco's foreign subsidiaries are on a fiscal year ending October 31. The
amounts presented here are for Armco's consolidated foreign subsidiaries, based
on financial statements for fiscal years ending in 1993, 1992 and 1991.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1993 1992 1991
====================================================================
<S> <C> <C> <C>
Net sales $122.9 $177.7 $228.0
Net income (loss) 14.8 9.3 (19.7)
Identifiable assets 27.5 156.0 127.4
- --------------------------------------------------------------------
</TABLE>

Included in the above amounts are the following related to Armco's South
American operations for the years 1993, 1992 and 1991: Net sales of $81.3,
$129.6 and $175.8; Net income (loss) of $14.4, $7.9 and $(22.1); and
Identifiable assets of $0.0, $123.2 and $88.2. The changes in 1993 were due
primarily to the sale of the Brazilian operation during 1993.

Foreign currency losses recognized in Sundry other -- net were $5.9 in 1993,
$11.6 in 1992 and $10.3 in 1991, primarily related to Armco's operations in
Brazil.

Foreign currency translation losses of $17.7 and $2.1 were realized in 1992
and 1991 as a result of the divestment of certain fabricating and processing
businesses in South America (Note 10) and are not included in the foreign
subsidiaries' amounts above.

12. COMMITMENTS AND CONTINGENCIES

First Taconite Company, a subsidiary of Armco, and a subsidiary of LTV
Corporation, each owned a 50% interest in the properties and assets of Reserve
Mining Company (Reserve Mining), a Minnesota partnership that produced taconite
iron ore pellets and which filed for reorganization under Chapter 11 in 1986. On
August 17, 1989, Cyprus Northshore Mining Corporation (Cyprus), a wholly owned
subsidiary of Cyprus Minerals Company, purchased the assets of Reserve Mining.
On that date, Armco and First Taconite Company entered into an agreement with
the state of Minnesota, the Reserve Mining Company bankruptcy trustee and
Cyprus, whereby Cyprus agreed to operate the facility and, upon the purchase by
Armco Steel Company, L.P. of certain quantities of iron ore pellets produced by
the facility, or upon an approved modification to a tailings disposal site
closure plan by the state as provided in the agreement, Cyprus agreed to assume
closure and perpetual maintenance obligations of the tailings disposal site.
Cyprus continues to operate the facility.

[PHOTOGRAPH OF GREG KARAVANICH APPEARS HERE]

"ALTHOUGH SOME FACILITIES HAD OUTSTANDING SAFETY RECORDS IN 1993, ARMCO'S
OVERALL RESULTS WERE DISAPPOINTING, IN PART DUE TO DISTRACTIONS RELATED TO THE
MERGER. WE ARE COMMITTED TO SIGNIFICANT IMPROVEMENT IN 1994, AND AN AGGRESSIVE
PLAN IS BEING IMPLEMENTED TOWARD THIS END. EXPERIENCE TELLS US THAT ESTABLISHING
LABOR/MANAGEMENT SAFETY COMMITTEES IN THE PLANTS CONTRIBUTES TO SUPERIOR
RESULTS, SO WE WILL CONTINUE TO STRESS THIS APPROACH IN 1994." -- GREG
KARAVANICH, DIRECTOR -- INDUSTRIAL RELATIONS & SAFETY

In connection with the formation of ASC (Note 14), ASC assumed and agreed to
satisfy and indemnify Armco against certain obligations and liabilities
including, among other things, environmental costs and obligations, employee
benefit obligations, and liabilities under certain long-term supply contracts
related to the transferred business and assets. Should ASC be unable to satisfy
its indemnification obligations to Armco, Armco could again be required to
discharge certain of such assumed obligations and liabilities, the amounts of
which could be material.

In 1990, Armco, through a subsidiary, formed North American Stainless, a
50%-owned joint venture partnership with Acerinox, S.A. of Spain to build and
operate a new chrome nickel stainless steel finishing facility in Carrollton,
Kentucky. In the fourth quarter of 1992, Armco provided a $7.4 letter of credit
to secure 50% of North American Stainless' annual debt service payment, which
letter of credit continues in effect.

Armco has entered into certain contracts, which mature over the next two
years, related to nickel, a commodity used in the production of stainless steel.
These contracts involve the cash settlement of the differential between the spot
price at maturity and the contract price. Gains and losses related to
outstanding contracts are recognized in income currently. Based on market values
at December 31, 1993, contracts with a nominal amount of $16.9 would require
Armco to pay $5.5.

Armco has committed to purchase property, plant and equipment (including
unexpended amounts relating to projects substantially under way) amounting to
approximately $39.9 at December 31, 1993.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
52
- --------------------------------------------------------------------------------

13. LITIGATION AND ENVIRONMENTAL MATTERS

There are various claims pending involving Armco and its subsidiaries
regarding product liability, patent, antitrust, environmental and hazardous
waste matters, reinsurance and insurance arrangements, and other matters arising
out of the conduct of Armco's business. In addition, Armco is involved with
various claims brought against Reserve Mining (Note 12). If the claimants are
successful in such claims, Armco could become liable for these nondebt
obligations in an amount that could be substantial. In Armco's opinion, based on
current facts and circumstances, the ultimate liability resulting from legal
claims against Armco at December 31, 1993, will not materially affect the
financial position or liquidity of Armco and its subsidiaries. However, it is
possible that due to fluctuations in Armco's results, future developments with
respect to such matters could have a material effect on the results of
operations of future interim or annual periods.

Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, certain analogous state laws and the federal Resource
Conservation and Recovery Act, past disposal of wastes, whether on-site or at
other locations, may result in the imposition of cleanup obligations by federal
or state regulatory authorities or other potentially responsible parties, even
when the wastes were disposed of in accordance with applicable laws and
requirements in existence at the time of the disposal. The federal government
has asserted that joint and several liability applies in hazardous waste
litigation and courts have held that, absent proof that damages are allocable or
subject to allocation, joint and several liability will be applied. Armco has
been named as a defendant, or identified as a potentially responsible party, in
various proceedings wherein the state or federal government seeks reimbursement
for, or compulsory cleanup of, hazardous waste sites. Armco has been required to
perform or fund such cleanup or participate in cleanup with others at a number
of sites at which its facilities disposed of wastes in the past and may, from
time to time, be required to remediate or join with others in the remediation of
other locations as these sites are identified by federal or state authorities.
Armco also is a party to various private lawsuits with respect to alleged
property damages and personal injury from waste disposal sites. In addition,
environmental exit costs with respect to Armco's ongoing businesses, which costs
it is Armco's policy not to accrue until a decision is made to dispose of a
property, may be incurred if Armco makes a decision to dispose of additional
properties. These costs include remediation and closure costs such as for
cleanup of soil contamination, closure of waste treatment facilities and
monitoring commitments. While Armco believes that the ultimate liability for the
environmental remediation matters identified to date, including the cleanup,
closure and monitoring of waste sites, will not materially affect its
consolidated financial condition or liquidity, the identification of additional
sites, increases in remediation costs with respect to identified sites, the
failure of other potentially responsible parties to contribute their share of
remediation costs, decisions to dispose of additional properties and other
changed circumstances may result in increased costs to Armco, which could have a
material effect on its financial condition, liquidity and results of operations.

At December 31, 1993, Armco had recorded $14.5 in Other accruals and $73.2
in Other liabilities for estimated probable costs relating to legal and
environmental matters.

14. ARMCO STEEL COMPANY, L. P.

Effective May 13, 1989, Armco sold certain assets and a portion of its
Eastern Steel Division's business to Kawasaki Steel Investments Inc. (KSI).
Simultaneously, KSI contributed the purchased assets and business and assumed
liabilities to a newly formed joint venture limited partnership called Armco
Steel Company, L.P. (ASC), receiving in exchange a 39.5% limited partnership
interest in ASC. Armco contributed substantially all of the remaining Eastern
Steel Division assets and business and liabilities to ASC in exchange for a
59.5% limited partnership interest. The other 1% partnership interest is held by
the general partner, AK Management Corporation, which, in turn, is owned 50%
each by subsidiaries of Kawasaki Steel Corporation and Armco.

Prior to forming the joint venture, KSI committed to make a series of
additional contributions to ASC, in consideration of which, over time, KSI's
partnership interest would increase and Armco's partnership interest would
decrease until each owned 49.5% of the joint venture. The partnership became an
equally owned joint venture on May 13, 1991; and in 1991, Armco recorded a gain
of $24.1, which primarily represented Armco's interest in the increase in the
net assets of ASC due to the KSI contributions partially offset by the decrease
in Armco's investment due to the ownership percentage change. Armco and Kawasaki
Steel Corporation, through subsidiaries, have equal control in operating the
limited partnership.

Armco accounts for its investment in ASC using the equity method. At
December 31, 1992, Armco's investment in ASC was $8.5. In 1992, Armco agreed to
contribute $10.0 to the joint venture to fund hot strip mill improvements, which
enhance ASC's ability to roll stainless steel for Armco. Of this total, $0.6 was
contributed in 1992. The remaining $9.4 effectively increased Armco's investment
in ASC to $17.9 during the first quarter of 1993. However, losses incurred
during the three months ended

<PAGE>

NOTES TO FINANCIAL STATEMENTS
53
- --------------------------------------------------------------------------------

March 31, 1993 reduced Armco's investment to zero, after which Armco stopped
recording losses related to the results of ASC. In the fourth quarter of 1993,
however, Armco recognized a $10.0 equity loss as a result of paying an
additional $10.0 to ASC to fund capital projects which will benefit stainless
steel rolling at ASC for Armco. Armco has no binding commitment or intention to
provide financial support to ASC's operations. Further, Armco does not expect to
recognize its equity in the income or losses of ASC in the foreseeable future.

ASC has begun implementing a proposed recapitalization plan, consisting of
the issuance of equity through an initial public offering and debt through a
senior note offering. Proceeds would be used to restructure and recapitalize the
business, primarily by reducing its debt and unfunded pension liability. Under
the terms of the plan, Armco's obligations to make certain cash payments to ASC
would be eliminated and Armco's ownership interest would be reduced to less than
one percent. Should the recapitalization plan be consummated, Armco expects to
recognize a gain of $38.5 related to the immediate recognition of deferred
pension curtailment gains and release from certain obligations for future cash
payments. In addition, Armco expects to recognize tax benefits related to this
transaction. Such benefits cannot yet be determined.

During 1993, 1992 and 1991, Armco and its subsidiaries were parties to
certain transactions with ASC. These transactions consisted of sales and
purchases of products and processing services, and charges to and from ASC for
various services performed. Transactions for administrative services approximate
each company's costs, and are reflected primarily in Selling and administrative
expenses. Sales of products and processing services are billed at prices which
approximate market. The following is a summary of such related party
transactions for the periods:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1993 1992 1991
==================================================================================
<S> <C> <C> <C>
SALES TO ASC:
Products, processing and conversion $25.9 $17.3 $12.6
Research and engineering services 4.0 9.8 11.6
Administrative services 0.4 0.2 0.6
- -----------------------------------------------------------------------------------
Total $30.3 $27.3 $24.8
- -----------------------------------------------------------------------------------
PURCHASES FROM ASC:
Products, processing and conversion $45.1 $77.2 $87.5
Administrative services 2.1 4.1 6.6
- -----------------------------------------------------------------------------------
Total $47.2 $81.3 $94.1
- -----------------------------------------------------------------------------------
</TABLE>

The formation agreement included provisions which required Armco to make
payments to ASC in the years 1991 through 1994. Such payments, which included
additional capital contributions and payments related to certain employee
benefit and environmental matters, did not affect Armco's ownership percentage.
In 1992, Armco contributed $7.4 as the final capital contribution and made
certain other payments totaling $1.1 as required by the formation agreement. In
1991, Armco made payments totaling $18.1 as scheduled for the year. In addition,
Armco accelerated certain payments to ASC related to environmental costs and
expenses. Future payments totaling $12.0 were satisfied by a payment of $10.6 in
the fourth quarter 1991.

During 1992, Armco sold the assets of Southwestern Ohio Steel and SOS
Leveling Co., Inc. to Southwestern Ohio Steel, L.P., a newly formed joint
venture. Armco received $33.2 in cash in connection with the transaction in
addition to a 25% interest in the new joint venture, that was concurrently
contributed to ASC. Upon completion of the transaction, Southwestern Ohio Steel,
L.P. was equally owned by ITOCHU International Inc. (formerly, C. Itoh & Co.
(America) Inc.) and ASC.

At December 31, 1993 and 1992, Armco had included in its Statement of
Consolidated Financial Position the following for amounts related to ASC:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1993 1992
=======================================================================
<S> <C> <C>
Other receivables $ 3.2 $ 2.1
Accounts payable -- Other 3.5 2.2
Current employee benefit obligations 0.4 0.4
Long-term employee benefit obligations 16.1 16.1
- -----------------------------------------------------------------------
</TABLE>

The following is summarized financial information for ASC at December 31,
1993, 1992 and 1991, and for the years then ended. Armco's proportionate share
of such amounts is included in the equity investment schedule in Note 1. Amounts
have been restated to reflect ASC's adoption, in the fourth quarter of 1993, of
SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
retroactively effective to January 1, 1990, in connection with the proposed
initial public offering. At January 1, 1990, ASC recognized a charge of $491.6
for the cumulative effect of adopting SFAS 106.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
54
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1993 1992 1991
=================================================================================
<S> <C> <C> <C>
Current assets $ 554.0 $ 417.4 $ 467.7
Noncurrent assets 964.7 1,007.6 1,165.1
Current liabilities 496.1 432.3 391.6
Noncurrent liabilities 1,606.8 1,442.4 1,167.9
Net sales 1,594.5 1,404.5 1,301.4
Gross profit 216.2 85.9 (2.0)
Special charges (19.6) (379.3) --
Operating profit (loss) 13.9 (499.3) (219.0)
Loss before extraordinary loss (40.7) (532.0) (251.1)
Net loss (40.7) (544.1) (251.1)
- ---------------------------------------------------------------------------------
</TABLE>

In the fourth quarter of 1993, ASC recorded special charges totaling $19.6
for the disposal and write-off of certain steelmaking assets, employee and
retiree benefits including pensions and to increase legal reserves. Because
Armco is not currently recognizing its equity in ASC's results, these special
charges had no current effect on Armco's net loss.

During 1992, ASC recognized special charges totaling $379.3 for costs
associated with rationalization of its operations, including $119.5 for disposal
of assets, $158.2 for employee and retiree benefits, $39.0 for reduction in
salaried work force and $46.6 to impair its investment in an equity joint
venture. In addition, ASC recorded an extraordinary charge of $12.1 to establish
an estimated liability for retiree benefits under the Coal Industry Retiree
Health Benefit Act, signed into law during the year. These actions resulted in
an increase to Armco's Equity in loss of Armco Steel Company, L.P. of $167.1 and
a charge in Extraordinary losses of $6.1.

ASC has outstanding revolving credit and other financing agreements with a
number of lending institutions. Effective as of December 31, 1992, ASC's various
lenders consented to the amendment of the revolving credit agreements, as well
as a capital projects financing agreement and other ASC debt instruments, to
provide that the obligations under these agreements and instruments would be
secured by a pledge of substantially all of ASC's assets and to revise the
covenants.

In January 1994, ASC's various lenders agreed to amendments to the revolving
credit and long-term debt agreements to revise certain financial covenants
effective as of December 31, 1993. ASC is required to maintain as of December
31, 1993, a minimum tangible net worth of $650.0, a minimum current ratio of 1.0
and a maximum leverage ratio of 1.0, as defined in the agreements. At December
31, 1993, the actual measures under these financial covenants were a tangible
net worth of $742.1, a current ratio of 1.76 and a leverage ratio of 0.85.

With plants in Middletown, Ohio and Ashland, Kentucky, ASC concentrates on
the production of custom engineered grades and value-added applications of hot-
rolled steel and coated and uncoated cold-rolled steel for sale to the
automotive, appliance and manufacturing markets, as well as to the construction
industry and independent steel distributors and service centers.

15. OTHER EQUITY COMPANIES

NATIONAL-OILWELL

Effective April 1, 1987, Armco exchanged the business and certain net assets
of its oil field business for a 50% interest in a joint venture (National-
Oilwell) owned by subsidiaries of Armco and USX Corporation (USX). USX also
transferred its oil field equipment and services operation to the joint venture.

Armco's equity loss in the joint venture for 1993 included a fourth quarter
charge of $5.0 for its portion of the loss on the sale of the company's wellhead
business that was completed in the first quarter of 1994. Armco's equity losses
in 1992 and 1991 included $3.3 and $12.3, respectively, for its portion of the
charges recorded for the shut down and rationalization of certain of National-
Oilwell's manufacturing facilities.

At December 31, 1993, National-Oilwell had outstanding $7.0 of a note
payable and accrued interest due to AFSG.

During 1992, National-Oilwell adopted SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, and SFAS 109, Accounting for Income
Taxes. The net effect of adoption of these two standards on Armco's equity in
the losses of National-Oilwell was to reduce the 1992 loss by $0.3.

Armco received distributions from National-Oilwell totaling $16.0 in 1991.

National-Oilwell sells oil field tubular pipe, and produces and sells
drilling and production equipment, and process pumps used in the world's oil and
gas services industry.

NORTH AMERICAN STAINLESS

North American Stainless (NAS) is a 50%-owned joint venture partnership
between subsidiaries of Armco and Acerinox, S.A. of Spain, established to own
and operate a greenfield chrome nickel stainless finishing facility in
Carrollton, Kentucky. This facility was completed in December 1992 and began
shipping customer product in mid-1993. NAS purchases, at market prices, a
portion of its steel requirements from Armco's Butler, Pennsylvania plant, which
is in the Specialty Flat-Rolled Steel segment.

During 1993, NAS had sales of $56.5, an operating loss of $8.0 and a net
loss of $12.8. Armco's equity loss in the year from NAS was $6.4.

As a partnership, NAS maintains its own cash, credit lines and long-term
debt, and funds its own operations, liabilities and capital expenditures,
separate from the partners. NAS is partially financed by long-term debt and
credit agreements established with a number of banks and other lending
institutions. These agreements contain covenants which require NAS to maintain
certain minimum net worth

<PAGE>

NOTES TO FINANCIAL STATEMENTS
55
- --------------------------------------------------------------------------------

and ratio tests. At December 31, 1993, NAS was in default on certain of its
covenant requirements. Discussions designed to reach agreement on a cure for
this default situation have begun, and Armco believes that an acceptable
resolution will be reached, and that such resolution will not have a material
adverse impact on Armco. Armco is restricted by its own credit facilities as to
the amount of contributions it can make to its joint venture partnerships.

In the fourth quarter of 1993, NAS borrowed $4.0 each from Acerinox and AFSG
to fund its operations and meet other debt payment requirements. In 1993, Armco
and Acerinox each contributed $3.0 to NAS.

Armco's 1993 Net sales on the Statement of Consolidated Operations included
$37.0 of product sales to NAS, and at December 31, 1993, Trade receivables on
the Statement of Consolidated Financial Position included $16.1 from NAS.

16. SUBSIDIARY CAPITAL STOCK

Armco owns all of the Class A common stock of Eastern Stainless Corporation
(Eastern Stainless), representing 84% of the outstanding voting rights. Eastern
Stainless Class B common stock, which is publicly traded, has the remaining
voting rights.

Dividends on Eastern Stainless' redeemable Class B common stock, of which
12,532,701 shares are authorized, issued and outstanding, are cumulative from
the effective date of issue at the fixed rate of $.08 per share per annum, and
are payable annually. In addition to the fixed rate dividends, Class B common
shareholders are entitled to participating dividends. These participating
dividends are equal to the excess of 8 1/4% of Eastern Stainless' cumulative
income (as defined in Eastern Stainless' amended Articles of Incorporation) over
the total fixed dividends paid from the date of issuance to the end of the
fiscal quarter immediately preceding the redemption date. The participating
dividend, if any, is payable on the redemption date. As of December 31, 1993, no
amounts had accrued under the participating dividend provision.

Beginning May 1, 1993, to the extent funds are legally available, Eastern
Stainless may redeem, in whole or in part, the outstanding shares at a
redemption price equal to $1 per share plus accrued and unpaid fixed and
participating dividends. Beginning May 1, 1996 and on each anniversary
thereafter through 2003, to the extent funds are legally available, Eastern
Stainless is required to redeem 1,587,417 shares, or the aggregate number of
shares outstanding if less, at the redemption price. The carrying value of the
shares, which includes the unpaid fixed and participating dividends, is
periodically increased through charges to operations which yield an effective
rate of 13.9%, based upon the fixed dividend, and will become due under the
mandatory redemption requirements. Holders of the stock are entitled to one vote
per share, which represents approximately 16% of the voting shares, with respect
to matters concerning Eastern Stainless.

The payment of dividends on, or the redemption of, Eastern Stainless' Class
A common shares and its Class B common shares is subject to certain covenants
contained in agreements entered into by Eastern Stainless or Armco. In the event
of any liquidation or dissolution of Eastern Stainless, voluntary or
involuntary, the holders of the Class B common stock are entitled to be paid out
of Eastern Stainless' assets an amount in cash equal to $1 per share plus
accrued and unpaid fixed and participating dividends before any distribution to
Armco.

17. WORLDWIDE GRINDING SYSTEMS -- DISCONTINUED OPERATIONS

Armco's Worldwide Grinding Systems segment consisted of foreign and domestic
businesses that produced grinding balls and rods, abrasion-resistant castings,
liners, process control systems and carbon wire rods. Armco also participated in
grinding system and wire rod joint ventures in the United States and certain
foreign countries through this segment.

On September 28, 1993, Armco completed the sale of a 50% joint venture
interest in several wire-drawing operations and received $33.0 in net cash
proceeds. On November 11, 1993, Armco sold the remaining businesses in this
segment for approximately $80.0, excluding pending post-closing adjustments, and
accordingly, the results of this segment are reported as discontinued
operations. Armco recorded a $40.0 charge for losses and expenses associated
with the decision to dispose of this segment, including $5.8 to recognize
previously unrealized foreign translation losses.

Net sales for the segment were $300.7 in the nine months ended September 30,
1993, and $400.4 and $391.3 in 1992 and 1991, respectively. These amounts are
not included in Armco's consolidated net sales. Income from these discontinued
operations in 1992 included a charge of $19.1 to close unprofitable European
foundry operations and reduce salaried work force at the Worldwide Grinding
Systems plant in Kansas City, Missouri.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
56
- --------------------------------------------------------------------------------

18. QUARTERLY INFORMATION (UNAUDITED)

The following is quarterly information for Armco for 1993 and 1992:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1993 Year 4 Q 3 Q 2 Q 1 Q
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ 1,664.0 $ 363.5 $ 419.8 $ 454.1 $ 426.6
Cost of products sold (1,519.5) (341.7) (385.0) (405.6) (387.2)
Special charges -- net/1/ (165.5) -- (165.5) -- --
Income (loss) from discontinued
operations (70.8) (45.0) (35.0) 10.1 (0.9)
Income (loss) before extraordinary losses
and accounting changes (327.0) (90.7) (223.0) 8.7 (22.0)
Extraordinary losses (7.3) (7.3) -- -- --
Cumulative effect of accounting
changes (307.5) -- -- -- (307.5)
Net income (loss) (641.8) (98.0) (223.0) 8.7 (329.5)
Per share:
Income (loss) before extraordinary losses
and accounting changes (3.32) (0.92) (2.19) 0.04 (0.25)
Extraordinary losses (0.07) (0.07) -- -- --
Cumulative effect of accounting
changes (2.96) -- -- -- (2.97)
Net income (loss) (6.35) (0.99) (2.19) 0.04 (3.22)
- ---------------------------------------------------------------------------------------------------------------

<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1992 Year 4 Q 3 Q 2 Q 1 Q
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ 1,673.2 $ 464.0 $ 497.0 $ 443.2 $ 269.0
Cost of products sold (1,509.8) (424.8) (454.3) (394.3) (236.4)
Special charges -- net/1/ (185.1) (168.9) 5.4 (21.6) --
Income (loss) before
extraordinary losses (421.5) (368.3) (25.2) 2.5 (30.5)
Extraordinary losses (8.4) (8.4) -- -- --
Net income (loss) (429.9) (376.7) (25.2) 2.5 (30.5)
Per share:
Income (loss) before
extraordinary losses (4.37) (3.60) (0.26) 0.01 (0.37)
Extraordinary losses (0.08) (0.08) -- -- --
Net income (loss) (4.45) (3.68) (0.26) 0.01 (0.37)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

/1/ See Note 10.

Quarterly information has been restated to reflect the reclassification of the
AFSG companies to be sold and Worldwide Grinding Systems to discontinued
operations. (Notes 3 and 17)

The first quarter of 1993 includes the cumulative effect of adoption of three
accounting standards. SFAS 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions and SFAS 109, Accounting for Income Taxes were both
adopted in the first quarter. SFAS 106 resulted in a net of tax charge of $440.0
or $4.24 per share, and SFAS 109 resulted in a credit of $135.6 or $1.31 per
share in the cumulative effect of accounting changes. SFAS 112, Employers'
Accounting for Postemployment Benefits, was adopted in the fourth quarter of
1993, retroactive to the first quarter. The cumulative effect of SFAS 112 was a
charge of $3.1 or $.03 per share.

In the fourth quarter of 1993 and 1992, Armco recognized extraordinary losses
related to the early retirement of debt of $7.3 and $2.3 or $.07 and $.02 per
share, respectively. In the fourth quarter of 1992, Armco also recognized an
extraordinary loss of $6.1 or $.06 per share as its portion of an ASC equity
loss to establish an estimated liability for retiree benefits under the Coal
Industry Retiree Health Benefit Act.

<PAGE>

57
- --------------------------------------------------------------------------------

PRICE RANGE AND DIVIDENDS OF ARMCO STOCK (UNAUDITED)

TITLE: PRICE RANGE AND DIVIDENDS OF ARMCO STOCK (UNAUDITED)

COMMON STOCK
1992 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $6-5/8 $7-3/8 $7-1/2 $6-3/4
LOW $4-1/4 $5-1/4 $5-3/4 $5

1993 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $8-3/8 $8 $7-1/2 $6-3/8
LOW $6 $6-5/8 $6 $4-7/8

PREFERRED STOCK
Class A $2.10
1992 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $21-1/2 $24-1/2 $25 $23
LOW $19 $19-3/4 $22-3/4 $19-1/2
Dividend per share .525 .525 .525 .525

1993 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $27-1/2 $26-5/8 $26-7/8 $25-7/8
LOW $21 $24-1/8 $25-3/8 $23-5/8
Dividend per share .525 .525 .525 .525

Class A $3.625 (Issued 10/8/92)*
1992 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $56-1/2
LOW $48-1/2
Dividend per share .83576*

1993 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $65-1/4 $65-1/4 $61 $56-3/4
LOW $55-1/4 $58-3/8 $55-1/4 $51
Dividend per share .90625 .90625 .90625 .90625

Class B $4.50
1992 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $39-1/4 $44-1/2 $46 $43-1/2
LOW $32-1/2 $36-7/8 $41-7/8 $37-3/4
Dividend per share 1.125 1.125 1.125 1.125

1993 Price per share 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
HIGH $49-1/2 $49-7/8 $50-3/4 $50-3/4
LOW $42-1/8 $47-3/4 $49-1/8 $49
Dividend per share 1.125 1.125 1.125 1.125

On December 31, 1993, shareholders of record of Armco's common stock numbered
32,665.

<PAGE>

Dividend checks for Armco's cumulative convertible preferred stock are
mailed to arrive on or about the last business day of the following months:
<TABLE>
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $2.10 $0.525 per share/qtr. Mar., Jun., Sept., Dec.
Class A $3.625 $0.90625 per share/qtr. Mar., Jun., Sept., Dec.
Class B $4.50 $1.125 per share/qtr. Mar., Jun., Sept., Dec.
- --------------------------------------------------------------------------------------
</TABLE>

<PAGE>

Graphic Appendix List

1993 Annual Report Charts

PAGE: 19
TITLE: ARMCO INC. -- 1993 SALES

% BY PRODUCTS
Stainless Sheet and Strip 30%
Electrical Steel 15%
Semi-Finished 8%
Stainless Plate 7%
Carbon Sheet and Strip 18%
Pipe and Tubing 15%
Other 7%

% BY MARKETS
Industrial and Electrical Equipment 30%
Service Centers 26%
Automotive 18%
Construction 13%
Appliance, Utensils and Cutlery 2%
Other 11%

PAGE: 20 (first column)
TITLE: STAINLESS STEEL SHEET AND STRIP CONSUMPTION

Apparent Consumption (Tons in Thousands)
1988 1,133
1989 1,060
1990 1,064
1991 1,047
1992 1,188
1993 1,366

Import Penetration
1988 11.9%
1989 13.7%
1990 15.3%
1991 16.1%
1992 16.1%
1993 25.2%
<PAGE>

PAGE: 20 (second column)
TITLE: ARMCO INC. -- SPECIALTY STEEL MARKET SHARE

STAINLESS SHEET AND STRIP
Armco 25%
Allegheny-Ludlum 26%
J&L Specialty Products 16%
Washington Steel/Lukens 8%
Imports 25%

ELECTRICAL STEEL
Armco 42%
Allegheny-Ludlum 20%
Warren Consolidated Industries 16%
Imports 22%

STAINLESS PLATE
Armco 18%
Allegheny-Ludlum 31%
J&L Specialty Products 11%
Washington Steel/Lukens 9%
Avesta 8%
Other 7%
Imports 16%

PAGE: 22 (second column)
TITLE: SPECIALTY FLAT-ROLLED STEEL -- 1993 SALES

% BY PRODUCTS
Stainless Sheet and Strip 51%
Electrical 24%
Semi-Finished Stainless 14%
Stainless Plate 11%

% BY MARKETS
Industrial and Electrical Equipment 40%
Automotive 27%
Service Centers 20%
Construction 3%
Appliance, Utensils and Cutlery 3%
Other 7%
<PAGE>

PAGE: 23 (first column)
TITLE: BUTLER PLANT ON-TIME SHIPMENT PERFORMANCE
1993 PERCENT ON-TIME (BY ORDERS)

1st QTR 80%
2nd QTR 79%
3rd QTR 90%
4th QTR 93%

PAGE: 23 (second column)
TITLE: COSHOCTON STAINLESS DIVISION COST OF QUALITY

% of Sales
1989 18.8%
1990 18.1%
1991 18.7%
1992 18.5%
1993 13.2%

PAGE: 24 (second column)
TITLE: OTHER STEEL & FABRICATED PRODUCTS -- 1993 SALES

% BY PRODUCTS
Carbon Sheet and Strip 46%
Pipe and Tubing 37%
Construction 5%
Other 12%

% BY MARKETS
Service Centers 35%
Construction 27%
Industrial and Electrical Equipment 15%
Aircraft and Aerospace 5%
Automotive 4%
Other 14%
<PAGE>

PAGE: 57
TITLE: PRICE RANGE AND DIVIDENDS OF ARMCO STOCK (UNAUDITED)